<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 29, 1998
FILE NO. 33-42484
FILE NO. 811-6400
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933
POST-EFFECTIVE AMENDMENT NO. 34 /X/
AND
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940
AMENDMENT NO. 35 /X/
THE ADVISORS' INNER CIRCLE FUND
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
2 OLIVER STREET
BOSTON, MASSACHUSETTS 02109
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES, ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (800) 932-7781
MARK E. NAGLE
C/O SEI CORPORATION
OAKS, PENNSYLVANIA 19456
(NAME AND ADDRESS OF AGENT FOR SERVICE)
COPIES TO:
RICHARD W. GRANT, ESQUIRE
JOHN H. GRADY, ESQUIRE
MORGAN, LEWIS & BOCKIUS LLP
1701 MARKET STREET
PHILADELPHIA, PENNSYLVANIA 19103
------------------------
It is proposed that this filing become effective (check appropriate box)
<TABLE>
<C> <S>
/ / immediately upon filing pursuant to paragraph (b)
/ / on [date] pursuant to paragraph (b)
/X/ 60 days after filing pursuant to paragraph (a)
/ / 75 days after filing pursuant to paragraph (a)
/ / on [date] pursuant to paragraph (a) of Rule 485.
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
Class A Shares
PROSPECTUS
MARCH 1, 1999
AIG MONEY MARKET FUND
INVESTMENT ADVISER: AIG CAPITAL MANAGEMENT CORP.
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED ANY FUND SHARES
OR DETERMINED WHETHER THIS PROSPECTUS IS ACCURATE OR COMPLETE.
IT IS A CRIME FOR ANYONE TO TELL YOU OTHERWISE.
Page 1 of 16
<PAGE>
HOW TO READ THIS PROSPECTUS
This prospectus gives you important information about the Class A Shares of the
AIG Money Market Fund (Fund) that you should know before investing. Please read
this prospectus and keep it for future reference. This prospectus has been
arranged into different sections so that you can easily review this important
information. On the next page, there is some general information you should
know about the Fund.
FOR MORE DETAILED INFORMATION ABOUT THE FUND, PLEASE SEE:
<TABLE>
<CAPTION>
PAGE
<S> <C>
PRINCIPAL INVESTMENT STRATEGIES AND RISKS,
PERFORMANCE INFORMATION AND EXPENSES XXX
MORE INFORMATION ABOUT RISK XXX
THE FUND'S OTHER INVESTMENTS XXX
THE INVESTMENT ADVISER XXX
PURCHASING, SELLING AND EXCHANGING FUND SHARES XXX
DIVIDENDS, DISTRIBUTIONS AND TAXES XXX
FINANCIAL HIGHLIGHTS XXX
HOW FUND SHARES ARE DISTRIBUTED XXX
HOW TO OBTAIN MORE INFORMATION ABOUT THE
AIG MONEY MARKET FUND XXX
</TABLE>
Page 2 of 16
<PAGE>
Introduction
The Fund is a mutual fund. A mutual fund pools shareholders' money and, using
professional investment managers, invests it in securities.
The Fund has its own investment goal and strategies for reaching that goal. The
Adviser invests Fund assets in a way that the Adviser believes will help the
Fund achieve its goal. Still, investing in the Fund involves risk and there is
no guarantee that the Fund will achieve its goal. The Adviser's judgments about
the markets, the economy, or companies may not anticipate actual market
movements, economic conditions or company performance, and these judgments may
affect the return on your investment. In fact, no matter how good a job the
Adviser does, you could lose money on your investment in the Fund, just as you
could with other investments. A Fund share is not a bank deposit and it is not
insured or guaranteed by the FDIC or any government agency.
THE AIG MONEY MARKET FUND TRIES TO MAINTAIN A CONSTANT PRICE PER SHARE
OF $1.00, BUT THERE IS NO GUARANTEE THAT THE FUND WILL ACHIEVE THIS GOAL.
Page 3 of 16
<PAGE>
AIG Money Market Fund
Fund Summary
Investment Goal Preserve principal value and maintain
a high degree of liquidity while
providing current income and a stable
share price of $1.
Investment Focus Money market instruments.
Share Price Volatility Very low.
Principal Investment Strategy Investing in a broad range of short-
term, high quality U.S. dollar
denominated debt securities.
Investor Profile Conservative investors who want to
receive current income through a
liquid investment.
INVESTMENT STRATEGY OF THE AIG MONEY MARKET FUND
The Fund invests in a broad range of high quality, short-term U.S. dollar
denominated money market instruments, such as obligations of the U.S. Treasury;
agencies and instrumentalities of the U.S. government; domestic and foreign
banks; domestic and foreign corporate issuers; supranational entities; and
foreign governments; as well as repurchase agreements. The Fund's portfolio is
comprised only of short-term debt securities that are rated in the highest
category by nationally recognized ratings organizations or securities that the
Adviser determines are of equal quality. The Fund may concentrate its
investments (invest more than 25% of its assets) in obligations issued by
domestic branches of U.S. banks or U.S. branches of foreign banks that are
subject to similar regulations as U.S. banks. The Fund will maintain an average
weighted maturity of 90 days or less, and will only acquire securities that have
a remaining maturity of 397 days or less.
PRINCIPAL RISKS OF INVESTING IN THE AIG MONEY MARKET FUND
An investment in the Fund is subject to income risk, which is the possibility
that the Fund's yield will decline due to falling interest rates. A Fund share
is not a bank deposit and is not insured or guaranteed by the FDIC or any
government agency. In addition, although a money market fund seeks to keep a
constant price per share of $1.00, you may lose money by investing in the Fund.
Page 4 of 16
<PAGE>
An investment in the Fund is also subject, to a limited extent, to credit risk,
which is the possibility that the issuer of a security owned by the Fund will be
unable to repay interest and principal in a timely manner. AIG Capital
Management Corp., the Fund's investment adviser (Adviser), attempts to lessen
this risk through a conservative investment policy for the Fund, which includes
diversification (spreading Fund investments across a broad number of issuers),
and investing in obligations of high credit quality issuers.
Performance Information
The bar chart and the performance table below illustrate the risks and
volatility of an investment in the Fund. Of course, the Fund's past performance
does not necessarily indicate how the Fund will perform in the future.
This bar chart shows changes in the performance of the Fund's Class a Shares.
THIS TABLE COMPARES THE FUND'S AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS
ENDING DECEMBER 31, 1998 TO THOSE OF THE IBC FIRST TIER AVERAGE.
<TABLE>
<CAPTION>
SINCE
CLASS A SHARES 1 YEAR 3 YEARS INCEPTION
---------------------------------------------------------------
<S> <C> <C> <C>
AIG Money Market Fund X.XX% X.XX% X.XX%
---------------------------------------------------------------
IBC First Tier Average X.XX% X.XX% X.XX%
</TABLE>
WHAT IS AN INDEX?
An index measures the market prices of a specific group of securities in a
particular market or securities in a market sector. You cannot invest directly
in an index. Unlike a mutual fund, an index does not have an investment adviser
and does not pay any commissions or expenses. If an index had expenses, its
performance would be lower.
The IBC First Tier Average is a widely-recognized index of money market
securities rated Prime-1 by Moody's or A-1 by S&P.
FUND FEES AND EXPENSES
EVERY MUTUAL FUND HAS OPERATING EXPENSES TO PAY FOR SERVICES SUCH AS
PROFESSIONAL ADVISORY, SHAREHOLDER, DISTRIBUTION, ADMINISTRATION AND CUSTODY
SERVICES AND OTHER COSTS OF DOING BUSINESS. THIS TABLE DESCRIBES THE HIGHEST
FEES AND EXPENSES THAT YOU MAY PAY INDIRECTLY IF YOU HOLD SHARES OF THE FUND.
Page 5 of 16
<PAGE>
ANNUAL FUND OPERATING EXPENSES
<TABLE>
<CAPTION>
CLASS A SHARES
---------------------------------------------------------------
<S> <C>
Investment Advisory Fees .XX%
---------------------------------------------------------------
Other Expenses .XX%
---------------------------------------------------------------
Total Annual Fund Operating Expenses X.XX%
</TABLE>
The table shows the highest expenses that could be currently charged to the
Fund. Actual expenses are lower because the Adviser is voluntarily waiving a
portion of its fees so that Total Operating Expenses do not exceed 0.75%.
Actual Investment Advisory Fees and Total Operating Expenses are [ %] and
[ %], respectively. The Adviser could discontinue this voluntary waiver at
any time. For more information about these fees, see "Investment Adviser."
EXAMPLE
This Example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. The Example assumes that you
invest $10,000 in the Fund for the time periods indicated and that you sell your
shares at the end of the period.
The Example also assumes that each year your investment has a 5% return and Fund
expenses remain the same. Although your actual costs and returns might be
different, your approximate costs of investing $10,000 in the Fund would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
-------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A Shares $XXX $XXX $XXX $XXX
</TABLE>
Page 6 of 16
<PAGE>
More Information About Risk
YEAR 2000 RISK - The Fund depends on the smooth functioning of computer systems
in almost every aspect of their business. Like other mutual funds, businesses
and individuals around the world, the Fund could be adversely affected if the
computer systems used by its service providers do not properly process dates on
and after January 1, 2000, and distinguish between the year 2000 and the year
1900. The Fund has asked its service providers whether they expect to have its
computer systems adjusted for the year 2000 transition, and is seeking
assurances from each service provider that they are devoting significant
resources to prevent material adverse consequences to the Fund. While it is
likely that such assurances will be obtained, the Fund and its shareholders may
experience losses if these assurances prove to be incorrect or as a result of
year 2000 computer difficulties experienced by issuers of portfolio securities
or third parties, such as custodians, banks, broker-dealers or others with which
the Fund does business.
THE FUND'S OTHER INVESTMENTS
In addition to the investments and strategies described in this prospectus, the
Fund also may invest in other securities, use other strategies and engage in
other investment practices, which are described in detail in our Statement of
Additional Information. Of course, we cannot guarantee that the Fund will
achieve its investment goal.
Page 7 of 16
<PAGE>
INVESTMENT ADVISER
The Investment Adviser makes investment decisions for the Fund and continuously
reviews, supervises and administers the Fund's investment program. The Board of
Trustees supervises the Adviser and establishes policies that the Adviser must
follow in its management activities. The Fund is managed by a team of
investment professionals from the Adviser. No one person is primarily
responsible for making investment recommendations to the team.
AIG Capital Management Corp. is a wholly-owned subsidiary of American
International Group, Inc. (AIG) and serves as the Adviser to the Fund. For the
fiscal period ended October 31, 1998, AIG Capital Management Corp. received
advisory fees of:
AIG MONEY MARKET
FUND _____%
The Adviser may use its affiliates as brokers for Fund transactions.
Page 8 of 16
<PAGE>
PURCHASING FUND SHARES
HOW TO PURCHASE FUND SHARES
Class A Shares are offered solely to institutional investors acting for
themselves or in a fiduciary, advisory, agency, custodial or similar capacity on
behalf of someone else. Eligible investors must maintain a minimum account
balance of $10,000,000 (or open an account with at least $5,000,000 if
additional investments will be made to meet the minimum requirement within three
months. The account minimum does not apply to the following categories:
- - investors that have assets managed by a registered investment adviser that
is wholly-owned by AIG;
- - AIG and any company where AIG owns more than 19% of the voting stock;
- - C.V. Starr & Co., Inc. and its subsidiaries and affilliates; or
- - senior executive officers of AIG and their families.
You may purchase shares on any day that the New York Stock Exchange and the
Federal Reserve are open for business (a Business Day). Shares can not be
purchased by Federal Reserve Wire on days when either the New York Stock
Exchange or the Federal Reserve is closed.
Eligible investors may purchase shares by wire directly from us by calling
1-800-845-3885 for an account number and wiring instructions. To purchase
shares by mail, complete the attached application and enclose your check,
payable in U.S. dollars, to "AIG Money Market Fund -- Class A Shares." We
cannot accept third-party checks, credit cards, credit card checks or cash. We
may reject any purchase order if we determine that accepting the order would not
be in the best interests of the Fund or its shareholders.
The price per share (the offering price) will be the net asset value per share
(NAV) next determined after we receive your purchase order. We expect that the
NAV of the Fund will remain constant at $1.00 per share.
We calculate the Fund's NAV once each Business Day at 2:00 p.m. Eastern time.
So, for you to be eligible to receive dividends declared on the day you submit
your purchase order, generally we must receive your order before 1:00 p.m.
Eastern time and federal funds (readily available funds) before 3:00 p.m.
Eastern time.
Certain investors who deal with a financial institution or financial
intermediary will have to follow the institution's or intermediary's procedures
for transacting with the Fund. If you purchase or sell Fund shares through a
financial institution (rather than directly from us), you may have to transmit
your purchase and sale requests to your financial institution at an earlier time
for
Page 9 of 16
<PAGE>
your transaction to become effective that day. This allows the financial
institution time to process your request and transmit it to us. For more
information about how to purchase or sell1 Fund shares through your financial
institution, you should contact your financial institution directly.
How We Calculate NAV
NAV for one Fund share is the value of that share's portion of all of the assets
in the Fund.
In calculating NAV for the Fund, we generally value the Fund's investment Fund
using the amortized cost valuation method, which is described in detail in our
Statement of Additional Information. If we think that this method is unreliable
during certain market conditions or for other reasons, fair value prices may be
determined in good faith using methods approved by the Board of Trustees.
Minimum Purchases
To purchase shares for the first time, you must invest at least $10,000,000 in
the Fund.
We may accept investments of smaller amounts at our discretion.
Page 10 of 16
<PAGE>
SELLING FUND SHARES
HOW TO SELL YOUR FUND SHARES
You may sell (sometimes called "redeem") your shares on any Business Day by
contacting us directly by mail or telephone.
If you would like to close your account or have your sale proceeds sent to a
third-party or an address other than your own, please notify us in writing and
include a signature guarantee (a notarized signature is not sufficient).
The sale price of each share will be the next NAV determined after we receive
your request.
Receiving Your Money
Normally, we will send your sale proceeds to you within seven Business Days
after we receive your request. Your proceeds can be wired to your bank account
(subject to a $10.00 fee) or sent to you by check. IF YOU RECENTLY PURCHASED
YOUR SHARES BY CHECK, REDEMPTION PROCEEDS MAY NOT BE AVAILABLE UNTIL YOUR CHECK
HAS CLEARED (WHICH MAY TAKE UP TO 15 BUSINESS DAYS).
Redemptions in Kind
We generally pay sale (redemption) proceeds in cash. However, under unusual
conditions that make the payment of cash unwise (and for the protection of the
Fund's remaining shareholders) we might pay all or part of your redemption
proceeds in liquid securities with a market value equal to the redemption price
(redemption in kind). It is highly unlikely that your shares would ever be
redeemed in kind, but if they were you would probably have to pay transaction
costs to sell the securities distributed to you, as well as taxes on any capital
gains from the sale as with any redemption.
INVOLUNTARY SALES OF YOUR SHARES
If your account balance drops below the required minimum because of redemptions
you may be required to sell your shares. The account balance minimum is
$10,000,000. But, we will always give you at least 60 days' written notice to
give you time to add to your account and avoid the sale of your shares.
Page 11 of 16
<PAGE>
SUSPENSION OF YOUR RIGHT TO SELL YOUR SHARES
We may suspend your right to sell your shares if the NYSE restricts trading, the
SEC declares an emergency or for other reasons. More information about this is
in our Statement of Additional Information.
TELEPHONE TRANSACTIONS
Purchasing, selling and exchanging Fund shares over the telephone is extremely
convenient, but not without risk. Although we have certain safeguards and
procedures to confirm the identity of callers and the authenticity of
instructions, we are not responsible for any losses or costs incurred by
following telephone instructions we reasonably believe to be genuine. If you or
your financial institution transact with us over the telephone, you will
generally bear the risk of any loss.
Page 12 of 16
<PAGE>
OTHER INFORMATION
Dividends and Distributions
The Fund declares dividends of substantially all of its net investment income
(not including capital gains) every day and distributes this income each month.
The Fund makes distributions of capital gains, if any, at least annually. If
you own Fund shares on a Fund's record date, you will be entitled to receive the
distribution.
You will receive dividends and distributions in the form of additional Fund
shares unless you elect to receive payment in cash. To elect cash payment, you
must notify us in writing prior to the date of the distribution. Your election
will be effective for dividends and distributions paid after we receive your
written notice. To cancel your election, simply send us written notice.
Taxes
PLEASE CONSULT YOUR TAX ADVISER REGARDING YOUR SPECIFIC QUESTIONS ABOUT FEDERAL,
STATE AND LOCAL INCOME TAXES. Below we have summarized some important tax issues
that affects the Fund and its shareholders. This summary is based on current
tax laws, which may change.
The Fund will distribute substantially all of its income and capital gains, if
any. The dividends and distributions you receive may be subject to federal,
state and local taxation, depending upon your tax situation. Distributions you
receive from the Fund may be taxable whether or not you reinvest them. Capital
gains distributions may be taxable at different rates depending on the length of
time the Fund holds its portfolio securities. YOU MAY BE TAXED ON EACH SALE OF
FUND SHARES.
MORE INFORMATION ABOUT TAXES IS IN OUR STATEMENT OF ADDITIONAL INFORMATION.
Page 13 of 16
<PAGE>
FINANCIAL HIGHLIGHTS
The table that follows presents performance information about Class A Shares of
the Fund. This information is intended to help you understand the Fund's
financial performance for the past five years, or, if shorter, the period of the
Fund's operations. Some of this information reflects financial information for
a single Fund share. The total returns in the table represent the rate that you
would have earned (or lost) on an investment in the Fund, assuming you
reinvested all of your dividends and distributions.
This information has been audited by Arthur Andersen LLP, independent public
accountants. Their report, along with the Fund's financial statements, appears
in the annual report that accompanies our Statement of Additional Information.
You can obtain the annual report, which contains more performance information,
at no charge by calling 1-800-249-7445.
Page 14 of 16
<PAGE>
THE ADVISORS' INNER CIRCLE FUND
AIG MONEY MARKET FUND
INVESTMENT ADVISER
AIG Capital Management Corp.
70 Pine Street
New York, New York 10270
DISTRIBUTOR
SEI Investments Distribution Co.
One Freedom Valley Drive
Oaks, Pennsylvania 19456
SUB-DISTRIBUTOR
AIG Equity Sales Corp.
70 Pine Street
New York, New York 10270
LEGAL COUNSEL
Morgan, Lewis & Bockius LLP
1800 M Street, N.W.
Washington, DC 20036
More information about the Fund is available without charge through the
following:
STATEMENT OF ADDITIONAL INFORMATION (SAI)
_____________________________
Our SAI dated March 1, 1999, includes detailed information about The Advisors'
Inner Circle Fund and the AIG Money Market Fund. The SAI is on file with the
SEC and is incorporated by reference into this prospectus. This means that the
SAI, for legal purposes, is a part of this prospectus.
ANNUAL AND SEMI-ANNUAL REPORTS
_____________________________
These reports list the Fund's holdings and contain information from the Fund's
managers about strategies, and recent market conditions and trends. The reports
also contain detailed financial information about the Fund.
Page 15 of 16
<PAGE>
To Obtain More Information:
BY TELEPHONE: Call 1-800 249-7445
BY MAIL: Write to us
AIG Money Market Fund
c/o The Advisors' Inner Circle Fund
P.O. Box 419009
Kansas City, Missouri 64141-6009
FROM THE SEC: You can also obtain the SAI or the Annual and Semi-annual
reports, as well as other information about The Advisors' Inner Circle Fund,
from the SEC's website ("http://www.sec.gov"). You may review and copy documents
at the SEC Public Reference Room in Washington, DC (for information call
1-800-SEC-0330). You may request documents by mail from the SEC, upon payment
of a duplicating fee, by writing to: Securities and Exchange Commission, Public
Reference Section, Washington, DC 20549-6009. The Fund's Investment Company Act
registration number is 811-6400.
Page 16 of 16
<PAGE>
Class B Shares
PROSPECTUS
MARCH 1, 1999
AIG MONEY MARKET FUND
INVESTMENT ADVISER: AIG CAPITAL MANAGEMENT CORP.
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED ANY FUND SHARES OR
DETERMINED WHETHER THIS PROSPECTUS IS ACCURATE OR COMPLETE.
IT IS A CRIME FOR ANYONE TO TELL YOU OTHERWISE.
Page 1 of 16
<PAGE>
HOW TO READ THIS PROSPECTUS
This prospectus gives you important information about the Class B Shares of the
AIG Money Market Fund (Fund) that you should know before investing. Please read
this prospectus and keep it for future reference. This prospectus has been
arranged into different sections so that you can easily review this important
information. On the next page, there is some general information you should
know about the Fund.
FOR MORE DETAILED INFORMATION ABOUT THE FUND, PLEASE SEE:
<TABLE>
<CAPTION>
Page
<S> <C>
PRINCIPAL INVESTMENT STRATEGIES AND RISKS,
PERFORMANCE INFORMATION AND EXPENSES XXX
MORE INFORMATION ABOUT RISK XXX
THE FUND'S OTHER INVESTMENTS XXX
THE INVESTMENT ADVISER XXX
PURCHASING, SELLING AND EXCHANGING FUND SHARES XXX
DIVIDENDS, DISTRIBUTIONS AND TAXES XXX
FINANCIAL HIGHLIGHTS XXX
HOW FUND SHARES ARE DISTRIBUTED XXX
HOW TO OBTAIN MORE INFORMATION ABOUT THE
AIG MONEY MARKET FUND XXX
</TABLE>
Page 2 of 16
<PAGE>
Introduction
The Fund is a mutual fund. A mutual fund pools shareholders' money and, using
professional investment managers, invests it in securities.
The Fund has its own investment goal and strategies for reaching that goal. The
Adviser invests Fund assets in a way that the Adviser believes will help the
Fund achieve its goal. Still, investing in the Fund involves risk and there is
no guarantee that the Fund will achieve its goal. The Adviser's judgments about
the markets, the economy, or companies may not anticipate actual market
movements, economic conditions or company performance, and these judgments may
affect the return on your investment. In fact, no matter how good a job the
Adviser does, you could lose money on your investment in the Fund, just as you
could with other investments. A Fund share is not a bank deposit and it is not
insured or guaranteed by the FDIC or any government agency.
THE AIG MONEY MARKET FUND TRIES TO MAINTAIN A CONSTANT PRICE PER SHARE OF $1.00,
BUT THERE IS NO GUARANTEE THAT THE FUND WILL ACHIEVE THIS GOAL.
Page 3 of 16
<PAGE>
AIG MONEY MARKET FUND
Fund Summary
Investment Goal Preserve principal value and maintain
a high degree of liquidity while
providing current income and a stable
share price of $1.
Investment Focus Money market instruments.
Share Price Volatility Very low.
Principal Investment Strategy Investing in a broad range of short-
term, high quality U.S. dollar
denominated debt securities.
Investor Profile Conservative investors who want to
receive current income through a
liquid investment.
INVESTMENT STRATEGY OF THE AIG MONEY MARKET FUND
The Fund invests in a broad range of high quality short-term U.S. dollar
denominated money market instruments, such as obligations of the U.S. Treasury;
agencies and instrumentalities of the U.S. government; domestic and foreign
banks; domestic and foreign corporate issuers; supranational entities; and
foreign governments; as well as repurchase agreements. The Fund's portfolio is
comprised only of short-term debt securities that are rated in the highest
category by nationally recognized ratings organizations or securities that the
Adviser determines are of equal quality. The Fund may concentrate its
investments (invest more than 25% of its assets) in obligations issued by
domestic branches of U.S. banks or U.S. branches of foreign banks that are
subject to similar regulations as U.S. banks. The Fund will maintain an average
weighted maturity of 90 days or less, and will only acquire securities that have
a remaining maturity of 397 days or less.
PRINCIPAL RISKS OF INVESTING IN THE AIG MONEY MARKET FUND
An investment in the Fund is subject to income risk, which is the possibility
that the Fund's yield will decline due to falling interest rates. A Fund share
is not a bank deposit and is not insured or guaranteed by the FDIC or any
government agency. In addition, although a money market fund seeks to keep a
constant price per share of $1.00, you may lose money by investing in the Fund.
Page 4 of 16
<PAGE>
An investment in the Fund is also subject, to a limited extent, to credit risk,
which is the possibility that the issuer of a security owned by the Fund will be
unable to repay interest and principal in a timely manner. AIG Capital
Management Corp., the Fund's investment adviser (Adviser), attempts to lessen
this risk through a conservative investment policy for the Fund, which includes
diversification (spreading Fund investments across a broad number of issuers),
and investing in obligations of high credit quality issuers.
Performance Information
The bar chart and the performance table below illustrate the risks and
volatility of an investment in the fund. Of course, the Fund's past performance
does not necessarily indicate how the Fund will perform in the future.
This bar chart shows changes in the performance of the Fund's Class B Shares.
THIS TABLE COMPARES THE FUND'S AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS
ENDING DECEMBER 31, 1998 TO THOSE OF THE IBC FIRST TIER AVERAGE.
<TABLE>
<CAPTION>
CLASS B SHARES 1 YEAR 3 YEARS SINCE INCEPTION
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
AIG Money Market Fund X.XX% X.XX% X.XX%
- --------------------------------------------------------------------------------
IBC First Tier Average X.XX% X.XX% X.XX%
</TABLE>
WHAT IS AN INDEX?
An index measures the market prices of a specific group of securities in a
particular market or securities in a market sector. You cannot invest directly
in an index. Unlike a mutual fund, an index does not have an investment advisor
and does not pay any commissions or expenses. If an index had expenses, its
performance would be lower.
The IBC First Tier Average is a widely-recognized index of money market
securities rated Prime-1 by Moody's or A-1 by S&P.
FUND FEES AND EXPENSES
EVERY MUTUAL FUND HAS OPERATING EXPENSES TO PAY FOR SERVICES SUCH AS
PROFESSIONAL ADVISORY, SHAREHOLDER, DISTRIBUTION, ADMINISTRATION AND CUSTODY
SERVICES AND OTHER COSTS OF DOING BUSINESS. THIS TABLE DESCRIBES THE HIGHEST
FEES AND EXPENSES THAT YOU MAY PAY INDIRECTLY IF YOU HOLD SHARES OF THE FUND.
Page 5 of 16
<PAGE>
ANNUAL FUND OPERATING EXPENSES
<TABLE>
<CAPTION>
CLASS B SHARES
- --------------------------------------------------------------------------------
<S> <C>
Investment Advisory Fees .XX%
- --------------------------------------------------------------------------------
12b-1 Expenses .XX%
- --------------------------------------------------------------------------------
Other Expenses .XX%
- --------------------------------------------------------------------------------
Total Annual Fund Operating Expenses X.XX%
</TABLE>
The table shows the highest expenses that could be currently charged to the
Fund. Actual expenses are lower because the Adviser is voluntarily waiving a
portion of its fees so that Total Operating Expenses do not exceed 0.75%.
Actual Investment Advisory Fees and Total Operating Expenses are [ %] and
[ %], respectively. The Adviser could discontinue this voluntary waiver at any
time. For more information about these fees, see "Investment Adviser."
EXAMPLE
This Example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. The Example assumes that you
invest $10,000 in the Fund for the time periods indicated and that you sell your
shares at the end of the period.
The Example also assumes that each year your investment has a 5% return and Fund
expenses remain the same. Although your actual costs and returns might be
different, your approximate costs of investing $10,000 in the Fund would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class B Shares $XXX $XXX $XXX $XXX
</TABLE>
Page 6 of 16
<PAGE>
More Information About Risk
YEAR 2000 RISK - The Fund depends on the smooth functioning of computer systems
in almost every aspect of their business. Like other mutual funds, businesses
and individuals around the world, the Fund could be adversely affected if the
computer systems used by its service providers do not properly process dates on
and after January 1, 2000, and distinguish between the year 2000 and the year
1900. The Fund has asked its service providers whether they expect to have
their computer systems adjusted for the year 2000 transition, and is seeking
assurances from each service provider that they are devoting significant
resources to prevent material adverse consequences to the Fund. While it is
likely that such assurances will be obtained, the Fund and their shareholders
may experience losses if these assurances prove to be incorrect or as a result
of year 2000 computer difficulties experienced by issuers of Fund securities or
third parties, such as custodians, banks, broker-dealers or others with which
the Fund does business.
THE FUND'S OTHER INVESTMENTS
In addition to the investments and strategies described in this prospectus, the
Fund also may invest in other securities, use other strategies and engage in
other investment practices, which are described in detail in our Statement of
Additional Information. Of course, we cannot guarantee that the Fund will
achieve its investment goal.
Page 7 of 16
<PAGE>
INVESTMENT ADVISER
The Investment Adviser makes investment decisions for the Fund and continuously
reviews, supervises and administers the Fund's investment program. The Board of
Trustees supervises the Adviser and establishes policies that the Adviser must
follow in its management activities. The Fund is managed by a team of
investment professionals from the Adviser. No one person is primarily
responsible for making investment recommendations to the team.
AIG Capital Management Corp. is a wholly-owned subsidiary of American
International Group (AIG) and serves as the Adviser to the Fund. For the fiscal
period ended October 31, 1998, AIG Capital Management Corp. received advisory
fees of:
AIG MONEY MARKET
FUND __%
The Adviser may use its affiliates as brokers for Fund transactions.
Page 8 of 16
<PAGE>
PURCHASING FUND SHARES
HOW TO PURCHASE FUND SHARES
You may purchase shares by:
- - Mail
- - Telephone, or
- - Wire
You may purchase shares on any day that the New York Stock Exchange and the
Federal Reserve is open for business (a Business Day). Shares can not be
purchased by Federal Reserve Wire on days when either the New York Stock
Exchange or the Federal Reserve is closed.
To purchase shares directly from us by wire, please call 1-800-845-3885 for an
account number and wiring instructions. To purchase shares by mail, complete
the attached application and enclose your check, payable in U.S. dollars, to
"AIG Money Market Fund - Class B Shares." We cannot accept third-party checks,
credit cards, credit card checks or cash. You may also purchase shares through
certain authorized dealers or other financial institutions that have executed
agreements. We may reject any purchase order if we determine that accepting the
order would not be in the best interests of the Fund or its shareholders.
The price per share (the offering price) will be the net asset value per share
(NAV) next determined after we receive your purchase order. We expect that the
NAV of the Fund will remain constant at $1.00 per share.
We calculate the Fund's NAV once each Business Day at 2:00 p.m. Eastern time.
So, for you to be eligible to receive dividends declared on the day you submit
your purchase order, generally we must receive your order before 1:00 p.m.
Eastern time and federal funds (readily available funds) before 3:00 p.m.
Eastern time.
Certain investors who deal with a financial institution or financial
intermediary will have to follow the institution's or intermediary's procedures
for transacting with the Fund. If you purchase or sell Fund shares through a
financial institution (rather than directly from us), you may have to transmit
your purchase and sale requests to your financial institution at an earlier time
for your transaction to become effective that day. This allows the financial
institution time to process your request and transmit it to us. Your financial
institution or intermediary may charge a fee for its services, in addition to
the fees charged by the Fund. For more information about how to purchase or
sell Fund shares through your financial institution, you should contact your
financial institution directly.
Page 9 of 16
<PAGE>
How We Calculate NAV
NAV for one Fund share is the value of that share's portion of all of the assets
in the Fund.
In calculating NAV for the Fund, we generally value the Fund's investment Fund
using the amortized cost valuation method, which is described in detail in our
Statement of Additional Information. If we think that this method is unreliable
during certain market conditions or for other reasons, fair value prices may be
determined in good faith using methods approved by the Board of Trustees.
Minimum Purchases
To purchase shares for the first time, you must invest at least $25,000 in the
Fund.
We may accept investments of smaller amounts at our discretion.
SELLING FUND SHARES
HOW TO SELL YOUR FUND SHARES
You may sell (sometimes called "redeem") your shares on any Business Day by
contacting us directly by mail or telephone.
If you would like to close your account or have your sale proceeds sent to a
third-party or an address other than your own, please notify us in writing and
include a signature guarantee (a notarized signature is not sufficient).
The sale price of each share will be the next NAV determined after we receive
your request.
Page 10 of 16
<PAGE>
Receiving Your Money
Normally, we will send your sale proceeds to you within seven Business Days
after we receive your request. Your proceeds can be wired to your bank account
(subject to a $10.00 fee) or sent to you by check. IF YOU RECENTLY PURCHASED
YOUR SHARES BY CHECK, REDEMPTION PROCEEDS MAY NOT BE AVAILABLE UNTIL YOUR CHECK
HAS CLEARED (WHICH MAY TAKE UP TO 15 BUSINESS DAYS).
Redemptions in Kind
We generally pay sale (redemption) proceeds in cash. However, under unusual
conditions that make the payment of cash unwise (and for the protection of the
Fund's remaining shareholders) we might pay all or part of your redemption
proceeds in liquid securities with a market value equal to the redemption price
(redemption in kind). It is highly unlikely that your shares would ever be
redeemed in kind, but if they were you would probably have to pay transaction
costs to sell the securities distributed to you, as well as taxes on any capital
gains from the sale as with any redemption.
INVOLUNTARY SALES OF YOUR SHARES
If your account balance drops below $25,000 because of redemptions, you may be
required to sell your shares. But, we will always give you at least 60 days'
written notice to give you time to add to your account and avoid the sale of
your shares.
SUSPENSION OF YOUR RIGHT TO SELL YOUR SHARES
We may suspend your right to sell your shares if the NYSE restricts trading, the
SEC declares an emergency or for other reasons. More information about this is
in our Statement of Additional Information.
TELEPHONE TRANSACTIONS
Purchasing, selling and exchanging Fund shares over the telephone is extremely
convenient, but not without risk. Although we have certain safeguards and
procedures to confirm the identity of callers and the authenticity of
instructions, we are not responsible for any losses or costs incurred by
following telephone instructions we reasonably believe to be genuine. If you or
your financial institution transact with us over the telephone, you will
generally bear the risk of any loss.
Page 11 of 16
<PAGE>
DISTRIBUTION OF FUND SHARES
The Fund has adopted a distribution plan that allows the Fund to pay
distribution and service fees for the sale and distribution of its shares, and
for services provided to shareholders. Because these fees are paid out of a
Fund's assets continuously, over time these fees will increase the cost of your
investment and may cost you more than paying other types of sales charges.
Distribution fees, as a percentage of average daily net assets are 0.35% for
Class B Shares.
The Distributor or Sub-Distributor may, from time to time in its sole
discretion, institute one or more promotional incentive programs for dealers,
which will be paid for by the Distributor or Sub-Distributor from any source
available to it. Under any such program, the Distributor or Sub-Distributor may
provide incentives, in the form of cash or other compensation, including
merchandise, airline vouchers, trips and vacation packages, to dealers selling
shares of the Fund.
Page 12 of 16
<PAGE>
OTHER INFORMATION
Dividends and Distributions
The Fund declares dividends of substantially all of its net investment income
(not including capital gains) every day and distributes this income each month.
The Fund makes distributions of capital gains, if any, at least annually. If
you own Fund shares on a Fund's record date, you will be entitled to receive the
distribution.
You will receive dividends and distributions in the form of additional Fund
shares unless you elect to receive payment in cash. To elect cash payment, you
must notify us in writing prior to the date of the distribution. Your election
will be effective for dividends and distributions paid after we receive your
written notice. To cancel your election, simply send us written notice.
Taxes
PLEASE CONSULT YOUR TAX ADVISER REGARDING YOUR SPECIFIC QUESTIONS ABOUT FEDERAL,
STATE AND LOCAL INCOME TAXES. Below we have summarized some important tax issues
that affects the Fund and its shareholders. This summary is based on current
tax laws, which may change.
The Fund will distribute substantially all of its income and capital gains, if
any. The dividends and distributions you receive may be subject to federal,
state and local taxation, depending upon your tax situation. Distributions you
receive from the Fund may be taxable whether or not you reinvest them. Capital
gains distributions may be taxable at different rates depending on the length of
time the Fund holds its portfolio securities. YOU MAY BE TAXED ON EACH SALE OF
FUND SHARES.
MORE INFORMATION ABOUT TAXES IS IN OUR STATEMENT OF ADDITIONAL INFORMATION.
Page 13 of 16
<PAGE>
FINANCIAL HIGHLIGHTS
The table that follows presents performance information about Class B Shares of
the Fund. This information is intended to help you understand each Fund's
financial performance for the past five years, or, if shorter, the period of the
Fund's operations. Some of this information reflects financial information for
a single Fund share. The total returns in the table represent the rate that you
would have earned (or lost) on an investment in a Fund, assuming you reinvested
all of your dividends and distributions.
This information has been audited by Arthur Andersen LLP, independent public
accountants. Their report, along with the Fund's financial statements, appears
in the annual report that accompanies our Statement of Additional Information.
You can obtain the annual report, which contains more performance information,
at no charge by calling 1-800-249-7445.
Page 14 of 16
<PAGE>
THE ADVISORS' INNER CIRCLE FUND
AIG MONEY MARKET FUND
INVESTMENT ADVISER
AIG Capital Management Corp.
70 Pine Street
New York, New York 10270
DISTRIBUTOR
SEI Investments Distribution Co.
One Freedom Valley Road
Oaks, Pennsylvania 19456
SUB- DISTRIBUTOR
AIG Equity Sales Corp.
70 Pine Street
New York, New York 10270
LEGAL COUNSEL
Morgan, Lewis & Bockius LLP
1800 M Street, N.W.
Washington, DC 20036
More information about the Fund is available without charge through the
following:
STATEMENT OF ADDITIONAL INFORMATION (SAI) ___________________________
Our SAI dated March 1, 1999, includes detailed information about The Advisors'
Inner Circle Funds and the AIG Money Market Fund. The SAI is on file with the
SEC and is incorporated by reference into this prospectus. This means that the
SAI, for legal purposes, is a part of this prospectus.
ANNUAL AND SEMI-ANNUAL REPORTS ___________________________
Page 15 of 16
<PAGE>
These reports list the Fund's holdings and contain information from the Fund's
managers about strategies, and recent market conditions and trends. The reports
also contain detailed financial information about the Fund.
TO OBTAIN MORE INFORMATION:
BY TELEPHONE: Call 1-800 249-7445
BY MAIL: Write to us
AIG Money Market Fund
c/o The Advisors' Inner Circle Fund
P.O. Box 419009
Kansas City, Missouri 64141-6009
________________________________________________________________________________
FROM THE SEC: You can also obtain the SAI or the Annual and Semi-annual
reports, as well as other information about The Advisors' Inner Circle Fund,
from the SEC's website ("http://www.sec.gov"). You may review and copy documents
at the SEC Public Reference Room in Washington, DC (for information call
1-800-SEC-0330). You may request documents by mail from the SEC, upon payment
of a duplicating fee, by writing to: Securities and Exchange Commission, Public
Reference Section, Washington, DC 20549-6009. The Fund's Investment Company Act
registration number is 811-6400.
Page 16 of 16
<PAGE>
AIG MONEY MARKET FUND
Investment Adviser:
AIG Capital Management Corp.
This STATEMENT OF ADDITIONAL INFORMATION is not a prospectus and relates
only to the Class A and Class B shares of the AIG Money Market Fund (the
"Fund"). It is intended to provide additional information regarding the
activities and operations of The Advisors' Inner Circle Fund (the "Trust") and
the Fund. This Statement of Additional Information should be read in conjunction
with the Fund's Prospectuses dated March 1, 1999, as amended or supplemented
from time to time. A copy of the Prospectuses for the Class A and Class B shares
of the Fund may be obtained by calling 1-800-249-7445.
TABLE OF CONTENTS
<TABLE>
<S> <C>
The Trust................................................................. S-2
Investment Objectives and Policies........................................ S-2
Description of Permitted Investments...................................... S-3
Investment Limitations.................................................... S-7
The Adviser............................................................... S-8
The Administrator......................................................... S-9
The Distributor........................................................... S-10
The Transfer Agent........................................................ S-11
The Custodian............................................................. S-11
Independent Public Accountants............................................ S-11
Legal Counsel............................................................. S-11
Trustees and Officers of the Trust........................................ S-11
Performance Information................................................... S-14
Computation of Yield...................................................... S-14
Calculation of Total Return............................................... S-15
Purchasing Shares......................................................... S-15
Redeeming of Shares....................................................... S-15
Determination of Net Asset Value.......................................... S-16
Taxes..................................................................... S-17
Fund Transactions......................................................... S-19
Trading Practices and Brokerage........................................... S-19
Description of Shares..................................................... S-22
Shareholder Liability..................................................... S-22
Limitation of Trustees' Liability......................................... S-22
Year 2000................................................................. S-22
5% and 25% Shareholders................................................... S-22
Experts................................................................... S-23
Financial Statements...................................................... S-23
Appendix.................................................................. A-1
</TABLE>
March 1, 1999
[AIG-F-003-05]
<PAGE>
THE TRUST
This Statement of Additional Information relates only to the AIG Money
Market Fund (the "Fund"). The Fund is a separate series of The Advisors' Inner
Circle Fund (the "Trust"), an open-end management investment company,
established under Massachusetts law as a Massachusetts business trust under a
Declaration of Trust dated July 18, 1991. The Declaration of Trust permits the
Trust to offer separate series ("portfolios") of shares of beneficial interest
("shares"). Shares of the Fund are offered through two separate classes (Class A
and Class B) which provide for variations in minimum investment balances,
distribution fees, voting rights and dividends. Except for these differences,
each share of the Fund represents an equal proportionate interest in the Fund.
See "Description of Shares." No investment in shares of the Fund should be made
without first reading the applicable Prospectuses of the Fund. Capitalized terms
not defined herein are defined in the Prospectuses.
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 portfolio are allocated across all of
the portfolios on the basis of relative net assets.
INVESTMENT OBJECTIVES AND POLICIES
The investment objective of the Fund is to preserve principal value and
maintain a high degree of liquidity while providing current income. It is also a
fundamental policy of the Fund to use its best efforts to maintain a constant
net asset value of $1.00 per share. There is no assurance that the Fund will
achieve its investment objective or that it will be able to maintain a constant
net asset value of $1.00 per share on a continuous basis.
RESTRAINTS ON INVESTMENTS BY MONEY MARKET FUNDS--Investments by a money
market fund are subject to limitations imposed under regulations adopted by the
SEC. Under these regulations, money market funds may only acquire obligations
that present minimal credit risk and that are "eligible securities," which means
they are (i) rated, at the time of investment, by at least two NRSROs (one if it
is the only organization rating such obligation) in the highest rating category
or, if unrated, determined to be of comparable quality (a "first tier
security"); or (ii) rated according to the foregoing criteria in the second
highest rating category or, if unrated, determined to be of comparable quality
("second tier security"). A security is not considered to be unrated if its
issuer has outstanding obligations of comparable priority and security that have
a short-term rating. A money market fund may invest up to 25% of its assets in
"first tier" securities of a single issuer for a period of up to three business
days. The securities that money market funds may acquire may be supported by
credit enhancements, such as demand features or guarantees. The SEC regulations
limit the percentage of securities that a money market fund may hold for which a
single issuer provides credit enhancements. The Fund invests only in first tier
securities.
INVESTMENT STRATEGIES OF THE FUND
In seeking its investment objective, the Fund will invest exclusively in (i)
bills, notes and bonds issued by the United States Treasury ("U.S. Treasury
Obligations") and separately traded interest and principal component parts of
such obligations ("Stripped Government Securities"); (ii) obligations issued or
guaranteed as to principal and interest by the agencies or instrumentalities of
the United States Government; (iii) U.S. dollar denominated short-term
obligations of issuers rated at the time of investment in the highest rating
category for short-term debt obligations (within which there may be
sub-categories or gradations indicating relative standing) by two or more
nationally recognized statistical rating organizations ("NRSROs"), or only one
NRSRO if only one NRSRO has rated the security, or, if not rated, as determined
by the Adviser to be of comparable quality, consisting of obligations of U.S.
and foreign
S-2
<PAGE>
corporations, domestic banks, foreign banks, and U.S. and foreign savings and
loan institutions; (iv) repurchase agreements with respect to the foregoing; (v)
obligations of supranational entities satisfying the credit standards described
above or, if not rated, determined by the Adviser to be of comparable quality;
and (vi) obligations of foreign governments, agencies and instrumentalities
satisfying the credit standards described above or, if not rated, determined by
the Adviser to be of comparable quality.
The Fund reserves the right to invest more than 25% of its total assets in
obligations issued by domestic branches of U.S. banks or U.S. branches of
foreign banks subject to similar regulations as U.S. banks. To the extent that
the Fund invests more than 25% of its net assets in bank obligations, it will be
exposed to the risks associated with that industry as a whole. The Fund may
purchase asset-backed securities rated in the highest NRSRO rating category at
the time of investment. The Fund may invest in securities which pay interest on
a variable or floating rate basis. In addition, the Fund may acquire securities
on a when-issued basis and may buy securities which are subject to puts or
standby commitments. The Fund will not invest more than 10% of its net assets in
illiquid securities. The Fund reserves the right to enter into reverse
repurchase agreements and engage in securities lending.
The Fund will use NRSROs such as Standard & Poor's Corporation and Moody's
Investors Service, Inc. when determining security credit ratings.
DESCRIPTION OF PERMITTED INVESTMENTS
ASSET-BACKED SECURITIES--Asset-backed securities are securities backed by
non-mortgage assets such as company receivables, truck and auto loans, leases
and credit card receivables. Other asset-backed securities may be created in the
future. These securities may be traded over-the-counter and typically have a
short-intermediate maturity structure depending on the paydown characteristics
of the underlying financial assets which are passed through to the security
holder. These securities are generally issued as pass-through certificates,
which represent undivided fractional ownership interests in the underlying pool
of assets. Asset-backed securities may also be debt obligations, which are known
as collateralized obligations and are generally issued as the debt of a special
purpose entity, such as a trust, organized solely for the purpose of owning
these assets and issuing debt obligations.
Asset-backed securities are not issued or guaranteed by the U.S. Government,
its agencies or instrumentalities; however, the payment of principal and
interest on such obligations may be guaranteed up to certain amounts and, for a
certain period, by a letter of credit issued by a financial institution (such as
a bank or insurance company) unaffiliated with the issuers of such securities.
The purchase of asset-backed securities raises risk considerations peculiar to
the financing of the instruments underlying such securities. For example, there
is a risk that another party could acquire an interest in the obligations
superior to that of the holders of the asset-backed securities. There also is
the possibility that recoveries on repossessed collateral may not, in some
cases, be available to support payments on those securities.
Asset-backed securities entail prepayment risk, which may vary depending on
the type of asset, but is generally less than the prepayment risk associated
with mortgage-backed securities. In addition, credit card receivables are
unsecured obligations of the card holder. There may be a limited secondary
market for such securities.
BANKERS' ACCEPTANCES--Bankers' acceptances are bills of exchange or time
drafts drawn on and accepted by a commercial bank. Bankers' acceptances are used
by corporations to finance the shipment and storage of goods. Maturities are
generally six months or less.
CERTIFICATES OF DEPOSIT--Certificates of deposit are interest bearing
instruments with a specific maturity. They are issued by banks and savings and
loan institutions in exchange for the deposit of funds and normally can be
traded in the secondary market prior to maturity.
S-3
<PAGE>
COMMERCIAL PAPER--Commercial paper is a term used to describe unsecured
short-term promissory notes issued by banks, municipalities, corporations and
other entities. Maturities on these issues vary from a few to 270 days.
EURODOLLAR AND YANKEE BANK OBLIGATIONS--Eurodollar bank obligations are U.S.
dollar denominated certificates of deposit or time deposits issued outside the
United States by foreign branches of U.S. banks or by foreign banks. Yankee bank
obligations are U.S. dollar denominated obligations issued in the United States
by foreign banks.
ILLIQUID SECURITIES--Illiquid securities are securities that cannot be
disposed of within seven business days at approximately the price at which they
are being carried on the Fund's books. An illiquid security includes a demand
instrument with a demand notice period exceeding seven days, where there is no
secondary market for such security, and repurchase agreements with a remaining
term to maturity in excess of 7 days.
OBLIGATIONS OF SUPRANATIONAL ENTITIES--Supranational entities are entities
established through the joint participation of several governments, and include
the Asian Development Bank, the Inter-American Development Bank, International
Bank for Reconstruction and Development (World Bank), African Development Bank,
European Economic Community, European Investment Bank and the Nordic Investment
Bank.
REPURCHASE AGREEMENTS--Repurchase agreements are agreements by which a
person (E.G., the Fund) obtains a security and simultaneously commits to return
the security to the seller (a primary securities dealer as recognized by the
Federal Reserve Bank of New York or a national member bank as defined in Section
3(d)(1) of the Federal Deposit Insurance Act, as amended) 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 Fund for purposes of
its investment limitations. The repurchase agreements entered into by the Fund
will provide that the underlying security at all times shall have a value at
least equal to 102% of the resale price stated in the agreement (the Adviser
monitors compliance with this requirement). Under all repurchase agreements
entered into by the Fund, the appropriate 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 the 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, the
Fund may incur delay and costs in selling the underlying security or may suffer
a loss of principal and interest if the Fund is treated as an unsecured creditor
and required to return the underlying security to the seller's estate.
RESTRICTED SECURITIES--Restricted securities are securities that may not be
sold to the public without registration under the Securities Act of 1933 (the
"1933 Act") or an exemption from registration. Permitted investments for the
Fund includes restricted securities. Restricted securities, including securities
eligible for re-sale under 1933 Act Rule 144A, that are determined to be liquid
are not subject to this limitation. This determination is to be made by the Fund
Adviser pursuant to guidelines adopted by the Board of Trustees. Under these
guidelines, the particular Adviser will consider the frequency of trades and
quotes for the security, the number of dealers in, and potential purchasers for,
the securities, dealer undertakings to make a market in the security, and the
nature of the security and of the marketplace trades. In purchasing such
Restricted Securities, each Adviser intends to purchase securities that are
exempt from registration under Rule 144A under the 1933 Act.
S-4
<PAGE>
REVERSE REPURCHASE AGREEMENTS--Reverse repurchase agreements are agreements
by which the Fund sells securities to financial institutions and simultaneously
agrees to repurchase those securities at a mutually agreed-upon date and price.
At the time the Fund enters into a reverse repurchase agreement, the Fund will
place liquid assets having a value equal to the repurchase price in a segregated
custodial account and monitor this account to ensure equivalent value is
maintained. Reverse repurchase agreements involve the risk that the market value
of securities sold by the Fund may decline below the price at which the Fund is
obligated to repurchase the securities. Reverse repurchase agreements are
considered to be borrowings by the Fund under the 1940 Act.
SECURITIES LENDING--The Fund may lend securities pursuant to agreements
which require that the loans be continuously secured by collateral at all times
equal to 100% of the market value of the loaned securities which consists of:
cash, securities of the U.S. Government or its agencies, or any combination of
cash and such securities. Such loans will not be made if, as a result, the
aggregate amount of all outstanding securities loans for the Fund exceed
one-third of the value of the Fund's total assets taken at fair market value.
The Fund will continue to receive interest on the securities lent while
simultaneously earning interest on the investment of the cash collateral in U.S.
Government securities. However, the Fund will normally pay lending fees to such
broker-dealers and related expenses from the interest earned on invested
collateral. There may be risks of delay in receiving additional collateral or
risks of delay in recovery of the securities or even loss of rights in the
collateral should the borrower of the securities fail financially. However,
loans are made only to borrowers deemed by the appropriate Adviser to be of good
standing and when, in the judgment of that Adviser, the consideration which can
be earned currently from such securities loans justifies the attendant risk. Any
loan may be terminated by either party upon reasonable notice to the other
party. The Fund may use the Distributor or a broker-dealer affiliate of an
Adviser as a broker in these transactions.
SECURITIES OF FOREIGN GOVERNMENTS--The Fund may invest in U.S. dollar
denominated obligations of foreign governments. These instruments may subject
the Fund to investment risks that differ in some respects from those related to
investments in obligations of U.S. domestic issuers. Such risks include future
adverse political and economic developments, the possible imposition of
withholding taxes on interest or other income, possible seizure,
nationalization, or expropriation of foreign deposits, the possible
establishment of exchange controls or taxation at the source, greater
fluctuations in value due to changes in exchange rates, or the adoption of other
foreign governmental restrictions which might adversely affect the payment of
principal and interest on such obligations. Such investments may also entail
higher custodial fees and sales commissions than domestic investments. Foreign
issuers of securities or obligations are often subject to accounting treatment
and engage in business practices different from those respecting domestic
issuers of similar securities or obligations. Foreign branches of U.S. banks and
foreign banks may be subject to less stringent reserve requirements than those
applicable to domestic branches of U.S. banks.
SECURITIES OF FOREIGN ISSUERS--There are certain risks connected with
investing in foreign securities. These include risks of adverse political and
economic developments (including possible governmental seizure or
nationalization of assets), the possible imposition of exchange controls or
other governmental restrictions, less uniformity in accounting and reporting
requirements, the possibility that there will be less information on such
securities and their issuers available to the public, the difficulty of
obtaining or enforcing court judgments abroad, restrictions on foreign
investments in other jurisdictions, difficulties in effecting repatriation of
capital invested abroad, and difficulties in transaction settlements and the
effect of delay on shareholder equity. Foreign securities may be subject to
foreign taxes, and may be less marketable than comparable U.S. securities.
STANDBY COMMITMENTS AND PUTS--The Fund may purchase securities at a price
which would result in a yield to maturity lower than that generally offered by
the seller at the time of purchase when they can simultaneously acquire the
right to sell the securities back to the seller, the issuer or a third party
(the "writer") at an agreed-upon price at any time during a stated period or on
a certain date. Such a right
S-5
<PAGE>
is generally denoted as a "standby commitment" or a "put." The purpose of
engaging in transactions involving puts is to maintain flexibility and liquidity
to permit the Fund to meet redemptions and remain as fully invested as possible
in municipal securities. The Fund reserves the right to engage in put
transactions. The right to put the securities depends on the writer's ability to
pay for the securities at the time the put is exercised. The Fund would limit
its put transactions to institutions which the Adviser believes present minimal
credit risks, and the Adviser would use its best efforts to initially determine
and continue to monitor the financial strength of the sellers of the options by
evaluating their financial statements and such other information as is available
in the marketplace. It may, however be difficult to monitor the financial
strength of the writers because adequate current financial information may not
be available. In the event that any writer is unable to honor a put for
financial reasons, the Fund would be a general creditor (I.E.,, on a parity with
all other unsecured creditors) of the writer. Furthermore, particular provisions
of the contract between the Fund and the writer may excuse the writer from
repurchasing the securities; for example, a change in the published rating of
the underlying securities or any similar event that has an adverse effect on the
issuer's credit or a provision in the contract that the put will not be
exercised except in certain special cases, for example, to maintain portfolio
liquidity. The Fund could, however, at any time sell the underlying portfolio
security in the open market or wait until the portfolio security matures, at
which time it should realize the full par value of the security.
The securities purchased subject to a put may be sold to third persons at
any time, even though the put is outstanding, but the put itself, unless it is
an integral part of the security as originally issued, may not be marketable or
otherwise assignable. Therefore, the put would have value only to the Fund. Sale
of the securities to third parties or lapse of time with the put unexercised may
terminate the right to put the securities. Prior to the expiration of any put
option, the Fund could seek to negotiate terms for the extension of such an
option. If such a renewal cannot be negotiated on terms satisfactory to the
Fund, the Fund could, of course, sell the portfolio security. The maturity of
the underlying security will generally be different from that of the put. There
will be no limit to the percentage of portfolio securities that the Fund may
purchase subject to a standby commitment or put, but the amount paid directly or
indirectly for all standby commitments or puts which are not integral parts of
the security as originally issued held in the Fund will not exceed 1/2 of 1% of
the value of the total assets of the Fund calculated immediately after any such
put is acquired.
STRIPPED GOVERNMENT SECURITIES--The Fund may purchase Separately Traded
Registered Interest and Principal Securities ("STRIPS") that are created when
the coupon payments and the principal payment are stripped from an outstanding
United States Treasury bond by the Federal Reserve Bank of New York and sold
separately. The Fund may not actively trade STRIPS.
TIME DEPOSITS--Time deposits are non-negotiable receipts issued by a bank in
exchange for the deposit of funds. Like a certificate of deposit, it earns a
specified rate of interest over a definite period of time; however, it cannot be
traded in the secondary market. Time deposits with a withdrawal penalty or a
remaining term to maturity in excess of 7 days are considered to be illiquid
securities.
U.S. GOVERNMENT AGENCY OBLIGATIONS--U.S. Government agency obligations are
obligations issued or guaranteed by agencies or instrumentalities of the U.S.
Government. Agencies of the United States Government which issue obligations
consist of, among others, the Export Import Bank of the United States, Farmers
Home Administration, Federal Farm Credit Bank, Federal Housing Administration,
Government National Mortgage Association ("GNMA"), Maritime Administration,
Small Business Administration and The Tennessee Valley Authority. Obligations of
instrumentalities of the United States Government include securities issued by,
among others, Federal Home Loan Banks, Federal Home Loan Mortgage Corporation
("FHLMC"), Federal Intermediate Credit Banks, Federal Land Banks, Fannie Mae and
the United States Postal Service as well as government trust certificates. Some
of these securities are supported by the full faith and credit of the United
States Treasury, others are supported by the right of the issuer to borrow from
the Treasury and still others are supported only by the credit of the
instrumentality. Guarantees of principal by agencies or instrumentalities of the
U.S. Government may be a guarantee of
S-6
<PAGE>
payment at the maturity of the obligation so that in the event of a default
prior to maturity there might not be a market and thus no means of realizing the
value of the obligation prior to maturity.
U.S. TREASURY OBLIGATIONS--U.S. Treasury obligations consist of bills, notes
and bonds issued by the U.S. Treasury and separately traded interest and
principal component parts of such obligations that are transferable through the
federal book-entry system known as STRIPS.
VARIABLE AND FLOATING RATE INSTRUMENTS--Certain obligations may carry
variable or floating rates of interest, and may involve a conditional or
unconditional demand feature. Such instruments bear interest at rates which are
not fixed, but which vary with changes in specified market rates or indices. The
interest rates on these securities may be reset daily, weekly, quarterly or some
other reset period. There is a risk that the current interest rate on such
obligations may not accurately reflect existing market interest rates. A demand
instrument with a demand notice exceeding seven days may be considered illiquid
if there is no secondary market for such security.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES--When-issued or delayed delivery
basis transactions involve the purchase of an instrument with payment and
delivery taking place in the future. Delivery of and payment for these
securities may occur a month or more after the date of the purchase commitment.
The Fund will maintain with the Custodian a separate account with liquid assets
in an amount at least equal to these commitments. The interest rate realized on
these securities is fixed as of the purchase date and no interest accrues to the
Fund before settlement. These securities are subject to market fluctuation due
to changes in market interest rates and it is possible that the market value at
the time of settlement could be higher or lower than the purchase price if the
general level of interest rates has changed. Although the Fund generally
purchases securities on a when-issued or forward commitment basis with the
intention of actually acquiring securities for its portfolio, the Fund may
dispose of a when-issued security or forward commitment prior to settlement if
it deems appropriate.
INVESTMENT LIMITATIONS
The following are fundamental policies of the Fund and cannot be changed
with respect to the Fund without the consent of the holders of a majority of the
Fund's outstanding shares. The term "majority of the outstanding shares" means
the vote of (i) 67% or more of the Fund's shares present at a meeting, if more
than 50% of the outstanding shares of the Fund are present or represented by
proxy, or (ii) more than 50% of the Fund's outstanding shares, whichever is
less.
The Fund may not:
1. Purchase securities of any issuer (except securities issued or guaranteed by
the United States Government, 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; provided, however, that the Fund may invest up to 25% of its
total assets without regard to this restriction as permitted by applicable
law.
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 the obligations issued or
guaranteed by the United States Government, its agencies or
instrumentalities, repurchase agreements involving such securities and
obligations issued by domestic branches of U.S. banks or U.S. branches of
foreign banks subject to the same regulations as U.S. banks. For purposes of
this limitation, (i) utility companies will be classified 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;
S-7
<PAGE>
(iii) supranational entities will be considered a separate industry; and
(iv) asset-backed securities will be classified according to the underlying
assets securing such securities.
3. Make loans, except that the Fund may (i) purchase or hold debt instruments
in accordance with its investment objective and policies; (ii) enter into
repurchase agreements; and (iii) engage in securities lending as described
in this Statement of Additional Information.
4. Borrow money, except that the Fund may (i) enter into reverse repurchase
agreements and (ii) borrow money for temporary or emergency purposes and
then only in an amount not exceeding 33 1/3% of the value of its total
assets. Any borrowing will be done from a bank and asset coverage of at
least 300% is required. In the event that such asset coverage shall at any
time fall below 300%, the Fund shall, within three days thereafter or such
longer period as 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%. This borrowing provision is included for
temporary liquidity or emergency purposes. All borrowings will be repaid
before making investments and any interest paid on such borrowings will
reduce income.
5. Acquire more than 5% of the voting securities of any one issuer.
6. Invest in companies for the purpose of exercising control.
7. Pledge, mortgage or hypothecate assets except to secure temporary borrowings
in aggregate amounts not to exceed 10% of total assets taken at current
value at the time of the incurrence of such loan.
8. Purchase or sell real estate, real estate limited partnership interests,
futures contracts, commodities or commodities contracts and interests in a
pool of securities that are secured by interests in real estate. However,
subject to the permitted investments of the Fund, it may invest in municipal
securities or other marketable obligations secured by real estate or
interests therein.
9. Make short sales of securities, maintain a short position or purchase
securities on margin, except that the Fund may obtain short-term credits as
necessary for the clearance of security transactions.
10. Act as an underwriter of securities of other issuers except as it may be
deemed an underwriter in selling the Fund security.
11. Purchase securities of other investment companies except as permitted by the
1940 Act and the rules and regulations thereunder.
13. Issue senior securities (as defined in the 1940 Act) except in connection
with permitted borrowings as described above or as permitted by rule,
regulation or order of the SEC.
14. Purchase or retain securities of an issuer if, to the knowledge of the Fund,
an officer, trustee, partner or director of the Trust or any investment
adviser of the Fund owns beneficially more than 0.5% of the shares or
securities of such issuer and all such officers, trustees, partners and
directors owning more than 0.5% of such shares or securities together own
more than 5% of such shares or securities.
15. Invest in interests in oil, gas or other mineral exploration or development
programs and oil, gas or mineral leases.
16. Write puts, calls, options or combinations thereof or invest in warrants.
The foregoing percentages will apply at the time of the purchase of a
security.
THE ADVISER
The Trust and AIG Capital Management Corp. (the "Adviser") have entered into
an advisory agreement dated November 21, 1994 (the "Advisory Agreement"). The
Advisory Agreement provides that the Adviser shall not be protected against any
liability to the Trust or its shareholders by reason of willful
S-8
<PAGE>
misfeasance, bad faith or gross negligence on its part in the performance of its
duties or from reckless disregard of its obligations or duties thereunder.
The Adviser is an indirect wholly-owned subsidiary of American International
Group, Inc. ("AIG"). AIG is a holding company which through its subsidiaries is
primarily engaged in a broad range of insurance and insurance-related and
financial services activities in the United States and abroad. The Adviser was
formed in June 1994. Its officers and employees include individuals with
investment management experience, including experience with short-term
investments. The principal business address of the Adviser is 70 Pine Street,
New York, New York 10270.
The Adviser serves as the Fund's investment adviser and 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.
The Adviser is entitled to a fee, which is calculated daily and paid
monthly, at an annual rate of .25% of the average daily net assets of the Fund.
The Adviser has voluntarily agreed to waive 10 basis points (.10%) of its fees
and to waive additional fees and/or reimburse certain expenses of the Fund to
the extent necessary in order to limit net operating expenses to an annual rate
of not more than .40% of the average daily net assets of the Class A shares of
the Fund and not more than .75% of the average daily net assets of the Class B
Shares of the Fund. The Adviser reserves the right to terminate its waiver or
any reimbursements at any time upon sixty days' notice to the Fund in its sole
discretion. For the fiscal year ended October 31, 1998, the Adviser received
(after fee waivers) a fee equal to % of the Fund's average daily net
assets.
For the fiscal years ended October 31, 1996, October 31, 1997 and October
31, 1998, the Adviser was paid advisory fees of $1,023,856, $689,323 and
$ , respectively, and waived advisory fees of $81,307, $459,559 and
$ , respectively, with respect to the Fund.
The continuance of the Advisory Agreement must be specifically approved at
least annually (i) by the vote of the Trustees or by a vote of the shareholders
of the Fund, and (ii) by the vote of a majority of the Trustees who are not
parties to the Agreement or "interested persons" of any party thereto, cast in
person at a meeting called for the purpose of voting on such approval. The
Advisory Agreement will terminate automatically in the event of its assignment,
and is terminable at any time without penalty by the Trustees of the Trust or,
with respect to the Fund, by a majority of the outstanding shares of the Fund,
on not less than 30 days' nor more than 60 days' written notice to the Adviser,
or by the Adviser on 90 days' written notice to the Trust.
THE 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. The Trust shall pay the
Administrator compensation for services rendered at an annual rate equal to the
sum of (i) .10% of average daily net assets up to $50 million; (ii) .08% of
average daily net assets from $50 million up to $250 million; and (iii) .05% of
average daily net assets in excess of $250 million. There is a minimum annual
fee of $75,000 per portfolio plus $15,000 for each additional class.
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. For the
fiscal years ended October 31, 1996, October 31, 1997 and October 31, 1998, the
Administrator received a fee of $411,405, $326,095 and $ , respectively,
from
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<PAGE>
the Fund. The Administrator waived $13,365, $56,655 and $ , respectively,
of fees for the fiscal years ended October 31, 1996, October 31, 1997 and
October 31, 1998.
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 ("SEI
Investments"), is the owner of all beneficial interest in the Administrator. SEI
Investments and its subsidiaries and affiliates, including the Administrator,
are leading providers of funds evaluation services, trust accounting systems,
and brokerage and information services to financial institutions, institutional
investors, and money managers. The Administrator and its affiliates also serve
as administrator or sub-administrator to the following other mutual funds: The
Achievement Funds Trust, The Arbor Fund, ARK Funds, Armada Funds, Bishop Street
Funds, Boston 1784 Funds-Registered Trademark-, CrestFunds, Inc., CUFUND, The
Expedition Funds, First American Funds, Inc., First American Investment Funds,
Inc., First American Strategy Funds, Inc., HighMark Funds, Monitor Funds, The
Nevis Funds, Oak Associates Funds, The PBHG Funds, Inc., PBHG Advisor Funds,
Inc., PBHG Insurance Series Fund, Inc., The Pillar Funds, SEI Asset Allocation
Trust, SEI Daily Income Trust, SEI Index Funds, SEI Institutional International
Trust, SEI Institutional Investments Trust, SEI Institutional Managed Trust, SEI
Liquid Asset Trust, SEI Tax Exempt Trust, STI Classic Funds, STI Classic
Variable Trust, TIP Funds and Alpha Select 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 dated November 14, 1991 ("Distribution Agreement") which applies to
both Class A and Class B 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 of the outstanding shares of the Trust upon not more
than 60 days' written notice by either party or upon assignment by the
Distributor. The Distributor does not receive compensation for distribution of
Class A shares of the Fund. Class B shares are subject to the terms of a
distribution plan dated August 8, 1994 (the "Class B Plan").
CLASS B PLAN
The Distribution Agreement and the Class B Plan provide that the Class B
shares of the Fund will pay the Distributor a fee of .35% of the average daily
net assets of the Class B shares which the Distributor may make payments
pursuant to written agreements to financial institutions and intermediaries such
as banks, savings and loan associations, insurance companies including, without
limit, other subsidiaries and affiliates of AIG, investment counselors,
broker-dealers and the Distributor's affiliates and subsidiaries (collectively,
"Agents") as compensation for services, reimbursement of expenses incurred in
connection with distribution assistance or provision of shareholder services.
The Class B Plan is characterized as a compensation plan since the distribution
fee will be paid to the Distributor without regard to the distribution or
shareholder service expenses incurred by the Distributor or the amount of
payments made to other financial institutions and intermediaries. Investors
should understand that some Agents may charge their clients fees in connection
with purchases of Class B shares or the provision of shareholder services with
respect to Class B shares. The Trust intends to operate the Class B Plan in
accordance with its terms and with the NASD rules concerning sales charges.
The Distributor has appointed AIG Equity Sales Corp. (the
"Sub-Distributor"), a wholly-owned subsidiary of AIG and an affiliate of the
Adviser, as sub-distributor and servicing agent with respect to the
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<PAGE>
Class B shares of the Fund. The Sub-Distributor may appoint additional
sub-distributors and/or servicing agents.
The Trust has adopted the Class B Plan in accordance with the provisions of
Rule 12b-1 under the 1940 Act, which regulates circumstances under which an
investment company may directly or indirectly bear expenses relating to the
distribution of its shares. Continuance of the Class B Plan must be approved
annually by a majority of the Trustees of the Trust and by a majority of the
Trustees who are not parties to the Distribution Agreement or interested persons
(as defined by the 1940 Act) of any party to the Distribution Agreement
("Qualified Trustees"). The Class B Plan requires that quarterly written reports
of amounts spent under the Class B Plan and the purposes of such expenditures be
furnished to and reviewed by the Trustees. The Class B Plan may not be amended
to increase materially the amount which may be spent thereunder without approval
by a majority of the outstanding Class B shares of the Fund. All material
amendments of the Plan will require approval by a majority of the Trustees of
the Trust and of the Qualified Trustees.
For the fiscal years ended October 31, 1996, October 31, 1997 and October
31, 1998 the Distributor received from the Fund, pursuant to the Class B Plan,
distribution fees in the amount of $397,438, $419,962 and $ ,
respectively, with respect to the Class B shares. The entire amount of these
fees was paid by the Distributor to the Sub-Distributor, as compensation for its
services, in accordance with an agreement between the Distributor and the
Sub-Distributor.
THE TRANSFER AGENT
DST Systems, Inc., 330 W. 9th Street, Kansas City, MO 64105 serves as the
Trust's transfer agent.
THE CUSTODIAN
First Union National Bank, Broad and Chestnut Streets, P.O. Box 7618,
Philadelphia, Pennsylvania 19101 acts as custodian (the "Custodian") of the
Trust. The Custodian holds cash, securities and other assets of the Trust as
required by the 1940 Act.
INDEPENDENT PUBLIC ACCOUNTANTS
Arthur Andersen LLP serves as independent public accountants for the Trust.
LEGAL COUNSEL
Morgan, Lewis & Bockius LLP, 1800 M Street, N.W., Washington, D.C. serves as
legal counsel to the Trust.
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. The Trustees have approved
contracts under which, as described above, certain companies provide essential
management services to the Trust. The Trust pays the 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, Armada Funds, Bishop
Street Funds, Boston 1784 Funds-Registered Trademark-, CrestFunds, Inc., CUFUND,
The Expedition Funds, First American Funds, Inc., First American Investment
Funds, Inc., First American Strategy Funds, Inc., HighMark Funds, Monitor Funds,
Oak Associates Funds, The PBHG Funds, Inc.,
S-11
<PAGE>
PBHG Advisor Funds, Inc., PBHG Insurance Series Fund, Inc., The Pillar Funds,
SEI Asset Allocation Trust, SEI Daily Income Trust, SEI Index Funds, SEI
Institutional International Trust, SEI Institutional Investments Trust, SEI
Institutional Managed Trust, SEI Liquid Asset Trust, SEI Tax Exempt Trust, STI
Classic Funds, STI Classic Variable Trust, TIP Funds and Alpha Select Funds,
each of which is an open-end management investment company managed by SEI
Investments Mutual Funds Services or its affiliates and, except for PBHG Advisor
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, 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 Institutional
International Trust, SEI Liquid Asset Trust and SEI Tax Exempt Trust.
JOHN T. COONEY (DOB 01/20/27)--Trustee**--Vice Chairman of Ameritrust Texas
N.A., 1989-1992, and MTrust Corp., 1985-1989. Trustee of The Arbor Fund, The
Expedition Funds, and Oak Associates Funds.
WILLIAM M. DORAN (DOB 05/26/40)--Trustee*--1701 Market Street, Philadelphia,
PA 19103-2921. Partner, Morgan, Lewis & Bockius LLP (law firm), counsel to the
Trust, SEI Investments, the Administrator and the Distributor. Director and
Secretary of SEI Investments and Secretary of the Administrator and the
Distributor. Trustee of The Arbor Fund, The Expedition Funds, Oak Associates
Funds, SEI Asset Allocation Trust, SEI Daily Income Trust, SEI Index Funds, SEI
Institutional Investments Trust, SEI Institutional Managed Trust, SEI
Institutional International Trust, SEI Liquid Asset Trust and SEI Tax Exempt
Trust.
ROBERT A. PATTERSON (DOB 11/05/27)--Trustee**--Pennsylvania State
University, Senior Vice President, Treasurer (Emeritus). Financial and
Investment Consultant, Professor of Transportation (1984-present). Vice
President-Investments, Treasurer, Senior Vice President (Emeritus) (1982-1984).
Director, Pennsylvania Research Corp.; Member and Treasurer, Board of Trustees
of Grove City College. Trustee of The Arbor Fund, The Expedition Funds 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 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, Oak Associates Funds, SEI Asset Allocation Trust, SEI Daily Income Trust,
SEI Index Funds, SEI Institutional Investments Trust, SEI Institutional Managed
Trust, SEI Institutional International Trust, SEI Liquid Asset Trust and SEI Tax
Exempt Trust.
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.
JAMES R. FOGGO (DOB 06/30/64)--Vice President and Assistant Secretary--Vice
President and Assistant Secretary of the Administrator and the Distributor since
1998. Associate, Paul Weiss, Rifkind, Wharton & Garrison (law firm), 1998.
Associate, Baker & McKenzie (law firm), 1995-1998. Associate, Battle Fowler
L.L.P. (law firm), 1993-1995. Operations Manager, The Shareholder Services
Group, Inc., 1986-1990.
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<PAGE>
LYDIA A. GAVALIS (DOB 06/05/64)--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.
KATHY HEILIG (DOB 12/21/58)--Vice President and Assistant
Secretary--Treasurer of SEI Investments since 1997; Assistant Controller of SEI
Investments since 1995; Vice President of SEI Investments since 1991; Director
of Taxes of SEI Investments, 1987 to 1991. Tax Manager, Arthur Anderson LLP
prior to 1987.
JOSEPH M. O'DONNELL (DOB 11/13/54)--Vice President and Assistant
Secretary--Vice President and Assistant Secretary of the Administrator and the
Distributor since 1998. Vice President and General Counsel, FPS Services, Inc.,
1993-1997. Staff Counsel and Secretary, Provident Mutual Family of Funds,
1990-1993.
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.
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.
MARK E. NAGLE (DOB 10/20/59)--Controller and Chief Financial 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 December 1997. Vice President, Fund Accounting, BISYS Fund Services,
September 1995 to November 1996. Senior Vice President and Site Manager,
Fidelity Investments 1981 to September 1995.
JOHN H. GRADY, JR. (DOB 06/01/61)--Secretary--1701 Market Street,
Philadelphia, PA 19103-2921, Partner since 1995, Morgan, Lewis & Bockius LLP
(law firm), counsel to the Trust, SEI Investments, the Administrator and the
Distributor.
- ------------------------
* 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, Patterson, Peters and Storey serve as members of the Audit
Committee of the Fund.
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.
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<PAGE>
The following table exhibits Trustee compensation for the fiscal year ended
October 31, 1998.
<TABLE>
<CAPTION>
AGGREGATE
COMPENSATION TOTAL COMPENSATION FROM
FROM REGISTRANT PENSION OR REGISTRANT AND
FOR THE FISCAL RETIREMENT ESTIMATED FUND COMPLEX* PAID TO
YEAR ENDED BENEFITS ACCRUED ANNUAL TRUSTEES FOR THE
OCTOBER 31, AS PART OF BENEFITS UPON FISCAL YEAR ENDED
NAME OF PERSON, POSITION 1998 TRUST EXPENSES RETIREMENT OCTOBER 31, 1998
- ------------------------------------- --------------- ------------------- ----------------- ------------------------
<S> <C> <C> <C> <C>
John T. Cooney....................... $ N/A N/A $ for services on 1
board
Frank E. Morris...................... $ N/A N/A $ for services on 1
board
Robert Patterson..................... $ N/A N/A $ for services on 1
board
Eugene B. Peters..................... $ N/A N/A $ for services on 1
board
James M. Storey, Esq................. $ N/A N/A $ for services on 1
board
William A. Doran, Esq................ $ 0 N/A N/A $0 for services on 1
board
Robert A. Nesher..................... $ 0 N/A N/A $0 for services on 1
board
</TABLE>
- ------------------------------
* For purposes of this table, the Fund is the only investment company in the
"Fund Complex."
PERFORMANCE INFORMATION
From time to time, the Trust may advertise yield, effective yield and total
return of the Fund. These figures will be based on historical earnings and are
not intended to indicate future performance. No representation can be made
concerning actual future yields.
CLASSES OF SHARES AND PERFORMANCE
The performance of Class A shares will normally be higher than that of Class
B shares because Class A shares are not subject to distribution expenses charged
to Class B shares. Yield quotations are computed and presented separately for
the Class A and Class B shares.
PERFORMANCE COMPARISONS
The Fund may periodically compare its performance to other mutual funds
tracked by mutual fund rating services, to broad groups of comparable mutual
funds, or to unmanaged indices. These comparisons may assume reinvestment of
dividends but generally do not reflect deductions for administrative and
management costs.
COMPUTATION OF YIELD
The yield of the Fund refers to the annualized income generated by an
investment in the Fund over a specified 7-day period. The yield is calculated by
assuming that the income generated by the investment during that 7-day period is
generated in each period over one year and is shown as a percentage of the
investment. The "effective yield" is calculated similarly, but when annualized,
the income earned by an investment in the Fund is assumed to be reinvested. The
"effective yield" will be slightly higher than the "yield" because of the
compounding effect of this assumed investment. In particular, these yields will
be calculated as follows:
The current yield of the Fund will be calculated daily based upon the seven
days ending on the date of calculation ("base period"). The yield is computed by
determining the net change during the period (exclusive of capital changes) in
the value of a hypothetical pre-existing shareholder account having a balance of
one share at the beginning of the period, subtracting a hypothetical charge
reflecting deductions from shareholder accounts, and dividing such net change by
the value of the account at the beginning of the same period to obtain the base
period return and multiplying the result by (365/7). Realized and unrealized
gains and losses are not included in the calculation of the yield. The effective
yield of the Fund is determined by computing the net change during the period,
exclusive of capital changes, in the value of a hypothetical pre-existing
account having a balance of one share at the beginning of the period,
subtracting
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a hypothetical charge reflecting deductions from shareholder accounts, and
dividing the difference by the value of the account at the beginning of the base
period to obtain the base period return, and then compounding the base period
return, according to the following formula:
Effective Yield = [(Base Period Return + 1)to the power of(365/7)] - 1.
The effective yield reflects the reinvestment of net income earned daily on
the Fund's assets.
For the 7-day period ended October 31, 1998, the end of the Fund's most
recent fiscal year, the current and effective yields for Class A shares of the
Fund were % and %, respectively, and for Class B shares were % and
%, respectively.
CALCULATION OF TOTAL RETURN
The total return of the Fund refers to the average compounded rate of return
to a hypothetical investment for designated time periods (including, but not
limited to, the period from which the Trust 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)to the power of 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. Total return is calculated separately for each class of shares of the
Trust.
The total return for Class A Shares of the Fund for the fiscal year ended
October 31, 1998 was %, and for the period from December 1, 1994
(commencement of operations) through October 31, 1998, the cumulative return for
Class A Shares of the Fund was %.
The total return for Class B Shares of the Fund for the fiscal year ended
October 31, 1998 was %, and for the period from February 16, 1995
(commencement of operations) through October 31, 1998, the cumulative return for
Class B Shares of the Fund was %.
PURCHASING SHARES
Purchases and redemptions may be made through the Distributor on a day when
the New York Stock Exchange and Federal Reserve wire system are open for
business. Shares of the Fund are offered on a continuous basis. Currently, the
Fund is closed for business when the following holidays are observed: New Year's
Day, Martin Luther King Jr. Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Columbus Day, Veterans' Day, Thanksgiving and
Christmas.
REDEEMING SHARES
It is currently the Trust's policy to pay all redemptions in cash. The Trust
retains the right, however, to alter this policy to provide for redemptions in
whole or in part by a distribution in-kind of securities held by the 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.
A Shareholder will at all times be entitled to aggregate cash redemptions
from all portfolios of the Trust during any 90-day period of up to the lesser of
$250,000 or 1% of the Trust's net assets.
The Trust reserves the right to suspend the right of redemption and/or to
postpone the date of payment upon redemption for any period on which trading on
the New York Stock Exchange is restricted, or during the existence of an
emergency (as determined by the SEC by rule or regulation) as a result of which
the disposal or valuation of the Fund's securities is not reasonably
practicable, or for such other periods as the SEC has by order permitted. The
Trust also reserves the right to suspend sales of shares of
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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 net asset value per share of each class of the Fund is calculated by
adding the value of securities and other assets, subtracting liabilities and
dividing by the number of outstanding shares. Securities will be valued by the
amortized cost method which involves valuing a security at its cost on the date
of purchase and thereafter (absent unusual circumstances) assuming a constant
amortization to maturity of any discount or premium, regardless of the impact of
fluctuations in general market rates of interest on the value of the instrument.
While this method provides certainty in valuation, it may result in periods
during which a security's value, as determined by this method, is higher or
lower than the price the Fund would receive if it sold the instrument. During
periods of declining interest rates, the daily yield of the Fund may tend to be
higher than a like computation made by a company with identical investments
utilizing a method of valuation based upon market prices and estimates of market
prices for all of its portfolio securities. Thus, if the use of amortized cost
by the Fund resulted in a lower aggregate portfolio value on a particular day, a
prospective investor in the Fund would be able to obtain a somewhat higher yield
than would result from investment in a company utilizing solely market values,
and existing investors in the Fund would experience a lower yield. The converse
would apply in a period of rising interest rates.
The use of amortized cost valuation by the Fund and the maintenance of the
Fund's net asset value at $1.00 are permitted by regulations promulgated by Rule
2a-7 under the Investment Company Act of 1940 (the "1940 Act"), provided that
certain conditions are met. Under Rule 2a-7 as amended, a money market portfolio
must maintain a dollar-weighted average maturity in the Fund of 90 days or less
and not purchase any instrument having a remaining maturity of more than 397
days. In addition, money market funds may acquire only U.S. dollar denominated
obligations that present minimal credit risks and that are "eligible securities"
which means they are (i) rated, at the time of investment, by at least two
nationally recognized statistical rating organizations (one if it is the only
organization rating such obligation) in the highest short-term rating category
or, if unrated, determined to be of comparable quality (a "first tier
security"), or (ii) rated according to the foregoing criteria in the second
highest short-term rating category or, if unrated, determined to be of
comparable quality ("second tier security"). The Fund does not invest in second
tier securities. The Adviser will determine that an obligation presents minimal
credit risks or that unrated instruments are of comparable quality to first tier
securities in accordance with guidelines established by the Trustees. In
addition, investments in second tier securities are subject to the further
constraints that (i) no more than 5% of the Fund's assets may be invested in
such securities in the aggregate, and (ii) any investment in such securities of
one issuer is limited to the greater of 1% of the Fund's total assets or $1
million. The regulations also require the Trustees to establish procedures which
are reasonably designed to stabilize the net asset value per share at $1.00 for
the Fund. However, there is no assurance that the Fund will be able to meet this
objective. The Trust's procedures include the determination of the extent of
deviation, if any, of the Fund's current net asset value per unit calculated
using available market quotations from the Fund's amortized cost price per share
at such intervals as the Trustees deem appropriate and reasonable in light of
market conditions and periodic reviews of the amount of the deviation and the
methods used to calculated such deviation. In the event that such deviation
exceeds 1/2 of 1%, the Trustees are required to consider promptly what action,
if any, should be initiated. If the Trustees believe that the extent of any
deviation may result in material dilution or other unfair results to
Shareholders, the Trustees are required to take such corrective action as they
deem appropriate to eliminate or reduce such dilution or unfair results to the
extent reasonably practicable. In addition, if the Fund incurs a significant
loss or liability, the Trustees have the authority to reduce pro rata the number
of shares of the Fund in each Shareholder's account and to offset each
Shareholder's pro rata portion of such loss or lability from the Shareholder's
accrued but unpaid dividends or from future dividends.
The securities of the Fund are valued by the Administrator. The
Administrator will use an independent pricing service to obtain valuations of
securities. The pricing service relies primarily on prices of
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actual market transactions as well as trader quotations. However, the service
may also use a matrix system to determine valuations, which system considers
such factors as security prices, yields, maturities, call features, ratings and
developments relating to specific securities in arriving at valuations. The
procedures of the pricing service and its valuations are reviewed by the
officers of the Trust under the general supervision of the Trustees.
TAXES
The following is only a summary of certain additional federal income tax
considerations generally affecting the Fund and its shareholders that are not
described in the Fund's prospectus. No attempt is made to present a detailed
explanation of the tax treatment of the Fund or its shareholders, and the
discussion here and in the Fund's prospectus is not intended as a substitute for
careful tax planning. Shareholders are urged to consult their tax advisors with
specific reference to their own tax situations, including their state and local
tax liabilities.
FEDERAL INCOME TAX TREATMENT OF DIVIDENDS AND DISTRIBUTIONS
The following general discussion of certain federal income tax consequences
is based on the Internal Revenue Code of 1986, as amended (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.
QUALIFICATION AS REGULATED INVESTMENT COMPANY
The Fund intends to qualify and elect to be treated as a "regulated
investment company" ("RIC") under Subchapter M of the Code. By following such a
policy, the Fund expects to eliminate or reduce to a nominal amount the federal
taxes to which it may be subject.
In order to qualify as a RIC, the Fund must distribute at least 90% of its
net investment income (generally, dividends, taxable interest, and the excess of
net short-term capital gains over net long-term capital losses less operating
expenses) and at least 90% of its net tax exempt interest income, for each tax
year (the "Distribution Requirement"), if any, to its shareholders and also must
meet several additional requirements. Among these requirements are the
following: (i) at least 90% of the Fund's gross income each taxable year must be
derived from dividends, interest, payments with respect to securities loans and
gains from the sale or other disposition of stock or securities, or certain
other income; (ii) at the close of each quarter of the Fund's taxable year, at
least 50% of the value of its total assets must be represented by cash and cash
items, U.S. Government securities, securities of other RICs and other
securities, with such other securities limited, in respect to any one issuer, to
an amount that does not exceed 5% of the value of the Fund's assets and that
does not represent more than 10% of the outstanding voting securities of such
issuer; and (iii) at the close of each quarter of the Fund's taxable year, not
more than 25% of the value of its assets may be invested in securities (other
than U.S. Government securities or the securities of other RICs) of any one
issuer or of two or more issuers that the Fund controls or that are engaged in
the same, similar or related trades or business.
The Fund may make investments in securities (such as STRIPS) that bear
"original issue discount" or "acquisition discount" (collectively, "OID
Securities"). The holder of such securities is deemed to have received interest
income even though no cash payments have been received. Accordingly, OID
Securities may not produce sufficient current cash receipts to match the amount
of distributable net investment income the Fund must distribute to satisfy the
Distribution Requirement. In some cases, the Fund may have to borrow money or
dispose of other investments in order to make sufficient cash distributions to
satisfy the Distribution Requirement.
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Although the Fund intends to distribute substantially all of its net
investment income and may distribute its capital gains for any taxable year, the
Fund will be subject to federal income taxation to the extent any such income or
gains are not distributed.
If the Fund fails to qualify for any taxable year as a RIC, all of its
taxable income will be subject to tax at regular corporate income tax rates
without any deduction for distributions to shareholders and such distributions
generally will be taxable to shareholders as ordinary dividends to the extent of
the Fund's current and accumulated earnings and profits. In this event,
distributions generally will be eligible for the dividends-received deduction
for corporate shareholders.
FUND DISTRIBUTIONS
Distributions of investment company taxable income will be taxable to
shareholders as ordinary income, regardless of whether such distributions are
paid in cash or are reinvested in additional Shares, to the extent of the Fund's
earnings and profits. The Fund anticipates that it will distribute substantially
all of its investment company taxable income for each taxable year.
The Fund may either retain or distribute to shareholders its excess of net
long-term capital gains over net short-term capital losses ("net capital
gains"). If such gains are distributed as a capital gains distribution, they are
taxable to shareholders who are individuals at a maximum rate of 20%, regardless
of the length of time the shareholder has held shares. If any such gains are
retained, the Fund will pay federal income tax thereon.
In the case of corporate shareholders, distributions (other than capital
gains distributions) from a RIC, generally qualify for the dividends-received
deduction only to the extent of the gross amount of qualifying dividends
received by the Fund for the year. Generally, and subject to certain
limitations, a dividend will be treated as a qualifying dividend if it has been
received from a domestic corporation. Accordingly, it is not expected that any
Fund distribution will qualify for the corporate dividends-received deduction.
Ordinarily, investors should include all dividends as income in the year of
payment. However, dividends declared payable to shareholders of record in
December of one year, but paid in January of the following year, will be deemed
for tax purposes to have been received by the shareholder and paid by the Fund
in the year in which the dividends were declared.
The Fund will provide a statement annually to shareholders as to the federal
tax status of distributions paid (or deemed to be paid) by the Fund during the
year, including the amount of dividends eligible for the corporate
dividends-received deduction.
SALE OR EXCHANGE OF FUND SHARES
Generally, gain or loss on the sale or exchange of a Share will be capital
gain or loss that will be long-term if the Share has been held for more than
twelve months and otherwise will be short-term. For individuals, long-term
capital gains are currently taxed at a maximum rate of 20% and short-term
capital gains are currently taxed at ordinary income tax rates. However, if a
shareholder realizes a loss on the sale, exchange or redemption of a Share held
for six months or less and has previously received a capital gains distribution
with respect to the Share (or any undistributed net capital gains of the Fund
with respect to such Share are included in determining the shareholder's
long-term capital gains), the shareholder must treat the loss as a long-term
capital loss to the extent of the amount of the prior capital gains distribution
(or any undistributed net capital gains of the Fund that have been included in
determining such shareholder's long-term capital gains). In addition, any loss
realized on a sale or other disposition of Shares will be disallowed to the
extent an investor repurchases (or enters into a contract or option to
repurchase) Shares within a period of 61 days (beginning 30 days before and
ending 30 days after the disposition of the Shares). This loss disallowance rule
will apply to Shares received through the reinvestment of dividends during the
61-day period.
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In certain cases, the Fund will be required to withhold, and remit to the
United States Treasury, 31% of any distributions paid to a shareholder who (1)
has failed to provide a correct taxpayer identification number, (2) is subject
to backup withholding by the Internal Revenue Service, or (3) has failed to
certify to the Fund that such shareholder is not subject to backup withholding.
FEDERAL EXCISE TAX
If the Fund fails to distribute in a calendar year at least 98% of its
ordinary income for the 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 October 31 of that year (and any retained amount
from the prior calendar year), the Fund will be subject to a nondeductible 4%
Federal excise tax on the undistributed amounts. The Fund intends to make
sufficient distributions to avoid imposition of this tax, or to retain, at most
its net capital gains and pay tax thereon.
STATE AND LOCAL TAXES
The Fund is not liable for any income or franchise tax in Massachusetts if
it qualifies as a RIC for federal income tax purposes. Distributions by the Fund
to shareholders and the ownership of shares may be subject to state and local
taxes.
FUND TRANSACTIONS
The Fund has no obligation to deal with any broker-dealer or group of
broker-dealers in the execution of transactions in portfolio securities. Subject
to policies established by the Trustees of the Trust, the Adviser is responsible
for placing the orders to execute transactions for the Fund. In placing orders,
it is the policy of the Trust to seek to obtain the best net results taking into
account such factors as price (including the applicable dealer spread), the
size, type and difficulty of the transaction involved, the firm's general
execution and operational facilities and the firm's risk in positioning the
securities involved. While the Adviser generally seeks reasonably competitive
spreads or commissions, the Fund will not necessarily be paying the lowest
spread or commission available.
The money market instruments in which the Fund invests are traded primarily
in the over-the-counter market. Bonds and debentures are usually traded
over-the-counter, but may be traded on an exchange. Where possible, the Adviser
will deal directly with the dealers who make a market in the securities involved
except in those circumstances where better prices and execution are available
elsewhere. Such dealers usually are acting as principal for their own account.
On occasion, securities may be purchased directly from the issuer. Money market
instruments are generally traded on a net basis and do not normally involve
either brokerage commissions or transfer taxes. The cost of executing portfolio
securities transactions of the Fund will primarily consist of dealer spreads and
underwriting commissions.
TRADING PRACTICES AND BROKERAGE
The Adviser, consistent with the interests of the Fund, selects brokers or
dealers to execute transactions for the purchase or sale of portfolio securities
on the basis of its judgment of their professional capability to provide the
service. The primary consideration is to have brokers or dealers provide
transactions at best price and execution for the Trust. Best price and execution
includes many factors, including the price paid or received for a security, the
commission charged, the promptness and reliability of execution, the
confidentiality and placement accorded the order and other factors affecting the
overall benefit obtained by the account on the transaction. The Adviser's
determination of what are reasonably competitive rates is based upon the
professional knowledge of its trading department as to rates paid and charged
for similar transactions throughout the securities industry. In some instances,
the Trust pays a minimal share transaction cost when the transaction presents no
difficulty. Some trades are made on a net basis where the Trust either buys
securities directly from the dealer or sells them to the dealer. In these
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instances, there is no direct commission charged but there is a spread (the
difference between the buy and sell price) which is the equivalent of a
commission.
The Trust may allocate out of all commission business generated by the Fund
and accounts under management by the Adviser, brokerage business to brokers or
dealers who provide brokerage and research services. 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. Such services are used by the Adviser in connection with its
investment decision-making process with respect to one or more funds and
accounts managed by it, and may not be used exclusively with respect to the fund
or account generating the brokerage.
As provided in the Securities Exchange Act of 1934 (the "1934 Act") higher
commissions may be paid to broker-dealers who provide brokerage and research
services than to broker-dealers who do not provide such services if such higher
commissions are deemed reasonable in relation to the value of the brokerage and
research services provided. Although transactions are directed to broker-dealers
who provide such brokerage and research services, the Adviser believes that the
commissions paid to such broker-dealers are not, in general, higher than
commissions that would be paid to broker-dealers not providing such services and
that such commissions are reasonable in relation to the value of the brokerage
and research services provided. In addition, portfolio transactions which
generate commissions or their equivalent are directed to broker-dealers who
provide daily portfolio pricing services to the Trust. Subject to best price and
execution, commissions used for pricing may or may not be generated by the funds
receiving the pricing service.
The Adviser may place a combined order for two or more accounts or funds
engaged in the purchase or sale of the same security if, in its judgment, joint
execution is in the best interest of each participant and will result in best
price and execution. Transactions involving commingled orders are allocated in a
manner deemed equitable to each account or fund. It is believed that the ability
of the accounts to participate in volume transactions will generally be
beneficial to the accounts and funds. Although it is recognized that, in some
cases, the joint execution of orders could adversely affect the price or volume
of the security that a particular account or the Fund may obtain, it is the
opinion of the Adviser and the Trust's Board of Trustees that the advantages of
combined orders outweigh the possible disadvantages of separate transactions.
Consistent with the Conduct Rules of the National Association of Securities
Dealers, Inc., and subject to seeking best price and execution, the Fund, at the
request of the Distributor, give consideration to sales of shares of the Trust
as a factor in the selection of brokers and dealers to execute Trust portfolio
transactions.
The Adviser may, consistent with the interests of the Fund, 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, the 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
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the Adviser will not necessarily be reduced as a result of the receipt of such
supplemental information, such services may not be used exclusively, or at all,
with respect to the 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 the Fund. For the fiscal year ended October 31, 1998, the Fund directed
no transactions to broker-dealers for research services.
It is expected that the Fund may execute brokerage or other agency
transactions through the Distributor, which is a registered broker-dealer, for a
commission in conformity with the 1940 Act, the Securities Exchange Act of 1934
and rules promulgated by the SEC. Under these provisions, the Distributor is
permitted to receive and retain compensation for effecting portfolio
transactions for the Fund on an exchange if a written contract is in effect
between the Distributor and the Trust expressly permitting the Distributor to
receive and retain such compensation. These rules further require that
commissions paid to the Distributor by the Fund for exchange transactions not
exceed "usual and customary" brokerage commissions. The rules define "usual and
customary" commissions to include amounts which are "reasonable and fair
compared to the commission, fee or other remuneration received or to be received
by other brokers in connection with comparable transactions involving similar
securities being purchased or sold on a securities exchange during a comparable
period of time." The Trustees, including those who are not "interested persons"
of the Trust, have adopted procedures for evaluating the reasonableness of
commissions paid to the Distributor and will review these procedures
periodically.
For the fiscal years ended October 31, 1996, 1997 and 1998, the Fund paid
the following brokerage commissions:
<TABLE>
<CAPTION>
TOTAL BROKERAGE COMMISSIONS AMOUNT PAID TO SEI INVESTMENTS(1)
- ------------------------------------ ---------------------------------------
1996 1997 1998 1996 1997 1998
----- ----- ----- ----- ----------- --------
<S> <C> <C> <C> <C> <C>
$0 $0 $ $0 $2,260 $
</TABLE>
- ------------------------
(1) The amounts paid to SEI Investments reflect fees paid in connection with
repurchase agreement transactions.
For the fiscal years indicated, the Fund paid the following brokerage
commissions:
<TABLE>
<CAPTION>
% OF TOTAL
BROKERAGE % OF TOTAL
TOTAL $ AMOUNT COMMISSIONS BROKERAGE
TOTAL $ AMOUNT OF BROKERAGE PAID TO THE TRANSACTIONS
OF BROKERAGE COMMISSIONS PAID TO AFFILIATED EFFECTED THROUGH
COMMISSIONS PAID AFFILIATED BROKERS BROKERS AFFILIATED BROKERS
- --------------------- -------------------- ----------------- --------------------
1996 1997 1998 1996 1997 1998 1998 1998
- ----- ----- ----- ----- ----- ---- ----------------- --------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$0 $0 $ $0 $0 $ % %
</TABLE>
Since the Fund does not market its shares through intermediary brokers or
dealers, it is not the Trust's practice to allocate brokerage or principal
business on the basis of sales of its shares which may be made through such
firms. However, the Adviser may place portfolio orders with qualified
broker-dealers who recommend the Fund's shares to clients, and may, when a
number of brokers and dealers can provide best net results on a particular
transaction, consider such recommendations by a broker or dealer in selecting
among broker-dealers.
The Fund is required to identify any securities of its "regular brokers or
dealers" (as such term is defined in the 1940 Act), which the Fund has acquired
during its most recent fiscal year. As of October 31, 1998, the Fund held
$ of debt securities issued by Merrill Lynch, $ of debt
securities issued by UBS Securities, $ of debt securities issued by
J.P. Morgan and $ of debt securities issued by Goldman Sachs.
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DESCRIPTION OF SHARES
The Declaration of Trust authorizes the issuance of an unlimited number of
portfolios and different classes of shares of each portfolio, each of which
represents an equal proportionate interest in the portfolio with each other
share. Shares are entitled upon liquidation to a pro rata share in the net
assets of the Fund. Shareholders have no preemptive rights. The Declaration of
Trust provides that the Trustees of the Trust may create additional series of
shares divided into different classes. All consideration received by the Trust
for shares of any additional series and all assets in which such consideration
is invested would belong to that series and would be subject to the liabilities
related thereto. Share certificates representing shares will not be issued.
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.
YEAR 2000
The Trust depends on the smooth functioning of computer systems in almost
every aspect of its business. Like other mutual funds, businesses and
individuals around the world, the Trust could be adversely affected if the
computer systems used by its service providers do not properly process dates on
and after January 1, 2000 and distinguish between the year 2000 and the year
1900. The Trust has asked its service providers whether they expect to have
their computer systems adjusted for the year 2000 transition, and received
assurances from each that its system is expected to accommodate the year 2000
without material adverse consequences to the Trust. The Trust and its
shareholders may experience losses if these assurances prove to be incorrect or
as a result of year 2000 computer difficulties experienced by issuers of
portfolio securities or third parties, such as custodians, banks, broker-dealers
or others with which the Trust does business.
5% AND 25% SHAREHOLDERS
As of February 1, 1999, the following persons were the only persons who were
record owners (or to the knowledge of the Trust, beneficial owners) of 5% and
25% or more of each class of the Fund's shares. Persons who owned of record or
beneficially more than 25% of the Fund's outstanding shares may be deemed to
control the Fund within the meaning of the Act.
S-22
<PAGE>
<TABLE>
<CAPTION>
SHAREHOLDER NUMBER OF SHARES PERCENTAGE
- -------------------------------------------------------------------- ----------------- ---------------
<S> <C> <C>
CLASS A:
- --------------------------------------------------------------------
AIG Life Insurance--Investment...................................... %
Transatlantic Reinsurance--Investment............................... %
Ernest E. Stempel................................................... %
CLASS B:
- --------------------------------------------------------------------
NUF/Machine Deductible.............................................. %
National Union Fire Insurance Co. of Pittsburgh PA as Secured %
Party--Leased Equipment Reinsurance Co. Inc. as Pledgor.............
National Union Fire Insurance Co. of Pittsburgh PA as a Secured %
Party Montgomery Ward & Co. Inc. as Pledgor.........................
</TABLE>
The Trust believes that most of the shares referred to above were held by
the above persons in accounts for their fiduciary, agency or custodial
customers.
EXPERTS
The financial statements of the Trust 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 for the fiscal year ended October 31, 1998,
including notes thereto and the report of Arthur Andersen LLP thereon, are
herein incorporated by reference in reliance upon the authority of said firm as
experts in giving said report. A copy of the 1998 Annual Report to Shareholders
must accompany the delivery of this Statement of Additional Information.
S-23
<PAGE>
APPENDIX
DESCRIPTION OF RATINGS
The following descriptions are summaries of published ratings.
A-1--This is Standard & Poor's Corporation ("S&P") highest rating category
for short-term obligations and indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely strong
safety characteristics are denoted with a plus sign (+) designation.
A-2--Capacity for timely payment for this S&P category on issues with this
designation is satisfactory and the obligation is somewhat more susceptible to
the adverse effects of changes in circumstances and economic conditions than
obligations in higher rating categories.
PRIME-1--Issues rated Prime-1 (or supporting institutions) by Moody's
Investors Service, Inc. ("Moody's") have a superior ability for repayment of
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.
PRIME-2--Issuers rated Prime-2 (or supporting institutions) by Moody's have
a strong ability for repayment of senior short-term debt obligations. This will
normally be evidenced by many of the characteristics cited above but to a lesser
degree. Earnings trends and coverage ratios, while sound, may be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
The rating Fitch-1 (Highest Grade) is the highest commercial rating assigned
by Fitch Investors Service, Inc. ("Fitch"). Paper rated Fitch-1 is regarded as
having the strongest degree of assurance for timely payment. The rating Fitch-2
(Very Good Grade) is the second highest short-term obligations rating assigned
by Fitch which reflects an assurance of timely payment only slightly less in
degree than the strongest issues.
The rating Duff-1 is the highest short-term obligations rating assigned by
Duff & Phelps, Inc. ("Duff"). Paper rated Duff-1 is regarded as having very high
certainty of timely payment with excellent liquidity factors which are supported
by ample asset protection. Risk factors are minor. Paper rated Duff-2 is
regarded as having good certainty of timely payment, good access to capital
markets and sound liquidity factors and company fundamentals. Risk factors are
small. The designation A1 by IBCA, Inc. ("IBCA") indicates that the obligation
is supported by a very strong capacity for timely repayment. Those obligations
rated A1+ are supported by the highest capacity for timely repayment.
Obligations rated A2 are supported by a strong capacity for timely repayment,
although such capacity may be susceptible to adverse changes in business,
economic or financial conditions.
Securities rated A-2, P-2, Fitch-2, Duff-2 and (IBCA) A2 are deemed to be
second tier securities. The Fund's fundamental policy is not to invest in such
securities.
A-1
<PAGE>
THE ADVISORS' INNER CIRCLE FUND
PROSPECTUS
MARCH 1, 1999
FMC STRATEGIC VALUE FUND
INVESTMENT ADVISER: FIRST MANHATTAN CO.
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED ANY FUND SHARES OR
DETERMINED WHETHER THIS PROSPECTUS IS ACCURATE OR COMPLETE.
IT IS A CRIME FOR ANYONE TO TELL YOU OTHERWISE.
Page 1 of 18
<PAGE>
HOW TO READ THIS PROSPECTUS
This prospectus gives you important information about the FMC Strategic Value
Fund (Fund) that you should know before investing. Please read this
prospectus and keep it for future reference. This prospectus has been
arranged into different sections so that you can easily review this important
information. On the next page, there is some general information you should
know about the Fund.
FOR MORE DETAILED INFORMATION ABOUT THE FUND, PLEASE SEE:
<TABLE>
<CAPTION>
PAGE
<S> <C>
PRINCIPAL INVESTMENT STRATEGIES AND RISKS,
PERFORMANCE INFORMATION AND EXPENSES XXX
MORE INFORMATION ABOUT RISK XXX
THE FUND'S OTHER INVESTMENTS XXX
THE INVESTMENT ADVISER AND FUND MANAGER XXX
PURCHASING AND SELLING FUND SHARES XXX
HOW FUND SHARES ARE DISTRIBUTED XXX
DIVIDENDS, DISTRIBUTIONS AND TAXES XXX
FINANCIAL HIGHLIGHTS XXX
HOW TO OBTAIN MORE INFORMATION ABOUT THE
FMC STRATEGIC VALUE FUND XXX
</TABLE>
Page 2 of 18
<PAGE>
Introduction
- --------------------------------------------------------------------------------
The Fund is a mutual fund. A mutual fund pools shareholders' money and, using
professional investment managers, invests it in securities.
The Fund has an investment goal and strategies for reaching that goal. The
Adviser invests Fund assets in a way that the Adviser believes will help the
Fund achieve its goal. Still, investing in the Fund involves risk and there is
no guarantee that the Fund will achieve its goal. The Adviser's judgments about
the markets, the economy, or companies may not anticipate actual market
movements, economic conditions or company performance, and these judgments may
affect the return on your investment. In fact, no matter how good a job the
Adviser does, you could lose money on your investment in the Fund, just as you
could with other investments.
The value of your investment in the Fund is based on the market value of the
securities the Fund holds. These prices change daily due to economic and other
events that affect particular companies and other issuers. These price
movements, sometimes called volatility, may be greater or lesser depending on
the types of securities the Fund owns and the markets in which they trade. The
effect on the Fund of a change in the value of a single security will depend on
how widely the Fund diversifies its holdings.
Page 3 of 18
<PAGE>
FMC STRATEGIC VALUE FUND
FUND SUMMARY
Investment Goal Long-term capital appreciation
Investment focus Small to mid cap U.S. common stocks
Share price volatility High
Principal investment strategy Investing in equity securities that
the Adviser considers undervalued by
the market
Investor profile Investors who seek long-term capital
appreciation, and are willing to
accept the risks of equity investing
INVESTMENT STRATEGY OF THE FMC STRATEGIC VALUE FUND
The FMC Strategic Value Fund invests principally in common stocks of U.S.
companies with small to medium market capitalizations (between $500 million and
$5 billion) that the Adviser believes are selling at a market price below their
true value and offer the potential to increase in value. In selecting
investments for the Fund, the Adviser emphasizes companies where the Adviser
believes it has a substantial understanding of the industry and the business
where the company operates. The Adviser also concentrates on companies where it
has identified a catalyst which could have a significant positive impact on the
market price of the company's stock.
PRINCIPAL RISKS OF INVESTING IN THE FMC STRATEGIC VALUE FUND
Since it purchases equity securities, the Fund is subject to the risk that stock
prices will fall over short or extended periods of time. Historically, the
equity markets have moved in cycles, and the value of the Fund's equity
securities may fluctuate drastically from day-to-day. Individual companies may
report poor results or be negatively affected by industry and/or economic trends
and developments. The prices of securities issued by such companies may suffer
a decline in response. These factors contribute to price volatility which is
the principal risk of investing in the Fund.
Page 4 of 18
<PAGE>
The smaller capitalization companies the Fund invests in may be more vulnerable
to adverse business or economic events than larger, more established companies.
In particular, these small companies may have limited product lines, markets and
financial resources, and may depend upon a relatively small management group.
Therefore, small cap stocks may be more volatile than those of larger companies.
These securities may be traded over-the-counter or listed on an exchange and may
or may not pay dividends.
The Fund is also subject to the risk that its market segment, small to mid cap
equity value securities, may under-perform other equity market segments or the
equity markets as a whole.
PERFORMANCE INFORMATION
THIS TABLE COMPARES THE FUND'S TOTAL RETURN FOR THE PERIOD FROM AUGUST 17, 1998
(COMMENCEMENT OF OPERATIONS) THROUGH DECEMBER 31, 1998 TO THOSE OF THE RUSSELL
2000 INDEX.
<TABLE>
<CAPTION>
SINCE
INCEPTION
FMC Strategic Value Fund X.XX%
------------------------------------------
<S> <C>
Russell 2000 X.XX%
Index
------------------------------------------
</TABLE>
WHAT IS AN INDEX?
An index measures the market prices of a specific group of securities in a
particular market or securities in a market sector. You cannot invest directly
in an index. Unlike a mutual fund, an index does not have an investment advisor
and does not pay any commissions or expenses. If an index had expenses, its
performance would be lower.
The Frank Russell 2000 Small Stock Index is a widely-recognized,
capitalization-weighted (companies with larger market capitalizations have more
influence than those with smaller market capitalizations) index of the 2,000
smallest U.S. companies out of the 3,000 largest companies.
FUND FEES AND EXPENSES
Page 5 of 18
<PAGE>
THIS TABLE DESCRIBES THE SHAREHOLDER FEES THAT YOU MAY PAY IF YOU PURCHASE OR
SELL FUND SHARES. YOU WOULD PAY THESE FEES DIRECTLY FROM YOUR INVESTMENT IN THE
FUND.
Maximum Sales Charge (Load) None
Imposed on Purchases (as a
percentage of offering price)
--------------------------------------------------
Maximum Deferred Sales Charge None
(Load) (as a percentage of net
asset value)
--------------------------------------------------
Maximum Sales Charge (Load) None
Imposed or Reinvested Dividends
and other Distributions (as a
percentage of offering price)
--------------------------------------------------
Redemption Fee None
EVERY MUTUAL FUND HAS OPERATING EXPENSES TO PAY FOR SERVICES SUCH AS
PROFESSIONAL ADVISORY, SHAREHOLDER, DISTRIBUTION, ADMINISTRATION AND CUSTODY
SERVICES AND OTHER COSTS OF DOING BUSINESS. THIS TABLE DESCRIBES THE HIGHEST
FEES AND EXPENSES THAT YOU MAY PAY INDIRECTLY IF YOU HOLD SHARES OF THE FUND.
ANNUAL FUND OPERATING EXPENSES
<TABLE>
<S> <C>
Investment Advisory Fees .XX%
----------------------------------------------------------
Other Expenses .XX%
----------------------------------------------------------
Shareholder Servicing Fees .XX%
----------------------------------------------------------
Total Annual Fund Operating Expenses X.XX%
</TABLE>
The table shows the highest expenses that could be currently charged to the
Fund. Actual expenses are lower because the Adviser and the Distributor are
voluntarily waiving a portion of its fees. Actual Investment Advisory Fees and
Total Operating Expenses are [ %] and [ %], respectively. The Adviser
could discontinue these voluntary waivers at any time. For more information
about these fees, see "Investment Adviser."
EXAMPLE
This Example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. The Example assumes that you
invest $10,000 in the Fund for the time periods indicated and that you sell your
shares at the end of the period.
Page 6 of 18
<PAGE>
The Example also assumes that each year your investment has a 5% return and Fund
expenses remain the same. Although your actual costs and returns might be
different, your approximate costs of investing $10,000 in the Fund would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
$XXX $XXX $XXX $XXX
</TABLE>
Page 7 of 18
<PAGE>
MORE INFORMATION ABOUT RISK
EQUITY RISK - The Fund may invest in public and privately issued equity
securities, including common and preferred stocks, warrants, rights to subscribe
to common stock and convertible securities, as well as instruments that attempt
to track the price movement of equity indices. Investments in equity securities
and equity derivatives in general are subject to market risks that may cause
their prices to fluctuate over time. The value of securities convertible into
equity securities, such as warrants or convertible debt, is also affected by
prevailing interest rates, the credit quality of the issuer and any call
provision. Fluctuations in the value of equity securities in which the fund
invest will cause the net asset value of the fund to fluctuate. An investment
in the fund may be more suitable for long-term investors who can bear the risk
of share price fluctuations.
YEAR 2000 RISK - The Fund depends on the smooth functioning of computer systems
in almost every aspect of their business. Like other mutual funds, businesses
and individuals around the world, the Fund could be adversely affected if the
computer systems used by its service providers do not properly process dates on
and after January 1, 2000, and distinguish between the year 2000 and the year
1900. The Fund has asked their service providers whether they expect to have
their computer systems adjusted for the year 2000 transition, and is seeking
assurances from each service provider that they are devoting significant
resources to prevent material adverse consequences to the Fund. While it is
likely that such assurances will be obtained, the Fund and their shareholders
may experience losses if these assurances prove to be incorrect or as a result
of year 2000 computer difficulties experienced by issuers of portfolio
securities or third parties, such as custodians, banks, broker-dealers or others
with which the Fund do business.
Page 8 of 18
<PAGE>
THE FUND'S OTHER INVESTMENTS
In addition to the investments and strategies described in this prospectus, the
Fund also may invest in other securities, use other strategies and engage in
other investment practices, which are described in detail in our Statement of
Additional Information. Of course, we cannot guarantee that the Fund will
achieve its investment goal.
The investments and strategies described in this prospectus are those that we
use under normal conditions. During unusual economic or market conditions, or
for temporary defensive or liquidity purposes, the Fund may invest up to 100% of
its assets in cash or money market instruments that would not ordinarily be
consistent with the Fund's objectives. The Fund will only do so if the Adviser
believes that the risk of loss outweighs the opportunity for capital gains.
Page 9 of 18
<PAGE>
INVESTMENT ADVISER
The Investment Adviser makes investment decisions for the Fund and continuously
reviews, supervises and administers the Fund's investment program. The Board of
Trustees supervises the Adviser and establishes policies that the Adviser must
follow in its management activities.
First Manhattan Co., serves as the Adviser to the Fund. As of December 31,
1998, First Manhattan Co. had more than $7 billion in assets under management.
For the fiscal period ended October 31, 1998, the Adviser waived the entire
amount of its advisory fees for the Fund.
FUND MANAGER
Edward I. Lefferman, CFA has served as a managing director and investment
manager with First Manhattan Co. since 1984. He has managed the Fund since it
commenced operations. He has more than 30 years of investment experience. Prior
to joining First Manhattan Co., Mr. Lefferman served as a senior research
analyst at Lehman Brothers.
Page 10 of 18
<PAGE>
PURCHASING FUND SHARES
HOW TO PURCHASE FUND SHARES
You may purchase shares by:
- - Mail
- - Wire
- - Automated Clearing House (ACH), OR
- - Telephone.
You may purchase shares on any day that the New York Stock Exchange is open for
business (a Business Day).
To purchase shares directly from us, please call 1-800-808-4921. Write your
check, payable in U.S. dollars, to "FMC Strategic Value Fund." We cannot accept
third-party checks, credit cards, credit card checks or cash. We may reject any
purchase order if we determine that accepting the order would not be in the best
interests of the Fund or its shareholders. The price per share (the offering
price) will be the net asset value per share (NAV) next determined after we
receive your purchase order.
We calculate the fund's nav once each business day at the regularly-scheduled
close of normal trading on the new york stock exchange (normally, 4:00 p.m.
Eastern time). So, for you to receive the current business day's nav, generally
we must receive your purchase order before 4:00 p.m. Eastern time.
Certain investors who deal with a financial institution or financial
intermediary will have to follow the institution's or intermediary's procedures
for transacting with the fund. If you purchase or sell fund shares through a
financial institution (rather than directly from us), you may have to transmit
your purchase and sale requests to your financial institution at an earlier time
for your transaction to become effective that day. This allows the financial
institution time to process your request and transmit it to us. For more
information about how to purchase or sell fund shares through your financial
institution, you should contact your financial institution directly.
How We Calculate NAV
NAV for one Fund share is the value of that share's portion of all of the assets
in the Fund.
Page 11 of 18
<PAGE>
In calculating NAV, we generally value the Fund's investment portfolio at market
price. If market prices are unavailable or we think that they are unreliable,
fair value prices may be determined in good faith using methods approved by the
Board of Trustees.
Minimum Purchases
To purchase shares for the first time, you must invest at least $10,000 in the
Fund and additional investments must be at least $1,000.
We may accept investments of smaller amounts at our discretion.
SYSTEMATIC INVESTMENT PLAN
You may purchase shares of the Fund automatically through regular automatic
deductions by ACH transactions from your checking or savings account. Once you
open your Fund account, you may begin regularly scheduled investments of at
least $25 per month.
Page 12 of 18
<PAGE>
SELLING FUND SHARES
HOW TO SELL YOUR FUND SHARES
You may sell (sometimes called "redeem") your shares on any Business Day by
contacting us directly by mail or telephone by calling 1-800-808-4921.
If you would like your sale proceeds to be sent to a third-party or an address
other than your own, please notify us in writing and include a signature
guarantee (a notarized signature is not sufficient).
The sale price of each share will be the next NAV determined after we receive
your request.
SYSTEMATIC WITHDRAWAL PLAN
If you have at least $25,000 in your account, you may use the systematic
withdrawal plan. Under the plan you may arrange monthly, quarterly, semi-annual
or annual automatic withdrawals of at least $100 from the Fund. The proceeds of
each withdrawal will be electronically transferred to your account via ACH wire
transfer.
Receiving Your Money
Normally, we will send your sale proceeds within seven business days after we
receive your request. Your proceeds can be wired to your bank account (subject
to a $10 fee) or sent to you by check. IF YOU RECENTLY PURCHASED YOUR SHARES BY
CHECK OR THROUGH ACH, REDEMPTION PROCEEDS MAY NOT BE AVAILABLE UNTIL YOUR CHECK
HAS CLEARED (WHICH MAY TAKE UP TO 15 BUSINESS DAYS).
Redemptions in Kind
We generally pay sale (redemption) proceeds in cash. However, under unusual
conditions that make the payment of cash unwise (and for the protection of the
fund's remaining shareholders)
Page 13 of 18
<PAGE>
We might pay all or part of your redemption proceeds in liquid securities with a
market value equal to the redemption price (redemption in kind). It is highly
unlikely that your shares would ever be redeemed in kind, but if they were you
would probably have to pay transaction costs to sell the securities distributed
to you, as well as taxes on any capital gains from the sale as with any
redemption.
INVOLUNTARY SALES OF YOUR SHARES
If your account balance drops below $10,000 because of redemptions you may be
required to sell your shares. But, we will always give you at least 60 days'
written notice to give you time to add to your account and avoid the sale of
your shares.
SUSPENSION OF YOUR RIGHT TO SELL YOUR SHARES
We may suspend your right to sell your shares if the NYSE restricts trading, the
SEC declares an emergency or for other reasons. More information about this is
in our statement of additional information.
Page 14 of 18
<PAGE>
OTHER INFORMATION
DIVIDENDS AND DISTRIBUTIONS
The Fund distributes its income in the form of quarterly dividends and makes
distributions of capital gains, if any, at least annually. If you own Fund
shares on a Fund's record date, you will be entitled to receive the
distribution.
You will receive dividends and distributions in the form of additional Fund
shares unless you elect to receive payment in cash. To elect cash payment, you
must notify us in writing prior to the date of the distribution. Your election
will be effective for dividends and distributions paid after we receive your
written notice. To cancel your election, simply send us written notice.
TAXES
PLEASE CONSULT YOUR TAX ADVISER REGARDING YOUR SPECIFIC QUESTIONS ABOUT FEDERAL,
STATE AND LOCAL INCOME TAXES. Below we have summarized some important tax issues
that affect the Fund and its shareholders. This summary is based on current tax
laws, which may change.
The Fund will distribute substantially all of its income and capital gains, if
any. The dividends and distributions you receive may be subject to federal,
state and local taxation, depending upon your tax situation. Distributions you
receive from the Fund may be taxable whether or not you reinvest them. Capital
gains distributions may be taxable at different rates depending on the length of
time the Fund holds its portfolio securities. YOU MAY BE TAXED ON EACH SALE OF
FUND SHARES.
MORE INFORMATION ABOUT TAXES IS IN OUR STATEMENT OF ADDITIONAL INFORMATION.
Page 15 of 18
<PAGE>
FINANCIAL HIGHLIGHTS
The table that follows presents performance information about the Fund. This
information is intended to help you understand the Fund's financial performance
for the past five years, or, if shorter, the period of the Fund's operations.
Some of this information reflects financial information for a single Fund share.
The total returns in the table represent the rate that you would have earned (or
lost) on an investment in the Fund, assuming you reinvested all of your
dividends and distributions.
This information has been audited by Arthur Andersen LLP, independent public
accountants. Their report, along with the Fund's financial statements, appears
in the annual report that accompanies our Statement of Additional Information.
You can obtain the annual report, which contains more performance information,
at no charge by calling 1-800-932-7781.
Page 16 of 18
<PAGE>
THE ADVISORS' INNER CIRCLE FUND
FMC STRATEGIC VALUE FUND
INVESTMENT ADVISER
First Manhattan Co.
437 Madison Avenue
New York, New York 10022-7002
DISTRIBUTOR
SEI Investments Distribution Co.
One Freedom Valley Drive
Oaks, Pennsylvania 19456
LEGAL COUNSEL
Morgan, Lewis & Bockius LLP
1800 M Street, N.W.
Washington, DC 20036
More information about the Fund is available without charge through the
following:
STATEMENT OF ADDITIONAL INFORMATION (SAI)
---------------------------------------
Our SAI dated March 1, 1999, includes detailed information about The Advisors'
Inner Circle Fund and the FMC Strategic Value Fund. The SAI is on file with
the SEC and is incorporated by reference into this prospectus. This means
that the SAI, for legal purposes, is a part of this prospectus.
ANNUAL AND SEMI-ANNUAL REPORTS
--------------------------------------------------
These reports list the Fund's holdings and contain information from the Fund's
managers about strategies, and recent market conditions and trends. The reports
also contain detailed financial information about the Fund.
TO OBTAIN MORE INFORMATION:
BY TELEPHONE: Call 1-800-932-7781
BY MAIL: Write to us
FMC Strategic Value Fund
Page 17 of 18
<PAGE>
c/o The Advisors' Inner Circle Fund
P.O. Box 419009
Kansas City, Missouri 64141-6009
FROM THE SEC: You can also obtain the SAI or the Annual and Semi-annual
reports, as well as other information about The Advisors' Inner Circle Fund,
from the SEC's website ("http://www.sec.gov"). You may review and copy documents
at the SEC Public Reference Room in Washington, DC (for information call
1-800-SEC-0330). You may request documents by mail from the SEC, upon payment
of a duplicating fee, by writing to: Securities and Exchange Commission, Public
Reference Section, Washington, DC 20549-6009. The Fund's Investment Company Act
registration number is 811-6400.
Page 18 of 18
<PAGE>
THE ADVISORS' INNER CIRCLE FUND
PROSPECTUS
MARCH 1, 1999
FMC SELECT FUND
INVESTMENT ADVISER: FIRST MANHATTAN CO.
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED ANY FUND SHARES
OR DETERMINED WHETHER THIS PROSPECTUS IS ACCURATE OR COMPLETE.
IT IS A CRIME FOR ANYONE TO TELL YOU OTHERWISE.
Page 1 of 19
<PAGE>
HOW TO READ THIS PROSPECTUS
This prospectus gives you important information about the FMC Select Fund (Fund)
that you should know before investing. Please read this prospectus and keep it
for future reference. This prospectus has been arranged into different sections
so that you can easily review this important information. On the next page,
there is some general information you should know about the Fund.
FOR MORE DETAILED INFORMATION ABOUT THE FUND, PLEASE SEE:
<TABLE>
<S> <C>
PRINCIPAL INVESTMENT STRATEGIES AND RISKS,
PERFORMANCE INFORMATION AND EXPENSES XXX
MORE INFORMATION ABOUT RISK XXX
THE FUND'S OTHER INVESTMENTS XXX
THE INVESTMENT ADVISER AND FUND MANAGERS XXX
PURCHASING AND SELLING FUND SHARES XXX
DIVIDENDS, DISTRIBUTIONS AND TAXES XXX
FINANCIAL HIGHLIGHTS XXX
HOW TO OBTAIN MORE INFORMATION ABOUT THE
FMC SELECT FUND XXX
</TABLE>
Page 2 of 19
<PAGE>
Introduction
The Fund is a mutual fund. A mutual fund pools shareholders' money and, using
professional investment managers, invests it in securities.
The Fund has an investment goal and strategies for reaching that goal. The
Adviser invests Fund assets in a way that the Adviser believes will help the
Fund achieve its goal. Still, investing in the Fund involves risk and there is
no guarantee that the Fund will achieve its goal. The Adviser's judgments about
the markets, the economy, or companies may not anticipate actual market
movements, economic conditions or company performance, and these judgments may
affect the return on your investment. In fact, no matter how good a job the
Adviser does, you could lose money on your investment in the Fund, just as you
could with other investments.
The value of your investment in the Fund is based on the market value of the
securities the Fund holds. These prices change daily due to economic and other
events that affect particular companies and other issuers. These price
movements, sometimes called volatility, may be greater or lesser depending on
the types of securities the Fund owns and the markets in which they trade. The
effect on the Fund of a change in the value of a single security will depend on
how widely the Fund diversifies its holdings.
Page 3 of 19
<PAGE>
FMC Select Fund
Fund Summary
Investment Goal Capital appreciation with a secondary
goal of current income
Investment Focus U.S. common stocks and some investment
grade fixed income securities
Share Price Volatility Medium
Principal Investment Strategy Investing in a blend of common stocks
of strong companies and fixed income
securities with minimal risk
Investor Profile Investors who seek total return
principally through capital
appreciation with some current income
and are willing to have net asset
value per share fluctuate
INVESTMENT STRATEGY OF THE FMC SELECT FUND
The FMC Select Fund invests principally in equity securities of U.S. companies
with medium to large market capitalizations (in excess of $1 billion) and
secondarily in investment grade fixed income securities. In selecting equity
securities, the Adviser looks for companies with strong balance sheets, above
average returns on equity and businesses that the Adviser believes it
understands. In addition, the Adviser seeks out companies where all of these
factors may not be present, but where the Adviser believes the companys' shares
are selling at a market price below their true value.
In selecting fixed income securities for the Fund, the Adviser chooses
investment grade debt with incrementally higher yields compared to U.S. Treasury
securities, such as corporate or U.S. government agency securities. The Adviser
seeks added return from these incrementally higher yields rather than from
attempting to anticipate interest rate movements. The fixed income securities
that the Fund owns will normally have a remaining maturity of less than eight
years.
Page 4 of 19
<PAGE>
The Fund's investment approach, with its primary emphasis on equity securities
and a secondary focus on fixed income securities, is expected to produce capital
appreciation and current income. The Fund's fixed income component should act
to moderate total returns (lessen returns in rising equity markets and cushion
returns in falling markets).
PRINCIPAL RISKS OF INVESTING IN THE FMC SELECT FUND
Since it purchases equity securities, the Fund is subject to the risk that stock
prices will fall over short or extended periods of time. Historically, the
equity markets have moved in cycles, and the value of the Fund's equity
securities may fluctuate drastically from day-to-day. Individual companies may
report poor results or be negatively affected by industry and/or economic trends
and developments. The prices of securities issued by such companies may suffer
a decline in response. These factors contribute to price volatility which is
the principal risk of investing in the Fund.
The prices of fixed income securities respond to economic developments,
particularly interest rate changes, as well as to perceptions about the
creditworthiness of individual issuers, including governments. Generally, fixed
income securities decrease in value if interest rates rise and vice versa.
Also, longer-term securities are generally more volatile, so the average
maturity or duration of these securities affects risk.
The Fund is also subject to the risk that its investment approach, a blend of
medium and large cap equity securities and fixed income securities, may perform
differently than other funds which target a specific equity market segment or
that invest in other asset classes.
Performance Information
The bar chart and the performance table below illustrate the risks and
volatility of an investment in the Fund. Of course, the Fund's past performance
does not necessarily indicate how the Fund will perform in the future.
This bar chart shows changes in the performance of the Fund.
THIS TABLE COMPARES THE FUND'S AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS
ENDING DECEMBER 31, 1998 TO THOSE OF THE S&P 500 INDEX, THE MERRILL LYNCH 1-10
YEAR CORPORATE & GOVERNMENT BOND INDEX AND AN 80/20 BLEND OF THE TWO.
<TABLE>
<CAPTION>
SINCE
1 YEAR 3 YEARS 5 YEARS INCEPTION
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FMC Select Fund X.XX% X.XX% X.XX% X.XX%
- -------------------------------------------------------------------------------
S&P 500 Index X.XX% X.XX% X.XX% X.XX%
- -------------------------------------------------------------------------------
Merrill Lynch 1-10 Year X.XX% X.XX% X.XX% X.XX%
Corporate & Government
Bond Index
- -------------------------------------------------------------------------------
80/20 blend of the above S&P
and Merrill indices X.XX% X.XX% X.XX% X.XX%
</TABLE>
Page 5 of 19
<PAGE>
WHAT IS AN INDEX?
An index measures the market prices of a specific group of securities in a
particular market or securities in a market sector. You cannot invest directly
in an index. Unlike a mutual fund, an index does not have an investment Adviser
and does not pay any commissions or expenses. If an index had expenses, its
performance would be lower.
The S&P 500 Index is a widely-recognized, market value-weighted (higher market
value stocks have more influence than lower market value stocks) index of 500
stocks designed to mimic the overall equity market's industry weightings. Most,
but not all, large capitalization stocks are in the index. There are also some
small capitalization stocks in the index. Stocks included in the index are
mostly NYSE listed companies, with some AMEX and Nasdaq Stock Market stocks.
The Merrill Lynch 1 - 10 Year Corporate & Government Bond Index is a
widely-recognized index of over 4,500 U.S. Treasury securities, government
agency obligations and investment grade corporate debt securities with remaining
maturities of 1 to 10 years.
Page 6 of 19
<PAGE>
FUND FEES AND EXPENSES
THIS TABLE DESCRIBES THE SHAREHOLDER FEES THAT YOU MAY PAY IF YOU PURCHASE OR
SELL FUND SHARES. YOU WOULD PAY THESE FEES DIRECTLY FROM YOUR INVESTMENT IN THE
FUND.
<TABLE>
<S> <C>
-------------------------------------------------------------
Maximum Sales Charge (Load) None
Imposed on Purchases (as a
percentage of offering price)
-------------------------------------------------------------
Maximum Deferred Sales Charge None
(Load)(as a percentage of net
asset value)
-------------------------------------------------------------
Maximum Sales Charge (Load) None
Imposed or Reinvested Dividends
and other Distributions (as a
percentage of offering price)
-------------------------------------------------------------
Redemption Fee None
</TABLE>
EVERY MUTUAL FUND HAS OPERATING EXPENSES TO PAY FOR SERVICES SUCH AS
PROFESSIONAL ADVISORY, SHAREHOLDER, DISTRIBUTION, ADMINISTRATION AND CUSTODY
SERVICES AND OTHER COSTS OF DOING BUSINESS. THIS TABLE DESCRIBES THE HIGHEST
FEES AND EXPENSES THAT YOU MAY PAY INDIRECTLY IF YOU HOLD SHARES OF THE FUND.
ANNUAL FUND OPERATING EXPENSES
<TABLE>
<S> <C>
--------------------------------------------------------------
Investment Advisory Fees .XX%
--------------------------------------------------------------
Other Expenses .XX%
--------------------------------------------------------------
Total Annual Fund Operating Expenses X.XX%
--------------------------------------------------------------
</TABLE>
The table shows the highest expenses that could be currently charged to the
Fund. Actual expenses are lower because the Adviser is voluntarily waiving a
portion of its fees. Actual Investment Advisory Fees and Total Operating
Expenses are [ %] and [ %], respectively. The Adviser could discontinue
these voluntary waivers at any time. For more information about these fees, see
"Investment Adviser."
EXAMPLE
Page 7 of 19
<PAGE>
This Example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. The Example assumes that you
invest $10,000 in the Fund for the time periods indicated and that you sell your
shares at the end of the period.
The Example also assumes that each year your Investment has a 5% return and Fund
expenses remain the same. Although your actual costs and returns might be
different, your approximate costs of investing $10,000 in the Fund would be:
<TABLE>
<S> <C> <C> <C> <C>
---------------------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
---------------------------------------------------------
$XXX $XXX $XXX $XXX
---------------------------------------------------------
</TABLE>
Page 8 of 19
<PAGE>
More Information About Risk
EQUITY RISK - The Fund may invest in public and privately issued equity
securities, including common and preferred stocks, warrants, rights to subscribe
to common stock and convertible securities, as well as instruments that attempt
to track the price movement of equity indices. Investments in equity securities
and equity derivatives in general are subject to market risks that may cause
their prices to fluctuate over time. The value of securities convertible into
equity securities, such as warrants or convertible debt, is also affected by
prevailing interest rates, the credit quality of the issuer and any call
provision. Fluctuations in the value of equity securities in which the Fund
invest will cause the net asset value of the Fund to fluctuate. An investment
in the Fund may be more suitable for long-term investors who can bear the risk
of share price fluctuations.
FIXED INCOME RISK - The market value of fixed income investments change in
response to interest rate changes and other factors. During periods of falling
interest rates, the values of outstanding fixed income securities generally
rise. Moreover, while securities with longer maturities tend to produce higher
yields, the prices of longer maturity securities are also subject to greater
market fluctuations as a result of changes in interest rates. In addition to
these fundamental risks, different types of fixed income securities may be
subject to the following additional risks:
CALL RISK - During periods of falling interest rates, certain debt
obligations with high interest rates may be prepaid (or "called") by the
issuer prior to maturity. This may cause a Fund's average weighted
maturity to fluctuate, and may require a Fund to invest the resulting
proceeds elsewhere, at generally lower interest rates.
Page 9 of 19
<PAGE>
CREDIT RISK - The possibility that an issuer will be unable to make timely
payments of either principal or interest.
YEAR 2000 RISK - The Fund depends on the smooth functioning of computer systems
in almost every aspect of their business. Like other mutual funds, businesses
and individuals around the world, the Fund could be adversely affected if the
computer systems used by its service providers do not properly process dates on
and after January 1, 2000, and distinguish between the year 2000 and the year
1900. The Fund has asked its service providers whether they expect to have its
computer systems adjusted for the year 2000 transition, and is seeking
assurances from each service provider that they are devoting significant
resources to prevent material adverse consequences to the Fund. While it is
likely that such assurances will be obtained, the Fund and its shareholders may
experience losses if these assurances prove to be incorrect or as a result of
year 2000 computer difficulties experienced by issuers of portfolio securities
or third parties, such as custodians, banks, broker-dealers or others with which
the Fund does business.
THE FUND'S OTHER INVESTMENTS
In addition to the investments and strategies described in this prospectus, the
Fund also may invest in other securities, use other strategies and engage in
other investment practices, which are described in detail in our Statement of
Additional Information. Of course, we cannot guarantee that the Fund will
achieve its investment goal.
The investments and strategies described in this prospectus are those that we
use under normal conditions. During unusual economic or market conditions, or
for temporary defensive or liquidity purposes, the Fund may invest up to 100% of
its assets in cash or money market instruments that would not ordinarily be
consistent with the Fund's objectives. The Fund will only do so if the Adviser
believes that the risk of loss outweighs the opportunity for capital gains or
higher income.
Page 10 of 19
<PAGE>
INVESTMENT ADVISER
The Investment Adviser makes investment decisions for the Fund and continuously
reviews, supervises and administers its Fund's investment program. The Board of
Trustees supervises the Adviser and establishes policies that the Adviser must
follow in its management activities.
First Manhattan Co. serves as the Adviser to the FMC Select Fund. As of
December 31, 1998, First Manhattan Co. had more than $7 billion in assets under
management. For the fiscal period ended October 31, 1998, First Manhattan Co.
received advisory fees of:
FMC SELECT FUND ______%
FUND MANAGERS
Bernard C. Groveman, CFA has served as a partner and portfolio manager at First
Manhattan Co. since 1985. He has co-managed the equity investments of the FMC
Select Fund since the Fund commenced operations. He has more than 8 years of
investment experience. Prior to joining the Adviser, Mr. Groveman worked at CS
First Boston and Lehman Brothers Kuhn Loeb.
A. Byron Nimocks has served as a partner and money manager at First Manhattan
Co. since 1988. He has co-managed the equity investments of the FMC Select Fund
since the Fund commenced operations. He has more than 13 years of investment
experience. Prior to joining the Adviser, Mr. Nimocks worked at E.F. Hutton and
Morgan Keegan.
William K. McElroy has served as a portfolio manager at First Manhattan Co.
since 1987. He has managed the fixed income investments of the FMC Select Fund
since the Fund commenced operations. He has more than 30 years of investment
experience. Prior to joining the Adviser, Mr. McElroy served as director of
equity research at Lionel D. Edie & Co.
Page 11 of 19
<PAGE>
PURCHASING FUND SHARES
HOW TO PURCHASE FUND SHARES
You may purchase shares by:
- - Mail
- - Wire
- - Automated Clearing House (ACH), or
- - Telephone.
You may purchase shares on any day that the New York Stock Exchange is open for
business (a Business Day).
To purchase shares directly from us, please call 1-800-808-4921. Write your
check, payable in U.S. dollars, to "FMC Select Fund." We cannot accept
third-party checks, credit cards, credit card checks or cash. We may reject any
purchase order if we determine that accepting the order would not be in the best
interests of the Fund or its shareholders. The price per share (the offering
price) will be the net asset value per share (NAV) next determined after we
receive your purchase order.
We calculate the Fund's NAV once each Business Day at the regularly-scheduled
close of normal trading on the New York Stock Exchange (normally, 4:00 p.m.
Eastern time). So, for you to receive the current Business Day's NAV, generally
we must receive your purchase order before 4:00 p.m. Eastern time.
Certain investors who deal with a financial institution or financial
intermediary will have to follow the institution's or intermediary's procedures
for transacting with the Fund. If you purchase or sell Fund shares through a
financial institution (rather than directly from us), you may have to transmit
your purchase and sale requests to your financial institution at an earlier time
for your transaction to become effective that day. This allows the financial
institution time to process your request and transmit it to us. For more
information about how to purchase or sell Fund shares through your financial
institution, you should contact your financial institution directly.
How We Calculate NAV
Page 12 of 19
<PAGE>
NAV for one Fund share is the value of that share's portion of all of the assets
in the Fund.
In calculating NAV, we generally value a Fund's investment portfolio at market
price. If market prices are unavailable or we think that they are unreliable,
fair value prices may be determined in good faith using methods approved by the
Board of Trustees.
Minimum Purchases
To purchase shares for the first time, you must invest at least $10,000 in the
Fund and additional investments must be at least $1,000.
We may accept investments of smaller amounts at our discretion.
SYSTEMATIC INVESTMENT PLAN
You may purchase shares of the Fund automatically through regular automatic
deductions by ACH transactions from your checking or savings account. Once you
open your Fund account, you may begin regularly scheduled investments of at
least $25 per month.
Page 13 of 19
<PAGE>
SELLING FUND SHARES
HOW TO SELL YOUR FUND SHARES
You may sell (sometimes called "redeem") your shares on any Business Day by
contacting us directly by mail or telephone by calling 1-800-808-4921.
If you would like your sale proceeds to be sent to a third-party or an address
other than your own, please notify us in writing and include a signature
guarantee (a notarized signature is not sufficient).
The sale price of each share will be the next NAV determined after we receive
your request.
SYSTEMATIC WITHDRAWAL PLAN
If you have at least $25,000 in your account, you may use the systematic
withdrawal plan. Under the plan you may arrange monthly, quarterly, semi-annual
or annual automatic withdrawals of at least $100 from the Fund. The proceeds of
each withdrawal will be electronically transferred to your account via ACH wire
transfer.
Receiving Your Money
Normally, we will send your sale proceeds within seven Business Days after we
receive your request. Your proceeds can be wired to your bank account (subject
to a $10.00 fee) or sent to you by check. IF YOU RECENTLY PURCHASED YOUR SHARES
BY CHECK OR THROUGH ACH, REDEMPTION PROCEEDS MAY NOT BE AVAILABLE UNTIL YOUR
CHECK HAS CLEARED (WHICH MAY TAKE UP TO 15 BUSINESS DAYS).
Page 14 of 19
<PAGE>
Redemptions in Kind
We generally pay sale (redemption) proceeds in cash. However, under unusual
conditions that make the payment of cash unwise (and for the protection of the
Fund's remaining shareholders) we might pay all or part of your redemption
proceeds in liquid securities with a market value equal to the redemption price
(redemption in kind). It is highly unlikely that your shares would ever be
redeemed in kind, but if they were you would probably have to pay transaction
costs to sell the securities distributed to you, as well as taxes on any capital
gains from the sale as with any redemption.
INVOLUNTARY SALES OF YOUR SHARES
If your account balance drops below $10,000 because of redemptions you may be
required to sell your shares. But, we will always give at least 60 days'
written notice to give you time to add to your account and avoid the sale of
your shares.
SUSPENSION OF YOUR RIGHT TO SELL YOUR SHARES
We may suspend your right to sell your shares if the NYSE restricts trading, the
SEC declares an emergency or for other reasons. More information about this is
in our Statement of Additional Information.
Page 15 of 19
<PAGE>
OTHER INFORMATION
Dividends and Distributions
The Fund distributes its income in the form of quarterly dividends and makes
distributions of capital gains, if any, at least annually. If you own Fund
shares on a fund's record date, you will be entitled to receive the
distribution.
You will receive dividends and distributions in the form of additional Fund
shares unless you elect to receive payment in cash. To elect cash payment, you
must notify us in writing prior to the date of the distribution. Your election
will be effective for dividends and distributions paid after we receive your
written notice. To cancel your election, simply send us written notice.
Taxes
PLEASE CONSULT YOUR TAX ADVISER REGARDING YOUR SPECIFIC QUESTIONS ABOUT FEDERAL,
STATE AND LOCAL INCOME TAXES. Below we have summarized some important tax issues
that affect the Fund and its shareholders. This summary is based on current tax
laws, which may change.
The Fund will distribute substantially all of its income and capital gains, if
any. The dividends and distributions you receive may be subject to federal,
state and local taxation, depending upon your tax situation. Distributions you
receive from the Fund may be taxable whether or not you reinvest them. Capital
gains distributions may be taxable at different rates depending on the length of
time the Fund holds its portfolio securities. YOU MAY BE TAXED ON EACH SALE OF
FUND SHARES.
MORE INFORMATION ABOUT TAXES IS IN OUR STATEMENT OF ADDITIONAL INFORMATION.
Page 16 of 19
<PAGE>
FINANCIAL HIGHLIGHTS
The table that follows presents performance information about the Fund. This
information is intended to help you understand the Fund's financial performance
for the past five years, or, if shorter, the period of the Fund's operations.
Some of this information reflects financial information for a single Fund share.
The total returns in the table represent the rate that you would have earned (or
lost) on an investment in the Fund, assuming you reinvested all of your
dividends and distributions.
This information has been audited by Arthur Andersen LLP, independent public
accountants. Their report, along with the Fund's financial statements, appears
in the annual report that accompanies our Statement of Additional Information.
You can obtain the annual report, which contains more performance information,
at no charge by calling 1-800-932-7781.
Page 17 of 19
<PAGE>
THE ADVISORS' INNER CIRCLE FUND
FMC SELECT FUND
INVESTMENT ADVISER
First Manhattan Co.
437 Madison Avenue
New York, New York 10022-7002
DISTRIBUTOR
SEI Investments Distribution Co.
One Freedom Valley Drive
Oaks, Pennsylvania 19456
LEGAL COUNSEL
Morgan, Lewis & Bockius LLP
1800 M Street, N.W.
Washington, D.C. 20036
More information about the Fund is available without charge through the
following:
STATEMENT OF ADDITIONAL INFORMATION (SAI)
__________________________________
Our SAI dated March 1, 1999, includes detailed information about The Advisors'
Inner Circle Fund and the FMC Select Fund. The SAI is on file with the SEC and
is incorporated by reference into this prospectus. This means that the SAI, for
legal purposes, is a part of this prospectus.
ANNUAL AND SEMI-ANNUAL REPORTS
__________________________________
These reports list the Fund's holdings and contain information from the Fund's
managers about strategies, and recent market conditions and trends. The reports
also contain detailed financial information about the Fund.
TO OBTAIN MORE INFORMATION:
BY TELEPHONE: Call 1-800-932-7781
Page 18 of 19
<PAGE>
BY MAIL: Write to us
FMC Select Fund
c/o The Advisors' Inner Circle Fund
P.O. Box 419009
Kansas City, Missouri 64141-6009
FROM THE SEC: You can also obtain the SAI or the Annual and Semi-annual
reports, as well as other information about The Advisors' Inner Circle Fund,
from the SEC's website ("http://www.sec.gov"). You may review and copy documents
at the SEC Public Reference Room in Washington, DC (for information call
1-800-SEC-0330). You may request documents by mail from the SEC, upon payment
of a duplicating fee, by writing to: Securities and Exchange Commission, Public
Reference Section, Washington, DC 20549-6009. The Fund's Investment Company Act
registration number is 811-6400.
Page 19 of 19
<PAGE>
TRUST:
THE ADVISORS' INNER CIRCLE FUND
Funds:
FMC Select Fund
FMC Strategic Value Fund
Investment Adviser:
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 March 1, 1999.
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
Investment Objectives..................................................... S-2
General Investment Policies............................................... S-2
Description of Permitted Investments...................................... S-4
Investment Limitations.................................................... S-14
The Adviser............................................................... S-15
The Administrator......................................................... S-16
The Distributor........................................................... S-17
The Transfer Agent........................................................ S-18
The Custodian............................................................. S-18
Independent Public Accountants............................................ S-18
Legal Counsel............................................................. S-18
Trustees and Officers of The Trust........................................ S-18
Performance Information................................................... S-21
Computation of Yield...................................................... S-21
Calculation of Total Return............................................... S-21
Purchasing Shares......................................................... S-21
Redeeming Shares.......................................................... S-21
Determination of Net Asset Value.......................................... S-22
Taxes..................................................................... S-22
Fund Transactions......................................................... S-24
Trading Practices and Brokerage........................................... S-25
Description of Shares..................................................... S-27
Shareholder Liability..................................................... S-27
Limitation of Trustees' Liability......................................... S-27
Year 2000................................................................. S-28
5% and 25% Shareholders................................................... S-28
Experts................................................................... S-28
Financial Statements...................................................... S-28
Appendix.................................................................. A-1
</TABLE>
March 1, 1999
[FMC-F-006-01]
<PAGE>
THE TRUST AND THE FUNDS
This Statement of Additional Information ("SAI") 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.
The Funds pay their (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.
INVESTMENT OBJECTIVES
The Select Fund seeks a favorable rate of return principally through capital
appreciation and to a limited degree through current income. The Strategic Value
Fund seeks to obtain long-term capital appreciation by investing in a portfolio
of equity securities. There can be no assurance that the Funds will be able to
achieve their investment objectives.
GENERAL INVESTMENT POLICIES
SELECT FUND
The Select Fund invests principally in equity securities, and to a limited
degree in fixed income securities, including money market instruments. The
Select Fund ordinarily will invest a predominant portion of its assets (75%-85%)
in equity securities and the remainder in fixed income securities, including
money market instruments. The exact percentage of the Select Fund's assets
invested in equity and fixed income securities will vary from time to time in
accordance with the Adviser's assessment of investment opportunities.
EQUITY SECURITIES
The equity securities in which the Select Fund may invest are common stocks,
preferred stocks, and convertible securities of domestic companies, as well as
warrants to purchase such securities. The Adviser may also purchase U.S.
dollar-denominated equity securities (including depositary receipts) and
preferred stocks (including preferred stocks convertible into common stocks)
issued by foreign companies, as well as debt securities convertible into common
stocks, and shares of closed-end investment companies. The Select Fund may
purchase equity securities that are traded on registered exchanges or the
over-the-counter market in the United States.
In selecting equity securities for the Select 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
of companies with strong balance sheets, favorable returns on equity and
businesses of which the Adviser has an understanding, and in equity securities
of companies where all of these factors may not be present, but whose shares
nevertheless sell at a market valuation below their perceived intrinsic value.
S-2
<PAGE>
FIXED INCOME SECURITIES
The fixed income securities that may be purchased by the Select Fund are:
(i) obligations issued or guaranteed as to principal and interest by the U.S.
Government, its agencies or instrumentalities ("U.S. Government securities");
(ii) dollar denominated corporate bonds and debentures of U.S. and foreign
companies that are rated BBB- or higher by Standard & Poor's Corporation ("S&P")
or Baa3 or higher by Moody's Investors Services, Inc. ("Moody's"), or are
unrated but of comparable quality as determined by the Adviser; (iii)
mortgage-backed securities that are issued or guaranteed by a U.S. Government
agency or that are privately-issued collateralized mortgage obligations ("CMOs")
or real estate mortgage investment conduits ("REMICs") rated in one of the top
two categories by S&P or Moody's; (iv) high quality commercial paper; (v)
securities issued by the Government of Canada and supranational agencies such as
the World Bank; (vi) asset-backed securities rated in one of the top two
categories by S&P or Moody's; (vii) short-term debt obligations of U.S. and
foreign banks; (viii) zero coupon securities; (ix) money market instruments; and
(x) repurchase agreements.
Debt rated BBB- by S&P is regarded as having an adequate capacity to pay
interest and repay principal. In S&P's view, whereas the issuer 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. Bonds
rated Baa3 by Moody's are considered 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.
In the view of Moody's, such bonds lack outstanding investment characteristics
and in fact have speculative characteristics as well. In the event any fixed
income security held by the Select Fund is downgraded below the applicable
rating category set forth above, the Adviser will review the security and
determine whether to retain or dispose of it.
In selecting fixed income securities for the Select Fund, the Adviser will
seek added returns from the long-term compounding of incremental yields rather
than from attempting to anticipate bond market price swings. The sources of
incremental returns are (1) the higher yields on corporate and government agency
securities compared to U.S. Treasury securities and (2) mispriced prepayment
options. The fixed income component of the Select Fund ordinarily will consist
of securities with a duration of up to eight years. Interest rate forecasting
will not play a significant role in the Adviser's fixed income investment
strategy.
STRATEGIC VALUE FUND
The Strategic Value Fund primarily invests 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 Strategic Value 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 Strategic Value 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 Strategic Value Fund may also purchase equity
securities (including depositary receipts) and preferred stocks (including
depositary stocks
S-3
<PAGE>
convertible into common stocks) issued by foreign companies, as well as debt
securities convertible into common stock of such companies.
Although the Strategic Value 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 Strategic Value
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.
AUXILIARY POLICIES OF THE FUNDS
Although not primary strategies employed by the Adviser in managing the
Funds, the Funds may engage in a number of investment practices in order to meet
its investment objective. In this regard, the Funds may invest in variable and
floating rate obligations, enter into forward commitments, purchase securities
on a when-issued basis and sell securities short against the box. The Funds may
also purchase put and call options and write covered call options on fixed
income and equity securities, and may enter into futures contracts (including
index futures contracts), purchase options on futures contracts, and lend its
securities.
The Funds may purchase securities denominated in foreign currencies in
amounts up to 10% of its total assets. The Funds do not have a corresponding
limitation with respect to foreign securities denominated in U.S. dollars.
The Select Fund also may invest up to 5% of its total assets in convertible
debt securities rated Caa or higher by Moody's or CCC or higher by S&P, Duff &
Phelps Corporation or Fitch Investor Services, Inc. While the Adviser will
purchase such securities with a view to the capital appreciation potential
associated with the underlying equity security, below investment-grade issues,
otherwise known as "junk bonds," present special risks. See the "Description of
Permitted Investments and Risk Factors."
For temporary defensive purposes during periods when the Adviser determines
that market conditions warrant, the Adviser may invest up to 100% of the Select
Fund's assets in cash or money market instruments.
It is anticipated that the annual portfolio turnover rate for the Funds will
not exceed 100%.
The phrase "principally invests" as used in the prospectus means that the
Funds invest at least 65% of its assets in the securities as described in the
sentence.
For a description of the permitted investments of the Funds and the
associated risk factors, see "Description of Permitted Investments." For a
description of ratings, see the "Appendix."
DESCRIPTION OF PERMITTED INVESTMENTS
ASSET-BACKED SECURITIES
Asset-backed securities are securities backed by non-mortgage assets such as
company receivables, truck and auto loans, leases and credit card receivables.
Other asset-backed securities may be created in the future. These securities may
be traded over-the-counter and typically have a short-intermediate maturity
structure depending on the paydown characteristics of the underlying financial
assets which are passed through to the security holder. These securities are
generally issued as pass-through certificates, which represent undivided
fractional ownership interests in the underlying pool of assets. Asset-backed
securities may also be debt obligations, which are known as collateralized
obligations and are generally issued as the debt of a special purpose entity,
such as a trust, organized solely for the purpose of owning these assets and
issuing debt obligations.
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Asset-backed securities are not issued or guaranteed by the U.S. Government,
its agencies or instrumentalities; however, the payment of principal and
interest on such obligations may be guaranteed up to certain amounts and, for a
certain period, by a letter of credit issued by a financial institution (such as
a bank or insurance company) unaffiliated with the issuers of such securities.
The purchase of asset-backed securities raises risk considerations peculiar to
the financing of the instruments underlying such securities. For example, there
is a risk that another party could acquire an interest in the obligations
superior to that of the holders of the asset-backed securities. There also is
the possibility that recoveries on repossessed collateral may not, in some
cases, be available to support payments on those securities.
Asset-backed securities entail prepayment risk, which may vary depending on
the type of asset, but is generally less than the prepayment risk associated
with mortgage-backed securities. In addition, credit card receivables are
unsecured obligations of the card holder.
The market for asset-backed securities is at a relatively early stage of
development. Accordingly, there may be a limited secondary market for such
securities.
BANK OBLIGATIONS
Bank obligations are short-term obligations issued by U.S. and foreign
banks, including bankers' acceptances, certificates of deposit, custodial
receipts, and time deposits. Eurodollar and Yankee Bank Obligations are U.S.
dollar-denominated certificates of deposit or time deposits issued outside the
U.S. by foreign branches of U.S. banks or by foreign banks.
COMMERCIAL PAPER
Unsecured short-term promissory notes issued by corporations and other
entities. The maturities on these issues vary from a few days to nine months.
COMMON AND PREFERRED STOCKS
Common and preferred stocks represent units of ownership in a corporation.
Owners of common stock typically are entitled to vote on important matters.
Owners of preferred stock ordinarily do not have voting rights, but are entitled
to dividends at a specified rate. Preferred stock has a prior claim to common
stockholders with respect to dividends.
CONVERTIBLE SECURITIES
Convertible securities are securities issued by corporations that are
exchangeable for a set number of another security at a prestated price. The
market value of a convertible security tends to move with the market value of
the underlying stock. The value of a convertible security is also affected by
prevailing interest rates, the credit quality of the issuer, and any call option
provisions.
HIGH RISK, HIGH YIELD CONVERTIBLE SECURITIES--Fixed income securities
(including convertible securities) rated below investment grade are often
referred to as "junk bonds." Such securities involve greater risk of default or
price declines than investment grade securities due to changes in the issuer's
creditworthiness and the outlook for economic growth. The market for these
securities may be less active, causing market price volatility and limited
liquidity in the secondary market. This may limit the Fund's ability 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.
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CORPORATE BONDS
Debt instruments issued by a private corporation, as distinct from one
issued by a governmental agency or municipality. Corporate bonds generally have
the following features: (1) they are taxable; (2) they have a par value of
$1,000; and (3) they have a term maturity. They are sometimes traded on major
exchanges.
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.
THE EURO
On January 1, 1999, the European Monetary Union (EMU) plans to implement a
new currency unit, the Euro, which is expected to reshape financial markets,
banking systems and monetary policies in Europe and other parts of the world.
The countries initially expected to convert or tie their currencies to the Euro
include Austria, Belgium, France, Germany, Luxembourg, the Netherlands, Ireland,
Finland, Italy, Portugal, and Spain. Implementation of this plan will mean that
financial transactions and market information, including share quotations and
company accounts, in participating countries will be denominated in Euros.
Approximately 46% of the stock exchange capitalization of the total European
market may be reflected in Euros, and participating governments will issue their
bonds in Euros. Monetary policy for participating countries will be uniformly
managed by a new central bank, the European Central Bank (ECB).
Although it is not possible to predict the impact of the Euro implementation
plan on the Funds, the transition to the Euro may change the economic
environment and behavior of investors, particularly in European markets. For
example, investors may begin to view those countries participating in the EMU as
a single entity, and the Adviser may need to adapt investment strategies
accordingly. The process of implementing the Euro also may adversely affect
financial markets worldwide and may result in changes in the relative strength
and value of the U.S. dollar or other major currencies, as well as possible
adverse tax consequences. The transition to the Euro is likely to have a
significant impact on fiscal and monetary policy in the participating countries
and may produce unpredictable effects on trade and commerce generally. These
resulting uncertainties could create increased volatility in financial markets
world-wide.
FIXED INCOME SECURITIES
The market value of the fixed income investments in which the Fund invests
will change in response to interest rate changes and other factors. During
periods of falling interest rates, the values of outstanding fixed income
securities generally rise. Conversely, during periods of rising interest rates,
the values of such securities generally decline. Moreover, while securities with
longer maturities tend to produce higher yields, the prices of longer maturity
securities are also subject to greater market fluctuations as a result of
changes in interest rates. Changes by recognized agencies in the rating of any
fixed income security and in the ability of an issuer to make payments of
interest and principal also affect the value of these investments. Changes in
the value of these securities will not necessarily affect cash income derived
from these securities but will affect the Fund's net asset value.
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
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contract gives the purchase the right, in exchange for a premium, to assume a
position in a futures contract at a specified exercise price during the term of
the option.
A Fund 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. They may also be used to minimize fluctuations in foreign currencies
or to gain exposure to a particular market or instrument. A 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 and for
which there appears to be a liquid secondary market.
Index futures are futures contracts for various indices that are traded on
registered securities exchanges. An index futures contract obligates the seller
to deliver (and the purchaser to take) an amount of cash equal to a specific
dollar amount times the difference between the value of a specific index at the
close of the last trading day of the contract and the price at which the
agreement is made.
Although futures contracts by their terms call for actual delivery or
acceptance of the underlying securities, in most cases the contracts are closed
out before the settlement date without the making or taking of delivery. Closing
out an open futures position is done by taking an opposite position ("buying" a
contract which has previously been "sold" or "selling" a contract which has
previously been "purchased") in an identical contract to terminate the position.
Brokerage commissions are incurred when a futures contract is bought or sold.
Futures traders are required to make a good faith margin deposit in cash or
government securities with or for the account of a broker or custodian to
initiate and maintain open secondary market will exist for any particular
futures contract at any specific time. Thus, it may not be possible to close a
futures position. In the event of adverse price movements, a Fund would continue
to be required to make daily cash payments to maintain its required margin. In
such situations, if a Fund has insufficient cash, it may have to sell portfolio
securities to meet daily margin requirements at a time when it may be
disadvantageous to do so. In addition, the Funds may be required to make
delivery of the instruments underlying the futures contracts they hold. The
inability to close options and futures positions also could have an adverse
impact on the ability to effectively hedge the underlying securities.
The risk of loss in trading futures contracts can be substantial, due both
to the low margin deposits required and the extremely high degree of leverage
involved in futures pricing. As a result, a relatively small price movement in a
futures contract may result in immediate and substantial loss (or gain) to a
Fund. For example, if at the time of purchase, 10% of the value of the futures
contract is deposited as margin, a subsequent 10% decrease in the value of the
futures contract would result in a total loss of the margin deposit, before any
deduction for the transaction costs, if the account were then closed out. A 15%
decrease would result in a loss equal to 150% of the original margin deposit if
the contract were closed out. Thus, a purchase or sale of a futures contract may
result in losses in excess of the amount invested in the contract. However,
because the Funds will be engaged in futures transactions only for hedging
purposes, the Adviser does not believe that the Funds will generally be subject
to the risks of loss frequently associated with futures transactions. The Funds
presumably would have sustained comparable losses if, instead of the futures
contract, they had invested in the underlying financial instrument and sold it
after the decline. The risk of loss from the purchase of options is less as
compared with the purchase or sale of futures contracts because the maximum
amount at risk is the premium paid for the option.
Utilization of futures transactions by the Funds does involve the risk of
imperfect or no correlation where the securities underlying futures contracts
have different maturities than the fund securities being hedged. It is also
possible that the Funds could both lose money on futures contracts and
experience a decline in value of its fund securities. There is also the risk of
loss by the Funds of margin deposits in the event of the bankruptcy of a broker
with whom the Funds have an open position in a futures contract or related
option.
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Most futures exchanges limit the amount of fluctuation permitted in futures
contract prices during a single trading day. The daily limit establishes the
maximum amount that the price of a futures contract may vary either up or down
from the previous day's settlement price at the end of a trading session. Once
the daily limit has been reached in a particular type of contract, no trades may
be made on that day at a price beyond that limit. The daily limit governs only
price movement during a particular trading day and therefore does not limit
potential losses because the limit may prevent the liquidation of unfavorable
positions. Futures contract prices have occasionally moved to the daily limit
for several consecutive trading days with little or no trading, thereby
preventing prompt liquidation of future positions and subjecting some futures
traders to substantial losses.
INVESTMENT COMPANY SECURITIES
The Fund's purchase of investment company securities will result in the
layering of expenses. The Fund is prohibited from acquiring the securities of
other investment companies if, as a result of such acquisition, the Fund owns in
the aggregate (1) more than 3% of the total outstanding voting stock of the
acquired company, (2) securities issued by the acquired company having an
aggregate value of 5% of the value of the total assets of the Fund, or (3)
securities issued by the acquired company and all other investment companies
having an aggregate value in excess of 10% of the value of the total assets of
the Fund.
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
Mortgage-backed securities are instruments that entitle the holder to a
share of all interest and principal payments from mortgages underlying the
security. The mortgages backing these securities include conventional
thirty-year fixed rate mortgages, graduated payment mortgages, adjustable rate
mortgages, and floating mortgages.
GOVERNMENT PASS-THROUGH SECURITIES
These are securities that are issued or guaranteed by a U.S.
Government agency representing an interest in a pool of mortgage loans.
The primary issuers or guarantors of these mortgage-backed securities are
the Government National Mortgage Association ("GNMA"), Fannie Mae, and
the Federal Home Loan Mortgage Corporation ("FHLMC"). Fannie Mae and
FHLMC obligations are not backed by the full faith and credit of the U.S.
Government as GNMA certificates are, but Fannie Mae and FHLMC securities
are supported by the instrumentalities' right to borrow from the U.S.
Treasury. GNMA, Fannie Mae, and FHLMC each guarantees timely
distributions of interest to certificate holders. GNMA and Fannie Mae
also guarantee timely distributions of scheduled principal. In the past,
FHLMC has only guaranteed the ultimate collection of principal of the
underlying mortgage loan; however, FHLMC now issues mortgage-backed
securities (FHLMC Gold PCS) which also guarantee timely payment of
monthly principal reductions. Government and private guarantees do not
extend to the securities' value, which is likely to vary inversely with
fluctuations in interest rates.
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Obligations of GNMA are backed by the full faith and credit of the
United States Government. Obligations of Fannie Mae and FHLMC are not
backed by the full faith and credit of the United States Government but
are considered to be of high quality since they are considered to be
instrumentalities of the United States. The market value and interest
yield of these mortgage-backed securities 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 with a maximum maturity of 30 years. However, due to scheduled and
unscheduled principal payments on the underlying loans, these securities
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
mortgage-backed security. The scheduled monthly interest and principal
payments relating to mortgages in the pool will be "passed through" to
investors. Government mortgage-backed 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 these securities may offer yields higher
than those available from other types of U.S. Government securities,
mortgage-backed securities 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 these securities 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 mortgage-backed security originally purchased at
a premium to decline in price to its par value, which may result in a
loss.
PRIVATE PASS-THROUGH SECURITIES
Private pass-through securities are mortgage-backed securities issued
by a non-governmental agency, such as a trust. While they are generally
structured with one or more types of credit enhancement, private
pass-through securities generally lack a guarantee by an entity having
the credit status of a governmental agency or instrumentality. The two
principal types of private mortgage-backed securities are collateralized
mortgage obligations ("CMOs") and real estate mortgage investment
conduits ("REMICs").
CMOS
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 are rated in one of the two
highest categories by S&P or Moody's. Many CMOs are issued with a number
of classes or series which have different expected maturities. Investors
purchasing such CMOs are credited with their portion of the scheduled
payments of interest and principal on the underlying mortgages plus all
unscheduled prepayments of principal based on a predetermined priority
schedule. Accordingly, the CMOs in the longer maturity series are less
likely than other mortgage pass-throughs to be prepaid prior to their
stated maturity. Although some of the mortgages underlying CMOs may be
supported by various types of insurance, and some CMOs may be backed by
GNMA certificates or other mortgage pass-throughs issued or guaranteed by
U.S. Government agencies or instrumentalities, the CMOs themselves are
not generally guaranteed.
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REMICs
REMICs are private entities formed for the purpose of holding a fixed
pool of mortgages secured by an interest in real property. REMICs are
similar to CMOs in that they issue multiple classes of securities and are
rated in one of the two highest categories by S&P or Moody's.
Investors may purchase beneficial interests in REMICs, which are
known as "regular" interests, or "residual" interests. Guaranteed REMIC
pass-through certificates ("REMIC Certificates") issued by Fannie Mae or
FHLMC represent beneficial ownership interests in a REMIC trust
consisting principally of mortgage loans or Fannie Mae, FHLMC or
GNMA-guaranteed mortgage pass-through certificates. For FHLMC REMIC
Certificates, FHLMC guarantees the timely payment of interest. GNMA REMIC
Certificates are backed by the full faith and credit of the U.S.
Government.
STRIPPED MORTGAGE-BACKED SECURITIES
Stripped mortgage-backed securities are securities that are created
when a U.S. Government agency or a financial institution separates the
interest and principal components of a mortgage-backed security and sells
them as individual securities. The holder of the "principal-only"
security (PO) receives the principal payments made by the underlying
mortgage-backed security, while the holder of the "interest-only"
security (IO) receives interest payments from the same underlying
security.
The prices of stripped mortgage-backed securities may be particularly
affected by changes in interest rates. As interest rates fall, prepayment
rates tend to increase, which tends to reduce prices of IOs and increase
prices of POs. Rising interest rates can have the opposite effect.
DETERMINING MATURITIES OF MORTGAGE-BACKED SECURITIES
Due to prepayments of the underlying mortgage instruments,
mortgage-backed securities do not have a known actual maturity. In the
absence of a known maturity, market participants generally refer to an
estimated average life. The Adviser believes that the estimated average
life is the most appropriate measure of the maturity of a mortgage-backed
security. Accordingly, in order to determine whether such security is a
permissible investment for a Fund, it will be deemed to have a remaining
maturity equal to its average life as estimated by that Fund's Adviser.
An average life estimate is a function of an assumption regarding
anticipated prepayment patterns. The assumption is based upon current
interest rates, current conditions in the relevant housing markets and
other factors. The assumption is necessarily subjective, and thus
different market participants could produce somewhat different average
life estimates with regard to the same security. There can be no
assurance that the average life as estimated by an Advisor will be the
actual average life.
OPTIONS
A Fund may write call options on a covered basis only, and will not engage
in option writing strategies for speculative purposes. A call option gives the
purchaser of such option the right to buy, and the writer, in this case the
Fund, the obligation to sell the underlying security at the exercise price
during the option period. The advantage to the Funds of writing covered calls is
that the Funds receive a premium which is additional income. However, if the
security rises in value, the Funds may not fully participate in the market
appreciation.
During the option period, a covered call option writer may be assigned an
exercise notice by the broker-dealer through whom such call option was sold
requiring the writer to deliver the underlying security against payment of the
exercise price. This obligation is terminated upon the expiration of the
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option period or at such earlier time in which the writer effects a closing
purchase transaction. A closing purchase transaction is one in which the Fund,
when obligated as a writer of an option, terminates its obligation by purchasing
an option of the same series as the option previously written.
A closing purchase transaction cannot be effected with respect to an option
once the option writer has received an exercise notice for such option.
Closing purchase transactions will ordinarily be effected to realize a
profit on an outstanding call option, to prevent an underlying security from
being called, to permit the sale of the underlying security or to enable a Fund
to write another call option on the underlying security with either a different
exercise price or expiration date or both. A Fund may realize a net gain or loss
from a closing purchase transaction depending upon whether the net amount of the
original premium received on the call option is more or less than the cost of
effecting the closing purchase transaction. Any loss incurred in a closing
purchase transaction may be partially or entirely offset by the premium received
from a sale of a different call option on the same underlying security. Such a
loss may also be wholly or partially offset by unrealized appreciation in the
market value of the underlying security.
If a call option expires unexercised, a Fund will realize a short-term
capital gain in the amount of the premium on the option, less the commission
paid. Such a gain, however, may be offset by depreciation in the market value of
the underlying security during the option period. If a call option is exercised,
a Fund will realize a gain or loss from the sale of the underlying security
equal to the difference between the cost of the underlying security, and the
proceeds of the sale of the security plus the amount of the premium on the
option, less the commission paid.
The market value of a call option generally reflects the market price of an
underlying security. Other principal factors affecting market value include
supply and demand, interest rates, the price volatility of the underlying
security, and the time remaining until the expiration date.
The Funds will write call options only on a covered basis, which means that
a Fund will own the underlying security subject to a call option at all times
during the option period. Unless a closing purchase transaction is effected, a
Fund would be required to continue to hold a security which it might otherwise
wish to sell, or deliver a security it would want to hold. Options written by
the Funds will normally have expiration dates between one and nine months from
the date written. The exercise price of a call option may be below, equal to, or
above the current market value of the underlying security at the time the option
is written.
REPURCHASE AGREEMENTS
Repurchase agreements are agreements by which a person (E.G., a Fund)
obtains a security and simultaneously commits to return the security to the
seller (a primary securities dealer as recognized by the Federal Reserve Bank of
New York or a national member bank as defined in Section 3(d)(1) of the Federal
Deposit Insurance Act, as amended) 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 a Fund for purposes of
its investment limitations. The repurchase agreements entered into by a Fund
will provide that the underlying security at all times shall have a value at
least equal to 102% of the resale price stated in the agreement (the Adviser
monitors compliance with this requirement). Under all repurchase agreements
entered into by a Fund, the appropriate Custodian or its agent must take
possession of the underlying collateral. However, if the seller defaults, a Fund
could realize a loss on the sale of the underlying security to the extent that
the proceeds of
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the 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 required to return
the underlying security to the seller's estate.
SECURITIES OF FOREIGN ISSUERS--The Funds 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
Each Fund may lend securities pursuant to agreements which require that the
loans be continuously secured by collateral at all times equal to 100% of the
market value of the loaned securities which consists of: cash, securities of the
U.S. Government or its agencies, or any combination of cash and such securities.
Such loans will not be made if, as a result, the aggregate amount of all
outstanding securities loans for a Fund exceed one-third of the value of the
Fund's total assets taken at fair market value. A Fund will continue to receive
interest on the securities lent while simultaneously earning interest on the
investment of the cash collateral in U.S. Government securities. However, a Fund
will normally pay lending fees to such broker-dealers and related expenses from
the interest earned on invested collateral. There may be risks of delay in
receiving additional collateral or risks of delay in recovery of the securities
or even loss of rights in the collateral should the borrower of the securities
fail financially. However, loans are made only to borrowers deemed by the
appropriate Advisor to be of good standing and when, in the judgment of that
Advisor, the consideration which can be earned currently from such securities
loans justifies the attendant risk. Any loan may be terminated by either party
upon reasonable notice to the other party. The Funds may use the Distributor or
a broker-dealer affiliate of an Advisor as a broker in these transactions.
U.S. GOVERNMENT AGENCY OBLIGATIONS
U.S. Government agency obligations are obligations issued or guaranteed by
agencies or instrumentalities of the U.S. Government. Agencies of the United
States Government which issue obligations consist of, among others, the Export
Import Bank of the United States, Farmers Home Administration, Federal Farm
Credit Bank, Federal Housing Administration, Government National Mortgage
Association ("GNMA"), Maritime Administration, Small Business Administration and
The Tennessee Valley Authority. Obligations of instrumentalities of the United
States Government include securities issued by, among others, Federal Home Loan
Banks, Federal Home Loan Mortgage Corporation ("FHLMC"), Federal Intermediate
Credit Banks, Federal Land Banks, Fannie Mae and the United States Postal
Service as well as government trust certificates. Some of these securities are
supported by the full faith and credit of the United States Treasury, others are
supported by the right of the issuer to borrow from the Treasury and still
others are supported only by the credit of the instrumentality. Guarantees of
principal by agencies or instrumentalities of the U.S. Government may be a
guarantee of payment at the maturity of the obligation so that in the event of a
default prior to maturity there might not be a market and thus no means of
realizing the value of the obligation prior to maturity.
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U.S. TREASURY OBLIGATIONS
U.S. Treasury obligations consist of bills, notes and bonds issued by the
U.S. Treasury. They also consist of separately traded interest and principal
component parts of these obligations that are transferable through the Federal
book-entry system known as Separately Traded Registered Interest and Principal
Securities ("STRIPS").
VARIABLE AND FLOATING RATE SECURITIES
Variable and floating rate instruments involve certain obligations that may
carry variable or floating rates of interest, and may involve a conditional or
unconditional demand feature. Such instruments bear interest at rates which are
not fixed, but which vary with changes in specified market rates or indices. The
interest rates on these securities may be reset daily, weekly, quarterly, or
some other reset period, and may have a set floor or ceiling on interest rate
changes. There is a risk that the current interest rate on such obligations may
not accurately reflect existing market interest rates. A demand instrument with
a demand notice exceeding seven days may be considered illiquid if there is no
secondary market for such security.
VARIABLE RATE MASTER DEMAND NOTES
Variable rate master demand notes permit the investment of fluctuating
amounts at varying market rates of interest pursuant to direct arrangements
between a Fund, as lender, and a borrower. Such notes provide that the interest
rate on the amount outstanding varies on a daily, weekly or monthly basis
depending upon a stated short-term interest rate index. Both the lender and the
borrower have the right to reduce the amount of outstanding indebtedness at any
time. There is no secondary market for the notes and it is not generally
contemplated that such instruments will be traded. The quality of the note or
the underlying credit must, in the opinion of the appropriate Advisor, be
equivalent to the ratings applicable to permitted investments for the particular
Fund. The appropriate Advisor will monitor on an ongoing basis the earning
power, cash flow and liquidity ratios of the issuers of such instruments and
will similarly monitor the ability of an issuer of a demand instrument to pay
principal and interest on demand. Variable rate master demand notes may or may
not be backed by bank letters of credit.
WARRANTS
Warrants give holders the right, but not the obligation, to buy shares of a
company at a given price, usually higher than the market price, during a
specified period.
WHEN-ISSUED SECURITIES
When-issued securities are securities that are delivered and paid for
normally within 45 days after the date of commitment to purchase.
Although a Fund will only make commitments to purchase when-issued
securities with the intention of actually acquiring the securities, a Fund may
sell them before the settlement date. When-issued securities are subject to
market fluctuation, and accrue no interest to the purchaser during this
pre-settlement period. The payment obligation and the interest rate that will be
received on the securities are each fixed at the time the purchaser enters into
the commitment. Purchasing when-issued securities entails leveraging and can
involve a risk that the yields available in the market when the delivery takes
place may actually be higher than those obtained in the transaction itself. In
that case, there could be an unrealized loss at the time of delivery.
Segregated accounts will be established with the appropriate custodian, and
a Fund will maintain high quality, 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, the 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.
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<PAGE>
ZERO COUPON OBLIGATIONS
Zero coupon obligations are debt obligations that do not bear any interest,
but instead are issued at a deep discount from face value or par. The value of a
zero coupon obligation increases over time to reflect the interest accumulated.
Such obligations will not result in the payment of interest until maturity, and
will have greater price volatility than similar securities that are issued at
face value or par and pay interest periodically.
Investors will receive written notification at least thirty days prior to
any change in a Fund's investment objective. The phrase "principally invests" as
used in the prospectus means that the Fund invests at least 65% of its assets in
the securities as described in the sentence. Each tax-exempt fund invests at
least 80% of its total assets in securities with income exempt from federal
income and alternative minimum taxes.
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 1, 2, 5, 8, 10 and 12,
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. 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 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. Acquire more than 10% of the voting securities of any one issuer.
4. Invest in companies for the purpose of exercising control.
5. 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
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<PAGE>
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.
6. 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.
7. 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.
8. 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.
9. 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."
10. Act as an underwriter of securities of other issuers except as it may be
deemed an underwriter in selling a portfolio security.
11. 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.
12. Issue senior securities (as defined in the Investment Company Act of 1940)
except as permitted by rule, regulation or order of the SEC.
13. Invest in interests in oil, gas or other mineral exploration or development
programs and oil, gas or mineral leases.
14. 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.
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.
The Adviser 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 , 1999, the Adviser
had
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<PAGE>
management authority with respect to approximately $ billion of assets. The
principal business address of the Adviser is 437 Madison Avenue, New York, New
York 10022.
The Adviser serves as the Funds' investment adviser pursuant to 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 Funds' investment program, subject to the
supervision of, and policies established by, the Trustees of the Trust. In
addition to advising the Funds, the Adviser provides advisory services to
individuals, partnerships, trusts, pension and other employee benefit plans, and
eleemosynary and other institutions.
Bernard C. Groveman, CFA, and A. Byron Nimocks, general partners of the
Adviser since 1994 and 1990, respectively, have managed the equity component of
the Select Fund since the Select Fund commenced operations. From 1990-1993, Mr.
Groveman was a portfolio manager with the Adviser.
William K. McElroy, a Managing Director of the Adviser, has managed the
fixed income component of the Select Fund since the Select Fund commenced
operations. Mr. McElroy has been a portfolio manager with the Adviser since
1987.
Edward I. Lefferman, CFA, a managing director of the Adviser, will manage
the Strategic Value 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 .80% of the average daily net
assets of the Select Fund and 1.00% of the average daily net assets of the
Strategic Value Fund. The Adviser has voluntarily agreed to waive a portion of
its advisory fee in order to limit total operating expenses of the Select Fund
to not more than 1.10% and the Strategic Value Fund to not more than 1.30% of
their average daily net assets. The Adviser reserves the right, in its sole
discretion, to terminate its fee waiver at any time. For the fiscal year ended
October 31, 1998, the Adviser received a fee (after waiver) equal to % of
the Select Fund and % of the Strategic Value Fund's average daily net
assets.
For the fiscal years ended October 31, 1996, 1997 and 1998, the Select Fund
paid the Adviser $268,433, $458,786 and $ , respectively, and for the
fiscal years ended October 31, 1996, 1997 and 1998, the Adviser waived fees of
$38,766, $46,194 and $ , respectively. For the fiscal period ended October
31, 1998, the Strategic Value Fund paid the Adviser $ and the Adviser
waived fees of $ .
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.
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 average daily net assets. The
Administrator's fee is subject to an annual minimum of $75,000 per Fund.
The Trust and the Administrator have entered into an administration
agreement (the "Administration Agreement"). The Administration Agreement
provides that the Administrator shall not be liable for any
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<PAGE>
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 years ended October 31, 1996, 1997 and 1998, the Select Fund
paid to the Administrator fees of $81,018, $126,246 and $ , respectively.
For the fiscal period ended October 31, 1998, the Strategic Value Fund paid to
the Administrator fees of $ .
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 ("SEI
Investments"), is the owner of all beneficial interest in the Administrator. SEI
Investments and its subsidiaries and affiliates, including the Administrator,
are leading providers of funds evaluation services, trust accounting systems,
and brokerage and information services to financial institutions, institutional
investors, and money managers. The Administrator and its affiliates also serve
as administrator or sub-administrator to the following other mutual funds: The
Achievement Funds Trust, The Arbor Fund, ARK Funds, Armada Funds, Bishop Street
Funds, Boston 1784 Funds-Registered Trademark-, CrestFunds, Inc., CUFUND, The
Expedition Funds, First American Funds, Inc., First American Investment Funds,
Inc., First American Strategy Funds, Inc., HighMark Funds, Monitor Funds, The
Nevis Funds, Oak Associates Funds, The PBHG Funds, Inc., PBHG Advisor Funds,
Inc., PBHG Insurance Series Fund, Inc., The Pillar Funds, SEI Asset Allocation
Trust, SEI Daily Income Trust, SEI Index Funds, SEI Institutional International
Trust, SEI Institutional Investments Trust, SEI Institutional Managed Trust, SEI
Liquid Asset Trust, SEI Tax Exempt Trust, STI Classic Funds, STI Classic
Variable Trust, TIP Funds and Alpha Select 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 Funds.
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.
The Strategic Value 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 fees it receives and the amount it
pays to third parties.
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
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<PAGE>
account cash balances; providing periodic statements to customers; arranging for
wires; answering customer inquiries concerning their investments; assisting
customers in changing dividend options, account designations, and addresses;
performing sub-accounting functions; processing dividend payments from the Trust
on behalf of customers; and forwarding shareholder communications from the Trust
(such as proxies, shareholder reports, and dividend distribution and tax
notices) to these customers with respect to investments in the Trust. Certain
state securities laws may require those financial institutions providing such
distribution services to register as dealers pursuant to state law.
No compensation is paid to the Distributor for distribution services for the
shares of the Select Fund. The Strategic Value Fund paid $ under the
Service Plan for the fiscal period ended October 31, 1998, of which $ was
waived.
THE TRANSFER AGENT
DST Systems, Inc., 330 W. 9th Street, Kansas City, MO 64105 serves as the
Trust's transfer agent.
THE CUSTODIAN
First Union National Bank, Broad and Chestnut Streets, P.O. Box 7618,
Philadelphia, Pennsylvania 19101 acts as custodian (the "Custodian") of the
Trust. The Custodian holds cash, securities and other assets of the Trust as
required by the 1940 Act.
INDEPENDENT PUBLIC ACCOUNTANTS
Arthur Andersen LLP serves as independent public accountants for the Trust.
LEGAL COUNSEL
Morgan, Lewis & Bockius LLP 1800 M Street, N.W., Washington, D.C. serves as
legal counsel to the Trust.
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, Armada Funds, Bishop
Street Funds, Boston 1784 Funds-Registered Trademark-, CrestFunds, Inc., CUFUND,
The Expedition Funds, First American Funds, Inc., First American Investment
Funds, Inc., First American Strategy Funds, Inc., HighMark Funds, Monitor Funds,
Oak Associates Funds, The PBHG Funds, Inc., PBHG Advisor Funds, Inc., PBHG
Insurance Series Fund, Inc., The Pillar Funds, SEI Asset Allocation Trust, SEI
Daily Income Trust, SEI Index Funds, SEI Institutional International Trust, SEI
Institutional Investments Trust, SEI Institutional Managed Trust, SEI Liquid
Asset Trust, SEI Tax Exempt Trust, STI Classic Funds, STI Classic Variable
Trust, TIP Funds and Alpha Select Funds, each of which is an open-end management
investment company managed by SEI Investments Mutual Funds Services or its
affiliates and, except for PBHG Advisor 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
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<PAGE>
the Distributor, 1981-1994. Trustee of The Arbor Fund, Boston 1784
Funds-Registered Trademark-, The Expedition Funds, 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
Institutional International Trust, SEI Liquid Asset Trust and SEI Tax Exempt
Trust.
JOHN T. COONEY (DOB 01/20/27)--Trustee**--Vice Chairman of Ameritrust Texas
N.A., 1989-1992, and MTrust Corp., 1985-1989. Trustee of The Arbor Fund, The
Expedition Funds, and Oak Associates Funds.
WILLIAM M. DORAN (DOB 05/26/40)--Trustee*--1701 Market Street, Philadelphia,
PA 19103-2921. Partner, Morgan, Lewis & Bockius LLP (law firm), counsel to the
Trust, SEI Investments, the Administrator and the Distributor. Director and
Secretary of SEI Investments and Secretary of the Administrator and the
Distributor. Trustee of The Arbor Fund, The Expedition Funds, Oak Associates
Funds, SEI Asset Allocation Trust, SEI Daily Income Trust, SEI Index Funds, SEI
Institutional Investments Trust, SEI Institutional Managed Trust, SEI
Institutional International Trust, SEI Liquid Asset Trust and SEI Tax Exempt
Trust.
ROBERT A. PATTERSON (DOB 11/05/27)--Trustee**--Pennsylvania State
University, Senior Vice President, Treasurer (Emeritus). Financial and
Investment Consultant, Professor of Transportation (1984-present). Vice
President-Investments, Treasurer, Senior Vice President (Emeritus) (1982-1984).
Director, Pennsylvania Research Corp.; Member and Treasurer, Board of Trustees
of Grove City College. Trustee of The Arbor Fund, The Expedition Funds 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 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, Oak Associates Funds, SEI Asset Allocation Trust, SEI Daily Income Trust,
SEI Index Funds, SEI Institutional Investments Trust, SEI Institutional Managed
Trust, SEI Institutional International Trust, SEI Liquid Asset Trust and SEI Tax
Exempt Trust.
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.
JAMES R. FOGGO (DOB 06/30/64)--Vice President and Assistant Secretary--Vice
President and Assistant Secretary of the Administrator and the Distributor since
1998. Associate, Paul Weiss, Rifkind, Wharton & Garrison (law firm), 1998.
Associate, Baker & McKenzie (law firm), 1995-1998. Associate, Battle Fowler
L.L.P. (law firm), 1993-1995. Operations Manager, The Shareholder Services
Group, Inc., 1986-1990.
LYDIA A. GAVALIS (DOB 06/05/64)--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.
KATHY HEILIG (DOB 12/21/58)--Vice President and Assistant
Secretary--Treasurer of SEI Investments since 1997; Assistant Controller of SEI
Investments since 1995; Vice President of SEI Investments since 1991; Director
of Taxes of SEI Investments, 1987 to 1991. Tax Manager, Arthur Anderson LLP
prior to 1987.
JOSEPH M. O'DONNELL (DOB 11/13/54)--Vice President and Assistant
Secretary--Vice President and Assistant Secretary of the Administrator and the
Distributor since 1998. Vice President and General
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<PAGE>
Counsel, FPS Services, Inc., 1993-1997. Staff Counsel and Secretary, Provident
Mutual Family of Funds, 1990-1993.
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.
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.
MARK E. NAGLE (DOB 10/20/59)--Controller and Chief Financial 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 December 1997. Vice President, Fund Accounting, BISYS Fund Services,
September 1995 to November 1996. Senior Vice President and Site Manager,
Fidelity Investments 1981 to September 1995.
JOHN H. GRADY, JR. (DOB 06/01/61)--Secretary--1701 Market Street,
Philadelphia, PA 19103-2921, Partner since 1995, Morgan, Lewis & Bockius LLP
(law firm), counsel to the Trust, SEI Investments, the Administrator and the
Distributor.
- ------------------------
* Messrs. Nesher and Doran are Trustees who may be deemed to be "interested"
persons of the Funds as that term is defined in the 1940 Act.
** Messrs. Cooney, 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, 1998.
<TABLE>
<CAPTION>
AGGREGATE TOTAL COMPENSATION FROM
COMPENSATION FROM PENSION OR REGISTRANT AND TRUST
REGISTRANT FOR THE RETIREMENT BENEFITS ESTIMATED ANNUAL COMPLEX* PAID TO TRUSTEES
FISCAL YEAR ENDED ACCRUED AS PART OF BENEFITS UPON FOR THE FISCAL YEAR ENDED
NAME OF PERSON, POSITION OCTOBER 31, 1998 TRUST EXPENSES RETIREMENT OCTOBER 31, 1998
- ----------------------------------- --------------------- ------------------- ----------------- ----------------------------
<S> <C> <C> <C> <C>
John T. Cooney..................... $ N/A N/A $ for services on 1 board
Frank E. Morris.................... $ N/A N/A $ for services on 1 board
Robert Patterson................... $ N/A N/A $ for services on 1 board
Eugene B. Peters................... $ N/A N/A $ for services on 1 board
James M. Storey, Esq............... $ N/A N/A $ 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."
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<PAGE>
PERFORMANCE INFORMATION
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.
PERFORMANCE COMPARISONS
The Funds may periodically compare its performance to other mutual funds
tracked by mutual fund rating services, to broad groups of comparable mutual
funds, or to unmanaged indices. These comparisons may assume reinvestment of
dividends but generally do not reflect deductions for administrative and
management costs.
COMPUTATION OF YIELD
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:
Yield = 2 [((a-b)/cd + 1) TO THE POWER OF (6) - 1)] where a = dividends
and interest earned during the period; b = expenses accrued for the period
(net of reimbursement); c = the average daily number of shares 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 , the yield for the Select Fund was
%.
CALCULATION OF TOTAL RETURN
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) TO THE POWER OF (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, 1998 and for the period from May 8,
1995 (commencement of operations) through October 31, 1998, the total return for
the Select Fund was % and % (annualized) respectively. The cumulative
total return for the Select Fund from May 8, 1995 through October 31, 1998 was
%. For the fiscal period commencing July 22, 1998 (commencement of
operations) through ending October 31, 1998, the total return of the Strategic
Value Fund was %.
PURCHASING 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.
REDEEMING SHARES
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
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<PAGE>
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.
A Shareholder will at all times be entitled to aggregate cash redemptions
from all portfolios of the Trust during any 90-day period of up to the lesser of
$250,000 or 1% of the Trust's net assets.
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 additional federal income tax
considerations generally affecting the Funds and its shareholders that are not
described in the Funds' prospectus. No attempt is made to present a detailed
explanation of the tax treatment of the Funds or its shareholders, and the
discussion here and in the Funds' prospectus is not intended as a substitute for
careful tax planning. Shareholders are urged to consult their tax advisors with
specific reference to their own tax situations, including their state and local
tax liabilities.
FEDERAL INCOME TAX TREATMENT OF DIVIDENDS AND DISTRIBUTIONS
The following general discussion of certain federal income tax consequences
is based on the Internal Revenue Code of 1986, as amended (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.
QUALIFICATION AS REGULATED INVESTMENT COMPANY
Each Fund intends to qualify and elect to be treated 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 as a RIC, a Fund must distribute at least 90% of its net
investment income (generally, includes dividends, taxable interest, and the
excess of net short-term capital gains over net long-term capital losses less
operating expenses) and at least 90% of its net tax exempt interest income, for
each tax year, if any, to its shareholders 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
S-22
<PAGE>
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 that each Fund controls or that are engaged in the same, similar or
related trades or business. For purposes of the 90% gross income requirement
described above, foreign currency gains that are not directly related to the
Fund's principal business of investing in stock or securities (or options or
futures with respect to stock or securities) may be excluded from income that
qualifies under the 90% requirement.
Although the Funds intend to distribute substantially all of its net
investment income and may distribute its capital gains for any taxable year, the
a Fund will be subject to federal income taxation to the extent any such income
or gains are not distributed.
If a Fund fails to qualify for any taxable year as a RIC, all of its taxable
income will be subject to tax at regular corporate income tax rates without any
deduction for distributions to shareholders and such distributions generally
will be taxable to shareholders as ordinary dividends to the extent of a Fund's
current and accumulated earnings and profits. In this event, distributions
generally will be eligible for the dividends-received deduction for corporate
shareholders.
FUND DISTRIBUTIONS
Distributions of investment company taxable income will be taxable to
shareholders as ordinary income, regardless of whether such distributions are
paid in cash or are reinvested in additional Shares, to the extent of the Fund's
earnings and profits. The Funds anticipate that it will distribute substantially
all of its investment company taxable income for each taxable year.
A Fund may either retain or distribute to shareholders its excess of net
long-term capital gains over net short-term capital losses ("net capital
gains"). If such gains are distributed as a capital gains distribution, they are
taxable to shareholders who are individuals at a maximum rate of 20%, regardless
of the length of time the shareholder has held shares. If any such gains are
retained, a Fund will pay federal income tax thereon.
In the case of corporate shareholders, distributions (other than capital
gains distributions) from a RIC generally qualify for the dividends-received
deduction only to the extent of the gross amount of qualifying dividends
received by the Fund for the year. Generally, and subject to certain
limitations, a dividend will be treated as a qualifying dividend if it has been
received from a domestic corporation. Accordingly, such distributions will
generally qualify for the corporate dividends-received deduction.
Ordinarily, investors should include all dividends as income in the year of
payment. However, dividends declared payable to shareholders of record in
December of one year, but paid in January of the following year, will be deemed
for tax purposes to have been received by the shareholder and paid by a Fund in
the year in which the dividends were declared.
The Funds will provide a statement annually to shareholders as to the
federal tax status of distributions paid (or deemed to be paid) by a Fund during
the year, including the amount of dividends eligible for the corporate
dividends-received deduction.
SALE OR EXCHANGE OF FUND SHARES
Generally, gain or loss on the sale or exchange of a Share will be capital
gain or loss that will be long-term if the Share has been held for more than
twelve months and otherwise will be short-term. For
S-23
<PAGE>
individuals, long-term capital gains are currently taxed at a maximum rate of
20% and short-term capital gains are currently taxed at ordinary income tax
rates. However, if a shareholder realizes a loss on the sale, exchange or
redemption of a Share held for six months or less and has previously received a
capital gains distribution with respect to the Share (or any undistributed net
capital gains of a Fund with respect to such Share are included in determining
the shareholder's long-term capital gains), the shareholder must treat the loss
as a long-term capital loss to the extent of the amount of the prior capital
gains distribution (or any undistributed net capital gains of a Fund that have
been included in determining such shareholder's long-term capital gains). In
addition, any loss realized on a sale or other disposition of Shares will be
disallowed to the extent an investor repurchases (or enters into a contract or
option to repurchase) Shares within a period of 61 days (beginning 30 days
before and ending 30 days after the disposition of the Shares). This loss
disallowance rule will apply to Shares received through the reinvestment of
dividends during the 61-day period.
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 failed to
certify to that Fund that such shareholder is not subject to backup withholding.
FEDERAL EXCISE TAX
If a Fund fails to distribute in a calendar year at least 98% of its
ordinary income for the 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 October 31 of that year (and any retained amount
from the prior calendar year), a Fund will be subject to a nondeductible 4%
Federal excise tax on the undistributed amounts. The Funds intend to make
sufficient distributions to avoid imposition of this tax, or to retain, at most
its net capital gains and pay tax thereon.
STATE AND LOCAL 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.
S-24
<PAGE>
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.
TRADING PRACTICES AND BROKERAGE
The Trust selects brokers or dealers to execute transactions for the
purchase or sale of portfolio securities on the basis of its judgment of their
professional capability to provide the service. The primary consideration is to
have brokers or dealers provide transactions at best price and execution for the
Trust. Best price and execution includes many factors, including the price paid
or received for a security, the commission charged, the promptness and
reliability of execution, the confidentiality and placement accorded the order
and other factors affecting the overall benefit obtained by the account on the
transaction. The Trust's determination of what are reasonably competitive rates
is based upon the professional knowledge of its trading department as to rates
paid and charged for similar transactions throughout the securities industry. In
some instances, the Trust pays a minimal share transaction cost when the
transaction presents no difficulty. Some trades are made on a net basis where
the Trust either buys securities directly from the dealer or sells them to the
dealer. In these instances, there is no direct commission charged but there is a
spread (the difference between the buy and sell price) which is the equivalent
of a commission.
The Trust may allocate out of all commission business generated by the funds
and accounts under management by the Adviser, brokerage business to brokers or
dealers who provide brokerage and research services. 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. Such services are used by the Adviser in connection with its
investment decision-making process with respect to one or more funds and
accounts managed by it, and may not be used exclusively with respect to the fund
or account generating the brokerage.
As provided in the Securities Exchange Act of 1934 (the "1934 Act") higher
commissions may be paid to broker-dealers who provide brokerage and research
services than to broker-dealers who do not provide such services if such higher
commissions are deemed reasonable in relation to the value of the brokerage and
research services provided. Although transactions are directed to broker-dealers
who provide such brokerage and research services, the Trust believes that the
commissions paid to such broker-dealers are not, in general, higher than
commissions that would be paid to broker-dealers not providing such services
S-25
<PAGE>
and that such commissions are reasonable in relation to the value of the
brokerage and research services provided. In addition, portfolio transactions
which generate commissions or their equivalent are directed to broker-dealers
who provide daily portfolio pricing services to the Trust. Subject to best price
and execution, commissions used for pricing may or may not be generated by the
funds receiving the pricing service.
The Adviser may place a combined order for two or more accounts or funds
engaged in the purchase or sale of the same security if, in its judgment, joint
execution is in the best interest of each participant and will result in best
price and execution. Transactions involving commingled orders are allocated in a
manner deemed equitable to each account or fund. It is believed that the ability
of the accounts to participate in volume transactions will generally be
beneficial to the accounts and funds. Although it is recognized that, in some
cases, the joint execution of orders could adversely affect the price or volume
of the security that a particular account or the Funds may obtain, it is the
opinion of the Adviser and the Trust's Board of Trustees that the advantages of
combined orders outweigh the possible disadvantages of separate transactions.
Consistent with the Conduct Rules of the National Association of Securities
Dealers, Inc., and subject to seeking best price and execution, the Funds, at
the request of the Distributor, give consideration to sales of shares of the
Trust as a factor in the selection of brokers and dealers to execute Trust
portfolio transactions.
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 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, 1998, the Select Fund paid [no
brokerage commissions] to the Distributor. For the fiscal years ended October
31, 1997 and October 31, 1998, [all securities transactions for the Select Fund
were directed to the Adviser.] For the fiscal years ended October 31, 1996, 1997
and 1998, the Select Fund paid $56,991, $60,672 and $ , respectively, in
commissions to the Adviser. For the fiscal period beginning July 22, 1998 and
ended October 31, 1998, the Strategic Value Fund paid $ in commissions to
the Adviser.
For the fiscal years ended October 31, 1996, 1997 and October 31, 1998, the
portfolio turnover rate for the Select Fund was 24.39% and 21.71% and %,
respectively. For the fiscal period beginning July 22, 1998 and ended October
31, 1998, the portfolio turnover rate for the Strategic Value Fund was %.
For the fiscal year ended October 31, 1998, [no commissions] were paid on
brokerage transactions, pursuant to an agreement or understanding, to brokers in
return for research services provided by the brokers.
S-26
<PAGE>
For the fiscal period and years indicated, the Funds paid the following
brokerage commissions:
<TABLE>
<CAPTION>
AMOUNT PAID TO SEI
TOTAL BROKERAGE COMMISSIONS INVESTMENTS(1)
------------------------------- -------------------------------
1996 1997 1998 1996 1997 1998
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Select Fund..................................... $ 56,991 $ 60,672 $ $ 0 $ 0 $
Strategic Value Fund............................ * * $ * * $
</TABLE>
- ------------------------
* An asterisk indicates that the Fund had not commenced operations for the
period indicated.
(1) The amounts paid to SEI Investments reflect fees paid in connection with
repurchase agreements transactions.
For the fiscal period and years indicated, the Funds paid the following
brokerage commissions:
<TABLE>
<CAPTION>
TOTAL $ AMOUNT % OF TOTAL
OF BROKERAGE BROKERAGE
COMMISSIONS COMMISSIONS
TOTAL $ AMOUNT PAID TO PAID TO
OF BROKERAGE AFFILIATED THE AFFILIATED
COMMISSIONS PAID BROKERS BROKERS
------------------------------- ------------------------------- ---------------
1996 1997 1998 1996 1997 1998 1998
--------- --------- --------- --------- --------- --------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Select Fund........................ $ 56,991 $ 60,672 $ $ 56,991 $ 60,672 $ %
Strategic Value Fund............... * * $ * * $ %
<CAPTION>
% OF TOTAL
BROKERAGE
TRANSACTIONS
EFFECTED THROUGH
AFFILIATED
BROKERS
-------------------
1998
-------------------
<S> <C>
Select Fund........................ %
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 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
S-27
<PAGE>
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.
YEAR 2000
The Trust depends on the smooth functioning of computer systems in almost
every aspect of its business. Like other mutual funds, businesses and
individuals around the world, the Trust could be adversely affected if the
computer systems used by its service providers do not properly process dates on
and after January 1, 2000 and distinguish between the year 2000 and the year
1900. The Trust has asked its service providers whether they expect to have
their computer systems adjusted for the year 2000 transition, and received
assurances from each that its system is expected to accommodate the year 2000
without material adverse consequences to the Trust. The Trust and its
shareholders may experience losses if these assurances prove to be incorrect or
as a result of year 2000 computer difficulties experienced by issuers of
portfolio securities or third parties, such as custodians, banks, broker-dealers
or others with which the Trust does business.
5% AND 25% SHAREHOLDERS
As of , 1999, the following persons were the only persons who were
record owners (or to the knowledge of the Trust, beneficial owners) of 5% and
25% or more of the Funds' shares. Persons who owned of record or beneficially
more than 25% of a Fund's outstanding shares mat be deemed to control the Fund
within the meaning of the Act.
<TABLE>
<CAPTION>
NAME AND ADDRESS NUMBER OF SHARES PERCENTAGE
- ------------------------------------------------------------------------------------- ------------------ -----------
<S> <C> <C>
First Manhattan Co................................................................... %
Thrift Plan and Trust
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 Trust 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, 1998, 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-28
<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
<PAGE>
THE ADVISORS' INNER CIRCLE FUND
PROSPECTUS
MARCH 1, 1999
HGK FIXED INCOME FUND
INVESTMENT ADVISER: HGK ASSET MANAGEMENT, INC.
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED ANY PORTFOLIO SHARES OR
DETERMINED WHETHER THIS PROSPECTUS IS ACCURATE OR COMPLETE.
IT IS A CRIME FOR ANYONE TO TELL YOU OTHERWISE.
<PAGE>
HOW TO READ THIS PROSPECTUS
This prospectus gives you important information about the HGK Fixed Income Fund
(Portfolio) that you should know before investing. Please read this prospectus
and keep it for future reference. This prospectus has been arranged into
different sections so that you can easily review this important information. On
the next page, there is some general information you should know about the
Portfolio.
For more detailed information about the Portfolio please see:
PAGE
PRINCIPAL INVESTMENT STRATEGIES AND RISKS, XXX
PERFORMANCE INFORMATION AND EXPENSES XXX
MORE INFORMATION ABOUT RISK XXX
EACH PORTFOLIO'S OTHER INVESTMENTS XXX
THE INVESTMENT ADVISER AND PORTFOLIO MANAGER XXX
PURCHASING AND SELLING PORTFOLIO SHARES XXX
DIVIDENDS, DISTRIBUTIONS AND TAXES XXX
FINANCIAL HIGHLIGHTS XXX
HOW PORTFOLIO SHARES ARE DISTRIBUTED XXX
HOW TO OBTAIN MORE INFORMATION ABOUT THE
HGK FIXED INCOME FUND XXX
<PAGE>
Introduction
The Portfolio is a mutual fund. A mutual fund pools shareholders' money and,
using professional investment managers, invests it in securities.
The Portfolio has an investment goal and strategies for reaching that goal. The
Adviser invests Portfolio assets in a way that the Adviser believes will help
the Portfolio achieve its goal. Still, investing in the Portfolio involves risk
and there is no guarantee that the Portfolio will achieve its goal. The
Adviser's judgments about the markets, the economy, or companies may not
anticipate actual market movements, economic conditions or company performance,
and these judgments may affect the return on your investment. In fact, no
matter how good a job the Adviser does, you could lose money on your investment
in the Portfolio just as you could with other investments.
The value of your investment in the Portfolio is based on the market value of
the securities the Portfolio holds. These prices change daily due to economic
and other events that affect particular companies and other issuers. These
price movements, sometimes called volatility, may be greater or lesser depending
on the types of securities the Portfolio owns and the markets in which they
trade. The effect on a Portfolio of a change in the value of a single security
will depend on how widely the Portfolio diversifies its holdings.
<PAGE>
HGK Fixed Income Fund
Portfolio Summary
Investment Goal Total return through current income
and capital appreciation consistent
with the preservation of capital
Investment Focus U.S. dollar denominated fixed income
securities
Share Price Volatility low
Principal Investment Strategy Investing in fixed income securities
issued by the U.S. Government and
investment grade corporate debt
obligations
Investor Profile Investors who seek high current
income, low risk to principal, and a
total return commensurate with fixed
income investing
INVESTMENT STRATEGY OF THE HGK FIXED INCOME FUND
The Portfolio invests primarily in U.S. dollar denominated investment grade
fixed income securities issued by corporations and the U.S. government,
including U.S. Treasury securities, agency obligations and mortgage-backed
securities. In selecting investments for the Portfolio, the Adviser performs
analysis and research on individual securities available for purchase. The
Adviser attempts to maintain the Portfolio's duration at a level which is
(within 10%) of the Lehman Government Corporate Bond Index. The Adviser seeks
to add value by overweighting particular sectors and the Adviser determines how
the Portfolio's investments will be rotated between the corporate and government
sectors. The Adviser may purchase securities with any stated remaining
maturity, but under normal circumstances, the Portfolio will have an average
duration of approximately 5 years. The Adviser does not make large interest
rate bets or large changes to the Portfolio's duration. The Adviser believes
that this policy will reduce the volatility of returns and limit the loss of
principal. The Portfolio may buy and sell securities frequently. This may
result in higher transaction costs and additional capital gains taxes.
<PAGE>
PRINCIPAL RISKS OF INVESTING IN THE HGK FIXED INCOME FUND
The prices of fixed income securities respond to economic developments,
particularly interest rate changes, as well as to perceptions about the
creditworthiness of individual issuers, including governments. Generally,
fixed income securities decrease in value if interest rates rise and vice versa.
Also, longer-term securities are generally more volatile, so the average
maturity or duration of these securities affects risk.
The mortgages underlying mortgage-backed securities may be paid off early, which
makes it difficult to determine their actual maturity and therefore calculate
how they will respond to changes in interest rates. The Portfolio may have to
reinvest prepaid amounts at lower interest rates. This risk of prepayment is an
additional risk of mortgage-backed securities.
Although the Portfolio's U.S. government securities are considered to be among
the safest investments, they are not guaranteed against price movements due to
changing interest rates. Obligations issued by some U.S. government agencies
are backed by the U.S. Treasury, while others are backed solely by the ability
of the agency to borrow from the U.S. Treasury or by the agency's own resources.
The Portfolio is also subject to the risk that its market segment, investment
grade fixed income securities, may underperform other fixed income market
segments or the fixed income markets as a whole.
PERFORMANCE INFORMATION
The bar chart and the performance table below illustrate the risks and
volatility of an investment in the Portfolio. Of course, the Portfolio's past
performance does not necessarily indicate how the Portfolio will perform in the
future.
This bar chart shows changes in the performance of the Portfolio's shares.
THIS TABLE COMPARES THE PORTFOLIO'S AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS
ENDING DECEMBER 31, 1998 TO THOSE OF THE LEHMAN BROTHERS GOVERNMENT CORPORATE
BOND INDEX.
<PAGE>
<TABLE>
<CAPTION>
1 YEAR 3 YEARS SINCE INCEPTION
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
HGK Fixed Income Fund X.XX% X.XX% X.XX%
- --------------------------------------------------------------------------------
Lehman Brothers
Government Corporate
Bond Index X.XX% X.XX% X.XX%
- --------------------------------------------------------------------------------
</TABLE>
WHAT IS AN INDEX?
An index measures the market prices of a specific group of securities in a
particular market or securities in a market sector. You cannot invest directly
in an index. Unlike a mutual fund, an index does not have an investment advisor
and does not pay any commissions or expenses. If an index had expenses, its
performance would be lower.
The Lehman Brothers Government/Corporate Bond Index is a widely-recognized,
market value-weighted (higher market value bonds have more influence than lower
market value bonds) index of U.S. Treasury securities, U.S. government agency
obligations, corporate debt backed by the U.S. government, fixed-rate
nonconvertible corporate debt securities, Yankee bonds, and nonconvertible debt
securities issued by or guaranteed by foreign governments and agencies. All
securities in the Index are rated investment grade (BBB) or higher, with
maturities of at least 1 year.
HGK Fixed Income Fund
PORTFOLIO FEES AND EXPENSES
THIS TABLE DESCRIBES THE SHAREHOLDER FEES THAT YOU MAY PAY IF YOU PURCHASE OR
SELL PORTFOLIO SHARES. YOU WOULD PAY THESE FEES DIRECTLY FROM YOUR INVESTMENT
IN THE PORTFOLIO.
Maximum Sales Charge (Load) None
Imposed on Purchases (as a
percentage of offering price)
- --------------------------------------------------------------------------------
Maximum Deferred Sales Charge (Load) None
(as a percentage of net asset value)
- --------------------------------------------------------------------------------
Maximum Sales Charge (Load) None
Imposed or Reinvested Dividends
and other Distributions (as a
percentage of offering price)
- --------------------------------------------------------------------------------
Redemption Fee None
<PAGE>
EVERY MUTUAL FUND HAS OPERATING EXPENSES TO PAY FOR SERVICES SUCH AS
PROFESSIONAL ADVISORY, SHAREHOLDER, DISTRIBUTION, ADMINISTRATION AND CUSTODY
SERVICES AND OTHER COSTS OF DOING BUSINESS. THIS TABLE DESCRIBES THE HIGHEST
FEES AND EXPENSES THAT YOU MAY PAY INDIRECTLY IF YOU HOLD SHARES OF THE
PORTFOLIO.
ANNUAL PORTFOLIO OPERATING EXPENSES
<TABLE>
<CAPTION>
<S> <C>
- ---------------------------------------------------
Investment Advisory Fees .XX%
- ---------------------------------------------------
Other Expenses .XX%
- ---------------------------------------------------
Total Annual Fund Operating Expenses X.XX%
</TABLE>
The table shows the highest expenses that could be currently charged to the
Portfolio. Actual expenses are lower because the Adviser is voluntarily waiving
a portion of its fees. Actual Investment Advisory Fees and Total Operating
Expenses are [ %] and [ %], respectively. The Adviser could discontinue
this voluntary waiver at any time. For more information about these fees, see
"Investment Adviser."
EXAMPLE
This Example is intended to help you compare the cost of investing in the
Portfolio with the cost of investing in other mutual funds. The Example assumes
that you invest $10,000 in the Portfolio for the time periods indicated and that
you sell your shares at the end of the period.
The Example also assumes that each year your investment has a 5% return and
Portfolio expenses remain the same. Although your actual costs and returns
might be different, your approximate costs of investing $10,000 in the Portfolio
would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -------------------------------------------
<S> <C> <C> <C>
$XXX $XXX $XXX $XXX
</TABLE>
<PAGE>
More Information About Risk
FIXED INCOME RISK - The market value of fixed income investments change in
response to interest rate changes and other factors. During periods of falling
interest rates, the values of outstanding fixed income securities generally
rise. Moreover, while securities with longer maturities tend to produce higher
yields, the prices of longer maturity securities are also subject to greater
market fluctuations as a result of changes in interest rates. In addition to
these fundamental risks, different types of fixed income securities may be
subject to the following additional risks:
CALL RISK - During periods of falling interest rates, certain debt
obligations with high interest rates may be prepaid (or "called") by the
issuer prior to maturity. This may cause a Portfolio's average weighted
maturity to fluctuate, and may require a Portfolio to invest the resulting
proceeds elsewhere, at generally lower interest rates.
CREDIT RISK - The possibility that an issuer will be unable to make timely
payments of either principal or interest.
MORTGAGE-BACKED SECURITIES - Mortgage-backed securities are fixed income
securities representing an interest in a pool of underlying mortgage loans.
They are sensitive to changes in interest rates, but may respond to these
changes differently from other fixed income securities due to the
possibility of prepayment of the underlying mortgage loans. As a result, it
may not be possible to determine in advance the actual maturity date or
average life of a mortgage-backed security. Rising interest rates
<PAGE>
tend to discourage refinancings, with the result that the average life and
volatility of the security will increase exacerbating its decrease in
market price. When interest rates fall, however, mortgage-backed
securities may not gain as much in market value because of the
expectation of additional mortgage prepayments that must be reinvested
at lower interest rates. Prepayment risk may make it difficult to
calculate the average maturity of a portfolio of mortgage-backed
securities and, therefore, to assess the volatility risk of the
portfolio.
YEAR 2000 RISK - The Portfolio depends on the smooth functioning of computer
systems in almost every aspect of their business. Like other mutual funds,
businesses and individuals around the world, the Portfolio could be adversely
affected if the computer systems used by its service providers do not properly
process dates on and after January 1, 2000, and distinguish between the year
2000 and the year 1900. The Portfolio has asked its service providers whether
they expect to have its computer systems adjusted for the year 2000 transition,
and is seeking assurances from each service provider that they are devoting
significant resources to prevent material adverse consequences to the Portfolio.
While it is likely that such assurances will be obtained, the Portfolio and its
shareholders may experience losses if these assurances prove to be incorrect or
as a result of year 2000 computer difficulties experienced by issuers of
portfolio securities or third parties, such as custodians, banks, broker-dealers
or others with which the Portfolio does business.
<PAGE>
THE PORTFOLIO'S OTHER INVESTMENTS
In addition to the investments and strategies described in this prospectus, the
Portfolio also may invest in other securities, use other strategies and engage
in other investment practices, which are described in detail in our Statement of
Additional Information. Of course, we cannot guarantee that the Portfolio will
achieve its investment goal.
The investments and strategies described in this prospectus are those that we
use under normal conditions. During unusual economic or market conditions, or
for temporary defensive or liquidity purposes, the Portfolio may invest up to
100% of its assets in cash and money instruments that would not ordinarily be
consistent with the Portfolio's objectives. The Portfolio will only do so if
the Adviser believes that the risk of loss outweighs the opportunity for higher
income.
<PAGE>
INVESTMENT ADVISER
The Investment Adviser makes investment decisions for the Portfolio and
continuously reviews, supervises and administers its Portfolio's investment
program. The Board of Trustees supervises the Adviser and establishes policies
that the Adviser must follow in its management activities.
HGK Asset Management, Inc., serves as the Adviser to the Portfolio. As of
December 31, 1998, HGK Asset Management, Inc. had approximately ____ in assets
under management. For the fiscal period ended October 31, 1998, HGK Asset
Management, Inc. received advisory fees of:
HGK FIXED INCOME _____________%
FUND
The Adviser may use its affiliates as brokers for Portfolio transactions.
PORTFOLIO MANAGERS
Gregory W. Lobo has served as Managing Director of HGK Asset Management, Inc.
since 1990. He has helped manage the HGK Fixed Income Fund since its inception.
He has more than 8 years of investment experience.
Anthony Santoliquido has served as a Portfolio Manager for HGK Asset Management,
Inc. since 1993. He has helped manage the HGK Fixed Income Fund since its
inception. He has more than 10 years of investment experience. Prior to joining
HGK Asset Management, Inc., Mr. Santoliquido was with Hilliard Farber and Co.
Brokerage.
Patricia Bernabeo has served as a Portfolio Manager for HGK Asset Management,
Inc. since 1992. She has helped manage the HGK Fixed Income Fund since its
inception. She has more than 7 years of investment experience. Prior to
joining the Adviser, Ms. Bernabeo attended New York University.
<PAGE>
PURCHASING PORTFOLIO SHARES
HOW TO PURCHASE PORTFOLIO SHARES
You may purchase shares by:
- - Mail
- - Telephone, or
- - Wire
You may purchase shares on any day that the New York Stock Exchange and the
Federal Reserve are open for business (a Business Day). Shares can not be
purchased by Federal Reserve Wire on days when either the New York Stock
Exchange or the Federal Reserve is closed.
To purchase shares directly from us, please call 1-800-808-4921. Write your
check, payable in U.S. dollars, to "HGK Fixed Income Fund." We cannot accept
third-party checks, credit cards, credit card checks or cash. You may also
purchase shares through certain broker/dealers or other financial institutions
that have executed dealer agreements. We may reject any purchase order if we
determine that accepting the order would not be in the best interests of the HGK
Fixed Income Fund or its shareholders.
The price per share (the offering price) will be the net asset value per share
(NAV) next determined after we receive your purchase order.
We calculate each Portfolio's NAV once each Business Day at the
regularly-scheduled close of normal trading on the New York Stock Exchange
(normally, 4:00 p.m. Eastern time). So, for you to receive the current Business
Day's NAV, generally we must receive your purchase order before 4:00 p.m.
Eastern time.
Certain investors who deal with a financial institution or financial
intermediary will have to follow the institution's or intermediary's procedures
for transacting with the Portfolio. If you purchase or sell Portfolio shares
through a financial institution (rather than directly from us), you may have to
transmit your purchase and sell requests to your financial institution at an
earlier time for your transaction to become effective that day. This allows the
financial institution time to process your request and transmit it to us. For
more information about how to purchase or sell Portfolio shares through your
financial institution, you should contact your financial institution directly.
<PAGE>
How We Calculate NAV
NAV for one Portfolio share is the value of that share's portion of all of the
assets in the Portfolio.
In calculating NAV, we generally value the Portfolio's investment portfolio at
market price. If market prices are unavailable or we think that they are
unreliable, fair value prices may be determined in good faith using methods
approved by the Board of Trustees.
Minimum Purchases
To purchase shares for the first time, you must invest at least $2,000 in the
Portfolio. Any additional investments must be at least $1,000.
We may accept investments of smaller amount at our discretion.
SYSTEMATIC INVESTMENT PLAN
Once you open an account, you may purchase shares automatically through regular
deductions from your checking or savings account or through automatic deductions
by Automated Clearing House (ACH) of at least $25 per month.
<PAGE>
SELLING PORTFOLIO SHARES
HOW TO SELL YOUR PORTFOLIO SHARES
You may sell (sometimes called "redeem") your shares on any Business Day by
contacting us directly by mail or telephone by calling 1-800-932-7781.
If you would like to close your account or have your sale proceeds sent to a
third-party or an address other than your own, please notify us in writing and
include a signature guarantee (a notarized signature is not sufficient).
The sale price of each share will be the next NAV determined after we receive
your request.
SYSTEMATIC WITHDRAWAL PLAN
If you have at least $50,000 in your account, you may use the systematic
withdrawal plan. Under the plan you may arrange monthly, quarterly, semi-annual
or annual automatic withdrawals of at least $100 from the Portfolio. The
proceeds of each withdrawal will be mailed to you by check or ACH wire transfer.
Receiving Your Money
Normally, we will send your sale proceeds within seven Business Days after we
receive your request. Your proceeds can be wired to your bank account (subject
to a $10 fee) or sent to you by check. IF YOU RECENTLY PURCHASED YOUR SHARES BY
CHECK OR THROUGH ACH, REDEMPTION PROCEEDS MAY NOT BE AVAILABLE UNTIL YOUR CHECK
HAS CLEARED (WHICH MAY TAKE UP TO 15 BUSINESS DAYS).
Redemptions in Kind
<PAGE>
We generally pay sale (redemption) proceeds in cash. However, under unusual
conditions that make the payment of cash unwise (and for the protection of the
Portfolio's remaining shareholders) we might pay all or part of your redemption
proceeds in liquid securities with a market value equal to the redemption price
(redemption in kind). It is highly unlikely that your shares would ever be
redeemed in kind, but if they were you would probably have to pay transaction
costs to sell the securities distributed to you, as well as taxes on any capital
gains from the sale as with any redemption.
INVOLUNTARY SALES OF YOUR SHARES
If your account balance drops below $2,000 because of redemptions, you may be
required to sell your shares. But, we will give you at least 30 days' written
notice to give you time to add to your account and avoid the sale of your
shares.
SUSPENSION OF YOUR RIGHT TO SELL YOUR SHARES
We may suspend your right to sell your shares if the NYSE restricts trading, the
SEC declares an emergency or for other reasons. More information about this is
in our Statement of Additional Information.
TELEPHONE TRANSACTIONS
Purchasing, selling and exchanging Portfolio shares over the telephone is
extremely convenient, but not without risk. Although we have certain safeguards
and procedures to confirm the identity of callers and the authenticity of
instructions, we are not responsible for any losses or costs incurred by
following telephone instructions we reasonably believe to be genuine. If you or
your financial institution transact with us over the telephone, you will
generally bear the risk of any loss.
<PAGE>
OTHER INFORMATION
Dividends and Distributions
The Portfolio declares dividends of substantially all of its net investment
income (excluding capital gains) every day and distributes this income each
month.
The Portfolio makes distributions of capital gains, if any, at least annually.
If you own Portfolio shares on a Portfolio's record date, you will be entitled
to receive the distribution.
You will receive dividends and distributions in the form of additional Portfolio
shares unless you elect to receive payment in cash. To elect cash payment, you
must notify us in writing prior to the date of the distribution. Your election
will be effective for dividends and distributions paid after we receive your
written notice. To cancel your election, simply send us written notice.
Taxes
PLEASE CONSULT YOUR TAX ADVISER REGARDING YOUR SPECIFIC QUESTIONS ABOUT FEDERAL,
STATE AND LOCAL INCOME TAXES. Below we have summarized some important tax issues
that affect the Portfolio and its shareholders. This summary is based on
current tax laws, which may change.
The Portfolio will distribute substantially all of its income and capital gains,
if any. The dividends and distributions you receive may be subject to federal,
state and local taxation, depending upon your tax situation. Distributions you
receive from the Portfolio may be taxable whether or not you reinvest them.
Capital gains distributions may be taxable at different rates depending on the
length of time the Portfolio holds its portfolio securities. YOU MAY BE TAXED ON
EACH SALE OF PORTFOLIO SHARES.
MORE INFORMATION ABOUT TAXES IS IN OUR STATEMENT OF ADDITIONAL INFORMATION.
<PAGE>
FINANCIAL HIGHLIGHTS
The table that follows presents performance information about the Portfolio.
This information is intended to help you understand the Portfolio's financial
performance for the past five years, or, if shorter, the period of the
Portfolio's operations. Some of this information reflects financial information
for a single Portfolio share. The total returns in the table represent the rate
that you would have earned (or lost) on an investment in the Portfolio, assuming
you reinvested all of your dividends and distributions.
This information has been audited by Arthur Andersen LLP, independent public
accountants. Their report, along with the Portfolio's financial statements,
appears in the annual report that accompanies our Statement of Additional
Information. You can obtain the annual report, which contains more performance
information, at no charge by calling 1-800-932-7781.
<PAGE>
THE ADVISORS' INNER CIRCLE FUND
HGK FIXED INCOME FUND
INVESTMENT ADVISER
HGK Asset Management, Inc.
525 Washington Boulevard
Jersey City, New Jersey 07310
DISTRIBUTOR
SEI Investments Distribution Co.
One Freedom Valley Drive
Oaks, Pennsylvania 19456
LEGAL COUNSEL
Morgan, Lewis & Bockius LLP
1800 M Street, N.W.
Washington, DC 20036
More information about the Portfolio is available without charge through the
following:
STATEMENT OF ADDITIONAL INFORMATION (SAI)
------------------------------------------------------------
Our SAI dated March 1, 1999, includes detailed information about The Advisors'
Inner Circle Fund and the HGK Fixed Income Fund. The SAI is on file with the
SEC and is incorporated by reference into this prospectus. This means that the
SAI, for legal purposes, is a part of this prospectus.
ANNUAL AND SEMI-ANNUAL REPORTS
------------------------------------------------------------
These reports list the Portfolio's holdings and contain information from the
Portfolio's managers about strategies, and recent market conditions and trends.
The reports also contain detailed financial information about the Portfolio.
TO OBTAIN MORE INFORMATION:
BY TELEPHONE: Call 1-800-932-7781
<PAGE>
BY MAIL: Write to us
HGK Fixed Income Fund
c/o The Advisors' Inner Circle Fund
P.O. Box 419009
Kansas City, Missouri 64141-6009
FROM THE SEC: You can also obtain the SAI or the Annual and Semi-annual
reports, as well as other information about The Advisors' Inner Circle Fund,
from the SEC's website ("http://www.sec.gov"). You may review and copy documents
at the SEC Public Reference Room in Washington, DC (for information call
1-800-SEC-0330). You may request documents by mail from the SEC, upon payment
of a duplicating fee, by writing to: Securities and Exchange Commission, Public
Reference Section, Washington, DC 20549-6009. The Fund's Investment Company Act
registration number is 811-6400.
<PAGE>
FUND:
THE ADVISORS' INNER CIRCLE FUND
Portfolio:
HGK Fixed Income Fund
Investment Adviser:
HGK Asset Management, Inc.
This STATEMENT OF ADDITIONAL INFORMATION is not a prospectus and relates
only to the HGK Fixed Income Fund (the "Portfolio"). It is intended to provide
additional information regarding the activities and operations of The Advisors'
Inner Circle Fund (the "Fund") and the Portfolio and should be read in
conjunction with the Portfolio's Prospectus dated March 1, 1999. The Prospectus
for the Portfolio may be obtained by calling 1-800-932-7781.
TABLE OF CONTENTS
<TABLE>
<S> <C>
The Fund.................................................................. S-2
Investment Objective and Policies......................................... S-2
Description of Permitted Investments...................................... S-3
Investment Limitations.................................................... S-9
The Adviser............................................................... S-10
The Administrator......................................................... S-11
The Distributor........................................................... S-12
The Transfer Agent........................................................ S-12
The Custodian............................................................. S-12
Independent Public Accountants............................................ S-12
Legal Counsel............................................................. S-12
Trustees and Officers of the Fund......................................... S-12
Performance Information................................................... S-15
Computation of Yield...................................................... S-15
Calculation of Total Return............................................... S-15
Purchasing Shares......................................................... S-16
Redeeming Shares.......................................................... S-16
Determination of Net Asset Value.......................................... S-16
Taxes..................................................................... S-16
Portfolio Transactions.................................................... S-19
Trading Practices and Brokerage........................................... S-19
Description of Shares..................................................... S-22
Shareholder Liability..................................................... S-22
Limitation of Trustees' Liability......................................... S-22
Year 2000................................................................. S-22
5% and 25% Shareholders................................................... S-23
Experts................................................................... S-23
Financial Statements...................................................... S-23
</TABLE>
March 1, 1999
[HGK-F-002-04]
<PAGE>
THE FUND
This Statement of Additional Information relates only to the HGK Fixed
Income Fund (the "Portfolio"). The Portfolio is a separate series of the
Advisors' Inner Circle Fund (the "Fund"), 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 Fund to offer separate series ("portfolios") of shares of beneficial
interest ("shares"). Each portfolio is a separate mutual fund, and each share of
each portfolio represents an equal proportionate interest in that portfolio. See
"Description of Shares." No investment in shares of a portfolio should be made
without first reading that portfolio's prospectus. Capitalized terms not defined
herein are defined in the Prospectus offering shares of the Portfolio.
The Portfolio pays its (i) operating expenses, including fees of its service
providers, expenses of preparing prospectuses, proxy solicitation material and
reports to shareholders, costs of custodial services and registering its shares
under federal and state securities laws, pricing and insurance expenses and pays
additional expenses, brokerage costs, interest charges, taxes and organization
expenses and (ii) pro rata share of the Fund's other expenses, including audit
and legal expenses. Expenses not attributable to a specific portfolio are
allocated across all of the portfolios on the basis of relative net assets.
INVESTMENT OBJECTIVE AND POLICIES
The Portfolio seeks total return through current income and capital
appreciation consistent with the preservation of capital. There can be no
assurance that the Portfolio will be able to achieve this investment objective.
The Portfolio will normally invest at least 65% of its total assets in the
following U.S. dollar denominated fixed income securities: (i) U.S. Treasury
obligations, including Separately Traded Registered Interest and Principal
Securities ("STRIPS"); (ii) obligations issued or guaranteed as to principal and
interest by the U.S. government, its agencies or instrumentalities; (iii)
corporate bonds and debentures issued by U.S. and foreign issuers and, at the
time of purchase, rated in one of the four highest rating categories assigned by
a nationally recognized statistical rating organization (an "NRSRO") such as
Moody's Investors Service, Inc. ("Moody's"), Standard & Poor's Corporation
("S&P"), Duff & Phelps, Inc. ("Duff") or Fitch Investors Service, Inc.
("Fitch"), or, if not rated, determined to be of comparable quality by the
Adviser; (iv) securities of the government of Canada and its provincial and
local governments; and (v) securities of foreign governments.
The Portfolio may also invest up to 35% of its total assets in
collateralized mortgage obligations ("CMOs"), real estate mortgage investment
conduits ("REMICs") and asset-backed securities meeting the rating quality
criteria described above. Under normal conditions, the Portfolio may also hold
up to 20% of its total assets in cash or invest in repurchase agreements or
money market instruments, described below under "In General," in order to
maintain liquidity, or in the event that the Adviser determines that securities
meeting the Portfolio's investment objective and policies are not otherwise
readily available for purchase. The Portfolio may also invest up to 5% of its
net assets in stripped mortgage-backed securities, including securities that
receive interest-only payments and other securities that receive principal-only
payments.
The Portfolio may purchase zero coupon obligations and securities that pay
interest on a variable or floating rate basis. The Portfolio may invest up to
15% of its net assets in restricted securities.
The Adviser may purchase securities with any stated remaining maturity.
However, under normal circumstances, the Portfolio expects to maintain an
average duration of approximately 5 years. In determining the maturity of
mortgage-backed securities, the Portfolio will use the expected life of such
securities, which is based upon the anticipated prepayment patterns of the
underlying mortgages.
S-2
<PAGE>
IN GENERAL
For temporary defensive purposes during periods when the Adviser determines
that conditions warrant, the Portfolio may invest up to 100% of its assets in
cash and money market instruments, consisting of securities issued or guaranteed
by the U.S. Government, its agencies or instrumentalities; certificates of
deposit, time deposits, and bankers' acceptances issued by banks or savings and
loans associations having net assets of at least $500 million as of the end of
their most recent fiscal year; commercial paper rated at the time of purchase at
least A-1 by S&P or P-1 by Moody's, or unrated commercial paper determined by
the Adviser to be of comparable quality; repurchase agreements involving any of
the foregoing; and, to the extent permitted by applicable law, shares of other
investment companies.
The Adviser seeks to achieve the Portfolio's investment objective by
outperforming the Lehman Government Corporate Bond Index while taking less risk
and protecting the Portfolio's principal. The Adviser attempts to maintain a
relatively duration-neutral posture versus the Lehman Government Corporate Bond
Index (that is, maintaining a maximum 10% over- or under-weighting relative to
the duration of such Index), while adding value through the overweighting of
particular sectors or areas of the yield curve. The Adviser believes that by not
including large interest rate bets or sizable duration shifts in its strategy,
it can reduce the volatility of returns and limit the loss of principal.
Debt rated BBB or Baa is regarded as having an adequate capacity to pay
interest and repay principal. (Whereas such debt 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. Such bonds lack
outstanding investment characteristics and in fact have speculative
characteristics as well.)
In the event any security held by the Portfolio is downgraded below the
rating categories set forth above, the Adviser will review the security and
determine whether to retain or dispose of that security.
The Portfolio's turnover rates are set forth under "Financial Highlights" in
the Prospectus. A portfolio turnover rate in excess of 100% may result from the
Adviser's investment strategy of finding market pricing inefficiencies rather
than forecasting interest rates. The Adviser may sell securities held for a
short time in order to take advantage of what the Adviser believes to be
temporary disparities in normal yield relationships between securities. A
Portfolio turnover rate in excess of 100% may result in higher transaction costs
to the Portfolio and may increase the amount of taxes payable by the Portfolio's
shareholders.
The phrase "principally invests" as used in the prospectus means that the
Fund invests at least 65% of its assets in the securities as described in the
sentence.
DESCRIPTION OF PERMITTED INVESTMENTS
ASSET-BACKED SECURITIES--Asset-backed securities are securities backed by
non-mortgage assets such as company receivables, truck and auto loans, leases
and credit card receivables. Other asset-backed securities may be created in the
future. These securities may be traded over-the-counter and typically have a
short-intermediate maturity structure depending on the paydown characteristics
of the underlying financial assets which are passed through to the security
holder. These securities are generally issued as pass-through certificates,
which represent undivided fractional ownership interests in the underlying pool
of assets. Asset-backed securities may also be debt obligations, which are known
as collateralized obligations and are generally issued as the debt of a special
purpose entity, such as a trust, organized solely for the purpose of owning
these assets and issuing debt obligations.
Asset-backed securities are not issued or guaranteed by the U.S. Government,
its agencies or instrumentalities; however, the payment of principal and
interest on such obligations may be guaranteed up to certain amounts and, for a
certain period, by a letter of credit issued by a financial institution (such as
a bank or insurance company) unaffiliated with the issuers of such securities.
The purchase of asset-backed
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securities raises risk considerations peculiar to the financing of the
instruments underlying such securities. For example, there is a risk that
another party could acquire an interest in the obligations superior to that of
the holders of the asset-backed securities. There also is the possibility that
recoveries on repossessed collateral may not, in some cases, be available to
support payments on those securities.
Asset-backed securities entail prepayment risk, which may vary depending on
the type of asset, but is generally less than the prepayment risk associated
with mortgage-backed securities. In addition, credit card receivables are
unsecured obligations of the card holder.
The market for asset-backed securities is at a relatively early stage of
development. Accordingly, there may be a limited secondary market for such
securities.
BANKERS' ACCEPTANCES--Bankers' acceptances are bills of exchange or time
drafts drawn on and accepted by a commercial bank. Bankers' acceptances are used
by corporations to finance the shipment and storage of goods. Maturities are
generally six months or less.
CERTIFICATES OF DEPOSIT--Certificates of deposit are interest bearing
instruments with a specific maturity. They are issued by banks and savings and
loan institutions in exchange for the deposit of funds and normally can be
traded in the secondary market prior to maturity. Certificates of deposit with
penalties for early withdrawal will be considered illiquid.
COMMERCIAL PAPER--Commercial paper is a term used to describe unsecured
short-term promissory notes issued by banks, municipalities, corporations and
other entities. Maturities on these issues vary from a few to 270 days.
THE EURO--On January 1, 1999, the European Monetary Union (EMU) plans to
implement a new currency unit, the Euro, which is expected to reshape financial
markets, banking systems and monetary policies in Europe and other parts of the
world. The countries initially expected to convert or tie their currencies to
the Euro include Austria, Belgium, France, Germany, Luxembourg, the Netherlands,
Ireland, Finland, Italy, Portugal, and Spain. Implementation of this plan will
mean that financial transactions and market information, including share
quotations and company accounts, in participating countries will be denominated
in Euros. Approximately 46% of the stock exchange capitalization of the total
European market may be reflected in Euros, and participating governments will
issue their bonds in Euros. Monetary policy for participating countries will be
uniformly managed by a new central bank, the European Central Bank (ECB).
Although it is not possible to predict the impact of the Euro implementation
plan on the Portfolio, the transition to the Euro may change the economic
environment and behavior of investors, particularly in European markets. For
example, investors may begin to view those countries participating in the EMU as
a single entity, and the Adviser may need to adapt investment strategies
accordingly. The process of implementing the Euro also may adversely affect
financial markets worldwide and may result in changes in the relative strength
and value of the U.S. dollar or other major currencies, as well as possible
adverse tax consequences. The transition to the Euro is likely to have a
significant impact on fiscal and monetary policy in the participating countries
and may produce unpredictable effects on trade and commerce generally. These
resulting uncertainties could create increased volatility in financial markets
world-wide.
FIXED INCOME SECURITIES--Fixed income securities are debt obligations issued
by corporations, municipalities and other borrowers. The market value of fixed
income investments will change in response to interest rate changes and other
factors. During periods of falling interest rates, the values of outstanding
fixed income securities generally rise. Conversely, during periods of rising
interest rates, the values of such securities generally decline. Moreover, while
securities with longer maturities tend to produce higher yields, the prices of
longer maturity securities are also subject to greater market fluctuations as a
result of changes in interest rates. Changes by recognized agencies in the
rating of any fixed income security and in the ability of an issuer to make
payments of interest and principal will also affect the value of these
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investments. Changes in the value of portfolio securities will not affect cash
income derived from these securities but will affect the Portfolio's net asset
value.
FLOATING RATE INSTRUMENTS--have a rate of interest that is set as a specific
percentage of a designated base rate (such as the prime rate) at a major
commercial bank. The Portfolio can demand payment of the obligation at all times
or at stipulated dates on short notice (not to exceed 30 days) at par plus
accrued interest. The Portfolio may use the longer of the period required before
the Portfolio is entitled to prepayment under such obligations or the period
remaining until the next interest rate adjustment date for purposes of
determining the maturity of the instrument. Such obligations are frequently
secured by letters of credit or other credit support arrangements provided by
banks. The quality of the underlying credit or of the bank, as the case may be,
must, in the Adviser's opinion be equivalent to the long-term bond or commercial
paper ratings stated in the Prospectus. The Adviser will monitor the earning
power, cash flow and liquidity ratios of the issuers of such instruments and the
ability of an issuer of a demand instrument to pay principal and interest on
demand.
ILLIQUID SECURITIES--Illiquid securities are securities that cannot be
disposed of within seven business days at approximately the price at which they
are being carried on the Portfolio's books. An illiquid security includes a
demand instrument with a demand notice period exceeding seven days, where there
is no secondary market for such security, and repurchase agreements with a
remaining term to maturity in excess of seven days.
MORTGAGE-BACKED SECURITIES--Mortgage-backed securities are instruments that
entitle the holder to a share of all interest and principal payments from
mortgages underlying the security. The mortgages backing these securities
include conventional thirty-year fixed rate mortgages, graduated payment
mortgages, and adjustable rate mortgages. During periods of declining interest
rates, prepayment of mortgages underlying mortgage-backed securities can be
expected to accelerate. Prepayment of mortgages which underlie securities
purchased at a premium often results in capital losses, while prepayment of
mortgages purchased at a discount often results in capital gains. Because of
these unpredictable prepayment characteristics, it is often not possible to
predict accurately the average life or realized yield of a particular issue.
GOVERNMENT PASS-THROUGH SECURITIES--These are securities that are issued or
guaranteed by a U.S. Government agency representing an interest in a pool of
mortgage loans. The primary issuers or guarantors of these mortgage-backed
securities are the Government National Mortgage Association, Fannie Mae and the
Federal Home Loan Mortgage Corporation. Fannie Mae and FHLMC obligations are not
backed by the full faith and credit of the U.S. Government as GNMA certificates
are, but Fannie Mae and FHLMC securities are supported by the instrumentalities'
right to borrow from the U.S. Treasury. GNMA, Fannie Mae and FHLMC each
guarantees timely distributions of interest to certificate holders. GNMA and
Fannie Mae also each guarantees timely distributions of scheduled principal.
FHLMC has in the past guaranteed only the ultimate collection of principal of
the underlying mortgage loan; however, FHLMC now issues mortgage-backed
securities (FHLMC Gold PCS) which also guarantee timely payment of monthly
principal reductions. Government and private guarantees do not extend to the
securities' value, which is likely to vary inversely with fluctuations in
interest rates.
Obligations of GNMA are backed by the full faith and credit of the United
States Government. Obligations of Fannie Mae and FHLMC are not backed by the
full faith and credit of the United States Government but are considered to be
of high quality since they are considered to be instrumentalities of the United
States. The market value and interest yield of these mortgage-backed securities
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 with a maximum maturity of 30 years. However,
due to scheduled and unscheduled principal payments on the underlying loans,
these securities 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
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particular mortgage-backed security. The scheduled monthly interest and
principal payments relating to mortgages in the pool will be "passed through" to
investors. Government mortgage-backed 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 these securities may offer yields higher than those available from
other types of U.S. Government securities, mortgage-backed securities 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 these securities 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 mortgage-backed security originally
purchased at a premium to decline in price to its par value, which may result in
a loss.
PRIVATE PASS-THROUGH SECURITIES--These are mortgage-backed securities issued
by a non-governmental entity, such as a trust. These securities include
collateralized mortgage obligations ("CMOs") and real estate mortgage investment
conduits ("REMICS") that are rated in one of the top four rating categories.
While they are generally structured with one or more types of credit
enhancement, private pass-through securities typically lack a guarantee by an
entity having the credit status of a governmental agency or instrumentality. The
two principal types of private mortgage-backed securities are collateralized
mortgage obligations ("CMOs") and real estate mortgage investment conduits
("REMICs").
CMOs--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 are rated in one of the two highest categories by S&P or
Moody's. Many CMOs are issued with a number of classes or series which have
different expected maturities. Investors purchasing such CMOs are credited with
their portion of the scheduled payments of interest and principal on the
underlying mortgages plus all unscheduled prepayments of principal based on a
predetermined priority schedule. Accordingly, the CMOs in the longer maturity
series are less likely than other mortgage pass-throughs to be prepaid prior to
their stated maturity. Although some of the mortgages underlying CMOs may be
supported by various types of insurance, and some CMOs may be backed by GNMA
certificates or other mortgage pass-throughs issued or guaranteed by U.S.
Government agencies or instrumentalities, the CMOs themselves are not generally
guaranteed.
REMICs--REMICs are private entities formed for the purpose of holding a
fixed pool of mortgages secured by an interest in real property. REMICs are
similar to CMOs in that they issue multiple classes of securities and are rated
in one of the two highest categories by S&P or Moody's.
Investors may purchase beneficial interests in REMICs, which are known as
"regular" interests, or "residual" interests. Guaranteed REMIC pass-through
certificates ("REMIC Certificates") issued by Fannie Mae or FHLMC represent
beneficial ownership interests in a REMIC trust consisting principally of
mortgage loans or Fannie Mae, FHLMC or GNMA-guaranteed mortgage pass-through
certificates. For FHLMC REMIC Certificates, FHLMC guarantees the timely payment
of interest. GNMA REMIC Certificates are backed by the full faith and credit of
the U.S. Government.
RISK FACTORS--Due to the possibility of prepayments of the underlying
mortgage instruments, mortgage-backed securities generally do not have a known
maturity. In the absence of a known maturity, market participants generally
refer to an estimated average life. An average life estimate is a function of an
assumption regarding anticipated prepayment patterns, based upon current
interest rates, current conditions in the relevant housing markets and other
factors. The assumption is necessarily subjective, and thus different market
participants can produce different average life estimates with regard to the
same security. There can be no assurance that estimated average life will be a
security's actual average life.
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REPURCHASE AGREEMENTS--Repurchase agreements are agreements by which a
person (E.G., the Portfolio) obtains a security and simultaneously commits to
return the security to the seller (a primary securities dealer as recognized by
the Federal Reserve Bank of New York or a national member bank as defined in
Section 3(d)(1) of the Federal Deposit Insurance Act, as amended) 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 Portfolio for
purposes of its investment limitations. The repurchase agreements entered into
by the Portfolio will provide that the underlying security at all times shall
have a value at least equal to 102% of the resale price stated in the agreement
(the Adviser monitors compliance with this requirement). Under all repurchase
agreements entered into by the Portfolio, the appropriate Custodian or its agent
must take possession of the underlying collateral. However, if the seller
defaults, the Portfolio could realize a loss on the sale of the underlying
security to the extent that the proceeds of the 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, the Portfolio may incur delay and costs in selling the
underlying security or may suffer a loss of principal and interest if the
Portfolio is treated as an unsecured creditor and required to return the
underlying security to the seller's estate.
RESTRICTED SECURITIES--Restricted securities are securities that may not be
sold to the public without registration under the Securities Act of 1933 (the
"1933 Act") or an exemption from registration. Permitted investments for the
Portfolio includes restricted securities. Restricted securities, including
securities eligible for re-sale under 1933 Act Rule 144A, that are determined to
be liquid are not subject to this limitation. This determination is to be made
by the Portfolio's Adviser pursuant to guidelines adopted by the Board of
Trustees. Under these guidelines, the Adviser will consider the frequency of
trades and quotes for the security, the number of dealers in, and potential
purchasers for, the securities, dealer undertakings to make a market in the
security, and the nature of the security and of the marketplace trades. In
purchasing such Restricted Securities, each Adviser intends to purchase
securities that are exempt from registration under Rule 144A under the 1933 Act.
SECURITIES OF FOREIGN GOVERNMENTS--The Portfolio may invest in U.S. dollar
denominated obligations or securities of the Government of Canada and its
provincial and local governments and U.S. dollar denominated securities issued
or guaranteed by foreign governments, their political subdivisions, agencies or
instrumentalities. Permissible investments may consist of obligations of foreign
branches of U.S. Banks and of foreign banks, including Yankee Certificates of
Deposit. In addition, the Portfolio may invest in American Depositary Receipts.
These instruments may subject the Portfolio to investment risks that differ in
some respects from those related to investments in obligations of U.S. domestic
issuers. Such risks include future adverse political and economic developments,
the possible imposition of withholding taxes on interest or other income,
possible seizure, nationalization, or expropriation of foreign deposits, the
possible establishment of exchange controls or taxation at the source, or the
adoption of other foreign governmental restrictions which might adversely affect
the payment of principal and interest on such obligations. Such investments may
also entail higher custodial fees and sales commissions than domestic
investments. Foreign issuers of securities or obligations are often subject to
accounting treatment and engage in business practices different from those
respecting domestic issuers of similar securities or obligations. Foreign
branches of U.S. banks and foreign banks may be subject to less stringent
reserve requirements than those applicable to domestic branches of U.S. banks.
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SECURITIES OF FOREIGN ISSUERS--There are certain risks connected with
investing in foreign securities. These include risks of adverse political and
economic developments (including possible governmental seizure or
nationalization of assets), the possible imposition of exchange controls or
other governmental restrictions, less uniformity in accounting and reporting
requirements, the possibility that there will be less information on such
securities and their issuers available to the public, the difficulty of
obtaining or enforcing court judgments abroad, restrictions on foreign
investments in other jurisdictions, difficulties in effecting repatriation of
capital invested abroad, and difficulties in transaction settlements and the
effect of delay on shareholder equity. Foreign securities may be subject to
foreign taxes, and may be less marketable than comparable U.S. securities. The
value of the Portfolio's investments denominated in foreign currencies will
depend on the relative strengths of those currencies and the U.S. dollar, and
the Portfolio may be affected favorably or unfavorably by changes in the
exchange rates or exchange control regulations between foreign currencies and
the U.S. dollar. Changes in foreign currency exchange rates also may affect the
value of dividends and interest earned, gains and losses realized on the sale of
securities and net investment income and gains, if any, to be distributed to
shareholders by the Portfolio.
TIME DEPOSITS--Time deposits are non-negotiable receipts issued by a bank in
exchange for the deposit of funds. Like a certificate of deposit, it earns a
specified rate of interest over a definite period of time; however, it cannot be
traded in the secondary market. Time deposits with a withdrawal penalty or that
mature in more than seven days are considered to be illiquid securities.
U.S. GOVERNMENT AGENCY OBLIGATIONS--U.S. Government agency obligations are
obligations issued or guaranteed by agencies or instrumentalities of the U.S.
Government. Agencies of the United States Government which issue obligations
consist of, among others, the Export Import Bank of the United States, Farmers
Home Administration, Federal Farm Credit Bank, Federal Housing Administration,
Government National Mortgage Association ("GNMA"), Maritime Administration,
Small Business Administration and The Tennessee Valley Authority. Obligations of
instrumentalities of the United States Government include securities issued by,
among others, Federal Home Loan Banks, Federal Home Loan Mortgage Corporation
("FHLMC"), Federal Intermediate Credit Banks, Federal Land Banks, Fannie Mae and
the United States Postal Service as well as government trust certificates. Some
of these securities are supported by the full faith and credit of the United
States Treasury, others are supported by the right of the issuer to borrow from
the Treasury and still others are supported only by the credit of the
instrumentality. Guarantees of principal by agencies or instrumentalities of the
U.S. Government may be a guarantee of payment at the maturity of the obligation
so that in the event of a default prior to maturity there might not be a market
and thus no means of realizing the value of the obligation prior to maturity.
U.S. TREASURY OBLIGATIONS--U.S. Treasury obligations consist of bills, notes
and bonds issued by the U.S. Treasury and separately traded interest and
principal component parts of such obligations that are transferable through the
federal book-entry system known as Separately Traded Interest and Principal Risk
Securities.
VARIABLE AND FLOATING RATE SECURITIES--Variable and floating rate
instruments involve certain obligations that may carry variable or floating
rates of interest, and may involve a conditional or unconditional demand
feature. Such instruments bear interest at rates which are not fixed, but which
vary with changes in specified market rates or indices. The interest rates on
these securities may be reset daily, weekly, quarterly, or some other reset
period, and may have a set floor or ceiling on interest rate changes. There is a
risk that the current interest rate on such obligations may not accurately
reflect existing market interest rates. A demand instrument with a demand notice
exceeding seven days may be considered illiquid if there is no secondary market
for such security.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES--When-issued or delayed delivery
basis transactions involve the purchase of an instrument with payment and
delivery taking place in the future. Delivery of and payment for these
securities may occur a month or more after the date of the purchase commitment.
The Portfolio will maintain with the Custodian a separate account with liquid
assets in an
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amount at least equal to these commitments. The interest rate realized on these
securities is fixed as of the purchase date and no interest accrues to the
Portfolio before settlement. These securities are subject to market fluctuation
due to changes in market interest rates and it is possible that the market value
at the time of settlement could be higher or lower than the purchase price if
the general level of interest rates has changed. Although the Portfolio
generally purchases securities on a when-issued or forward commitment basis with
the intention of actually acquiring securities for its portfolio, the Portfolio
may dispose of a when-issued security or forward commitment prior to settlement
if it deems appropriate.
ZERO COUPON OBLIGATIONS--Zero coupon obligations are debt obligations that
do not bear any interest, but instead are issued at a deep discount from face
value or par. The value of a zero coupon obligation increases over time to
reflect the interest accumulated. Such obligations will not result in the
payment of interest until maturity, and will have greater price volatility than
similar securities that are issued at face value or par and pay interest
periodically.
INVESTMENT LIMITATIONS
The following are fundamental policies of the Portfolio and cannot be
changed with respect to the Portfolio without the consent of the holders of a
majority of the Portfolio's outstanding shares. The term "majority of the
outstanding shares" means the vote of (i) 67% or more of the Portfolio's shares
present at a meeting, if more than 50% of the outstanding shares of the
Portfolio are present or represented by proxy, or (ii) more than 50% of the
Portfolio's outstanding shares, whichever is less.
The Portfolio may not:
1. Purchase securities of any issuer (except securities issued or guaranteed by
the U.S. Government, its agencies or instrumentalities and repurchase
agreements involving such securities) if as a result more than 5% of the
total assets of the Portfolio would be invested in the securities of such
issuer. This restriction applies to 75% of the Portfolio's total assets.
2. Purchase any securities which would cause 25% or more of the total assets of
the Portfolio 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 the
obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities and repurchase agreements involving such securities. For
purposes of this limitation, (i) utility companies will be classified
according to their services, for example, gas, gas transmission, electric
and telephone will each be considered a separate industry; and (ii)
financial service companies will be classified according to the end users of
their services, for example, automobile finance, bank finance and
diversified finance will each be considered a separate industry.
3. Acquire more than 10% of the voting securities of any one issuer.
4. Invest in companies for the purpose of exercising control.
5. Borrow money except for temporary or emergency purposes and then only in an
amount not exceeding 33 1/3% of the value of total assets. Any borrowing
will be done from a bank and to the extent that such borrowing exceeds 5% of
the value of the Portfolio's assets, asset coverage of at least 300% is
required. In the event that such asset coverage shall at any time fall below
300%, the Portfolio shall, within three days thereafter or such longer
period as the Securities and Exchange Commission ("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%. This
borrowing provision is included for temporary liquidity or emergency
purposes. All borrowings will be repaid before making investments and any
interest paid on such borrowings will reduce income.
6. Make loans, except that the Portfolio may purchase or hold debt instruments
in accordance with its investment objective and policies and may enter into
repurchase agreements.
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7. Pledge, mortgage or hypothecate assets except to secure temporary borrowings
permitted by (7) above in aggregate amounts not to exceed 10% of total
assets taken at current value at the time of the incurrence of such loan.
8. Purchase or sell real estate, real estate limited partnership interests,
futures contracts, commodities or commodities contracts and interests in a
pool of securities that are secured by interests in real estate. However,
subject to the permitted investments of the Portfolio, it may invest in
municipal securities or other marketable obligations secured by real estate
or interests therein.
9. Make short sales of securities, maintain a short position or purchase
securities on margin, except that the Portfolio may obtain short-term
credits as necessary for the clearance of security transactions.
10. Act as an underwriter of securities of other issuers except as it may be
deemed an underwriter in selling the Portfolio security.
11. Purchase securities of other investment companies except as permitted by
the Investment Company Act of 1940, as amended (the "1940 Act") and the
rules and regulations thereunder.
12. Issue senior securities (as defined in the 1940 Act) except in connection
with permitted borrowings as described above or as permitted by rule,
regulation or order of the SEC.
13. Purchase or retain securities of an issuer if, to the knowledge of the
Fund, an officer, trustee, partner or director of the Fund or any
investment adviser of the Fund owns beneficially more than 0.5% of the
shares or securities of such issuer and all such officers, trustees,
partners and directors owning more than 0.5% of such shares or securities
together own more than 5% of such shares or securities.
14. Invest in interests in oil, gas or other mineral exploration or development
programs and oil, gas or mineral leases.
15. Write or purchase puts, calls, options or combinations thereof or invest in
warrants.
The foregoing percentages will apply at the time of the purchase of a
security.
THE ADVISER
The Fund and HGK Asset Management Inc. (the "Adviser") have entered into an
advisory agreement dated August 15, 1994 (the "Advisory Agreement"). The
Advisory Agreement provides that the Adviser shall not be protected against any
liability to the Fund or its shareholders by reason of willful misfeasance, bad
faith or gross negligence on its part in the performance of its duties or from
reckless disregard of its obligations or duties thereunder.
The Adviser was incorporated in 1983 by three principals, Jeffrey T. Harris,
Warren A. Greenhouse and Joseph E. Kutzel. The Adviser has provided equity,
fixed income and balanced fund management of individually structured portfolios
since its inception. As of , total assets under management were
approximately $ billion. The principal business address of the Adviser is 17
State Street, 15th Floor, New York, New York 10004.
The Adviser makes the investment decisions for the assets of the Portfolio
and continuously reviews, supervises and administers the Portfolio's investment
program, subject to the supervision of, and policies established by, the
Trustees of the Fund.
Gregory W. Lobo, Vice President, Senior Portfolio Manager of Fixed Income
Securities, Anthony Santoliquido, Portfolio Manager of Fixed Income Securities
and Patricia Bernabeo, Portfolio Manager of Fixed Income Securities have managed
the Portfolio since its inception. Mr. Lobo has been with the Adviser since
1990. Mr. Santoliquido has been with the Adviser since 1993 and prior to that he
was at Hilliard Farber and Co. Brokerage. Ms. Bernabeo has been with the Adviser
since 1992 and prior to that was at New York University.
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The Adviser is entitled to a fee, which is calculated daily and paid
monthly, at an annual rate of .50% of the average daily net assets of the
Portfolio. The Adviser has voluntarily agreed to waive all or a portion of its
fees for, and reimburse expenses of, the Portfolio to the extent necessary in
order to limit total operating expenses to an annual rate of not more than 1.00%
of the Portfolio's average daily net assets. The Adviser may, from its own
resources, compensate broker-dealers whose clients purchase shares of the
Portfolio. For the fiscal year ended October 31, 1998, the Adviser received an
advisory fee of % of the Portfolio's average daily net assets, and the
Adviser reimbursed expenses equal to % of the Portfolio's average daily net
assets.
For the fiscal years ended October 31, 1996, October 31, 1997 and October
31, 1998, the Adviser was paid $0, $0, and $ respectively, waived fees of
$58,143, $65,793 and $ , respectively, and reimbursed expenses of $1,464,
$18,783 and $ , respectively.
To the extent the Portfolio purchases securities of open end investment
companies, the Adviser will waive its advisory fee on that portion of the
Portfolio's assets invested in such securities.
The continuance of the Advisory Agreement, after the first two years, must
be specifically approved at least annually (i) by the vote of the Trustees or by
a vote of the shareholders of the Portfolio, and (ii) by the vote of a majority
of the Trustees who are not parties to the Agreement or "interested persons" of
any party thereto, cast in person at a meeting called for the purpose of voting
on such approval. The Advisory Agreement will terminate automatically in the
event of its assignment, and is terminable at any time without penalty by the
Trustees of the Fund or, with respect to the Portfolio, by a majority of the
outstanding shares of the Portfolio, on not less than 30 days' nor more than 60
days' written notice to the Adviser, or by the Adviser on 90 days' written
notice to the Fund.
THE ADMINISTRATOR
SEI Investments Mutual Funds Services (the "Administrator") serves as the
Administrator of the Fund. The Administrator provides the Fund with
administrative services, including regulatory reporting and all necessary office
space, equipment, personnel and facilities. For these administrative services,
the Administrator is entitled to a fee, which is calculated daily and paid
monthly, at an annual rate of .20% of the Portfolio's average daily net assets.
However, the Portfolio pays the Administrator a minimum annual fee of $75,000,
and consequently the annual administration fee the Portfolio pays will exceed
.20% of the Portfolio's average daily net assets at low asset levels.
The Administration Agreement provides that the Administrator shall not be
liable for any error of judgment or mistake of law or for any loss suffered by
the Fund in connection with the matters to which the Administration Agreement
relates, except a loss resulting from willful misfeasance, bad faith or gross
negligence on the part of the Administrator in the performance of its duties or
from reckless disregard by it of its duties and obligations thereunder. The
Administration Agreement shall remain in effect with respect to the Portfolio
until August 15, 1999 and shall continue in effect for successive periods of two
years unless terminated by either party on not less than 90 days' written notice
to the other party. For the fiscal years ended October 31, 1996, October 31,
1997 and October 31, 1998, the Administrator received fees of $75,034, $74,964
and $ , respectively, from the Portfolio.
The Fund and the Administrator have also entered into a shareholder
servicing agreement pursuant to which the Administrator provides certain
shareholder services in addition to those set forth in the Administration
Agreement.
The Administrator, a Delaware business trust, has its principal business
offices at Oaks, Pennsylvania 19456. SEI Investments Management Corporation
("SIMC"), a wholly-owned subsidiary of SEI Investments Company ("SEI
Investments"), is the owner of all beneficial interest in the Administrator. SEI
Investments and its subsidiaries and affiliates, including the Administrator,
are leading providers of funds
S-11
<PAGE>
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, Armada Funds, Bishop Street Funds, Boston 1784
Funds-Registered Trademark-, CrestFunds, Inc., CUFUND, The Expedition Funds,
First American Funds, Inc., First American Investment Funds, Inc., First
American Strategy Funds, Inc., HighMark Funds, Monitor Funds, The Nevis Funds,
Oak Associates Funds, The PBHG Funds, Inc., PBHG Advisor Funds, Inc., PBHG
Insurance Series Fund, Inc., The Pillar Funds, SEI Asset Allocation Trust, SEI
Daily Income Trust, SEI Index Funds, SEI Institutional International Trust, SEI
Institutional Investments Trust, SEI Institutional Managed Trust, SEI Liquid
Asset Trust, SEI Tax Exempt Trust, STI Classic Funds, STI Classic Variable
Trust, TIP Funds and Alpha Select Funds.
THE DISTRIBUTOR
SEI Investments Distribution Co. (the "Distributor"), a wholly-owned
subsidiary of SEI, and the Fund are parties to a distribution agreement dated
November 14, 1991 ("Distribution Agreement"). The Distributor will not receive
compensation for the distribution of shares of any Portfolio.
The Distribution Agreement is renewable annually. The Distribution Agreement
may be terminated by the Distributor, by a majority vote of the Trustees who are
not interested persons and have no financial interest in the Distribution
Agreement or by a majority of the outstanding shares of the Fund upon not more
than 60 days' written notice by either party or upon assignment by the
Distributor.
No compensation is paid to the Distributor for distribution services for the
shares of the Portfolio.
THE TRANSFER AGENT
DST Systems, Inc., 330 W. 9th Street, Kansas City, MO 64105 serves as the
Fund's transfer agent.
THE CUSTODIAN
First Union National Bank, Broad and Chestnut Streets, P.O. Box 7618,
Philadelphia, Pennsylvania 19101 acts as custodian (the "Custodian") of the
Fund. The Custodian holds cash, securities and other assets of the Fund as
required by the 1940 Act.
INDEPENDENT PUBLIC ACCOUNTANTS
Arthur Andersen LLP serves as independent public accountants for the Fund.
LEGAL COUNSEL
Morgan, Lewis & Bockius LLP 1800 M Street, N.W., Washington, D.C. serves as
legal counsel to the Fund.
TRUSTEES AND OFFICERS OF THE FUND
The management and affairs of the Fund are supervised by the Trustees under
the laws of the Commonwealth of Massachusetts. The Trustees have approved
contracts under which, as described above, certain companies provide essential
management services to the Fund. The Fund pays the fees for unaffiliated
Trustees.
The Trustees and Executive Officers of the Fund, their respective dates of
birth, and their principal occupations for the last five years are set forth
below. Each may have held other positions with 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 Fund
S-12
<PAGE>
also serve as officers of some or all of the following: The Achievement Funds
Trust, The Arbor Fund, ARK Funds, Armada Funds, Bishop Street Funds, Boston 1784
Funds-Registered Trademark-, CrestFunds, Inc., CUFUND, The Expedition Funds,
First American Funds, Inc., First American Investment Funds, Inc., First
American Strategy Funds, Inc., HighMark Funds, Monitor Funds, Oak Associates
Funds, The PBHG Funds, Inc., PBHG Advisor Funds, Inc., PBHG Insurance Series
Fund, Inc., The Pillar Funds, SEI Asset Allocation Trust, SEI Daily Income
Trust, SEI Index Funds, SEI Institutional International Trust, SEI Institutional
Investments Trust, SEI Institutional Managed Trust, SEI Liquid Asset Trust, SEI
Tax Exempt Trust, STI Classic Funds, STI Classic Variable Trust, TIP Funds and
Alpha Select Funds, each of which is an open-end management investment company
managed by SEI Investments Mutual Funds Services or its affiliates and, except
for PBHG Advisor 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, 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
Institutional International Trust, SEI Liquid Asset Trust and SEI Tax Exempt
Trust.
JOHN T. COONEY (DOB 01/20/27)--Trustee**--Vice Chairman of Ameritrust Texas
N.A., 1989-1992, and MTrust Corp., 1985-1989. Trustee of The Arbor Fund, The
Expedition Funds, and Oak Associates Funds.
WILLIAM M. DORAN (DOB 05/26/40)--Trustee*--1701 Market Street, Philadelphia,
PA 19103-2921. Partner, Morgan, Lewis & Bockius LLP (law firm), counsel to the
Trust, SEI Investments, the Administrator and the Distributor. Director and
Secretary of SEI Investments and Secretary of the Administrator and the
Distributor. Trustee of The Arbor Fund, The Expedition Funds, Oak Associates
Funds, SEI Asset Allocation Trust, SEI Daily Income Trust, SEI Index Funds, SEI
Institutional Investments Trust, SEI Institutional Managed Trust, SEI
Institutional International Trust, SEI Liquid Asset Trust and SEI Tax Exempt
Trust.
ROBERT A. PATTERSON (DOB 11/05/27)--Trustee**--Pennsylvania State
University, Senior Vice President, Treasurer (Emeritus). Financial and
Investment Consultant, Professor of Transportation (1984-present). Vice
President--Investments, Treasurer, Senior Vice President (Emeritus) (1982-1984).
Director, Pennsylvania Research Corp.; Member and Treasurer, Board of Trustees
of Grove City College. Trustee of The Arbor Fund, The Expedition Funds 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 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, Oak Associates Funds, SEI Asset Allocation Trust, SEI Daily Income Trust,
SEI Index Funds, SEI Institutional Investments Trust, SEI Institutional Managed
Trust, SEI Institutional International Trust, SEI Liquid Asset Trust and SEI Tax
Exempt Trust.
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.
JAMES R. FOGGO (DOB 06/30/64)--Vice President and Assistant Secretary--Vice
President and Assistant Secretary of the Administrator and the Distributor since
1998. Associate, Paul Weiss, Rifkind,
S-13
<PAGE>
Wharton & Garrison (law firm), 1998. Associate, Baker & McKenzie (law firm),
1995-1998. Associate, Battle Fowler L.L.P. (law firm), 1993-1995. Operations
Manager, The Shareholder Services Group, Inc., 1986-1990.
LYDIA A. GAVALIS (DOB 06/05/64)--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.
KATHY HEILIG (DOB 12/21/58)--Vice President and Assistant
Secretary--Treasurer of SEI Investments since 1997; Assistant Controller of SEI
Investments since 1995; Vice President of SEI Investments since 1991; Director
of Taxes of SEI Investments, 1987 to 1991. Tax Manager, Arthur Anderson LLP
prior to 1987.
JOSEPH M. O'DONNELL (DOB 11/13/54)--Vice President and Assistant
Secretary--Vice President and Assistant Secretary of the Administrator and the
Distributor since 1998. Vice President and General Counsel, FPS Services, Inc.,
1993-1997. Staff Counsel and Secretary, Provident Mutual Family of Funds,
1990-1993.
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.
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.
MARK E. NAGLE (DOB 10/20/59)--Controller and Chief Financial 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 December 1997. Vice President, Fund Accounting, BISYS Fund Services,
September 1995 to November 1996. Senior Vice President and Site Manager,
Fidelity Investments 1981 to September 1995.
JOHN H. GRADY, JR. (DOB 06/01/61)--Secretary--1701 Market Street,
Philadelphia, PA 19103-2921, Partner since 1995, Morgan, Lewis & Bockius LLP
(law firm), counsel to the Trust, SEI Investments, the Administrator and the
Distributor.
- ------------------------
* Messrs. Nesher and Doran are Trustees who may be deemed to be "interested"
persons of the Portfolio as that term is defined in the 1940 Act.
** Messrs. Cooney, Patterson, Peters and Storey serve as members of the Audit
Committee of the Portfolio.
The Trustees and officers of the Fund own less than 1% of the outstanding
shares of the Fund. The Fund pays the fees for unaffiliated Trustees.
S-14
<PAGE>
The following table exhibits Trustee compensation for the fiscal period
ended October 31, 1998.
<TABLE>
<CAPTION>
AGGREGATE
COMPENSATION
FROM REGISTRANT PENSION OR TOTAL COMPENSATION FROM
FOR THE FISCAL RETIREMENT ESTIMATED REGISTRANT AND
YEAR ENDED BENEFITS ACCRUED ANNUAL FUND COMPLEX* PAID TO
OCTOBER 31, AS PART OF BENEFITS UPON TRUSTEES FOR THE FISCAL
NAME OF PERSON, POSITION 1998 FUND EXPENSES RETIREMENT YEAR ENDED OCTOBER 31, 1998
- ---------------------------------- --------------- ------------------- ----------------- ---------------------------
<S> <C> <C> <C> <C>
John T. Cooney.................... $ -- N/A N/A $ for services on 1
board
Frank E. Morris................... $ -- N/A N/A $ for services on 1
board
Robert Patterson.................. $ -- N/A N/A $ for services on 1
board
Eugene B. Peters.................. $ -- N/A N/A $ for services on 1
board
James M. Storey, Esq.............. $ -- N/A N/A $ for services on 1
board
William M. Doran, Esq............. $ 0 N/A N/A $0 for service on 1 board
Robert A. Nesher.................. $ 0 N/A N/A $0 for service on 1 board
</TABLE>
- ------------------------------
* For the purposes of this table, the Fund is the only investment company in the
"Fund Complex."
PERFORMANCE INFORMATION
From time to time, the Fund may advertise yield, effective yield and total
return of the Portfolio. These figures will be based on historical earnings and
are not intended to indicate future performance. No representation can be made
concerning actual future yields.
PERFORMANCE COMPARISONS
The Portfolio may periodically compare its performance to other mutual funds
tracked by mutual fund rating services, to broad groups of comparable mutual
funds, or to unmanaged indices. These comparisons may assume reinvestment of
dividends but generally do not reflect deductions for administrative and
management costs.
COMPUTATION OF YIELD
From time to time, the Fund may advertise yield and total return of the
Portfolio. These figures will be based on historical earnings and are not
intended to indicate future performance. No representation can be made
concerning actual future yields or returns. The yield of the Portfolio refers to
the annualized income generated by an investment in that Portfolio over a
specified 30-day period. The yield is calculated by assuming that the income
generated by the investment during that 30-day period is generated in each
period over one year and is shown as a percentage of the investment. In
particular, yield will be calculated according to the following formula:
Yield = 2[((a-b)/cd+1) TO THE POWER OF (6)-1], where a = dividends and
interest earned during the period; b = expenses accrued for the period (net of
reimbursement); c = the average daily number of shares 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 the Portfolio's yield was %.
CALCULATION OF TOTAL RETURN
The total return of the Portfolio 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 Portfolio 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) TO THE POWER OF (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.
S-15
<PAGE>
For the fiscal year ended October 31, 1998 and for the period from November
3, 1994 (commencement of operations) through October 31, 1998, the total return
was % and %, respectively.
PURCHASING SHARES
Purchases and redemptions may be made through the Distributor on a day on
which the New York Stock Exchange is open for business. Shares of the Portfolio
are offered on a continuous basis. Currently, the Fund is 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.
REDEEMING SHARES
It is currently the Fund's policy to pay all redemptions in cash. The Fund
retains the right, however, to alter this policy to provide for redemptions in
whole or in part by a distribution in-kind of securities held by the Portfolio
in lieu of cash. Shareholders may incur brokerage charges on the sale of any
such securities so received in payment of redemptions. The Fund has obtained an
exemptive order from the SEC that permits the Fund to make in-kind redemptions
to those shareholders of the Fund that are affiliated with the Fund solely by
their ownership of a certain percentage of the Fund's investment portfolios.
A Shareholder will at all times be entitled to aggregate cash redemptions
from all portfolios of the Fund during any 90-day period of up to the lesser of
$250,000 or 1% of the Fund's net assets.
The Fund reserves the right to suspend the right of redemption and/or to
postpone the date of payment upon redemption for any period on which trading on
the New York Stock Exchange is restricted, or during the existence of an
emergency (as determined by the SEC by rule or regulation) as a result of which
the disposal or valuation of the Portfolio's securities is not reasonably
practicable, or for such other periods as the SEC has by order permitted. The
Fund also reserves the right to suspend sales of shares of any Portfolio for any
period during which the New York Stock Exchange, the Adviser, the Administrator,
the Transfer Agent and/or the Custodian are not open for business.
DETERMINATION OF NET ASSET VALUE
The securities of the Portfolio are valued by the Administrator. The
Administrator will use an independent pricing service to obtain valuations of
securities. The pricing service relies primarily on prices of actual market
transactions as well as trader quotations. However, the service may also use a
matrix system to determine valuations, which system considers such factors as
security prices, yields, maturities, call features, ratings and developments
relating to specific securities in arriving at valuations. The procedures of the
pricing service and its valuations are reviewed by the officers of the Fund
under the general supervision of the Trustees.
TAXES
The following is only a summary of certain additional federal income tax
considerations generally affecting the Portfolio and its shareholders that are
not described in the Portfolio's prospectus. No attempt is made to present a
detailed explanation of the tax treatment of the Portfolio or its shareholders,
and the discussion here and in the Portfolio's prospectus is not intended as a
substitute for careful tax planning. Shareholders are urged to consult their tax
advisors with specific reference to their own tax situations, including their
state and local tax liabilities.
FEDERAL INCOME TAX TREATMENT OF DIVIDENDS AND DISTRIBUTIONS
The following general discussion of certain federal income tax consequences
is based on the Internal Revenue Code of 1986, as amended (the "Code") and the
regulations issued thereunder as in effect on the
S-16
<PAGE>
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.
QUALIFICATION AS REGULATED INVESTMENT COMPANY
The Portfolio intends to qualify as a "regulated investment company" ("RIC")
under Subchapter M of the Code. By following such a policy, the Portfolio
expects to eliminate or reduce to a nominal amount the federal taxes to which it
may be subject.
In order to qualify as a RIC, the Portfolio must distribute at least 90% of
its net investment income (generally, dividends, taxable interest, and the
excess of net short-term capital gains over net long-term capital losses less
operating expenses) and at least 90% of its net tax exempt interest income, for
each tax year (the "Distribution Requirement"), if any, to its shareholders and
also must meet several additional requirements. Among these requirements are the
following: (i) at least 90% of the Portfolio's gross income each taxable year
must be derived from dividends, interest, payments with respect to securities
loans and gains from the sale or other disposition of stock or securities, or
certain other income; (ii) at the close of each quarter of the Portfolio's
taxable year, at least 50% of the value of its total assets must be represented
by cash and cash items, U.S. Government securities, securities of other RICs and
other securities, with such other securities limited, in respect to any one
issuer, to an amount that does not exceed 5% of the value of the Portfolio's
assets and that does not represent more than 10% of the outstanding voting
securities of such issuer; and (iii) at the close of each quarter of the
Portfolio's taxable year, not more than 25% of the value of its assets may be
invested in securities (other than U.S. Government securities or the securities
of other RICs) of any one issuer or of two or more issuers that the Portfolio
controls or that are engaged in the same, similar or related trades or business.
The Portfolio may make investments in securities (such as STRIPS) that bear
"original issue discount" or "acquisition discount" (collectively, "OID
Securities"). The holder of such securities is deemed to have received interest
income even though no cash payments have been received. Accordingly, OID
Securities may not produce sufficient current cash receipts to match the amount
of distributable net investment income the Portfolio must distribute to satisfy
the Distribution Requirement. In some cases, the Portfolio may have to borrow
money or dispose of other investments in order to make sufficient cash
distributions to satisfy the Distribution Requirement.
Although the Portfolio intends to distribute substantially all of its net
investment income and may distribute its capital gains for any taxable year, the
Portfolio will be subject to federal income taxation to the extent any such
income or gains are not distributed.
If the Portfolio fails to qualify for any taxable year as a RIC, all of its
taxable income will be subject to tax at regular corporate income tax rates
without any deduction for distributions to shareholders and such distributions
generally will be taxable to shareholders as ordinary dividends to the extent of
the Portfolio's current and accumulated earnings and profits. In this event,
distributions generally will be eligible for the dividends-received deduction
for corporate shareholders.
PORTFOLIO DISTRIBUTIONS
Distributions of investment company taxable income will be taxable to
shareholders as ordinary income, regardless of whether such distributions are
paid in cash or are reinvested in additional Shares, to the extent of the
Portfolio's earnings and profits. The Portfolio anticipates that it will
distribute substantially all of its investment company taxable income for each
taxable year.
The Portfolio may either retain or distribute to shareholders its excess of
net long-term capital gains over net short-term capital losses ("net capital
gains"). If such gains are distributed as a capital gains distribution, they are
taxable to shareholders who are individuals at a maximum rate of 20%, regardless
of
S-17
<PAGE>
the length of time the shareholder has held shares. If any such gains are
retained, the Portfolio will pay federal income tax thereon.
In the case of corporate shareholders, distributions (other than capital
gains distributions) from a RIC, generally qualify for the dividends-received
deduction only to the extent of the gross amount of qualifying dividends
received by the Portfolio for the year. Generally, and subject to certain
limitations, a dividend will be treated as a qualifying dividend if it has been
received from a domestic corporation. Accordingly, it is not expected that any
Portfolio distribution will qualify for the corporate dividends-received
deduction.
Ordinarily, investors should include all dividends as income in the year of
payment. However, dividends declared payable to shareholders of record in
December of one year, but paid in January of the following year, will be deemed
for tax purposes to have been received by the shareholder and paid by the
Portfolio in the year in which the dividends were declared.
The Portfolio will provide a statement annually to shareholders as to the
federal tax status of distributions paid (or deemed to be paid) by the Portfolio
during the year, including the amount of dividends eligible for the corporate
dividends-received deduction.
SALE OR EXCHANGE OF PORTFOLIO SHARES
Generally, gain or loss on the sale or exchange of a Share will be capital
gain or loss that will be long-term if the Share has been held for more than
twelve months and otherwise will be short-term. For individuals, long-term
capital gains are currently taxed at a maximum rate of 20% and short-term
capital gains are currently taxed at ordinary income tax rates. However, if a
shareholder realizes a loss on the sale, exchange or redemption of a Share held
for six months or less and has previously received a capital gains distribution
with respect to the Share (or any undistributed net capital gains of the
Portfolio with respect to such Share are included in determining the
shareholder's long-term capital gains), the shareholder must treat the loss as a
long-term capital loss to the extent of the amount of the prior capital gains
distribution (or any undistributed net capital gains of the Portfolio that have
been included in determining such shareholder's long-term capital gains). In
addition, any loss realized on a sale or other disposition of Shares will be
disallowed to the extent an investor repurchases (or enters into a contract or
option to repurchase) Shares within a period of 61 days (beginning 30 days
before and ending 30 days after the disposition of the Shares). This loss
disallowance rule will apply to Shares received through the reinvestment of
dividends during the 61-day period.
In certain cases, the Portfolio will be required to withhold, and remit to
the United States Treasury, 31% of any distributions paid to a shareholder who
(1) has failed to provide a correct taxpayer identification number, (2) is
subject to backup withholding by the Internal Revenue Service, or (3) has failed
to certify the Portfolio that such shareholder is not subject to backup
withholding.
FEDERAL EXCISE TAX
If the Portfolio fails to distribute in a calendar year at least 98% of its
ordinary income for the 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 October 31 of that year (and any retained amount
from the prior calendar year), the Portfolio will be subject to a nondeductible
4% Federal excise tax on the undistributed amounts. The Portfolio intends to
make sufficient distributions to avoid imposition of this tax, or to retain, at
most its net capital gains and pay tax thereon.
S-18
<PAGE>
STATE AND LOCAL TAXES
The Portfolio is not liable for any income or franchise tax in Massachusetts
if it qualifies as a RIC for federal income tax purposes. Distributions by the
Portfolio to shareholders and the ownership of shares may be subject to state
and local taxes.
PORTFOLIO TRANSACTIONS
The Portfolio has no obligation to deal with any broker-dealer or group of
broker-dealers in the execution of transactions in portfolio securities. Subject
to policies established by the Trustees of the Fund, the Adviser is responsible
for placing the orders to execute transactions for the Portfolio. In placing
orders, it is the policy of the Fund to seek to obtain the best net results
taking into account such factors as price (including the applicable dealer
spread), the size, type and difficulty of the transaction involved, the firm's
general execution and operational facilities and the firm's risk in positioning
the securities involved. While the Adviser generally seeks reasonably
competitive spreads or commissions, the Portfolio will not necessarily be paying
the lowest spread or commission available.
The money market instruments in which the Portfolio invests are traded
primarily in the over-the-counter market. Bonds and debentures are usually
traded over-the-counter, but may be traded on an exchange. Where possible, the
Adviser will deal directly with the dealers who make a market in the securities
involved except in those circumstances where better prices and execution are
available elsewhere. Such dealers usually are acting as principal for their own
account. On occasion, securities may be purchased directly from the issuer.
Money market instruments are generally traded on a net basis and do not normally
involve either brokerage commissions or transfer taxes. The cost of executing
portfolio securities transactions of the Portfolio will primarily consist of
dealer spreads and underwriting commissions.
TRADING PRACTICES AND BROKERAGE
The Fund selects brokers or dealers to execute transactions for the purchase
or sale of portfolio securities on the basis of its judgment of their
professional capability to provide the service. The primary consideration is to
have brokers or dealers provide transactions at best price and execution for the
Fund. Best price and execution includes many factors, including the price paid
or received for a security, the commission charged, the promptness and
reliability of execution, the confidentiality and placement accorded the order
and other factors affecting the overall benefit obtained by the account on the
transaction. The Fund's determination of what are reasonably competitive rates
is based upon the professional knowledge of its trading department as to rates
paid and charged for similar transactions throughout the securities industry. In
some instances, the Fund pays a minimal share transaction cost when the
transaction presents no difficulty. Some trades are made on a net basis where
the Fund either buys securities directly from the dealer or sells them to the
dealer. In these instances, there is no direct commission charged but there is a
spread (the difference between the buy and sell price) which is the equivalent
of a commission.
The Fund may allocate out of all commission business generated by the fund
and accounts under management by the Adviser, brokerage business to brokers or
dealers who provide brokerage and research services. 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. Such services are used by the Adviser in connection with its
investment decision-making process with respect to one or more funds and
accounts managed by it, and may not be used exclusively with respect to the fund
or account generating the brokerage.
S-19
<PAGE>
As provided in the Securities Exchange Act of 1934 (the "1934 Act") higher
commissions may be paid to broker-dealers who provide brokerage and research
services than to broker-dealers who do not provide such services if such higher
commissions are deemed reasonable in relation to the value of the brokerage and
research services provided. Although transactions are directed to broker-dealers
who provide such brokerage and research services, the Fund believes that the
commissions paid to such broker-dealers are not, in general, higher than
commissions that would be paid to broker-dealers not providing such services and
that such commissions are reasonable in relation to the value of the brokerage
and research services provided. In addition, portfolio transactions which
generate commissions or their equivalent are directed to broker-dealers who
provide daily portfolio pricing services to the Fund. Subject to best price and
execution, commissions used for pricing may or may not be generated by the funds
receiving the pricing service.
The Adviser may place a combined order for two or more accounts or funds
engaged in the purchase or sale of the same security if, in its judgment, joint
execution is in the best interest of each participant and will result in best
price and execution. Transactions involving commingled orders are allocated in a
manner deemed equitable to each account or fund. It is believed that the ability
of the accounts to participate in volume transactions will generally be
beneficial to the accounts and funds. Although it is recognized that, in some
cases, the joint execution of orders could adversely affect the price or volume
of the security that a particular account or the Portfolio may obtain, it is the
opinion of the Adviser and the Fund's Board of Trustees that the advantages of
combined orders outweigh the possible disadvantages of separate transactions.
Consistent with the Conduct Rules of the National Association of Securities
Dealers, Inc., and subject to seeking best price and execution, the Portfolio,
at the request of the Distributor, give consideration to sales of shares of the
Fund as a factor in the selection of brokers and dealers to execute Fund
portfolio transactions.
The Adviser may, consistent with the interests of the Portfolio, select
brokers on the basis of the research services they provide to the Adviser. Such
services may include analyses of the business or prospects of a company,
industry or economic sector, or statistical and pricing services. Information so
received by the Adviser will be in addition to and not in lieu of the services
required to be performed by the Adviser under the Advisory Agreement. If, in the
judgment of the Adviser, the Portfolio or other accounts managed by the Adviser
will be benefitted by supplemental research services, the Adviser is authorized
to pay brokerage commissions to a broker furnishing such services which are in
excess of commissions which another broker may have charged for effecting the
same transaction. These research services include advice, either directly or
through publications or writings, as to the value of securities, the
advisability of investing in, purchasing or selling securities, and the
availability of securities or purchasers or sellers of securities; furnishing of
analyses and reports concerning issuers, securities or industries; providing
information on economic factors and trends; assisting in determining portfolio
strategy; providing computer software used in security analyses; and providing
portfolio performance evaluation and technical market analyses. The expenses of
the Adviser will not necessarily be reduced as a result of the receipt of such
supplemental information, such services may not be used exclusively, or at all,
with respect to the Portfolio or account generating the brokerage, and there can
be no guarantee that the Adviser will find all of such services of value in
advising the Portfolio. For the fiscal year ended October 31, 1998, the
Portfolio directed transactions to broker-dealers for research services.
It is expected that the Portfolio may execute brokerage or other agency
transactions through the Distributor, which is a registered broker-dealer, for a
commission in conformity with the 1940 Act, the Securities Exchange Act of 1934
and rules promulgated by the SEC. Under these provisions, the Distributor is
permitted to receive and retain compensation for effecting portfolio
transactions for the Portfolio on an exchange if a written contract is in effect
between the Distributor and the Fund expressly permitting the Distributor to
receive and retain such compensation. These rules further require that
commissions paid to the Distributor by the Portfolio for exchange transactions
not exceed "usual and
S-20
<PAGE>
customary" brokerage commissions. The rules define "usual and customary"
commissions to include amounts which are "reasonable and fair compared to the
commission, fee or other remuneration received or to be received by other
brokers in connection with comparable transactions involving similar securities
being purchased or sold on a securities exchange during a comparable period of
time." The Trustees, including those who are not "interested persons" of the
Fund, have adopted procedures for evaluating the reasonableness of commissions
paid to the Distributor and will review these procedures periodically.
For the fiscal year ended October 31, 1998, the following commissions were
paid on brokerage transactions, pursuant to an agreement or understanding, to
brokers because of research services provided by the brokers:
<TABLE>
<CAPTION>
TOTAL DOLLAR AMOUNT OF
TRANSACTIONS INVOLVING DIRECTED
TOTAL DOLLAR AMOUNT OF BROKERAGE BROKERAGE COMMISSIONS FOR
COMMISSIONS FOR RESEARCH SERVICES RESEARCH SERVICES
- ------------------------------------ ----------------------------------
<S> <C>
$ $
</TABLE>
For the fiscal years ended October 31, 1996, 1997 and 1998, the Portfolio
paid the following brokerage commissions:
<TABLE>
<CAPTION>
TOTAL BROKERAGE AMOUNT PAID TO SEI
COMMISSIONS INVESTMENTS (1)
- --------------------- ------------------------
1996 1997 1998 1996 1997 1998
- ----- ----- ----- ------- ------ -----
<S> <C> <C> <C> <C> <C>
$0 $0 $ $ 190 $113 $
</TABLE>
- ------------------------
(1) The amounts paid to SEI Investments reflect fees paid in connection with
repurchase agreement transactions.
For the fiscal years indicated, the Portfolio paid the following brokerage
commissions:
<TABLE>
<CAPTION>
% OF TOTAL % OF TOTAL
TOTAL $ AMOUNT OF BROKERAGE BROKERAGE
TOTAL $ AMOUNT OF BROKERAGE COMMISSIONS TRANSACTIONS
BROKERAGE COMMISSIONS PAID PAID TO THE EFFECTED THROUGH
COMMISSIONS PAID TO AFFILIATED BROKERS AFFILIATED BROKERS AFFILIATED BROKERS
- --------------------------------- --------------------------------- ------------------ ------------------
1996 1997 1998 1996 1997 1998 1998 1998
- --------- --------- --------- --------- --------- --------- ------------------ ------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$0 $0 $ $0 $0 $ $ $
</TABLE>
Since the Fund does not market its shares through intermediary brokers or
dealers, it is not the Fund's practice to allocate brokerage or principal
business on the basis of sales of its shares which may be made through such
firms. However, the Adviser may place portfolio orders with qualified
broker-dealers who recommend the Portfolio' shares to clients, and may, when a
number of brokers and dealers can provide best net results on a particular
transaction, consider such recommendations by a broker or dealer in selecting
among broker-dealers.
The Portfolio is required to identify any securities of its "regular brokers
or dealers" (as such term is defined in the 1940 Act, which the Portfolio has
acquired during its most recent fiscal year. As of October 31, 1998, the
Portfolio held $ of Lehman Brothers' corporate bonds and repurchase
agreements, $ of Paine Webber's corporate bonds, and $ of J. P.
Morgan's corporate bonds.
For the fiscal years ended October 31 1996, 1997 and 1998, the portfolio
turnover rate for the Portfolio was 264.02%, 256.52% and , respectively.
S-21
<PAGE>
DESCRIPTION OF SHARES
The Declaration of Trust authorizes the issuance of an unlimited number of
portfolios and shares of each portfolio, each of which represents an equal
proportionate interest in the portfolio with each other share. Shares are
entitled upon liquidation to a pro rata share in the net assets of the
portfolio. Shareholders have no preemptive rights. The Declaration of Trust
provides that the Trustees of the Fund may create additional series of shares.
All consideration received by the Fund for shares of any additional series and
all assets in which such consideration is invested would belong to that series
and would be subject to the liabilities related thereto. Share certificates
representing shares will not be issued.
SHAREHOLDER LIABILITY
The Fund is an entity of the type commonly known as a "Massachusetts
business trust." Under Massachusetts law, shareholders of such a trust could,
under certain circumstances, be held personally liable as partners for the
obligations of the trust. Even if, however, the Fund were held to be a
partnership, the possibility of the shareholders incurring financial loss for
that reason appears remote because the Fund's Declaration of Trust contains an
express disclaimer of shareholder liability for obligations of the Fund and
requires that notice of such disclaimer be given in each agreement, obligation
or instrument entered into or executed by or on behalf of the Fund or the
Trustees, and because the Declaration of Trust provides for indemnification out
of the Fund property for any shareholder held personally liable for the
obligations of the Fund.
LIMITATION OF TRUSTEES' LIABILITY
The Declaration of Trust provides that a Trustee shall be liable only for
his or her own willful defaults and, if reasonable care has been exercised in
the selection of officers, agents, employees or investment advisers, shall not
be liable for any neglect or wrongdoing of any such person. The Declaration of
Trust also provides that the Fund will indemnify its Trustees and officers
against liabilities and expenses incurred in connection with actual or
threatened litigation in which they may be involved because of their offices
with the Fund unless it is determined in the manner provided in the Declaration
of Trust that they have not acted in good faith in the reasonable belief that
their actions were in the best interests of the Fund. However, nothing in the
Declaration of Trust shall protect or indemnify a Trustee against any liability
for his or her willful misfeasance, bad faith, gross negligence or reckless
disregard of his or her duties.
YEAR 2000
The Fund depends on the smooth functioning of computer systems in almost
every aspect of its business. Like other mutual funds, businesses and
individuals around the world, the Fund could be adversely affected if the
computer systems used by its service providers do not properly process dates on
and after January 1, 2000 and distinguish between the year 2000 and the year
1900. The Fund has asked its service providers whether they expect to have their
computer systems adjusted for the year 2000 transition, and received assurances
from each that its system is expected to accommodate the year 2000 without
material adverse consequences to the Fund. The Fund and its shareholders may
experience losses if these assurances prove to be incorrect or as a result of
year 2000 computer difficulties experienced by issuers of portfolio securities
or third parties, such as custodians, banks, broker-dealers or others with which
the Fund does business.
S-22
<PAGE>
5% AND 25% SHAREHOLDERS
As of February 1, 1999, the following persons were the only persons who were
record owners (or to the knowledge of the Fund, beneficial owners) of 5% and 25%
or more of the shares of the Portfolios. Persons who owned of record or
beneficially more than 25% of the Portfolio's outstanding shares may be deemed
to control the Portfolio within the meaning of the Act.
HGK FIXED INCOME FUND
<TABLE>
<CAPTION>
SHAREHOLDER NUMBER OF SHARES PERCENTAGE
- -------------------------------------------------------------------- ----------------- ---------------
<S> <C> <C>
Sam Agatittee....................................................... %
Laborers Local #322
General Fund
P.O. Box 361
Massena, NY 13662
West Chester Heavy Construction..................................... %
Local 60 General Fund
c/o Mr. Joseph Dominick
140 Broadway
Hawthorne, NY 10532
Mechanical Contractors Association.................................. %
of Eastern Pennsylvania, Inc.
Industry Fund
1601 Market Street
Philadelphia, PA 19103
</TABLE>
The Fund 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 Fund 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 for the fiscal year ended October 31, 1998,
including notes thereto and the report of Arthur Andersen LLP thereon, are
herein incorporated by reference. A copy of the 1998 Annual Report to
Shareholders must accompany the delivery of this Statement of Additional
Information.
S-23
<PAGE>
THE ADVISORS' INNER CIRCLE FUND
PROSPECTUS
MARCH 1, 1999
MDL BROAD MARKET FIXED INCOME FUND
MDL LARGE CAP GROWTH EQUITY FUND
INVESTMENT ADVISER: MDL CAPITAL MANAGEMENT, INC.
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED ANY FUND SHARES OR
DETERMINED WHETHER THIS PROSPECTUS IS ACCURATE OR COMPLETE.
IT IS A CRIME FOR ANYONE TO TELL YOU OTHERWISE.
<PAGE>
HOW TO READ THIS PROSPECTUS
The MDL Funds is a mutual fund family that offers shares of separate investment
portfolios (Funds). The Funds have individual investment goals and strategies.
This prospectus gives you important information about the Funds that you should
know before investing. Please read this prospectus and keep it for future
reference. This prospectus has been arranged into different sections so that
you can easily review this important information. On the next page, there is
some general information you should know about the Funds.
FOR MORE DETAILED INFORMATION ABOUT THE FUNDS, PLEASE SEE:
<TABLE>
<CAPTION>
PAGE
<S> <C>
MDL BROAD MARKET FIXED INCOME FUND XXX
MDL LARGE CAP GROWTH EQUITY FUND XXX
MORE INFORMATION ABOUT RISK XXX
EACH FUND'S OTHER INVESTMENTS XXX
THE INVESTMENT ADVISER AND FUND MANAGERS XXX
PURCHASING AND SELLING FUND SHARES XXX
DIVIDENDS, DISTRIBUTIONS AND TAXES XXX
FINANCIAL HIGHLIGHTS XXX
HOW TO OBTAIN MORE INFORMATION ABOUT THE MDL FUNDS XXX
</TABLE>
<PAGE>
Introduction
Each Fund is a mutual fund. A mutual fund pools shareholders' money and, using
professional investment managers, invests it in securities.
Each Fund has its own investment goal and strategies for reaching that goal.
The Adviser invests Fund assets in a way that the Adviser believes will help the
Fund achieve its goal. Still, investing in a Fund involves risk and there is no
guarantee that a Fund will achieve its goal. The Adviser's judgments about the
markets, the economy, or companies may not anticipate actual market movements,
economic conditions or company performance, and these judgments may affect the
return on your investment. In fact, no matter how good a job the Adviser does
you could lose money on your investment in a Fund just as you could with other
investments.
The value of your investment in a Fund is based on the market value of the
securities the Fund holds. These prices change daily due to economic and other
events that affect particular companies and other issuers. These price
movements, sometimes called volatility, may be greater or lesser depending on
the types of securities a Fund owns and the markets in which they trade. The
effect on a Fund of a change in the value of a single security will depend on
how widely the Fund diversifies its holdings.
<PAGE>
MDL Broad Market Fixed Income Fund
Fund Summary
Investment Goal Total return consistent with
preservation of capital
Investment Focus Fixed income securities
Share Price Volatility Medium
Principal Investment Strategy Investing in investment grade fixed
income securities of the U.S.
government and its agencies and U.S.
corporations
Investor Profile Investors who seek long-term growth of
capital and are willing to have values
fluctuate based on interest rate
changes
INVESTMENT STRATEGY OF THE MDL BROAD MARKET FIXED INCOME FUND
The Fund invests primarily in a broad portfolio of investment grade fixed income
securities. In selecting investments for the Fund, the Adviser purchases U.S.
Treasury bills, notes and bonds and other fixed income securities issued or
guaranteed by the U.S. government and its agencies or instrumentalities, U.S.
corporate fixed income securities and mortgage-backed securities. The Adviser
will increase the Fund's average weighted maturity when it expects interest
rates to decline and lower the average weighted maturity when interest rates are
expected to rise. The duration of the Fund's investments will generally range
from 4 to 7 years.
<PAGE>
PRINCIPAL RISKS OF INVESTING IN THE MDL BROAD MARKET FIXED INCOME FUND
The prices of fixed income securities respond to economic developments,
particularly interest rate changes, as well as to perceptions about the
creditworthiness of individual issuers, including governments. Generally, fixed
income securities decrease in value if interest rates rise and vice versa.
Also, longer-term securities are generally more volatile, so the average
maturity or duration of these securities affects risk.
The mortgages underlying mortgage-backed securities may be paid off early, which
makes it difficult to determine their actual maturity and therefore calculate
how they will respond to changes in interest rates. The Fund may have to
reinvest prepaid amounts at lower interest rates. This risk of prepayment is an
additional risk of mortgage-backed securities.
Although the Fund's U.S. government securities are considered to be among the
safest investments, they are not guaranteed against price movements due to
changing interest rates. Obligations issued by some U.S. government agencies
are backed by the U.S. Treasury, while others are backed solely by the ability
of the agency to borrow from the U.S. Treasury or by the agency's own resources.
The Fund is also subject to the risk that its market segment, investment grade
fixed income securities, may underperform other fixed income market segments or
the equity markets as a whole.
Performance Information
The bar chart and the performance table below illustrate the risks and
volatility of an investment in the Fund. Of course, the Fund's past performance
does not necessarily indicate how the Fund will perform in the future.
The periods prior to November 1, 1997, when the Fund began operating, represent
the performance of the Adviser's similarly managed accounts. This past
performance has been adjusted to reflect current expenses of the Fund. The
Adviser's similarly managed accounts was not a registered mutual fund so it was
not subject to the same investment and tax restrictions as the Fund. If it had
been, the accounts' performance may have been lower.
<PAGE>
This bar chart shows changes in the Fund's performance.
THIS TABLE COMPARES THE FUND'S AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS
ENDING DECEMBER 31, 1998 TO THOSE OF THE LEHMAN GOVERNMENT/CORPORATE BOND
INDEX.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
1 YEAR 3 YEARS 5 YEARS LIFE OF FUND
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MDL Broad Market Fixed X.XX% X.XX% X.XX% X.XX%*
Income Fund
- --------------------------------------------------------------------------------
Lehman Government X.XX% X.XX% X.XX% X.XX%**
Corporate Bond Index
- --------------------------------------------------------------------------------
</TABLE>
*SINCE [INCEPTION DATE]
**SINCE [CALC. DATE FOR INDEX]
WHAT IS AN INDEX?
An index measures the market prices of a specific group of securities in a
particular market or securities in a market sector. You cannot invest directly
in an index. Unlike a mutual fund, an index does not have an investment adviser
and does not pay any commissions or expenses. If an index had expenses, its
performance would be lower.
The Lehman Brothers Government/Corporate Bond Index is a widely-recognized,
market value-weighted (higher market value stocks have more influence than lower
market value stocks) index of U.S. Treasury securities, U.S. government agency
obligations, corporate debt backed by the U.S. government, fixed-rate
nonconvertible corporate debt securities, Yankee bonds, and nonconvertible debt
securities issued by or guaranteed by foreign governments and agencies. All
securities in the Index are rated investment grade (BBB) or higher, with
maturities of at least 1 year.
<PAGE>
MDL BROAD MARKET FIXED INCOME FUND
FUND FEES AND EXPENSES
THIS TABLE DESCRIBES THE SHAREHOLDER FEES THAT YOU MAY PAY IF YOU PURCHASE OR
SELL FUND SHARES. YOU WOULD PAY THESE FEES DIRECTLY FROM YOUR INVESTMENT IN THE
FUND.
------------------------------------------------------------
Maximum Sales Charge (Load) Imposed None
on Purchases (as a percentage of
offering price)
------------------------------------------------------------
Maximum Deferred Sales Charge (Load) None
(as a percentage of net asset value)
------------------------------------------------------------
Maximum Sales Charge (Load) Imposed None
or Reinvested Dividends and other
Distributions (as a percentage of
offering price)
------------------------------------------------------------
Redemption Fee None
EVERY MUTUAL FUND HAS OPERATING EXPENSES TO PAY FOR SERVICES SUCH AS
PROFESSIONAL ADVISORY, SHAREHOLDER, DISTRIBUTION, ADMINISTRATION AND CUSTODY
SERVICES AND OTHER COSTS OF DOING BUSINESS. THIS TABLE DESCRIBES THE HIGHEST
FEES AND EXPENSES THAT YOU MAY PAY INDIRECTLY IF YOU HOLD SHARES OF THE FUND.
ANNUAL FUND OPERATING EXPENSES
<TABLE>
<S> <C>
Investment Advisory Fees .XX%
Other Expenses .XX%
Total Annual Fund Operating Expenses X.XX%
</TABLE>
The table shows the highest expenses that could be currently charged to the
Fund. Actual expenses are lower because the Adviser is voluntarily waiving a
portion of its fees. Actual Investment Advisory Fees and Total Operating
Expenses are [ %] and [ %], respectively. The
<PAGE>
Adviser could discontinue this voluntary waiver at any time. For more
information about these fees, see "Investment Adviser."
EXAMPLE
This Example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. The Example assumes that you
invest $10,000 in the Fund for the time periods indicated and that you sell your
shares at the end of the period .
The Example also assumes that each year your investment has a 5% return and Fund
expenses remain the same. Although your actual costs and returns might be
different, your approximate costs of investing $10,000 in the Fund would be:
<TABLE>
<CAPTION>
------------------------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------------------------------------------------------------
<S> <C> <C> <C>
$XXX $XXX $XXX $XXX
------------------------------------------------------------
</TABLE>
<PAGE>
MDL Large Cap Growth Equity Fund
Fund Summary
Investment Goal Long-term growth of capital, with a
secondary objective of income
Investment Focus U.S. common stocks
Share Price Volatility Medium
Principal Investment Strategy Investing in common stocks issued by
large U.S. companies
Investor Profile Investors who seek long term growth of
capital and are willing to bear the
risk of investing in equity
securities
INVESTMENT STRATEGY OF THE MDL LARGE CAP GROWTH EQUITY FUND
The Fund invests primarily in common stocks of large U.S. companies (companies
with market capitalizations of $3 billion or more). In selecting investments
for the Fund, the Adviser invests in established companies which have
demonstrated earnings growth over time and which we believe have potential for
continued growth. The Adviser's investment approach evaluates companies through
fundamental analysis and a multi-step screening process, and attempts to invest
in approximately 100 companies across diverse economic sectors.
PRINCIPAL RISKS OF INVESTING IN THE MDL LARGE CAP GROWTH EQUITY FUND
Since it purchases equity securities, the Fund is subject to the risk that stock
prices will fall over short or extended periods of time. Historically, the
equity markets have moved in cycles, and the value of the Fund's equity
securities may fluctuate drastically from day-to-day. Individual companies may
report poor results or be negatively affected by industry and/or economic trends
and developments. The prices of securities issued by such companies may suffer
a decline in
<PAGE>
response. These factors contribute to price volatility which is the principal
risk of investing in the Fund.
The Fund is also subject to the risk that its market segment, large cap growth
equity securities, may underperform other equity market segments or the equity
markets as a whole.
Performance Information
The bar chart and the performance table below illustrate the risks and
volatility of an investment in the Fund. Of course, the Fund's past performance
does not necessarily indicate how the Fund will perform in the future.
The periods prior to November 1, 1997, when the Fund began operating, represent
the performance of the Adviser's similarly managed accounts. This past
performance has been adjusted to reflect current expenses of the Fund. The
Adviser's similarly managed accounts were not a registered mutual fund so they
were not subject to the same investment and tax restrictions as the Fund. If
they had been, the accounts' performance may have been lower.
This bar chart shows changes in the Fund's performance.
THIS TABLE COMPARES THE FUND'S AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS
ENDING DECEMBER 31, 1998 TO THOSE OF THE S&P 500 INDEX.
<TABLE>
<CAPTION>
-----------------------------------------------------------------
SINCE
1 YEAR 3 YEARS INCEPTION
-----------------------------------------------------------------
<S> <C> <C> <C>
MDL Large Cap Growth Equity X.XX% X.XX% X.XX%*
Fund
-----------------------------------------------------------------
S&P 500 Index X.XX% X.XX% X.XX%**
-----------------------------------------------------------------
</TABLE>
*Since [inception date]
**Since [calc. date for index]
WHAT IS AN INDEX?
An index measures the market prices of a specific group of securities in a
particular market or securities in a market sector. You cannot invest directly
in an index. Unlike a mutual fund, an index does not have an investment adviser
and does not pay any commissions or expenses. If an index had expenses, its
performance would be lower.
<PAGE>
The S&P 500 Index is a widely-recognized, market value-weighted (higher market
value stocks have more influence than lower market value stocks) index of 500
stocks designed to mimic the overall equity market's industry weightings. Most,
but not all, large capitalization stocks are in the index. There are also some
small capitalization stocks in the index. Stocks included in the index are
mostly NYSE listed companies, with some AMEX and Nasdaq Stock Market stocks.
MDL Large Cap Growth Equity Fund
FUND FEES AND EXPENSES
THIS TABLE DESCRIBES THE SHAREHOLDER FEES THAT YOU MAY PAY IF YOU PURCHASE OR
SELL FUND SHARES. YOU WOULD PAY THESE FEES DIRECTLY FROM YOUR INVESTMENT IN THE
FUND.
----------------------------------------------------------
Maximum Sales Charge (Load) None
Imposed on Purchases (as a
percentage of offering price)
----------------------------------------------------------
Maximum Deferred Sales Charge None
(Load) (as a percentage of net
asset value)
----------------------------------------------------------
Maximum Sales Charge (Load) None
Imposed or Reinvested Dividends
and other Distributions
----------------------------------------------------------
Redemption Fee None
----------------------------------------------------------
EVERY MUTUAL FUND HAS OPERATING EXPENSES TO PAY FOR SERVICES SUCH AS
PROFESSIONAL ADVISORY, SHAREHOLDER, DISTRIBUTION, ADMINISTRATION AND CUSTODY
SERVICES AND OTHER COSTS OF DOING BUSINESS. THIS TABLE DESCRIBES THE HIGHEST
FEES AND EXPENSES THAT YOU MAY PAY INDIRECTLY IF YOU HOLD SHARES OF THE FUND.
ANNUAL FUND OPERATING EXPENSES
<TABLE>
<S> <C>
Investment Advisory Fees .XX%
Other Expenses .XX%
Total Annual Fund Operating Expenses X.XX%
</TABLE>
<PAGE>
The table shows the highest expenses that could be currently charged to the
Fund. Actual expenses are lower because the Adviser is voluntarily waiving a
portion of its fees. Actual Investment Advisory Fees and Total Operating
Expenses are [ %] and [ %], respectively. The Adviser could discontinue
this voluntary waiver at any time. For more information about these fees, see
"Investment Advisers."
EXAMPLE
This Example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. The Example assumes that you
invest $10,000 in the Fund for the time periods indicated and that you sell your
shares at the end of the period.
The Example also assumes that each year your investment has a 5% return and Fund
expenses remain the same. Although your actual costs and returns might be
different, your approximate costs of investing $10,000 in the Fund would be:
<TABLE>
<CAPTION>
-----------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
-----------------------------------------
<S> <C> <C> <C>
$XXX $XXX $XXX $XXX
-----------------------------------------
</TABLE>
<PAGE>
More Information About Risk
EQUITY RISK - The Funds may invest in public MDL Large Cap Growth Equity
and privately issued equity securities, Fund
including common and preferred stocks,
warrants, rights to subscribe to common stock
and convertible securities, as well as
instruments that attempt to track the price
movement of equity indices. Investments in
equity securities and equity derivatives in
general are subject to market risks that may
cause their prices to fluctuate over time. The
value of securities convertible into equity
securities, such as warrants or convertible
debt, is also affected by prevailing interest
rates, the credit quality of the issuer and any
call provision. Fluctuations in the value of
equity securities in which the Funds invest
will cause the net asset value of the Fund to
fluctuate. An investment in the Fund may be
more suitable for long-term investors who can
bear the risk of share price fluctuations.
FIXED INCOME RISK - The market value of fixed MDL Broad Market Fixed Income
income investments change in response to Fund
interest rate changes and other factors.
During periods of falling interest rates, the
values of outstanding fixed income securities
generally rise. Moreover, while securities
with longer maturities tend to produce higher
yields, the prices of longer maturity
securities are also subject to greater market
fluctuations as a result of changes in interest
rates. In addition to these fundamental risks,
different types of fixed income securities may
be subject to the following additional risks:
CALL RISK - During periods of falling MDL Broad Market Fixed
interest rates, certain debt Income Fund
obligations with high interest rates
may be prepaid (or "called") by the
issuer prior to maturity. This may
cause a Fund's average weighted
maturity to fluctuate, and may
require a Fund to invest the
resulting proceeds elsewhere, at
generally lower interest rates.
<PAGE>
CREDIT RISK - The possibility that an MDL Broad Market Fixed Income
issuer will be unable to make timely Fund
payments of either principal or interest.
MORTGAGE-BACKED SECURITIES - Mortgage- MDL Broad Market Fixed Income
backed securities are fixed income Fund
securities representing an interest in a
pool of underlying mortgage loans. They
are sensitive to changes in interest
rates, but may respond to these changes
differently from other fixed income
securities due to the possibility of
prepayment of the underlying mortgage
loans. As a result, it may not be possible
to determine in advance the actual
maturity date or average life of a
mortgage-backed security. Rising interest
rates tend to discourage refinancings,
with the result that the average life and
volatility of the security will increase,
exacerbating its decrease in market price.
When interest rates fall, however,
mortgage-backed securities may not gain as
much in market value because of the
expectation of additional mortgage
prepayments that must be reinvested at
lower interest rates. Prepayment risk may
make it difficult to calculate the average
maturity of a portfolio of mortgage-backed
securities and, therefore, to assess the
volatility risk of that portfolio.
YEAR 2000 RISK - The Funds depend on the smooth Both Funds
functioning of computer systems in almost every
aspect of their business. Like other mutual
funds, businesses and individuals around the
world, the Funds could be adversely affected if
the computer systems used by its service
providers do not properly process dates on and
after January 1, 2000, and distinguish between
the year 2000 and the year 1900. The Funds have
asked its service providers whether they expect
to have its computer systems adjusted for the
year 2000 transition, and is
<PAGE>
seeking assurances from each service provider
that they are devoting significant resources to
prevent material adverse consequences to the
Funds. While it is likely that such assurances
will be obtained, the Funds and its shareholders
may experience losses if these assurances prove
to be incorrect or as a result of year 2000
computer difficulties experienced by issuers of
portfolio securities or third parties, such as
custodians, banks, broker-dealers or others with
which the Funds do business.
EACH FUND'S OTHER INVESTMENTS
In addition to the investments and strategies described in this prospectus, each
Fund also may invest in other securities, use other strategies and engage in
other investment practices, which are described in detail in our Statement of
Additional Information. Of course, we cannot guarantee that any Fund will
achieve its investment goal.
The investments and strategies described in this prospectus are those that we
use under normal conditions. During unusual economic or market conditions, or
for temporary defensive or liquidity purposes, each Fund may invest up to 100%
of its assets in cash, money market instruments, repurchase agreements and
short-term obligations that would not ordinarily be consistent with the Funds'
objectives. A Fund will only do so if the Adviser believes that the risk of
loss outweighs the opportunity for capital gains or higher income.
<PAGE>
INVESTMENT ADVISER
The Investment Adviser makes investment decisions for the Funds and continuously
reviews, supervises and administers its Fund's respective investment program.
The Board of Trustees supervises the Adviser and establishes policies that the
Adviser must follow in its management activities.
MDL Capital Management, Inc., serves as the Adviser to the MDL Broad Market
Fixed Income Fund and the MDL Large Cap Growth Equity Fund. As of December 31,
1998, the Adviser had approximately ____________ in assets under management.
For the fiscal period ended October 31, 1998, the Adviser waived the entire
amount of its advisory fees for both Funds.
<PAGE>
FUND MANAGERS
Mark D. Lay has served as Chairman and Chief Executive Officer of MDL Capital
Management, Inc. since 1993. He has co-managed the Funds since their inception.
He has more than ____ years of investment experience. Prior to founding MDL
Capital Management, Inc., Mr. Lay served as an account executive at Dean Witter
Reynolds, Inc.
Edward Adatepe has served as Chief Investment Officer of MDL Capital Management
since 1994. He has co-managed the Funds since their inception. He has more
than _____ years of investment experience. Prior to joining MDL Capital
Management, Mr. Adatepe served as a Managing Director of RRZ Investment
Management, Inc.
<PAGE>
PURCHASING FUND SHARES
HOW TO PURCHASE FUND SHARES
You may purchase shares by mail or wire on any day that the New York Stock
Exchange is open for business (a Business Day).
To purchase shares directly from us, fill out the attached application and mail
it in the enclosed envelope, along with your check, payable in U.S. dollars, to
"MDL Broad Market Fixed Income Fund" or "MDL Large Cap Growth Equity Fund." We
cannot accept third-party checks, credit cards, checks or cash. We may reject
any purchase order if we determine that accepting the order would not be in the
best interests of the Funds or their shareholders. The price per share (the
offering price) will be the net asset value per share (NAV) next determined
after we receive your purchase order.
We calculate each Fund's NAV once each Business Day at the regularly-scheduled
close of normal trading on the New York Stock Exchange (normally, 4:00 p.m.
Eastern time). So, for you to receive the current Business Day's NAV, generally
we must receive your purchase order before 4:00 p.m. Eastern time.
Certain investors who deal with a financial institution or financial
intermediary will have to follow the institution's or intermediary's procedures
for transacting with the Fund. If you purchase or sell Fund shares through a
financial institution (rather than directly from us), you may have to transmit
your purchase and sale requests to your financial institution at an earlier time
for your transaction to become effective that day. This allows the financial
institution time to process your request and transmit it to us. Your financial
institution or intermediary may charge a fee for its services, in addition to
the fees charged by the Funds. For more information about how to purchase or
sell Fund shares through your financial institution, you should contact your
financial institution directly.
How We Calculate NAV
NAV for one Fund share is the value of that share's portion of all of the assets
in a Fund.
<PAGE>
In calculating NAV, we generally value the Fund's investment portfolio at market
price. If market prices are unavailable or we think that they are unreliable,
fair value prices may be determined in good faith using methods approved by the
Board of Trustees.
Minimum Purchases
To purchase shares for the first time, you must invest at least $500 in either
Fund. Additional purchases must be at least $100.
We may accept investments of smaller amounts at our discretion.
SYSTEMATIC INVESTMENT PLAN
You may purchase shares automatically through regular deductions by Automated
Clearing House (ACH) from your checking or savings account of at least $50.00
per month.
<PAGE>
SELLING FUND SHARES
HOW TO SELL YOUR FUND SHARES
You may sell (sometimes called "redeem") your shares on any Business Day by
contacting us directly by mail or telephone. To sell your shares by telephone,
call us at 1-800-932-7781.
If you would like to close your account or have your sale proceeds sent to a
third-party or an address other than your own, please notify us in writing and
include a signature guarantee (a notarized signature is not sufficient).
The sale price of each share will be the next NAV determined after we receive
your request.
SYSTEMATIC WITHDRAWAL PLAN
If you have at least $500 in your account, you may use the systematic withdrawal
plan. Under the plan you may arrange monthly, quarterly, semi-annual or annual
automatic withdrawals of at least $50 from any Fund. The proceeds of each
withdrawal will be mailed to you by check or electronically transferred to your
account or savings account by ACH wire transfer.
Receiving Your Money
Normally, we will send your sale proceeds within seven Business Days after we
receive your request. Your proceeds can be wired to your bank account (subject
to a $10.00 fee) or sent to you by check. IF YOU RECENTLY PURCHASED YOUR SHARES
BY CHECK, REDEMPTION PROCEEDS MAY NOT BE AVAILABLE UNTIL YOUR CHECK HAS CLEARED
(WHICH MAY TAKE UP TO 15 BUSINESS DAYS).
<PAGE>
REDEMPTIONS IN KIND
We generally pay sale (redemption) proceeds in cash. However, under unusual
conditions that make the payment of cash unwise (and for the protection of the
Fund's remaining shareholders) we might pay all or part of your redemption
proceeds in liquid securities with a market value equal to the redemption price
(redemption in kind). It is highly unlikely that your shares would ever be
redeemed in kind, but if they were you would probably have to pay transaction
costs to sell the securities distributed to you, as well as taxes on any capital
gains from the sale as with any redemption.
INVOLUNTARY SALES OF YOUR SHARES
If your account balance drops below $500 because of redemptions you may be
required to sell your shares. But, we will always give you at least 60 days'
written notice to give you time to add to your account and avoid the sale of
your shares.
SUSPENSION OF YOUR RIGHT TO SELL YOUR SHARES
We may suspend your right to sell your shares if the NYSE restricts trading, the
SEC declares an emergency or for other reasons. More information about this is
in our Statement of Additional Information.
TELEPHONE TRANSACTIONS
Purchasing, selling and exchanging Fund shares over the telephone is extremely
convenient, but not without risk. Although we have certain safeguards and
procedures to confirm the identity of callers and the authenticity of
instructions, we are not responsible for any losses or costs incurred by
following telephone instructions we reasonably believe to be genuine. If you or
your financial institution transact with us over the telephone, you will
generally bear the risk of any loss.
<PAGE>
OTHER INFORMATION
Dividends and Distributions
Each Fund distributes its income monthly and makes distributions of capital
gains, if any, at least annually. If you own Fund shares on a Fund's record
date, you will be entitled to receive the distribution.
You will receive dividends and distributions in the form of additional Fund
shares unless you elect to receive payment in cash. To elect cash payment, you
must notify us in writing prior to the date of the distribution. Your election
will be effective for dividends and distributions paid after we receive your
written notice. To cancel your election, simply send us written notice.
Taxes
PLEASE CONSULT YOUR TAX ADVISER REGARDING YOUR SPECIFIC QUESTIONS ABOUT FEDERAL,
STATE AND LOCAL INCOME TAXES. Below we have summarized some important tax issues
that affect the Funds and their shareholders. This summary is based on current
tax laws, which may change.
Each Fund will distribute substantially all of its income and capital gains, if
any. The dividends and distributions you receive may be subject to federal,
state and local taxation, depending upon your tax situation. Distributions you
receive from a Fund may be taxable whether or not you reinvest them. Capital
gains distributions may be taxable at different rates depending on the length of
time a Fund holds its portfolio securities. YOU MAY BE TAXED ON EACH SALE OF
FUND SHARES.
MORE INFORMATION ABOUT TAXES IS IN OUR STATEMENT OF ADDITIONAL INFORMATION.
<PAGE>
FINANCIAL HIGHLIGHTS
The tables that follow present performance information about each Fund. This
information is intended to help you understand each Fund's financial performance
for the past five years, or, if shorter, the period of the Fund's operations.
Some of this information reflects financial information for a single Fund share.
The total returns in the table represent the rate that you would have earned (or
lost) on an investment in a Fund, assuming you reinvested all of your dividends
and distributions.
This information has been audited by Arthur Andersen LLP, independent public
accountants. Their report, along with each Fund's financial statements, appears
in the annual report that accompanies our Statement of Additional Information.
You can obtain the annual report, which contains more performance information,
at no charge by calling 1-800-932-7781.
<PAGE>
THE ADVISORS' INNER CIRCLE FUND
MDL BROAD MARKET FIXED INCOME FUND
MDL LARGE CAP GROWTH EQUITY FUND
INVESTMENT ADVISER
MDL Capital Management, Inc.
225 Ross Street
3rd Floor
Pittsburgh, Pennsylvania 15219
DISTRIBUTOR
SEI Investments Distribution Co.
One Freedom Valley Drive
Oaks, Pennsylvania 19456
LEGAL COUNSEL
Morgan, Lewis & Bockius LLP
1800 M Street, N.W.
Washington, D.C. 20036
More information about the Funds is available without charge through the
following:
STATEMENT OF ADDITIONAL INFORMATION (SAI)
---------------------------------------
Our SAI dated March 31, 1999, includes detailed information about the Advisors'
Inner Circle Funds and the MDL Funds. The SAI is on file with the SEC and is
incorporated by reference into this prospectus. This means that the SAI, for
legal purposes, is a part of this prospectus.
ANNUAL AND SEMI-ANNUAL REPORTS
---------------------------------------
These reports list each Fund's holdings and contain information from the Fund's
managers about strategies, and recent market conditions and trends. The reports
also contain detailed financial information about the Funds.
TO OBTAIN MORE INFORMATION:
<PAGE>
BY TELEPHONE: Call 1-800-932-7781
BY MAIL: Write to us
MDL Funds
P.O. Box 49009
Kansas City, Missouri 64141-6009
FROM THE SEC: You can also obtain the SAI or the Annual and Semi-annual
reports, as well as other information about The Advisors' Inner Circle Fund,
from the SEC's website ("HTTP://WWW.SEC.GOV"). You may review and copy documents
at the SEC Public Reference Room in Washington, DC (for information call
1-800-SEC-0330). You may request documents by mail from the SEC, upon payment
of a duplicating fee, by writing to: Securities and Exchange Commission, Public
Reference Section, Washington, DC 20549-6009. The Fund's Investment Company
Act registration number is 811-6400.
<PAGE>
TRUST:
THE ADVISORS' INNER CIRCLE FUND
Funds:
MDL Broad Market Fixed Income Fund
MDL Large Cap Growth Equity Fund
Investment Adviser:
MDL Capital Management, Inc.
This STATEMENT OF ADDITIONAL INFORMATION is not a prospectus and relates
only to the MDL Broad Market Fixed Income Fund (the "Fixed Income Fund") and MDL
Large Cap Growth Equity Fund (the "Equity Fund" and together with the Fixed
Income Fund, the "MDL Funds"). It is intended to provide additional information
regarding the activities and operations of The Advisors' Inner Circle Fund (the
"Trust") and the MDL Funds and should be read in conjunction with the MDL Funds'
Prospectus dated March 1, 1999. The Prospectus for the MDL Funds may be obtained
by calling 1-800-932-7781.
TABLE OF CONTENTS
<TABLE>
<S> <C>
The Trust................................................................. S-2
Investment Objectives and Policies........................................ S-2
Description of Permitted Investments...................................... S-3
Investment Limitations.................................................... S-12
The Adviser............................................................... S-13
The Administrator......................................................... S-15
The Distributor........................................................... S-16
The Transfer Agent........................................................ S-16
The Custodian............................................................. S-16
Independent Public Accountants............................................ S-16
Legal Counsel............................................................. S-16
Trustees and Officers of the Trust........................................ S-16
Performance Information................................................... S-19
Computation of Yield...................................................... S-19
Calculation of Total Return............................................... S-19
Purchasing Shares......................................................... S-20
Redeeming Shares.......................................................... S-20
Determination of Net Asset Value.......................................... S-20
Taxes..................................................................... S-20
Fund Transactions......................................................... S-23
Trading Practices and Brokerage........................................... S-23
Description of Shares..................................................... S-25
Shareholder Liability..................................................... S-25
Limitation of Trustees' Liability......................................... S-26
Year 2000................................................................. S-26
5% and 25% Shareholders................................................... S-26
Experts................................................................... S-26
Financial Statements...................................................... S-26
</TABLE>
March 1, 1999
[MDL-F-002-01]
<PAGE>
THE TRUST
This Statement of Additional Information relates only to the MDL Broad
Market Fixed Income Fund (the "Fixed Income Fund") and MDL Large Cap Growth
Equity Fund (the "Equity Fund" and together with the Fixed Income Fund, the "MDL
Funds"), each a diversified portfolio. 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 ("portfolios") of shares of
beneficial interest ("shares"). Each portfolio is a separate mutual fund, and
each share of each portfolio represents an equal proportionate interest in that
portfolio. See "Description of Shares." No investment in shares of a portfolio
should be made without first reading that portfolio's prospectus. Capitalized
terms not defined herein are defined in the Prospectus offering shares of the
MDL Funds.
Each Fund pays its (i) operating expenses, including fees of its service
providers, expenses of preparing prospectuses, proxy solicitation material and
reports to shareholders, costs of custodial services, and registering its shares
under federal and state securities laws, pricing and insurance expenses and pays
additional expenses, brokerage costs, interest charges, taxes and organization
expenses and (ii) pro rata share of the Trust's other expenses, including audit
and legal expenses. The MDL Funds' expense ratios are disclosed under "Fund Fees
and Expenses" in the Prospectus.
INVESTMENT OBJECTIVES AND POLICIES
The investment objective of the Fixed Income Fund is to seek total return
consistent with preservation of capital. The investment objective of the Equity
Fund is to seek long-term growth of capital with a secondary objective of
income. There can be no assurance that an MDL Fund will be able to achieve its
investment objective. In addition to the investments and strategies described
below, the MDL Funds may invest in certain securities and obligations as set
forth in "Description of Permitted Investments" herein.
MDL BROAD MARKET FIXED INCOME FUND
Under normal conditions the Fixed Income Fund will invest at least 80% of
its net assets in U.S. Treasury bills, notes and bonds and other fixed income
securities issued or guaranteed by the United States Government, its agencies or
instrumentalities ("U.S. Government Securities"), and corporate fixed income
securities rated A- or higher by Standard & Poor's Corporation ("S&P"), A or
higher by Moody's Investors Services, Inc. ("Moody's") or of comparable quality
as determined by the Adviser. The U.S. Government Securities in which the Fund
may invest include mortgage-backed securities ("MBSs"), and mortgage-related
securities such as pass-through securities and collateralized mortgage
obligations. The Fund intends to invest less than 25% of its total assets in
corporate fixed income securities and less than 30% of its total assets in MBSs.
Additional securities in which the Fund may invest include: (i) short-term U.S.
bank obligations; (ii) shares of other investment companies; and (iii)
repurchase agreements. The Fund's duration ordinarily will range between 3 1/2
and 6 1/2 years.
The Fixed Income Fund may purchase or sell securities on a when-issued or
forward commitment basis and sell securities short "against the box." The Fund
may engage in reverse repurchase agreements with banks and dealers in amounts up
to 33 1/3% of the Fund's total assets at the time the Fund enters into the
agreements. In order to remain fully invested and to reduce transaction costs,
up to 15% of the Fund's total assets may be invested in futures contracts and
options on futures contracts, including securities index futures contracts and
options on securities index futures contracts.
For temporary defensive purposes when the Adviser determines that market
conditions warrant, the Fixed Income Fund may also invest up to 100% of its
assets in money market securities or hold cash.
Securities rated A- by S&P or A by Moody's possess many favorable investment
attributes and are to be considered as upper-medium grade obligations. They have
a strong capacity to pay interest and repay
S-2
<PAGE>
principal although they are somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in higher rated
categories.
MDL LARGE CAP GROWTH EQUITY FUND
The Equity Fund intends to be as fully invested as practicable in common
stocks and other equity securities. Under normal circumstances the Fund will
invest at least 80% of its net assets in common stocks and other equity
securities of large cap companies (defined below), which may include warrants,
rights to purchase common stocks, debt securities convertible into common
stocks, and preferred stocks. The Fund may invest in equity securities of
foreign issuers traded in the United States in the form of American Depositary
Receipts.
The Equity Fund will invest primarily in the common stocks of large cap
companies, that is, those established companies with equity-market
capitalizations in excess of $3 billion. The Fund may also invest in common
stocks of smaller companies with equity market capitalizations in excess of $500
million.
The Equity Fund may also engage in repurchase agreements. The Fund may
engage in reverse repurchase agreements with banks and dealers in amounts up to
33 1/3% of the Fund's total assets at the time the Fund enters into the
agreements. Up to 15% of the Fund's total assets may be invested in futures
contracts and options on futures contracts, including securities index futures
contracts and options on securities index futures contracts.
For temporary defensive purposes when the Adviser determines that market
conditions warrant, the Equity Fund may also invest up to 100% of its assets in
money market securities or hold cash.
The phrase "principally invests" as used in the prospectus means that a Fund
invests at least 65% of its assets in the securities as described in the
sentence.
DESCRIPTION OF PERMITTED INVESTMENTS
AMERICAN DEPOSITARY RECEIPTS
The Equity Fund may invest in American Depositary Receipts ("ADRs"). ADRs
are securities, typically issued by a U.S. financial institution (a
"depositary"), that evidence ownership interests in a security or a pool of
securities issued by a foreign issuer and deposited with the depositary. ADRs
may be available through "sponsored" or "unsponsored" facilities. A sponsored
facility is established jointly by the issuer of the security underlying the
receipt and a depositary, whereas, an unsponsored facility may be established by
a depositary without participation by the issuer of the underlying security.
Holders of unsponsored depositary receipts generally bear all the costs of the
unsponsored facility. The depositary of an unsponsored facility frequently is
under no obligation to distribute shareholder communications received from the
issuer of the deposited security or to pass through, to the holders of the
receipts, voting rights with respect to the deposited securities.
CONVERTIBLE SECURITIES
Convertible securities are securities issued by corporations that are
exchangeable for a set number of another security at a prestated price. The
market value of a convertible security tends to move with the market value of
the underlying stock. The value of a convertible security is also affected by
prevailing interest rates, the credit quality of the issuer, and any call option
provisions.
CORPORATE BONDS
A corporate bond is a debt instrument issued by a private corporation, as
distinct from one issued by a governmental agency or municipality. Corporate
bonds generally have the following features: (1) they are
S-3
<PAGE>
taxable; (2) they have a par value of $1,000; and (3) they have a term maturity.
They are sometimes traded on major exchanges.
DURATION
Duration is a measure of the expected change in value of a fixed income
security for a given change in interest rates. For example, if interest rates
changed by one percent, the value of a security having an effective duration of
two years generally would vary by two percent. Duration takes the length of the
time intervals between the present time and time that the interest and principal
payments are scheduled, or in the case of a callable bond, expected to be
received, and weighs them by the present values of the cash to be received at
each future point in time.
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 Equity Fund invests will cause the net asset value of
the Fund to fluctuate. An investment in the Equity Fund may therefore be more
suitable for long-term investors.
THE EURO
On January 1, 1999, the European Monetary Union (EMU) plans to implement a
new currency unit, the Euro, which is expected to reshape financial markets,
banking systems and monetary policies in Europe and other parts of the world.
The countries initially expected to convert or tie their currencies to the Euro
include Austria, Belgium, France, Germany, Luxembourg, the Netherlands, Ireland,
Finland, Italy, Portugal, and Spain. Implementation of this plan will mean that
financial transactions and market information, including share quotations and
company accounts, in participating countries will be denominated in Euros.
Approximately 46% of the stock exchange capitalization of the total European
market may be reflected in Euros, and participating governments will issue their
bonds in Euros. Monetary policy for participating countries will be uniformly
managed by a new central bank, the European Central Bank (ECB).
Although it is not possible to predict the impact of the Euro implementation
plan on the MDL Funds, the transition to the Euro may change the economic
environment and behavior of investors, particularly in European markets. For
example, investors may begin to view those countries participating in the EMU as
a single entity, and the Adviser may need to adapt investment strategies
accordingly. The process of implementing the Euro also may adversely affect
financial markets worldwide and may result in changes in the relative strength
and value of the U.S. dollar or other major currencies, as well as possible
adverse tax consequences. The transition to the Euro is likely to have a
significant impact on fiscal and monetary policy in the participating countries
and may produce unpredictable effects on trade and commerce generally. These
resulting uncertainties could create increased volatility in financial markets
world-wide.
FIXED INCOME SECURITIES
The market value of the fixed income investments in which the MDL Funds
invest will change in response to interest rate changes and other factors.
During periods of falling interest rates, the values of outstanding fixed income
securities generally rise. Conversely, during periods of rising interest rates,
the values of such securities generally decline. Moreover, while securities with
longer maturities tend to produce higher yields, the prices of longer maturity
securities are also subject to greater market fluctuations as a result of
changes in interest rates. Changes by recognized agencies in the rating of any
fixed income security and in the ability of an issuer to make payments of
interest and principal also affect the
S-4
<PAGE>
value of these investments. Changes in the value of these securities will not
necessarily affect cash income derived from these securities but will affect a
Fund's net asset value.
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
purchase the right, in exchange for a premium, to assume a position in a futures
contract at a specified exercise price during the term of the option.
A Fund 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. They may also be used to minimize fluctuations in foreign currencies
or to gain exposure to a particular market or instrument. A 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 and for
which there appears to be a liquid secondary market.
Index futures are futures contracts for various indices that are traded on
registered securities exchanges. An index futures contract obligates the seller
to deliver (and the purchaser to take) an amount of cash equal to a specific
dollar amount times the difference between the value of a specific index at the
close of the last trading day of the contract and the price at which the
agreement is made.
Although futures contracts by their terms call for actual delivery or
acceptance of the underlying securities, in most cases the contracts are closed
out before the settlement date without the making or taking of delivery. Closing
out an open futures position is done by taking an opposite position ("buying" a
contract which has previously been "sold" or "selling" a contract which has
previously been "purchased") in an identical contract to terminate the position.
Brokerage commissions are incurred when a futures contract is bought or sold.
Futures traders are required to make a good faith margin deposit in cash or
government securities with or for the account of a broker or custodian to
initiate and maintain open secondary market will exist for any particular
futures contract at any specific time. Thus, it may not be possible to close a
futures position. In the event of adverse price movements, a Fund would continue
to be required to make daily cash payments to maintain its required margin. In
such situations, if a Fund has insufficient cash, it may have to sell portfolio
securities to meet daily margin requirements at a time when it may be
disadvantageous to do so. In addition, the MDL Funds may be required to make
delivery of the instruments underlying the futures contracts they hold. The
inability to close options and futures positions also could have an adverse
impact on the ability to effectively hedge the underlying securities.
The risk of loss in trading futures contracts can be substantial, due both
to the low margin deposits required and the extremely high degree of leverage
involved in futures pricing. As a result, a relatively small price movement in a
futures contract may result in immediate and substantial loss (or gain) to a
Fund. For example, if at the time of purchase, 10% of the value of the futures
contract is deposited as margin, a subsequent 10% decrease in the value of the
futures contract would result in a total loss of the margin deposit, before any
deduction for the transaction costs, if the account were then closed out. A 15%
decrease would result in a loss equal to 150% of the original margin deposit if
the contract were closed out. Thus, a purchase or sale of a futures contract may
result in losses in excess of the amount invested in the contract. However,
because the MDL Funds will be engaged in futures transactions only for hedging
purposes, the Adviser does not believe that the MDL Funds will generally be
subject to the risks of loss frequently associated with futures transactions.
The MDL Funds presumably would have sustained comparable losses if, instead of
the futures contract, they had invested in the underlying financial instrument
and sold it after the decline. The risk of loss from the purchase of options is
less as compared with the purchase or sale of futures contracts because the
maximum amount at risk is the premium paid for the option.
S-5
<PAGE>
Utilization of futures transactions by the MDL Funds does involve the risk
of imperfect or no correlation where the securities underlying futures contracts
have different maturities than the fund securities being hedged. It is also
possible that the MDL Funds could both lose money on futures contracts and
experience a decline in value of its fund securities. There is also the risk of
loss by the MDL Funds of margin deposits in the event of the bankruptcy of a
broker with whom the MDL Funds have an open position in a futures contract or
related option.
Most futures exchanges limit the amount of fluctuation permitted in futures
contract prices during a single trading day. The daily limit establishes the
maximum amount that the price of a futures contract may vary either up or down
from the previous day's settlement price at the end of a trading session. Once
the daily limit has been reached in a particular type of contract, no trades may
be made on that day at a price beyond that limit. The daily limit governs only
price movement during a particular trading day and therefore does not limit
potential losses because the limit may prevent the liquidation of unfavorable
positions. Futures contract prices have occasionally moved to the daily limit
for several consecutive trading days with little or no trading, thereby
preventing prompt liquidation of future positions and subjecting some futures
traders to substantial losses.
ILLIQUID SECURITIES
Illiquid securities are securities that cannot be disposed of within seven
business days at approximately the price at which they are being carried on a
Fund's books. An illiquid security includes a demand instrument with a demand
notice period exceeding seven days, where there is no secondary market for such
security, and repurchase agreements with a remaining term to maturity in excess
of seven days.
INVESTMENT COMPANY SHARES
Each MDL Fund may invest up to 10% of its total assets in shares of other
investment companies that invest exclusively in those securities in which the
appropriate Fund may invest directly. These investment companies typically incur
fees that are separate from those fees incurred directly by the Fund. A Fund's
purchase of such investment company securities results in the layering of
expenses, such that shareholders would indirectly bear a proportionate share of
the operating expenses of such investment companies, including advisory fees, in
addition to paying Fund expenses. Under applicable regulations, a Fund is
prohibited from acquiring the securities of another investment company if, as a
result of such acquisition: (1) the Fund owns more than 3% of the total voting
stock of the other company; (2) securities issued by any one investment company
represent more than 5% of the Fund's total assets; or (3) securities (other than
treasury stock) issued by all investment companies represent more than 10% of
the total assets of the Fund.
MONEY MARKET INSTRUMENTS--Money market instruments include short-term U.S.
Government Securities; custodial receipts evidencing separately traded interest
and principal components of securities issued by the U.S. Treasury; commercial
paper rated in the highest short-term rating category by a nationally recognized
statistical rating organization or determined by the Adviser to be of comparable
quality at the time of purchase; short-term bank obligations (certificates of
deposit, time deposits and bankers' acceptances) of U.S. commercial banks with
assets of at least $1 billion as of the end of their most recent fiscal year;
and repurchase agreements involving such securities.
BANKERS' ACCEPTANCES
Bankers' acceptances are bills of exchange or time drafts drawn on
and accepted by a commercial bank. Bankers' acceptances are used by
corporations to finance the shipment and storage of goods. Maturities are
generally six months or less.
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CERTIFICATES OF DEPOSIT
Certificates of deposit are interest bearing instruments with a
specific maturity. They are issued by banks and savings and loan
institutions in exchange for the deposit of funds and normally can be
traded in the secondary market prior to maturity. Certificates of deposit
with penalties for early withdrawal will be considered illiquid.
COMMERCIAL PAPER
Commercial paper is a term used to describe unsecured short-term
promissory notes issued by banks, municipalities, corporations and other
entities. Maturities on these issues vary from a few to 270 days.
TIME DEPOSITS
Time deposits are non-negotiable receipts issued by a bank in
exchange for the deposit of funds. Like a certificate of deposit, it
earns a specified rate of interest over a definite period of time;
however, it cannot be traded in the secondary market. Time deposits with
a withdrawal penalty or that mature in more than seven days are
considered to be illiquid securities.
MORTGAGE-BACKED SECURITIES
Mortgage-backed securities are instruments that entitle the holder to a
share of all interest and principal payments from mortgages underlying the
security. The mortgages backing these securities include conventional
thirty-year fixed rate mortgages, graduated payment mortgages, adjustable rate
mortgages, and floating mortgages.
GOVERNMENT PASS-THROUGH SECURITIES
These are securities that are issued or guaranteed by a U.S.
Government agency representing an interest in a pool of mortgage loans.
The primary issuers or guarantors of these mortgage-backed securities are
the Government National Mortgage Association ("GNMA"), Fannie Mae, and
the Federal Home Loan Mortgage Corporation ("FHLMC"). Fannie Mae and
FHLMC obligations are not backed by the full faith and credit of the U.S.
Government as GNMA certificates are, but Fannie Mae and FHLMC securities
are supported by the instrumentalities' right to borrow from the U.S.
Treasury. GNMA, Fannie Mae, and FHLMC each guarantees timely
distributions of interest to certificate holders. GNMA and Fannie Mae
also guarantee timely distributions of scheduled principal. In the past,
FHLMC has only guaranteed the ultimate collection of principal of the
underlying mortgage loan; however, FHLMC now issues mortgage-backed
securities (FHLMC Gold PCS) which also guarantee timely payment of
monthly principal reductions. Government and private guarantees do not
extend to the securities' value, which is likely to vary inversely with
fluctuations in interest rates.
Obligations of GNMA are backed by the full faith and credit of the
United States Government. Obligations of Fannie Mae and FHLMC are not
backed by the full faith and credit of the United States Government but
are considered to be of high quality since they are considered to be
instrumentalities of the United States. The market value and interest
yield of these mortgage-backed securities 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 with a maximum maturity of 30 years. However, due to scheduled and
unscheduled principal payments on the underlying loans, these securities
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
mortgage-backed security. The scheduled monthly interest and principal
payments relating to
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mortgages in the pool will be "passed through" to investors. Government
mortgage-backed 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 these securities may offer yields higher than those
available from other types of U.S. Government securities, mortgage-backed
securities 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 these securities 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 mortgage-backed security originally purchased at
a premium to decline in price to its par value, which may result in a
loss.
PRIVATE PASS-THROUGH SECURITIES
Private pass-through securities are mortgage-backed securities issued
by a non-governmental agency, such as a trust. While they are generally
structured with one or more types of credit enhancement, private
pass-through securities generally lack a guarantee by an entity having
the credit status of a governmental agency or instrumentality. The two
principal types of private mortgage-backed securities are collateralized
mortgage obligations ("CMOs") and real estate mortgage investment
conduits ("REMICs").
CMOs
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 are rated in one of the two
highest categories by S&P or Moody's. Many CMOs are issued with a number
of classes or series which have different expected maturities. Investors
purchasing such CMOs are credited with their portion of the scheduled
payments of interest and principal on the underlying mortgages plus all
unscheduled prepayments of principal based on a predetermined priority
schedule. Accordingly, the CMOs in the longer maturity series are less
likely than other mortgage pass-throughs to be prepaid prior to their
stated maturity. Although some of the mortgages underlying CMOs may be
supported by various types of insurance, and some CMOs may be backed by
GNMA certificates or other mortgage pass-throughs issued or guaranteed by
U.S. Government agencies or instrumentalities, the CMOs themselves are
not generally guaranteed.
REMICs
REMICs are private entities formed for the purpose of holding a fixed
pool of mortgages secured by an interest in real property. REMICs are
similar to CMOs in that they issue multiple classes of securities and are
rated in one of the two highest categories by S&P or Moody's.
Investors may purchase beneficial interests in REMICs, which are
known as "regular" interests, or "residual" interests. Guaranteed REMIC
pass-through certificates ("REMIC Certificates") issued by Fannie Mae or
FHLMC represent beneficial ownership interests in a REMIC trust
consisting principally of mortgage loans or Fannie Mae, FHLMC or
GNMA-guaranteed mortgage pass-through certificates. For FHLMC REMIC
Certificates, FHLMC guarantees the timely payment of interest. GNMA REMIC
Certificates are backed by the full faith and credit of the U.S.
Government.
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ADJUSTABLE RATE MORTGAGE SECURITIES ("ARMS")
ARMS are a form of pass-through security representing interests in
pools of mortgage loans whose interest rates are adjusted from time to
time. The adjustments usually are determined in accordance with a
predetermined interest rate index and may be subject to certain limits.
While the value of ARMS, like other debt securities, generally varies
inversely with changes in market interest rates (increasing in value
during periods of declining interest rates and decreasing in value during
periods of increasing interest rates), the value of ARMS should generally
be more resistant to price swings than other debt securities because the
interest rates of ARMS move with market interest rates. The adjustable
rate feature of ARMS will not, however, eliminate fluctuations in the
prices of ARMS, particularly during periods of extreme fluctuations in
interest rates. Also, since many adjustable rate mortgages only reset on
an annual basis, it can be expected that the prices of ARMS will
fluctuate to the extent that changes in prevailing interests rates are
not immediately reflected in the interest rates payable on the underlying
adjustable rate mortgages.
STRIPPED MORTGAGE-BACKED SECURITIES
Stripped mortgage-backed securities are securities that are created
when a U.S. Government agency or a financial institution separates the
interest and principal components of a mortgage-backed security and sells
them as individual securities. The holder of the "principal-only"
security (PO) receives the principal payments made by the underlying
mortgage-backed security, while the holder of the "interest-only"
security (IO) receives interest payments from the same underlying
security.
The prices of stripped mortgage-backed securities may be particularly
affected by changes in interest rates. As interest rates fall, prepayment
rates tend to increase, which tends to reduce prices of IOs and increase
prices of POs. Rising interest rates can have the opposite effect.
ESTIMATED AVERAGE LIFE
Due to the possibility of prepayments of the underlying mortgage
instruments, mortgage-backed securities generally do not have a known
maturity. In the absence of a known maturity, market participants
generally refer to an estimated average life. An average life estimate is
a function of an assumption regarding anticipated prepayment patterns,
based upon current interest rates, current conditions in the relevant
housing markets and other factors. The assumption is necessarily
subjective, and thus different market participants can produce different
average life estimates with regard to the same security. There can be no
assurance that estimated average life will be a security's actual average
life.
OPTIONS
A Fund may write call options on a covered basis only, and will not engage
in option writing strategies for speculative purposes. A call option gives the
purchaser of such option the right to buy, and the writer, in this case the
Fund, the obligation to sell the underlying security at the exercise price
during the option period. The advantage to the MDL Funds of writing covered
calls is that the MDL Funds receive a premium which is additional income.
However, if the security rises in value, the MDL Funds may not fully participate
in the market appreciation.
During the option period, a covered call option writer may be assigned an
exercise notice by the broker-dealer through whom such call option was sold
requiring the writer to deliver the underlying security against payment of the
exercise price. This obligation is terminated upon the expiration of the option
period or at such earlier time in which the writer effects a closing purchase
transaction. A closing purchase transaction is one in which the Fund, when
obligated as a writer of an option, terminates its obligation by purchasing an
option of the same series as the option previously written.
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A closing purchase transaction cannot be effected with respect to an option
once the option writer has received an exercise notice for such option.
Closing purchase transactions will ordinarily be effected to realize a
profit on an outstanding call option, to prevent an underlying security from
being called, to permit the sale of the underlying security or to enable a Fund
to write another call option on the underlying security with either a different
exercise price or expiration date or both. A Fund may realize a net gain or loss
from a closing purchase transaction depending upon whether the net amount of the
original premium received on the call option is more or less than the cost of
effecting the closing purchase transaction. Any loss incurred in a closing
purchase transaction may be partially or entirely offset by the premium received
from a sale of a different call option on the same underlying security. Such a
loss may also be wholly or partially offset by unrealized appreciation in the
market value of the underlying security.
If a call option expires unexercised, a Fund will realize a short-term
capital gain in the amount of the premium on the option, less the commission
paid. Such a gain, however, may be offset by depreciation in the market value of
the underlying security during the option period. If a call option is exercised,
a Fund will realize a gain or loss from the sale of the underlying security
equal to the difference between the cost of the underlying security, and the
proceeds of the sale of the security plus the amount of the premium on the
option, less the commission paid.
The market value of a call option generally reflects the market price of an
underlying security. Other principal factors affecting market value include
supply and demand, interest rates, the price volatility of the underlying
security, and the time remaining until the expiration date.
The MDL Funds will write call options only on a covered basis, which means
that a Fund will own the underlying security subject to a call option at all
times during the option period. Unless a closing purchase transaction is
effected, a Fund would be required to continue to hold a security which it might
otherwise wish to sell, or deliver a security it would want to hold. Options
written by the MDL Funds will normally have expiration dates between one and
nine months from the date written. The exercise price of a call option may be
below, equal to, or above the current market value of the underlying security at
the time the option is written.
REPURCHASE AGREEMENTS
Repurchase agreements are agreements by which a person (E.G., a Fund)
obtains a security and simultaneously commits to return the security to the
seller (a primary securities dealer as recognized by the Federal Reserve Bank of
New York or a national member bank as defined in Section 3(d)(1) of the Federal
Deposit Insurance Act, as amended) 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 a Fund for purposes of
its investment limitations. The repurchase agreements entered into by a Fund
will provide that the underlying security at all times shall have a value at
least equal to 102% of the resale price stated in the agreement (the Adviser
monitors compliance with this requirement). Under all repurchase agreements
entered into by a Fund, the appropriate Custodian or its agent must take
possession of the underlying collateral. However, if the seller defaults, a Fund
could realize a loss on the sale of the underlying security to the extent that
the proceeds of the 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
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and costs in selling the underlying security or may suffer a loss of principal
and interest if the Fund is treated as an unsecured creditor and required to
return the underlying security to the seller's estate.
REVERSE REPURCHASE AGREEMENTS
Reverse repurchase agreements are agreements by which a Fund sells
securities to financial institutions and simultaneously agrees to repurchase
those securities at a mutually agreed-upon date and price. At the time a Fund
enters into a reverse repurchase agreement, the Fund will place liquid assets
having a value equal to the repurchase price in a segregated custodial account
and monitor this account to ensure equivalent value is maintained. Reverse
repurchase agreements involve the risk that the market value of securities sold
by the Fund may decline below the price at which the Fund is obligated to
repurchase the securities. Reverse repurchase agreements may be considered to be
borrowings by the MDL Funds under the 1940 Act.
SHORT SALES AGAINST-THE-BOX
The MDL Funds may make short sales "against-the-box" for the purpose of
deferring realization of gain or loss for federal income tax purposes and for
the purpose of hedging against an anticipated decline in the value of the
underlying securities. A short sale "against-the-box" is a short sale in which a
Fund owns, or has the right to obtain without payment of additional
consideration, an equal amount of the same type of securities sold short.
U.S. GOVERNMENT AGENCY OBLIGATIONS
U.S. Government agency obligations are obligations issued or guaranteed by
agencies or instrumentalities of the U.S. Government. Agencies of the United
States Government which issue obligations consist of, among others, the Export
Import Bank of the United States, Farmers Home Administration, Federal Farm
Credit Bank, Federal Housing Administration, Government National Mortgage
Association ("GNMA"), Maritime Administration, Small Business Administration and
The Tennessee Valley Authority. Obligations of instrumentalities of the United
States Government include securities issued by, among others, Federal Home Loan
Banks, Federal Home Loan Mortgage Corporation ("FHLMC"), Federal Intermediate
Credit Banks, Federal Land Banks, Fannie Mae and the United States Postal
Service as well as government trust certificates. Some of these securities are
supported by the full faith and credit of the United States Treasury, others are
supported by the right of the issuer to borrow from the Treasury and still
others are supported only by the credit of the instrumentality. Guarantees of
principal by agencies or instrumentalities of the U.S. Government may be a
guarantee of payment at the maturity of the obligation so that in the event of a
default prior to maturity there might not be a market and thus no means of
realizing the value of the obligation prior to maturity.
VARIABLE AND FLOATING RATE SECURITIES
Variable and floating rate instruments involve certain obligations that may
carry variable or floating rates of interest, and may involve a conditional or
unconditional demand feature. Such instruments bear interest at rates which are
not fixed, but which vary with changes in specified market rates or indices. The
interest rates on these securities may be reset daily, weekly, quarterly, or
some other reset period, and may have a set floor or ceiling on interest rate
changes. There is a risk that the current interest rate on such obligations may
not accurately reflect existing market interest rates. A demand instrument with
a demand notice exceeding seven days may be considered illiquid if there is no
secondary market for such security.
WHEN-ISSUED SECURITIES
Each Fund may purchase debt obligations on a when-issued basis, in which
case delivery and payment normally take place on a future date. The MDL Funds
will make commitments to purchase obligations on
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a when-issued basis only with the intention of actually acquiring the
securities, but may sell them before the settlement date. During the period
prior to the settlement date, the securities are subject to market fluctuation,
and no interest accrues on the securities to the purchaser. The payment
obligation and the interest rate that will be received on the securities at
settlement are each fixed at the time the purchaser enters into the commitment.
Purchasing obligations on a when-issued basis may be used as a form of
leveraging because the purchaser may accept the market risk prior to payment for
the securities. The MDL Funds, however, will not use such purchases for
leveraging; instead, as disclosed in the Prospectus, a Fund will set aside
assets to cover its commitments. If the value of these assets declines, the Fund
will place additional liquid assets aside on a daily basis so that the value of
the assets set aside is equal to the amount of the commitment.
INVESTMENT LIMITATIONS
FUNDAMENTAL POLICIES
The following investment limitations are fundamental policies of each Fund
that cannot be changed without the consent of the holders of a majority of that
Fund's outstanding shares. The phrase "majority of the outstanding shares" means
the vote of (i) 67% or more of a Fund's shares present at a meeting, if more
than 50% of the outstanding shares of a Fund are present or represented by
proxy, or (ii) more than 50% of a Fund's outstanding shares, whichever is less.
Each Fund may not:
1. Purchase securities of any issuer (except securities issued or guaranteed by
the United States, its agencies or instrumentalities and repurchase
agreements involving such securities) if as a result more than 5% of the
total assets of the Fund would be invested in the securities of such issuer.
This restriction applies to 75% of each Fund's total assets.
2. Purchase any securities which would cause 25% or more of the total assets of
a Fund to be invested in the securities of one or more issuers conducting
their principal business activities in the same industry, provided that this
limitation does not apply to investments in obligations issued or guaranteed
by the U.S. Government, its agencies or instrumentalities and repurchase
agreements involving such securities. For purposes of this limitation, (i)
utility companies will be divided according to their services, for example,
gas distribution, gas transmission, electric and telephone will each be
considered a separate industry, and (ii) financial service companies will be
classified according to the end users of their services, for example,
automobile finance, bank finance and diversified finance will each be
considered a separate industry.
3. Acquire more than 10% of the voting securities of any one issuer.
4. Invest in companies for the purpose of exercising control.
5. Issue any class of senior security or sell any senior security of which it
is the issuer, except that the Fund may borrow from any bank, provided that
immediately after any such borrowing there is asset coverage of at least
300% for all borrowings of the Fund, and further provided that, to the
extent that such borrowings exceed 5% of the Fund's total assets, all
borrowings shall be repaid before the Fund makes additional investments. The
term "senior security" shall not include any temporary borrowings that do
not exceed 5% of the value of the Fund's total assets at the time the Fund
makes such temporary borrowing. In addition, investment strategies that
either obligate the Fund to purchase securities or require the Fund to
segregate assets will not be considered borrowings or senior securities.
This investment limitation shall not preclude the Fund from issuing multiple
classes of shares in reliance on SEC rules or orders.
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6. Make loans if, as a result, more than 33 1/3% of its total assets would be
lent to other parties, except that the Fund may (i) purchase or hold debt
instruments in accordance with its investment objective and policies; (ii)
enter into repurchase agreements; and (iii) lend its securities.
7. Purchase or sell real estate, real estate limited partnership interests,
physical commodities or commodities contracts except that the Fund may
purchase commodities contracts relating to financial instruments, such as
financial futures contracts and options on such contracts.
8. Make short sales of securities, maintain a short position or purchase
securities on margin, except that a Fund may obtain short-term credits as
necessary for the clearance of security transactions and sell securities
short "against the box."
9. Act as an underwriter of securities of other issuers except as it may be
deemed an underwriter in selling the Fund security.
10. Purchase securities of other investment companies except as permitted by the
Investment Company Act of 1940, as amended (the "1940 Act") and the rules
and regulations thereunder.
The foregoing percentages will apply at the time of the purchase of a
security.
NON-FUNDAMENTAL POLICIES
The following investment limitation of each Fund is non-fundamental and may
be changed by the Trust's Board of Trustees without shareholder approval:
1. A Fund may not invest in illiquid securities in an amount exceeding, in the
aggregate, 15% of the Fund's net assets.
Except with respect to each Fund's policy concerning borrowing and illiquid
securities, if a percentage restriction is adhered to at the time of an
investment, a later increase or decrease in percentage resulting from changes in
values or assets will not constitute a violation of such restriction.
Additionally, it is a non-fundamental policy of each MDL Fund to limit
borrowings to no more than 5% of its net assets. Fully collaterallized reverse
repurchase agreements are not considered borrowings for purposes of the
foregoing limitation.
THE ADVISER
MDL Capital Management, Inc. (the "Adviser") and the Trust have entered into
an advisory agreement dated October 31, 1997 (the "Advisory Agreement"). The
Advisory Agreement provides that the Adviser shall not be protected against any
liability to the Trust or its shareholders by reason of willful misfeasance, bad
faith or gross negligence on its part in the performance of its duties or from
reckless disregard of its obligations or duties thereunder. Under the Advisory
Agreement, the Adviser makes the investment decisions for the assets of each
Fund and continuously reviews, supervises and administers each Fund's investment
program, subject to the supervision of, and policies established by, the
Trustees of the Trust.
The Adviser's principal business address is 225 Ross Street, Pittsburgh,
Pennsylvania 15219. As of , 1999, the Adviser had approximately $
million of assets under management for institutional clients such as
Taft-Hartley plans, hospitals, public sector funds, foundations and ERISA plans.
Messrs. Mark D. Lay and Edward Adatepe have served as co-portfolio managers
of both the Fixed Income and Equity Funds, since their commencement of
operations. Mr. Lay has served as the Chairman and Chief Executive Officer of
the Adviser since 1993. Prior thereto, Mr. Lay was an account executive at Dean
Witter Reynolds, Inc. Mr. Lay received a B.A. degree in Economics from Columbia
University. Mr. Adatepe has been the Chief Investment Officer of the Adviser
since 1994. Prior thereto, Mr. Adatepe was the Managing Director of RRZ
Investment Management, Inc., where he was responsible for managing
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both fixed income and equity portfolios for various public and private pension
funds. Mr. Adatepe received a B.S. degree in physics from Allegheny College and
a M.S. degree in Industrial Administration from Carnegie-Mellon University.
In addition to the co-portfolio managers, the Adviser employs a team of
highly qualified investment professionals to provide advice and input regarding
the management of the MDL Funds. Included within this team are Steven Sanders
and Jim Taylor. Mr. Sanders serves as the Adviser's President and economist. He
also appears weekly as an investment specialist on the CNBC International
Business Television Network. Mr. Taylor is Director of Equity Research and is a
securities analyst for the MDL Funds. Mr. Taylor holds a B.S. degree in
Management and Economics from the University of Pittsburgh, and an MBA from
Duquesne University.
Under the Advisory Agreement, the Adviser receives a monthly management fee
computed separately for each Fund. Such fees are payable at an annual rate of
.45% and .74% of the average daily net assets of the Fixed Income and Equity
Funds, respectively. The Adviser has voluntarily agreed to waive all or a
portion of its fee for each Fund and to reimburse expenses of each Fund in order
to limit total operating expenses for the Fixed Income and Equity Funds to an
annual rate of not more than .90% and 1.26% of average daily net assets,
respectively. The Adviser reserves the right, in its sole discretion, to
terminate its voluntary fee waivers and reimbursements at any time, however, the
advisory fee waivers are expected to be in effect for the current fiscal year.
The Adviser may, from its own resources, compensate broker-dealers whose clients
purchase shares of the MDL Funds.
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 Agreement or "interested persons" of any
party thereto, cast in person at a meeting called for the purpose of voting on
such approval. The Advisory Agreement will terminate automatically in the event
of its assignment, and is terminable at any time without penalty by the Trustees
of the Trust or, with respect to a Fund, by a majority of the outstanding shares
of that Fund, on not less than 30 days' nor more than 60 days' written notice to
the Adviser, or by the Adviser on 90 days' written notice to the Trust.
The Adviser's fixed income decision making process begins with a "top down"
analysis of the factors that drive interest rates: economic growth, inflation,
the level of the dollar, monetary policy and fiscal policy. Based on this
process, the Adviser develops several interest rate projections and determines
an appropriate duration target and maturity structure.
The Adviser then apportions the Fixed Income Fund's portfolio among the
following sectors: (i) U.S. Government Securities, (ii) corporate fixed income
securities and (iii) MBSs. This allocation is based on an analysis of the
relative attractiveness of these sectors, on a total return basis, given the
Adviser's interest rate projections. The Adviser then selects approximately
15-20 individual securities that in the aggregate produce the desired portfolio
duration, maturity structure and sector allocation.
In the case of U.S. Government Securities, individual securities are
selected for purchase that offer better total return potential than other U.S.
Government Securities with similar durations. In the case of corporate fixed
income securities, the Adviser's selection process seeks to identify issues
where credit quality has recently been improving as evidenced by rating
increases by S&P or Moody's. In addition, the Adviser seeks corporate fixed
income securities that generally are non-callable and have an issue size of $250
million or greater. In the case of MBSs, the Adviser seeks to purchase
individual securities that offer the best total return potential, given the
Adviser's interest rate projections, as compared to similar securities.
With respect to the Equity Fund, the Adviser evaluates these companies
through a multi-step screening process which begins with a universe of
approximately 700 stocks, including those in the S&P 500 index. The Adviser
seeks to purchase the securities of companies with (i) high absolute and
relative
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earnings momentum, (ii) positive earnings surprise, (iii) positive price
momentum and (iv) low absolute and relative valuations. The Adviser then
performs a fundamental analysis of those companies that meet the foregoing
criteria and selects from those companies approximately 100 securities across 12
identified economic sectors.
For the fiscal period beginning November 1, 1997 and ended October 31, 1998,
the MDL Funds paid advisory fees of $ .
THE ADMINISTRATOR
SEI Investments Mutual Funds Services (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
from each Fund, which is calculated daily and paid monthly based on the
respective Fund's asset level, at an annual rate of: .15% on the first $50
million of average daily net assets; .125% on the next $50 million of average
daily net assets; and .10% on average daily net assets over $100 million.
However, each Fund pays a minimum annual administration fee of $80,000, which
would be increased by $15,000 per additional class. Due to the minimum annual
administration fee, the administration fee that a Fund pays will decline
according to the administration fee schedule described above, only after a
Fund's net asset level reaches $54 million.
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 MDL Funds in connection with the matters to which the Administration
Agreement relates, except a loss resulting from willful misfeasance, bad faith
or gross negligence on the part of the Administrator in the performance of its
duties or from reckless disregard of its duties and obligations thereunder.
The Administration Agreement shall remain effective for the initial term of
the Agreement and each renewal term thereof unless earlier terminated (a) by the
mutual written agreement of the parties; (b) by either party of the
Administration Agreement on 90 days' written notice, as of the end of the
initial term or the end of any renewal term; (c) by either party of the
Administration Agreement on such date as is specified in written notice given by
the terminating party, in the event of a material breach of the Administration
Agreement by the other party, provided the terminating party has notified the
other party of such breach at least 45 days' prior to the specified date of
termination and the breaching party has not remedied such breach by the
specified date; (d) effective upon the liquidation of the Administrator; or (e)
as to a Fund or the Trust, effective upon the liquidation of the Fund or the
Trust, as the case may be.
The Administrator, a Delaware business trust, has its principal business
offices at Oaks, Pennsylvania 19456. SEI Investments Management Corporation
("SIMC"), a wholly-owned subsidiary of SEI Investments Company ("SEI
Investments"), is the owner of all beneficial interest in the Administrator. SEI
Investments and its subsidiaries and affiliates, including the Administrator,
are leading providers of funds evaluation services, trust accounting systems,
and brokerage and information services to financial institutions, institutional
investors, and money managers. The Administrator and its affiliates also serve
as administrator or sub-administrator to the following other mutual funds: The
Achievement Funds Trust, The Arbor Fund, ARK Funds, Armada Funds, Bishop Street
Funds, Boston 1784 Funds-Registered Trademark-, CrestFunds, Inc., CUFUND, The
Expedition Funds, First American Funds, Inc., First American Investment Funds,
Inc., First American Strategy Funds, Inc., HighMark Funds, Monitor Funds, The
Nevis Funds, Oak Associates Funds, The PBHG Funds, Inc., PBHG Advisor Funds,
Inc., PBHG Insurance Series Fund, Inc., The Pillar Funds, SEI Asset Allocation
Trust, SEI Daily Income Trust, SEI Index Funds, SEI Institutional International
Trust, SEI Institutional Investments Trust, SEI Institutional Managed Trust, SEI
Liquid Asset Trust, SEI Tax Exempt Trust, STI Classic Funds, STI Classic
Variable Trust, TIP Funds and Alpha Select Funds.
S-15
<PAGE>
The Administrator will not be required to bear expenses of any Fund to an
extent which would result in the Fund's inability to qualify as a regulated
investment company under provisions of the Code. The term "expenses" is defined
in such laws or regulations, and generally excludes brokerage commissions,
distribution expenses, taxes, interest and extraordinary expenses.
For the fiscal period beginning November 1, 1997 and ended October 31, 1998,
the MDL Funds paid administration fees of $ .
THE DISTRIBUTOR
SEI Investments Distribution Co. (the "Distributor"), a wholly-owned
subsidiary of SEI, and the Trust are parties to a distribution agreement (the
"Distribution Agreement"). The Distributor will not receive compensation for
distribution of shares of the Fund.
The Distribution Agreement shall remain in effect for a period of two years
after the effective date of the agreement and is renewable annually. The
Distribution Agreement may be terminated by the Distributor, by a majority vote
of the Trustees who are not interested persons and have no financial interest in
the Distribution Agreement or by a majority vote of the outstanding securities
of the Trust upon not more than 60 days' written notice by either party or upon
assignment by the Distributor.
No compensation is paid to the Distributor for distribution services for the
shares of the Fund.
THE TRANSFER AGENT
DST Systems, Inc., 330 W. 9th Street, Kansas City, MO 64105 serves as the
Trust's transfer agent.
THE CUSTODIAN
First Union National Bank, Broad and Chestnut Streets, P.O. Box 7618,
Philadelphia, Pennsylvania 19101 acts as custodian (the "Custodian") of the
Trust. The Custodian holds cash, securities and other assets of the Trust as
required by the 1940 Act.
INDEPENDENT PUBLIC ACCOUNTANTS
Arthur Andersen LLP serves as independent public accountants for the Trust.
LEGAL COUNSEL
Morgan, Lewis & Bockius LLP 1800 M Street, N.W., Washington, D.C. serves as
legal counsel to the Trust.
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. The Trustees have approved
contracts under which, as described above, certain companies provide essential
management services to the Trust. The Trust pays the 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, Armada Funds, Bishop
Street Funds, Boston 1784 Funds-Registered Trademark-, CrestFunds, Inc., CUFUND,
The Expedition Funds, First American Funds, Inc., First American Investment
Funds, Inc., First American Strategy Funds, Inc., HighMark Funds, Monitor Funds,
Oak Associates Funds, The PBHG Funds, Inc.,
S-16
<PAGE>
PBHG Advisor Funds, Inc., PBHG Insurance Series Fund, Inc., The Pillar Funds,
SEI Asset Allocation Trust, SEI Daily Income Trust, SEI Index Funds, SEI
Institutional International Trust, SEI Institutional Investments Trust, SEI
Institutional Managed Trust, SEI Liquid Asset Trust, SEI Tax Exempt Trust, STI
Classic Funds, STI Classic Variable Trust, TIP Funds and Alpha Select Funds,
each of which is an open-end management investment company managed by SEI
Investments Mutual Funds Services or its affiliates and, except for PBHG Advisor
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, 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
Institutional International Trust, SEI Liquid Asset Trust and SEI Tax Exempt
Trust.
JOHN T. COONEY (DOB 01/20/27)--Trustee**--Vice Chairman of Ameritrust Texas
N.A., 1989-1992, and MTrust Corp., 1985-1989. Trustee of The Arbor Fund, The
Expedition Funds, and Oak Associates Funds.
WILLIAM M. DORAN (DOB 05/26/40)--Trustee*--1701 Market Street, Philadelphia,
PA 19103-2921. Partner, Morgan, Lewis & Bockius LLP (law firm), counsel to the
Trust, SEI Investments, the Administrator and the Distributor. Director and
Secretary of SEI Investments and Secretary of the Administrator and the
Distributor. Trustee of The Arbor Fund, The Expedition Funds, Oak Associates
Funds, SEI Asset Allocation Trust, SEI Daily Income Trust, SEI Index Funds, SEI
Institutional Investments Trust, SEI Institutional Managed Trust, SEI
Institutional International Trust, SEI Liquid Asset Trust and SEI Tax Exempt
Trust.
ROBERT A. PATTERSON (DOB 11/05/27)--Trustee**--Pennsylvania State
University, Senior Vice President, Treasurer (Emeritus). Financial and
Investment Consultant, Professor of Transportation (1984-present). Vice
President-Investments, Treasurer, Senior Vice President (Emeritus) (1982-1984).
Director, Pennsylvania Research Corp.; Member and Treasurer, Board of Trustees
of Grove City College. Trustee of The Arbor Fund, The Expedition Funds 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 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, Oak Associates Funds, SEI Asset Allocation Trust, SEI Daily Income Trust,
SEI Index Funds, SEI Institutional Investments Trust, SEI Institutional Managed
Trust, SEI Institutional International Trust, SEI Liquid Asset Trust and SEI Tax
Exempt Trust.
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.
JAMES R. FOGGO (DOB 06/30/64)--Vice President and Assistant Secretary--Vice
President and Assistant Secretary of the Administrator and the Distributor since
1998. Associate, Paul Weiss, Rifkind, Wharton & Garrison (law firm), 1998.
Associate, Baker & McKenzie (law firm), 1995-1998. Associate, Battle Fowler
L.L.P. (law firm), 1993-1995. Operations Manager, The Shareholder Services
Group, Inc., 1986-1990.
S-17
<PAGE>
LYDIA A. GAVALIS (DOB 06/05/64)--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.
KATHY HEILIG (DOB 12/21/58)--Vice President and Assistant
Secretary--Treasurer of SEI Investments since 1997; Assistant Controller of SEI
Investments since 1995; Vice President of SEI Investments since 1991; Director
of Taxes of SEI Investments, 1987 to 1991. Tax Manager, Arthur Anderson LLP
prior to 1987.
JOSEPH M. O'DONNELL (DOB 11/13/54)--Vice President and Assistant
Secretary--Vice President and Assistant Secretary of the Administrator and the
Distributor since 1998. Vice President and General Counsel, FPS Services, Inc.,
1993-1997. Staff Counsel and Secretary, Provident Mutual Family of Funds,
1990-1993.
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.
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.
MARK E. NAGLE (DOB 10/20/59)--Controller and Chief Financial 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 December 1997. Vice President, Fund Accounting, BISYS Fund Services,
September 1995 to November 1996. Senior Vice President and Site Manager,
Fidelity Investments 1981 to September 1995.
JOHN H. GRADY, JR. (DOB 06/01/61)--Secretary--1701 Market Street,
Philaelphia, PA 19103-2921, Partner since 1995, Morgan, Lewis & Bockius LLP (law
firm), counsel to the Trust, SEI Investments, the Administrator and the
Distributor.
- ------------------------
* Messrs. Nesher and Doran are Trustees who may be deemed to be "interested"
persons of the MDL Funds as that term is defined in the 1940 Act.
** Messrs. Cooney, Patterson, Peters and Storey serve as members of the Audit
Committee of the MDL 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.
S-18
<PAGE>
The following table exhibits Trustee compensation for the fiscal year ended
October 31, 1998.
<TABLE>
<CAPTION>
TOTAL
COMPENSATION FROM
AGGREGATE REGISTRANT AND
COMPENSATION PENSION OR FUND COMPLEX*
FROM REGISTRANT RETIREMENT ESTIMATED PAID TO TRUSTEES
FOR THE FISCAL YEAR BENEFITS ACCRUED ANNUAL FOR THE FISCAL
ENDED OCTOBER 31, AS PART OF BENEFITS UPON YEAR ENDED
NAME OF PERSON, POSITION 1998 FUND EXPENSES RETIREMENT OCTOBER 31, 1998
- ------------------------------------------- --------------------- ------------------- ----------------- --------------------
<S> <C> <C> <C> <C>
John T. Cooney, Trustee.................... $ N/A N/A $ for services
on 1 board
Frank E. Morris, Trustee................... $ N/A N/A $ for services
on 1 board
Robert Patterson, Trustee.................. $ N/A N/A $ for services
on 1 board
Eugene B. Peters, Trustee.................. $ N/A N/A $ for services
on 1 board
James M. Storey, Esq., Trustee............. $ N/A N/A $ for services
on 1 board
William M. Doran, Esq., Trustee............ $ 0 N/A N/A $0 for services on 1
board
Robert A. Nesher, Chairman of the Board.... $ 0 N/A N/A $0 for services on 1
board
</TABLE>
- ------------------------------
* For purposes of this table, the MDL Funds are the only investment company in
the "Fund Complex."
PERFORMANCE INFORMATION
From time to time, the Trust may advertise yield and total return of the
Fixed Income Fund and the total return of the Equity 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.
PERFORMANCE COMPARISONS
The MDL Funds may periodically compare its performance to other mutual funds
tracked by mutual fund rating services, to broad groups of comparable mutual
funds, or to unmanaged indices. These comparisons may assume reinvestment of
dividends but generally do not reflect deductions for administrative and
management costs.
COMPUTATION OF YIELD
The yield of the Fixed Income Fund refers to the annualized income generated
by an investment in that Fund over a specified 30-day period. The yield is
calculated by assuming that the income generated by the investment during that
30-day period is generated in each period over one year and is shown as a
percentage of the investment. In particular, yield will be calculated according
to the following formula:
Yield = 2[((a-b)/cd+1)to the power of (6)-1], where a = dividends and
interest earned during the period; b = expenses accrued for the period (net of
reimbursement); c = the average daily number of shares 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 , the Fixed Income Fund's yield was
and the Equity Fund's yield was .
CALCULATION OF TOTAL RETURN
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
S-19
<PAGE>
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)to the power of (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 period from November 1, 1997
(commencement of operations) through October 31, 1998, the Fixed Income Fund's
total return was and the Equity Fund's total Return was .
PURCHASING SHARES
Purchases and redemptions may be made through the Distributor on a day on
which the New York Stock Exchange is open for business. Shares of the MDL Funds
are offered on a continuous basis. Currently, the holidays observed by the Trust
and the New York Stock Exchange are as follows: New Year's Day, Presidents' Day,
Martin Luther King Jr. Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving and Christmas.
REDEEMING SHARES
It is currently the Trust's policy to pay all redemptions in cash. The Trust
retains the right, however, to alter this policy to provide for redemptions in
whole or in part by a distribution in-kind of securities held by a Fund in lieu
of cash. Shareholders may incur brokerage charges on the sale of any such
securities so received in payment of redemptions. The Trust has received
exemptive relief from the Securities and Exchange Commission (the "SEC"), which
permits the Trust to make in-kind redemptions to those shareholders that are
affiliated with the MDL Funds solely by their ownership of a certain percentage
of the MDL Funds.
A Shareholder will at all times be entitled to aggregate cash redemptions
from all portfolios of the Trust during any 90-day period of up to the lesser of
$250,000 or 1% of the Trust's net assets.
The Trust reserves the right to suspend the right of redemption and/or to
postpone the date of payment upon redemption for any period on which trading on
the New York Stock Exchange is restricted, or during the existence of an
emergency (as determined by the SEC by rule or regulation) as a result of which
the disposal or valuation of the Fund's securities is not reasonably
practicable, or for such other periods as the SEC has by order permitted. The
Trust also reserves the right to suspend sales of shares of any Fund for any
period during which the New York Stock Exchange, the Adviser, the Administrator,
the Transfer Agent and/or the Custodian are not open for business.
DETERMINATION OF NET ASSET VALUE
The securities of the MDL Funds are valued by the Administrator. The
Administrator will use an independent pricing service to obtain valuations of
securities. The pricing service relies primarily on prices of actual market
transactions as well as trader quotations. However, the service may also use a
matrix system to determine valuations of fixed income securities, which system
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 additional federal income tax
considerations generally affecting the MDL Funds and their shareholders that are
not described in the MDL Funds' prospectus. No attempt is made to present a
detailed explanation of the tax treatment of the MDL Funds or their
shareholders, and the discussion here and in the MDL Funds' prospectus is not
intended as a substitute for
S-20
<PAGE>
careful tax planning. Shareholders are to consult with their tax advisors with
specific reference to their own tax situation, including their state and local
tax liabilities.
FEDERAL INCOME TAX TREATMENT OF DIVIDENDS AND DISTRIBUTIONS
The following general discussion of certain federal income tax consequences
is based on the Internal Revenue Code of 1986, as amended (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.
QUALIFICATION AS REGULATED INVESTMENT COMPANY
Each Fund intends to qualify and elect to be treated as a "regulated
investment company" ("RIC") as defined under Subchapter M of the Code. By
following such a policy, the MDL Funds expect to eliminate or reduce to a
nominal amount the federal taxes to which they may be subject.
In order to qualify as a RIC, a Fund must distribute at least 90% of its net
investment income (that generally includes dividends, taxable interest, and the
excess of net short-term capital gains over net long-term capital losses less
operating expenses) and at least 90% of its net tax exempt interest income, for
each tax year, if any, to its shareholders and also must meet several additional
requirements. Shareholders are urged to consult their tax advisors with specific
reference to their own tax situations, including their state and local tax
liabilities. Among these requirements are the following: (i) at least 90% of the
Fund's gross income each taxable year must be derived from dividends, interest,
payments with respect to securities loans, and gains from the sale or other
disposition of stock or securities, or certain other income; (ii) at the close
of each quarter of the Fund's taxable year, at least 50% of the value of its
total assets must be represented by cash and cash items, U.S. Government
securities, securities of other RICs and other securities, with such other
securities limited, in respect to any one issuer, to an amount that does not
exceed 5% of the value of the Fund's assets and that does not represent more
than 10% of the outstanding voting securities of such issuer; and (iii) at the
close of each quarter of the Fund's taxable year, not more than 25% of the value
of its assets may be invested in securities (other than U.S. Government
securities or the securities of other RICs) of any one issuer or of two or more
issuers which the Fund controls and which are engaged in the same, similar or
related trades or businesses.
The MDL Funds may make investments in securities (such as STRIPS) that bear
"original issue discount" or "acquisition discount" (collectively, "OID
Securities"). The holder of such securities is deemed to have received interest
income even though no cash payments have been received. Accordingly, OID
Securities may not produce sufficient current cash receipts to match the amount
of distributable net investment income the MDL Funds must distribute to satisfy
the Distribution Requirement. In some cases, the MDL Funds may have to borrow
money or dispose of other investments in order to make sufficient cash
distributions to satisfy the Distribution Requirement.
Although each Fund intends to distribute substantially all of its net
investment income and may distribute its capital gains for any taxable year,
each Fund will be subject to federal income taxation to the extent any such
income or gains are not distributed.
If the MDL Funds fails to qualify for any taxable year as a RIC, all of
their taxable income will be subject to tax at regular corporate income tax
rates without any deduction for distributions to shareholders and such
distributions generally will be taxable to shareholders as ordinary dividends to
the extent of a Fund's current and accumulated earnings and profits. In this
event, distributions generally will be eligible for the dividends-received
deduction for corporate shareholders.
S-21
<PAGE>
FUND DISTRIBUTIONS
Distributions of investment company taxable income will be taxable to
shareholders as ordinary income, regardless of whether such distributions are
paid in cash or are reinvested in additional Shares, to the extent of a Fund's
earnings and profits. Each Fund anticipates that it will distribute
substantially all of its investment company taxable income for each taxable
year.
Each Fund may either retain or distribute to shareholders its excess of net
long-term capital gains over net short-term capital losses ("net capital
gains"). If such gains are distributed as a capital gains distribution, they are
taxable to shareholders who are individuals at a maximum rate of 20%, regardless
of the length of time the shareholder has held shares. If any such gains are
retained, a Fund will pay federal income tax thereon.
In the case of corporate shareholders, distributions (other than capital
gains distributions) from a RIC generally qualify for the dividends-received
deduction to the extent of the gross amount of qualifying dividends received by
a Fund for the year. Generally, and subject to certain limitations, a dividend
will be treated as a qualifying dividend if it has been received from a domestic
corporation. Accordingly, it is not expected that any Fixed Income Fund
distribution will qualify for the corporate dividends-received deduction.
Conversely, distributions from the Equity Fund generally will qualify for the
corporate dividends-received deduction.
Ordinarily, investors should include all dividends as income in the year of
payment. However, dividends declared payable to shareholders of record in
December of one year, but paid in January of the following year, will be deemed
for tax purposes to have been received by the shareholder and paid by the Fund
in the year in which the dividends were declared.
Each Fund will provide a statement annually to shareholders as to the
federal tax status of distributions paid (or deemed to be paid) by the Fund
during the year, including the amount of dividends eligible for the corporate
dividends-received deduction.
SALE OR EXCHANGE OF FUND SHARES
Generally, gain or loss on the sale or exchange of a Share will be capital
gain or loss that will be long-term if the Share has been held for more than
twelve months and otherwise will be short-term. For individuals, long-term
capital gains are currently taxed at a maximum rate of 20% and short-term
capital gains are currently taxed at ordinary income tax rates. However, if a
shareholder realizes a loss on the sale, exchange or redemption of a Share held
for six months or less and has previously received a capital gains distribution
with respect to the Share (or any undistributed net capital gains of a Fund with
respect to such Share are included in determining the shareholder's long-term
capital gains), the shareholder must treat the loss as a long-term capital loss
to the extent of the amount of the prior capital gains distribution (or any
undistributed net capital gains of a Fund that have been included in determining
such shareholder's long-term capital gains). In addition, any loss realized on a
sale or other disposition of Shares will be disallowed to the extent an investor
repurchases (or enters into a contract or option to repurchase) Shares within a
period of 61 days (beginning 30 days before and ending 30 days after the
disposition of the Shares). This loss disallowance rule will apply to Shares
received through the reinvestment of dividends during the 61-day period.
In certain cases, the MDL Funds 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 failed
to certify the MDL Funds that such shareholder is not subject to backup
withholding.
If a Fund fails to qualify as a RIC for any taxable year, it will be subject
to tax on its taxable income at regular corporate rates. In such an event, all
distributions from that Fund generally would be eligible for the corporate
dividend received deduction.
S-22
<PAGE>
FEDERAL EXCISE TAX
If a Fund fails to distribute in a calendar year at least 98% of its
ordinary income for the 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 October 31 of that year (and any retained amount
from the prior calendar year), a Fund will be subject to a nondeductible 4%
Federal excise tax on the undistributed amounts. Each Fund intends to make
sufficient distributions to avoid imposition of this tax, or to retain, at most
its net capital gains and pay tax thereon.
STATE AND LOCAL TAXES
The MDL Funds are not liable for any income or franchise tax in
Massachusetts if it qualifies as a RIC for federal income tax purposes. Fund
shareholders should consult with their tax advisers regarding the state and
local tax consequences of investments in the MDL Funds.
FUND TRANSACTIONS
The MDL 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 MDL 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 MDL Funds will not necessarily be paying
the lowest spread or commission available.
The money market instruments in which the Fund invests are traded primarily
in the over-the-counter market. Bonds and debentures are usually traded
over-the-counter, but may be traded on an exchange. Where possible, the Adviser
will deal directly with the dealers who make a market in the securities involved
except in those circumstances where better prices and execution are available
elsewhere. Such dealers usually are acting as principal for their own account.
On occasion, securities may be purchased directly from the issuer. Money market
instruments are generally traded on a net basis and do not normally involve
either brokerage commissions or transfer taxes. The cost of executing portfolio
securities transactions of the MDL Funds will primarily consist of dealer
spreads and underwriting commissions.
TRADING PRACTICES AND BROKERAGE
The Trust selects brokers or dealers to execute transactions for the
purchase or sale of portfolio securities on the basis of its judgment of their
professional capability to provide the service. The primary consideration is to
have brokers or dealers provide transactions at best price and execution for the
Trust. Best price and execution includes many factors, including the price paid
or received for a security, the commission charged, the promptness and
reliability of execution, the confidentiality and placement accorded the order
and other factors affecting the overall benefit obtained by the account on the
transaction. The Trust's determination of what are reasonably competitive rates
is based upon the professional knowledge of its trading department as to rates
paid and charged for similar transactions throughout the securities industry. In
some instances, the Trust pays a minimal share transaction cost when the
transaction presents no difficulty. Some trades are made on a net basis where
the Trust either buys securities directly from the dealer or sells them to the
dealer. In these instances, there is no direct commission charged but there is a
spread (the difference between the buy and sell price) which is the equivalent
of a commission.
The Trust may allocate out of all commission business generated by the fund
and accounts under management by the Adviser, brokerage business to brokers or
dealers who provide brokerage and research services. These research services
include advice, either directly or through publications or writings, as to
S-23
<PAGE>
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. Such services are used by the Adviser in connection with its
investment decision-making process with respect to one or more funds and
accounts managed by it, and may not be used exclusively with respect to the fund
or account generating the brokerage.
As provided in the Securities Exchange Act of 1934 (the "1934 Act") higher
commissions may be paid to broker-dealers who provide brokerage and research
services than to broker-dealers who do not provide such services if such higher
commissions are deemed reasonable in relation to the value of the brokerage and
research services provided. Although transactions are directed to broker-dealers
who provide such brokerage and research services, the Trust believes that the
commissions paid to such broker-dealers are not, in general, higher than
commissions that would be paid to broker-dealers not providing such services and
that such commissions are reasonable in relation to the value of the brokerage
and research services provided. In addition, portfolio transactions which
generate commissions or their equivalent are directed to broker-dealers who
provide daily portfolio pricing services to the Trust. Subject to best price and
execution, commissions used for pricing may or may not be generated by the funds
receiving the pricing service.
The Adviser may place a combined order for two or more accounts or funds
engaged in the purchase or sale of the same security if, in its judgment, joint
execution is in the best interest of each participant and will result in best
price and execution. Transactions involving commingled orders are allocated in a
manner deemed equitable to each account or fund. It is believed that the ability
of the accounts to participate in volume transactions will generally be
beneficial to the accounts and funds. Although it is recognized that, in some
cases, the joint execution of orders could adversely affect the price or volume
of the security that a particular account or the MDL Funds may obtain, it is the
opinion of the Adviser and the Trust's Board of Trustees that the advantages of
combined orders outweigh the possible disadvantages of separate transactions.
Consistent with the Conduct Rules of the National Association of Securities
Dealers, Inc., and subject to seeking best price and execution, the MDL Funds,
at the request of the Distributor, give consideration to sales of shares of the
Trust as a factor in the selection of brokers and dealers to execute Trust
portfolio transactions.
It is expected that the MDL Funds may execute brokerage or other agency
transactions through the Distributor, which is a registered broker-dealer, for a
commission in conformity with the 1940 Act, the Securities Exchange Act of 1934
and rules promulgated by the SEC. Under these provisions, the Distributor is
permitted to receive and retain compensation for effecting portfolio
transactions for the MDL Funds on an exchange if a written contract is in effect
between the Distributor and the Trust expressly permitting the Distributor to
receive and retain such compensation. These rules further require that
commissions paid to the Distributor by the MDL Funds for exchange transactions
not exceed "usual and customary" brokerage commissions. The rules define "usual
and customary" commissions to include amounts which are "reasonable and fair
compared to the commission, fee or other remuneration received or to be received
by other brokers in connection with comparable transactions involving similar
securities being purchased or sold on a securities exchange during a comparable
period of time." The Trustees, including those who are not "interested persons"
of the Trust, have adopted procedures for evaluating the reasonableness of
commissions paid to the Distributor and will review these procedures
periodically.
S-24
<PAGE>
For the fiscal period beginning November 1, 1997 and ended October 31, 1998,
the following commissions were paid on brokerage transactions, pursuant to an
agreement or understanding, to brokers because of research services provided by
the brokers:
<TABLE>
<CAPTION>
TOTAL DOLLAR AMOUNT
OF TRANSACTIONS
TOTAL DOLLAR AMOUNT INVOLVING
OF BROKERAGE DIRECTED BROKERAGE
COMMISSIONS FOR COMMISSIONS FOR
FUND RESEARCH SERVICES RESEARCH SERVICES
- ---------------------------------------------------------- ------------------- -----------------------
<S> <C> <C>
Fixed Income Fund......................................... $ $
Equity Fund............................................... $ $
</TABLE>
For the fiscal period beginning November 1, 1997 and ended October 31, 1998,
the MDL Funds paid $ on total brokerage commissions and paid $ to
SEI Investments.
For the fiscal period beginning November 1, 1997 and ended October 31, 1998,
the MDL Funds paid the following brokerage commissions:
<TABLE>
<CAPTION>
TOTAL $ AMOUNT % OF TOTAL % OF TOTAL
OF BROKERAGE BROKERAGE BROKERAGE
TOTAL $ AMOUNT COMMISSIONS COMMISSIONS TRANSACTIONS
OF BROKERAGE PAID TO PAID TO EFFECTED THROUGH
COMMISSIONS AFFILIATED THE AFFILIATED AFFILIATED
FUND PAID BROKERS BROKERS BROKERS
- ---------------------------------- -------------- -------------- --------------------- -------------------
<S> <C> <C> <C> <C>
Fixed Income Fund................. $ $ % %
Equity Fund....................... $ $ % %
</TABLE>
Since the Trust does not market its shares through intermediary brokers or
dealers, it is not the Trust's practice to allocate brokerage or principal
business on the basis of sales of its shares which may be made through such
firms. However, the Adviser may place portfolio orders with qualified
broker-dealers who recommend the MDL Funds' shares to clients, and may, when a
number of brokers and dealers can provide best net results on a particular
transaction, consider such recommendations by a broker or dealer in selecting
among broker-dealers.
The MDL Funds are required to identify any securities of its "regular
brokers or dealers" (as such term is defined in the 1940 Act, which the MDL
Funds have acquired during its most recent fiscal year. For the fiscal period
beginning November 1, 1997 and ended October 31, 1998, the MDL Funds .
The portfolio turnover rate for the Fixed Income and Equity Funds for the
period from November 1, 1997 to October 31, 1998 was % and %,
respectively.
DESCRIPTION OF SHARES
The Declaration of Trust authorizes the issuance of an unlimited number of
portfolios and shares of each portfolio, each of which represents an equal
proportionate interest in the portfolio with each other share. Shares are
entitled upon liquidation to a pro rata share in the net assets of the
portfolio. Shareholders have no preemptive rights. The Declaration of Trust
provides that the Trustees of the Trust may create additional series of shares.
All consideration received by the Trust for shares of any additional series and
all assets in which such consideration is invested would belong to that series
and would be subject to the liabilities related thereto. Share certificates
representing shares will not be issued.
SHAREHOLDER LIABILITY
The Trust is an entity of the type commonly known as a "Massachusetts
business trust." Under Massachusetts law, shareholders of such a trust could,
under certain circumstances, be held personally liable as partners for the
obligations of the trust. Even if, however, the Trust were held to be a
partnership, the possibility of the shareholders incurring financial loss for
that reason appears remote because the Trust's Declaration of Trust contains an
express disclaimer of shareholder liability for obligations of the
S-25
<PAGE>
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.
YEAR 2000
The Trust depends on the smooth functioning of computer systems in almost
every aspect of its business. Like other mutual funds, businesses and
individuals around the world, the Trust could be adversely affected if the
computer systems used by its service providers do not properly process dates on
and after January 1, 2000 and distinguish between the year 2000 and the year
1900. The Trust has asked its service providers whether they expect to have
their computer systems adjusted for the year 2000 transition, and received
assurances from each that its system is expected to accommodate the year 2000
without material adverse consequences to the Trust. The Trust and its
shareholders may experience losses if these assurances prove to be incorrect or
as a result of year 2000 computer difficulties experienced by issuers of
portfolio securities or third parties, such as custodians, banks, broker-dealers
or others with which the Trust does business.
5% AND 25% SHAREHOLDERS
As of February 1, 1999, the following persons were the only persons who were
record owners (or to the knowledge of the Fund, beneficial owners) of 5% and 25%
or more of the MDL Funds' shares. Persons who owned of record or beneficially
more than 25% of a Fund's outstanding shares may be deemed to control that Fund
within the meaning of the Act.
The Trust believes that most of the shares referred to above were held by
the above persons in accounts for their fiduciary, agency or custodial
customers.
EXPERTS
The financial statements incorporated by reference have been audited by
Arthur Andersen LLP, independent public accountants, as indicated in their
report with respect thereto, in reliance upon the authority of said firm as
experts in giving said reports.
FINANCIAL STATEMENTS
The financial statements for the fiscal period beginning November 1, 1997
and ended October 31, 1998, including notes thereto and the report of Arthur
Andersen LLP thereon, are herein incorporated by reference in reliance upon the
authority of said firm as experts in giving said report. A copy of the 1998
Annual Report to Shareholders must accompany the delivery of this Statement of
Additional Information.
S-26
<PAGE>
THE ADVISORS' INNER CIRCLE FUND
PROSPECTUS
MARCH 1, 1999
SAGE CORPORATE BOND FUND
INVESTMENT ADVISER: SAGE GLOBAL FUNDS, LLC
INVESTMENT SUB-ADVISER: STANDARD ASSET GROUP, INC.
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED ANY FUND SHARES OR
DETERMINED WHETHER THIS PROSPECTUS IS ACCURATE OR COMPLETE.
IT IS A CRIME FOR ANYONE TO TELL YOU OTHERWISE.
Page 1 of 17
<PAGE>
HOW TO READ THIS PROSPECTUS
This prospectus gives you important information about the SAGE Corporate Bond
Fund (Fund) that you should know before investing. Please read this prospectus
and keep it for future reference. This prospectus has been arranged into
different sections so that you can easily review this important information. On
the next page, there is some general information you should know about the Fund.
FOR MORE DETAILED INFORMATION ABOUT THE FUND, PLEASE SEE:
PRINCIPAL INVESTMENT STRATEGIES AND RISKS,
PERFORMANCE INFORMATION AND EXPENSES XXX
MORE INFORMATION ABOUT RISK XXX
THE FUND'S OTHER INVESTMENTS XXX
THE INVESTMENT ADVISER, SUB-ADVISER AND FUND MANAGER XXX
PURCHASING AND SELLING FUND SHARES XXX
DIVIDENDS, DISTRIBUTIONS AND TAXES XXX
FINANCIAL HIGHLIGHTS XXX
HOW FUND SHARES ARE DISTRIBUTED XXX
HOW TO OBTAIN MORE INFORMATION ABOUT THE
SAGE CORPORATE BOND FUND XXX
Page 2 of 17
<PAGE>
Introduction
The Fund is a mutual fund. A mutual fund pools shareholders' money and, using
professional investment managers, invests it in securities.
The Fund has its own investment goal and strategies for reaching that goal. The
Adviser and Sub-Adviser invests Fund assets in a way that the Adviser and
Sub-Adviser believe will help the Fund achieve its goal. Still, investing in
the Fund involves risk and there is no guarantee that a Fund will achieve its
goal. The Adviser or Sub-Adviser's judgments about the markets, the economy, or
companies may not anticipate actual market movements, economic conditions or
company performance, and these judgments may affect the return on your
investment. In fact, no matter how good a job the Adviser or Sub-Adviser does,
you could lose money on your investment in the Fund, just as you could with
other investments.
The value of your investment in a Fund is based on the market value of the
securities the Fund holds. These prices change daily due to economic and other
events that affect particular companies and other issuers. These price
movements, sometimes called volatility, may be greater or lesser depending on
the types of securities the Fund owns and the markets in which they trade. The
effect on a Fund of a change in the value of a single security will depend on
how widely the Fund diversifies its holdings.
Page 3 of 17
<PAGE>
SAGE Corporate Bond Fund
Fund Summary
Investment Goal High level of current income
consistent with preservation of
capital
Investment Focus U.S. corporate bonds
Share Price Volatility Low to medium
Principal Investment Strategy Invests primarily in investment grade
corporate bonds denominated in U.S.
dollars
Investor Profile Investors who seek a high level of
current income consistent with
preservation of capital. Investors
should, nevertheless expect the Fund's
net asset value per share to
fluctuate.
INVESTMENT STRATEGY OF THE SAGE CORPORATE BOND FUND
The Fund invests primarily in investment grade corporate bonds. The Adviser has
engaged Standard Asset Group, Inc. as sub-adviser (Sub-Adviser) to manage the
Fund on a day-to-day basis. In selecting investments for the Fund, the
Sub-Adviser uses credit research and traditional fundamental analysis to
identify companies that it believes will be utilizing their capital in a more
advantageous manner, in turn leading to credit rating upgrades. Normally, the
Fund will maintain a dollar-weighted average portfolio maturity of between four
and six years.
Page 4 of 17
<PAGE>
PRINCIPAL RISKS OF INVESTING IN THE SAGE CORPORATE BOND FUND
The prices of fixed income securities respond to economic developments,
particularly interest rate changes, as well as to perceptions about the
creditworthiness of individual issuers, including governments. Generally,
fixed income securities decrease in value if interest rates rise and vice versa.
Also, longer-term securities are generally more volatile, so the average
maturity or duration of these securities affects risk.
The Fund is also subject to the risk that its market segment, corporate fixed
income securities, may underperform other fixed income market segments or the
fixed income markets as a whole.
Performance Information
The bar chart and the performance table below illustrate the risks and
volatility of an investment in the Fund. Of course, the fund's past performance
does not necessarily indicate how the fund will perform in the future.
This bar chart shows changes in the performance of the Fund.
THIS TABLE COMPARES THE FUND'S AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS
ENDING DECEMBER 31, 1998 TO THOSE OF THE LEHMAN BROTHERS INTERMEDIATE
GOVERNMENT/CORPORATE BOND INDEX.
<TABLE>
<CAPTION>
SINCE
1 YEAR INCEPTION
<S> <C> <C>
SAGE CORPORATE BOND FUND X.XX% X.XX%
LEHMAN BROTHERS INTERMEDIATE
GOVERNMENT/CORPORATE BOND INDEX X.XX% X.XX%
</TABLE>
WHAT IS AN INDEX?
An index measures the market prices of a specific group of securities in a
particular market or securities in a market sector. You cannot invest directly
in an index. Unlike a mutual fund, an
Page 5 of 17
<PAGE>
index does not have an investment adviser and does not pay any commissions or
expenses. If an index had expenses, its performance would be lower.
The Lehman Brothers Intermediate Government/Corporate Bond Index is a
widely-recognized, market value-weighted (higher market value stocks have more
influence than lower market value stocks) index of U.S. Treasury securities,
U.S. government agency obligations, corporate debt backed by the U. S.
government, fixed-rate nonconvertible corporate debt securities, Yankee bonds
and nonconvertible debt securities issued by or guaranteed by foreign
governments and agencies. All securities in the index are rated investment grade
(BBB) or higher, with maturities of 1 to 10 years.
SAGE Corporate Bond Fund
FUND FEES AND EXPENSES
THIS TABLE DESCRIBES THE SHAREHOLDER FEES THAT YOU MAY PAY IF YOU PURCHASE OR
SELL FUND SHARES. YOU WOULD PAY THESE FEES DIRECTLY FROM YOUR INVESTMENT IN THE
FUND.
<TABLE>
<S> <C>
Maximum Sales Charge (Load) Imposed on
Purchases (as a percentage of offering
price) None
- -------------------------------------------------------------------------------
Maximum Deferred Sales Charge (Load) (as a None
percentage of net asset value)
- -------------------------------------------------------------------------------
Maximum Sales Charge (Load) Imposed on None
Reinvested Dividends and other
Distributions (as a percentage of offering
price)
- -------------------------------------------------------------------------------
Redemption Fee None
</TABLE>
EVERY MUTUAL FUND HAS OPERATING EXPENSES TO PAY FOR SERVICES SUCH AS
PROFESSIONAL ADVISORY, SHAREHOLDER, DISTRIBUTION, ADMINISTRATION AND CUSTODY
SERVICES AND OTHER COSTS OF DOING BUSINESS. THIS TABLE DESCRIBES THE HIGHEST
FEES AND EXPENSES THAT YOU MAY PAY INDIRECTLY IF YOU HOLD SHARES OF THE FUND.
Page 6 of 17
<PAGE>
ANNUAL FUND OPERATING EXPENSES
<TABLE>
<S> <C>
.XX%
Investment Advisory Fees
Other Expenses .XX%
- -----------------------------------------------------------------------------
Total Annual Fund Operating Expenses X.XX%
</TABLE>
The table shows the highest expenses that could be currently charged to the
Fund. Actual expenses are lower because the Adviser is voluntarily waiving a
portion of its fees. Actual Investment Advisory Fees and Total Operating
Expenses are [ %] and [ %], respectively. The Adviser could discontinue
these voluntary waivers at any time. For more information about these fees, see
the "Investment Adviser."
EXAMPLE
This Example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. The Example assumes that you
invest $10,000 in the Fund for the time periods indicated and that you sell your
shares at the end of the period.
The Example also assumes that each year your investment has a 5% return and Fund
expenses remain the same. Although your actual costs and returns might be
different, your approximate costs of investing $10,000 in the Fund would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C>
$XXX $XXX $XXX $XXX
</TABLE>
Page 7 of 17
<PAGE>
More Information About Risk
Fixed Income Risk - The market value of fixed
income investments change in response to
interest rate changes and other factors.
During periods of falling interest rates, the
values of outstanding fixed income securities
generally rise. Moreover, while securities
with longer maturities tend to produce higher
yields, the prices of longer maturity
securities are also subject to greater market
fluctuations as a result of changes in interest
rates. In addition to these fundamental risks,
different types of fixed income securities may
be subject to the following additional risks:
Credit Risk - The possibility that
an issuer will be unable to make
timely payments of either principal
or interest.
Event Risk - Securities may suffer
substantial declines in credit
quality and market value due to
corporate restructurings. While
this risk may be high for certain
securities held by a Fund, the
overall risk should be reduced
because of the Fund's multiple
holdings.
Year 2000 Risk - The Fund depends on the smooth
functioning of computer systems in almost every
aspect of their business. Like other mutual funds,
businesses and individuals around the world, the
Fund could be adversely affected if the computer
systems used by its service providers do not properly
process dates on and after January 1, 2000, and
distinguish between the year 2000 and the year 1900.
The Fund has asked its service providers whether they
expect to have its computer systems adjusted for the
year 2000 transition, and is seeking assurances from
each service provider that they
Page 8 of 17
<PAGE>
are devoting significant resources to prevent material
adverse consequences to the Fund. While it is likely
that such assurances will be obtained, the Fund and its
shareholders may experience losses if these assurances
prove to be incorrect or as a result of year 2000
computer difficulties experienced by issuers of portfolio
securities or third parties, such as custodians, banks,
broker-dealers or others with which the Fund does business.
THE FUND'S OTHER INVESTMENTS
In addition to the investments and strategies described in this prospectus, the
Fund also may invest in other securities, use other strategies and engage in
other investment practices, which are described in detail in our Statement of
Additional Information. Of course, we cannot guarantee that the Fund will
achieve its investment goal.
The investments and strategies described in this prospectus are those that we
use under normal conditions. During unusual economic or market conditions, or
for temporary defensive or liquidity purposes, each Fund may invest up to 100%
of its assets in cash or money market securities that would not ordinarily be
consistent with the Fund's objectives. The Fund will only do so if the Adviser
or Sub-Adviser believes that the risk of loss outweighs the opportunity for
higher income.
Page 9 of 17
<PAGE>
INVESTMENT ADVISER AND SUB-ADVISER
The Investment Adviser makes investment decisions for the Fund and continuously
reviews, supervises and administers its Fund's investment program. The Board of
Trustees supervises the Adviser and establishes policies that the Adviser must
follow in its management activities.
SAGE Global Funds, LLC, serves as the Adviser to the SAGE Corporate Bond Fund.
SAGE Global Funds, LLC is majority owned by Standard Asset Group, Inc., the
Fund's sub-adviser. As of December 31, 1998, SAGE Global Funds, LLC had
approximately ________ in assets under management. The Adviser has
contractually agreed to waive its entire advisory fee for any calendar year
which follows a calendar year in which the Fund's net asset value per share goes
down, adjusted for dividends and distributions paid to shareholders that year.
For the fiscal year ended October 31, 1998, SAGE Global Funds, LLC received
advisory fees of:
SAGE CORPORATE BOND FUND _______%
Standard Asset Group, Inc. is the majority owner of the Adviser and manages the
Fund on a day-to-day basis. Standard Asset Group, Inc. selects, buys and sells
securities for the Fund under the supervision of the Adviser and the Board of
Trustees.
The Adviser may use its affiliates as brokers for Fund transactions.
FUND MANAGER
Gordon J. Rollert has served as President of Standard Asset Group, Inc. since
1987. He has managed the SAGE Corporate Bond Fund since its inception in 1997.
He has more than 34 years of investment experience. Prior to founding Standard
Asset Group, Inc., Mr. Rollert served as a portfolio manager with Eaton Vance
and as a portfolio manager and executive officer of the following investment
advisory firms: Alliance Capital, Rollert and Sullivan, Trust Management Bank,
The Nova Fund and SAGE Advisory Services, LLC..
Page 10 of 17
<PAGE>
PURCHASING FUND SHARES
HOW TO PURCHASE FUND SHARES
You may purchase shares by:
- - Mail
- - Wire, or
- - Automated Clearing House (ACH).
You may purchase shares on any day that the New York Stock Exchange and the
Federal Reserve is open for business (a Business Day). Shares can not be
purchased by Federal Reserve Wire on days when either the New York Stock
Exchange or the Federal Reserve is closed.
To purchase shares directly from us, please complete the attached application
and enclose your check, payable in U.S. dollars, to "SAGE Corporate Bond Fund."
You may call 1-800-808-4921 to request an ACH transaction. We cannot accept
third-party checks, credit cards, credit card checks or cash. We may reject
any purchase order if we determine that accepting the order would not be in the
best interests of the Fund or its shareholders. The price per share (the
offering price) will be the net asset value per share (NAV) next determined
after we receive your purchase order.
We calculate the Fund's NAV once each Business Day at the regularly-scheduled
close of normal trading on the New York Stock Exchange (normally, 4:00 p.m.
Eastern Time) So, for you to receive the current Business Day's NAV, generally
we must receive your purchase order before 4:00 p.m. Eastern Time
How We Calculate NAV
NAV for one Fund share is the value of that share's portion of all of the assets
in the Fund.
Page 11 of 17
<PAGE>
In calculating NAV, we generally value the Fund's investment portfolio at market
price. If market prices are unavailable or we think that they are unreliable,
fair value prices may be determined in good faith using methods approved by the
Board of Trustees.
Minimum Purchases
To purchase shares for the first time, you must invest at least $2,000 for IRA
accounts and $10,000 for regular accounts in the Fund.
We may accept investments of smaller amounts at our discretion.
SELLING FUND SHARES
HOW TO SELL YOUR FUND SHARES
You may sell (sometimes called "redeem") your shares on any Business Day by
contacting us directly by mail or telephone by calling 1-800-808-4921.
The sale price of each share will be the next NAV determined after we receive
your request.
Receiving Your Money
Normally, we will send your sale proceeds within seven Business Days after we
receive your request. Your proceeds can be wired to your bank account (subject
to a $10.00 fee) or sent to you by check. IF YOU RECENTLY PURCHASED YOUR SHARES
BY CHECK OR THROUGH ACH, REDEMPTION PROCEEDS MAY NOT BE AVAILABLE UNTIL YOUR
CHECK HAS CLEARED (WHICH MAY TAKE UP TO 15 BUSINESS DAYS).
Redemptions in Kind
We generally pay sale (redemption) proceeds in cash. However, under unusual
conditions that make the payment of cash unwise (and for the protection of the
Fund's remaining shareholders) we might pay all or part of your redemption
proceeds in liquid securities with a market value equal to the redemption price
(redemption in kind). It is highly unlikely that your shares would ever be
redeemed in kind, but if they were you would probably have to pay transaction
costs to
Page 12 of 17
<PAGE>
sell the securities distributed to you, as well as taxes on any capital gains
from the sale as with any redemption.
INVOLUNTARY SALES OF YOUR SHARES
If your account balance drops below $10,000 because of redemptions for a regular
account, you may be required to sell your shares. But, we will give you at
least 60 days' written notice to give you time to add to your account and avoid
the sale of your shares.
SUSPENSION OF YOUR RIGHT TO SELL YOUR SHARES
We may suspend your right to sell your shares if the NYSE restricts trading, the
SEC declares an emergency or for other reasons. More information about this is
in our Statement of Additional Information.
TELEPHONE TRANSACTIONS
Purchasing and selling Fund shares over the telephone is extremely convenient,
but not without risk. Although we have certain safeguards and procedures to
confirm the identity of callers and the authenticity of instructions, we are not
responsible for any losses or costs incurred by following telephone instructions
we reasonably believe to be genuine. If you or your financial institution
transact with us over the telephone, you will generally bear the risk of any
loss.
Page 13 of 17
<PAGE>
OTHER INFORMATION
Dividends and Distributions
The Fund distributes its income on the first Business Day of each quarter and
makes distributions of capital gains, if any, at least annually. If you own
Fund shares on a Fund's record date, you will be entitled to receive the
distribution.
You will receive dividends and distributions in the form of additional Fund
shares unless you elect to receive payment in cash. To elect cash payment, you
must notify us in writing prior to the date of the distribution. Your election
will be effective for dividends and distributions paid after we receive your
written notice. To cancel your election, simply send us written notice.
Taxes
PLEASE CONSULT YOUR TAX ADVISER REGARDING YOUR SPECIFIC QUESTIONS ABOUT FEDERAL,
STATE AND LOCAL INCOME TAXES. Below we have summarized some important tax issues
that affect the Funds and their shareholders. This summary is based on current
tax laws, which may change.
The Fund will distribute substantially all of its income and capital gains, if
any. The dividends and distributions you receive may be subject to federal,
state and local taxation, depending upon your tax situation. Distributions you
receive from the Fund may be taxable whether or not you reinvest them. Capital
gains distributions may be taxable at different rates depending on the length of
time the Fund holds its portfolio securities. YOU MAY BE TAXED ON EACH SALE OF
FUND SHARES.
MORE INFORMATION ABOUT TAXES IS IN OUR STATEMENT OF ADDITIONAL INFORMATION.
Page 14 of 17
<PAGE>
FINANCIAL HIGHLIGHTS
The table that follows presents performance information about the Fund. This
information is intended to help you understand the Fund's financial performance
for the past five years, or, if shorter, the period of the Fund's operations.
Some of this information reflects financial information for a single Fund share.
The total returns in the table represent the rate that you would have earned (or
lost) on an investment in the Fund, assuming you reinvested all of your
dividends and distributions.
This information has been audited by Arthur Andersen LLP, independent public
accountants. Their report, along with the Fund's financial statements, appears
in the annual report that accompanies our Statement of Additional Information.
You can obtain the annual report, which contains more performance information,
at no charge by calling 1-888-227-0595.
Page 15 of 17
<PAGE>
THE ADVISORS' INNER CIRCLE FUND
SAGE CORPORATE BOND FUND
INVESTMENT ADVISER
SAGE Global Funds, LLC
55 William Street
Wellesley, Massachusetts 02481
DISTRIBUTOR
SEI Investments Distribution Co.
One Freedom Valley Drive
Oaks, Pennsylvania 19456
LEGAL COUNSEL
Morgan, Lewis & Bockius LLP
1800 M Street, N.W.
Washington, DC 20036
More information about the Fund is available without charge through the
following:
STATEMENT OF ADDITIONAL INFORMATION (SAI)
- ---------------------------------------- --------------------------------------
Our SAI dated March 1, 1999, includes detailed information about The Advisors'
Inner Circle Fund and the SAGE Corporate Bond Fund. The SAI is on file with the
SEC and is incorporated by reference into this prospectus. This means that the
SAI, for legal purposes, is a part of this prospectus.
ANNUAL AND SEMI-ANNUAL REPORTS
- ------------------------------ --------------------------------------
These reports list the Fund's holdings and contain information from the Fund's
managers about strategies, and recent market conditions and trends. The reports
also contain detailed financial information about the Fund.
<PAGE>
TO OBTAIN MORE INFORMATION:
BY TELEPHONE: Call 1-800-808-4921
BY MAIL: Write to us
SAGE Corporate Bond Fund
c/o The Advisors' Inner Circle Fund
P.O. Box 419009
Kansas City, Missouri 64141-6009
FROM THE SEC: You can also obtain the SAI or the Annual and Semi-annual
reports, as well as other information about The Advisors' Inner Circle Fund,
from the SEC's website ("HTTP://WWW.SEC.GOV"). You may review and copy documents
at the SEC Public Reference Room in Washington, DC (for information call
1-800-SEC-0330). You may request documents by mail from the SEC, upon payment
of a duplicating fee, by writing to: Securities and Exchange Commission, Public
Reference Section, Washington, DC 20549-6009. The Fund's Investment Company Act
registration number is 811-6400.
<PAGE>
TRUST:
THE ADVISORS' INNER CIRCLE FUND
Fund:
Sage Corporate Bond Fund
Investment Adviser:
Sage Global Funds, LLC
This STATEMENT OF ADDITIONAL INFORMATION is not a prospectus and relates
only to the SAGE Corporate Bond Fund (the "Fund"). It is intended to provide
additional information regarding the activities and operations of The Advisors'
Inner Circle Fund (the "Trust") and the Fund and should be read in conjunction
with the Fund's Prospectus dated March 1, 1999. The Prospectus for the Fund may
be obtained by calling 1-888-227-0595.
TABLE OF CONTENTS
<TABLE>
<S> <C>
The Trust................................................................. S-2
Investment Objective and Policies......................................... S-2
Description of Permitted Investments...................................... S-3
Investment Limitations.................................................... S-9
The Adviser............................................................... S-10
The Sub-Adviser........................................................... S-11
The Administrator......................................................... S-12
The Distributor........................................................... S-13
The Transfer Agent........................................................ S-13
The Custodian............................................................. S-13
Independent Public Accountants............................................ S-13
Legal Counsel............................................................. S-13
Trustees and Officers of the Trust........................................ S-13
Performance Information................................................... S-16
Computation of Yield...................................................... S-16
Calculation of Total Return............................................... S-16
Purchasing Shares......................................................... S-17
Redeeming Shares.......................................................... S-17
Determination of Net Asset Value.......................................... S-17
Taxes..................................................................... S-17
Fund Transactions......................................................... S-19
Trading Practices and Brokerage........................................... S-20
Description of Shares..................................................... S-21
Shareholder Liability..................................................... S-22
Limitation of Trustees' Liability......................................... S-22
Year 2000................................................................. S-22
5% and 25% Shareholders................................................... S-22
Experts................................................................... S-23
Financial Statements...................................................... S-23
</TABLE>
March 1, 1999
[SAG-F-002-01]
<PAGE>
THE TRUST
This Statement of Additional Information relates only to the SAGE Corporate
Bond Fund (the "Fund"). The Fund is a separate series of The Advisors' Inner
Circle Fund (the "Trust"), an open-end investment management company established
under Massachusetts law as a Massachusetts business trust under a Declaration of
Trust dated July 18, 1991. The Declaration of Trust permits the Trust to offer
separate series ("portfolios") of shares of beneficial interest ("shares"). Each
portfolio is a separate mutual fund, and each share of each portfolio represents
an equal proportionate interest in that portfolio. See "Description of Shares."
No investment in shares of a portfolio should be made without first reading that
portfolio's prospectus. Capitalized terms not defined herein are defined in the
Prospectus offering shares of the Fund.
The Fund pays its (i) operating expenses, including fees of its service
providers, expenses of preparing prospectuses, proxy solicitation material and
reports to shareholders, costs of custodial services and registering its shares
under federal and state securities laws, pricing and insurance expenses and pays
additional expenses, brokerage costs, interest charges, taxes and organization
expenses and (ii) pro rata share of the Trust's other expenses, including audit
and legal expenses. The Fund's expense ratios are disclosed under "Fund Fees and
Expenses" in the Prospectus.
INVESTMENT OBJECTIVE AND POLICIES
The Fund seeks a high level of current income consistent with preservation
of capital by investing in a portfolio of investment grade corporate bonds that,
in the Adviser's or Sub-Adviser's opinion, will maintain an already established
credit rating or will benefit from an improvement in the issuer's credit rating.
There can be no assurance that the Fund will be able to achieve its investment
objective.
Under normal conditions the Fund will invest at least 80% of its total
assets in corporate bonds rated in one of the four highest rating categories
("investment grade") by a nationally recognized statistical rating organization
(an "NRSRO") or that the Sub-Adviser determines are of comparable quality.
Additional securities in which the Fund may invest consist of: (i) U.S.
Government securities; (ii) mortgage-backed securities, including collateralized
mortgage obligations and real estate mortgage investment conduits; (iii)
floating or variable rate securities; (iv) U.S. dollar denominated fixed income
securities issued by U.S. or foreign corporations or issued or guaranteed by
foreign governments, their political subdivisions, agencies or
instrumentalities; (v) U.S. dollar denominated obligations of supranational
entities; (vi) short term bank obligations; (vii) commercial paper; (viii) asset
backed securities; (ix) loan participations; (x) preferred stock that is rated
investment grade quality by an NRSRO or determined to be of comparable quality
by the Sub-Adviser; and (xi) repurchase agreements. The Fund may invest in
foreign securities in the form of depositary receipts. The Fund may engage in
reverse repurchase agreements with banks and dealers in amounts up to 33 1/3% of
the Fund's total assets at the time the Fund enters into the agreements, and may
purchase securities on a when-issued basis.
The Sub-Adviser seeks to identify investment grade corporate bonds where a
credit rating improvement is likely. The Sub-Adviser's research is company
specific and similar in nature to the traditional fundamental research used to
make common stock selections. Companies chosen as rating upgrade candidates are
placed on the Sub-Adviser's "upgrade list" and purchases are made when
intermediate maturity issues become available at an advantageous price.
Individual decisions are made on a "buy to hold" basis. A credit downgrade will
trigger a sell decision automatically. Securities rated in the lowest category
of investment grade securities have speculative characteristics.
Normally, the Fund will maintain a dollar-weighted average portfolio
maturity of between four and six years. There are no restrictions on the
maturity of any single instrument. For temporary defensive purposes when the
Sub-Adviser determines that market conditions warrant, the Fund may also invest
up to 100% of its assets in money market securities or hold cash.
S-2
<PAGE>
The phrase "principally invests" as used in the prospectus means that the
Fund invests at least 65% of its assets in the securities as described in the
sentence.
DESCRIPTION OF PERMITTED INVESTMENTS
AMERICAN DEPOSITARY RECEIPTS ("ADRs")
ADRs are securities, typically issued by a U.S. financial institution (a
"depositary"), that evidence ownership interests in a security or a pool of
securities issued by a foreign issuer and deposited with the depositary. ADRs
may be available through "sponsored" or "unsponsored" facilities. A sponsored
facility is established jointly by the issuer of the security underlying the
receipt and a depositary, whereas, an unsponsored facility may be established by
a depositary without participation by the issuer of the underlying security.
Holders of unsponsored depositary receipts generally bear all the costs of the
unsponsored facility. The depositary of an unsponsored facility frequently is
under no obligation to distribute shareholder communications received from the
issuer of the deposited security or to pass through, to the holders of the
receipts, voting rights with respect to the deposited securities.
ASSET-BACKED SECURITIES
Asset-backed securities are securities backed by non-mortgage assets such as
company receivables, truck and auto loans, leases and credit card receivables.
Other asset-backed securities may be created in the future. These securities may
be traded over-the-counter and typically have a short-intermediate maturity
structure depending on the paydown characteristics of the underlying financial
assets which are passed through to the security holder. These securities are
generally issued as pass-through certificates, which represent undivided
fractional ownership interests in the underlying pool of assets. Asset-backed
securities may also be debt obligations, which are known as collateralized
obligations and are generally issued as the debt of a special purpose entity,
such as a trust, organized solely for the purpose of owning these assets and
issuing debt obligations.
Asset-backed securities are not issued or guaranteed by the U.S. Government,
its agencies or instrumentalities; however, the payment of principal and
interest on such obligations may be guaranteed up to certain amounts and, for a
certain period, by a letter of credit issued by a financial institution (such as
a bank or insurance company) unaffiliated with the issuers of such securities.
The purchase of asset-backed securities raises risk considerations peculiar to
the financing of the instruments underlying such securities. For example, there
is a risk that another party could acquire an interest in the obligations
superior to that of the holders of the asset-backed securities. There also is
the possibility that recoveries on repossessed collateral may not, in some
cases, be available to support payments on those securities.
Asset-backed securities entail prepayment risk, which may vary depending on
the type of asset, but is generally less than the prepayment risk associated
with mortgage-backed securities. In addition, credit card receivables are
unsecured obligations of the card holder.
The market for asset-backed securities is at a relatively early stage of
development. Accordingly, there may be a limited secondary market for such
securities.
THE EURO
On January 1, 1999, the European Monetary Union (EMU) plans to implement a
new currency unit, the Euro, which is expected to reshape financial markets,
banking systems and monetary policies in Europe and other parts of the world.
The countries initially expected to convert or tie their currencies to the Euro
include Austria, Belgium, France, Germany, Luxembourg, the Netherlands, Ireland,
Finland, Italy, Portugal, and Spain. Implementation of this plan will mean that
financial transactions and market information, including share quotations and
company accounts, in participating countries will be denominated in Euros.
Approximately 46% of the stock exchange capitalization of the total European
market may be reflected in
S-3
<PAGE>
Euros, and participating governments will issue their bonds in Euros. Monetary
policy for participating countries will be uniformly managed by a new central
bank, the European Central Bank (ECB).
Although it is not possible to predict the impact of the Euro implementation
plan on the Fund, the transition to the Euro may change the economic environment
and behavior of investors, particularly in European markets. For example,
investors may begin to view those countries participating in the EMU as a single
entity, and the Adviser may need to adapt investment strategies accordingly. The
process of implementing the Euro also may adversely affect financial markets
worldwide and may result in changes in the relative strength and value of the
U.S. dollar or other major currencies, as well as possible adverse tax
consequences. The transition to the Euro is likely to have a significant impact
on fiscal and monetary policy in the participating countries and may produce
unpredictable effects on trade and commerce generally. These resulting
uncertainties could create increased volatility in financial markets world-wide.
INVESTMENT COMPANY SECURITIES
The Fund may invest up to 10% of its total assets in shares of other
investment companies that invest exclusively in those securities in which the
Fund may invest directly. These investment companies typically incur fees that
are separate from those fees incurred directly by the Fund. The Fund's purchase
of such investment company securities results in the layering of expenses, such
that shareholders would indirectly bear a proportionate share of the operating
expenses of such investment companies, including advisory fees, in addition to
paying Fund expenses. Under applicable regulations, the Fund is prohibited from
acquiring the securities of another investment company if, as a result of such
acquisition: (1) the Fund owns more than 3% of the total voting stock of the
other company; (2) securities issued by any one investment company represent
more than 5% of the Fund's total assets; or (3) securities (other than treasury
stock) issued by all investment companies represent more than 10% of the total
assets of the Fund.
MORTGAGE-BACKED SECURITIES
Mortgage-backed securities are instruments that entitle the holder to a
share of all interest and principal payments from mortgages underlying the
security. The mortgages backing these securities include conventional
thirty-year fixed rate mortgages, graduated payment mortgages and adjustable
rate mortgages. During periods of declining interest rates, prepayment of
mortgages underlying mortgage-backed securities can be expected to accelerate.
Prepayment of mortgages which underlie securities purchased at a premium often
results in capital losses, while prepayment of mortgages purchased at a discount
often results in capital gains. Because of these unpredictable prepayment
characteristics, it is often not possible to predict accurately the average life
or realized yield of a particular issue.
GOVERNMENT PASS-THROUGH SECURITIES
These are securities that are issued or guaranteed by a U.S.
Government agency representing an interest in a pool of mortgage loans.
The primary issuers or guarantors of these mortgage-backed securities are
the Government National Mortgage Association ("GNMA"), Fannie Mae, and
the Federal Home Loan Mortgage Corporation ("FHLMC"). Fannie Mae and
FHLMC obligations are not backed by the full faith and credit of the U.S.
Government as GNMA certificates are, but Fannie Mae and FHLMC securities
are supported by the instrumentalities' right to borrow from the U.S.
Treasury. GNMA, Fannie Mae, and FHLMC each guarantees timely
distributions of interest to certificate holders. GNMA and Fannie Mae
also guarantee timely distributions of scheduled principal. In the past,
FHLMC has only guaranteed the ultimate collection of principal of the
underlying mortgage loan; however, FHLMC now issues mortgage-backed
securities (FHLMC Gold PCS) which also guarantee timely payment of
monthly principal reductions. Government and private guarantees do not
extend to the securities' value, which is likely to vary inversely with
fluctuations in interest rates.
S-4
<PAGE>
Obligations of GNMA are backed by the full faith and credit of the
United States Government. Obligations of Fannie Mae and FHLMC are not
backed by the full faith and credit of the United States Government but
are considered to be of high quality since they are considered to be
instrumentalities of the United States. The market value and interest
yield of these mortgage-backed securities 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 with a maximum maturity of 30 years. However, due to scheduled and
unscheduled principal payments on the underlying loans, these securities
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
mortgage-backed security. The scheduled monthly interest and principal
payments relating to mortgages in the pool will be "passed through" to
investors. Government mortgage-backed 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 these securities may offer yields higher
than those available from other types of U.S. Government securities,
mortgage-backed securities 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 these securities 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 mortgage-backed security originally purchased at
a premium to decline in price to its par value, which may result in a
loss.
PRIVATE PASS-THROUGH SECURITIES
Private pass-through securities are mortgage-backed securities issued
by a non-governmental agency, such as a trust. While they are generally
structured with one or more types of credit enhancement, private
pass-through securities generally lack a guarantee by an entity having
the credit status of a governmental agency or instrumentality. The two
principal types of private mortgage-backed securities are collateralized
mortgage obligations ("CMOs") and real estate mortgage investment
conduits ("REMICs").
CMOS
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 are rated in one of the two
highest categories by S&P or Moody's. Many CMOs are issued with a number
of classes or series which have different expected maturities. Investors
purchasing such CMOs are credited with their portion of the scheduled
payments of interest and principal on the underlying mortgages plus all
unscheduled prepayments of principal based on a predetermined priority
schedule. Accordingly, the CMOs in the longer maturity series are less
likely than other mortgage pass-throughs to be prepaid prior to their
stated maturity. Although some of the mortgages underlying CMOs may be
supported by various types of insurance, and some CMOs may be backed by
GNMA certificates or other mortgage pass-throughs issued or guaranteed by
U.S. Government agencies or instrumentalities, the CMOs themselves are
not generally guaranteed.
S-5
<PAGE>
REMICs
REMICs are private entities formed for the purpose of holding a fixed
pool of mortgages secured by an interest in real property. REMICs are
similar to CMOs in that they issue multiple classes of securities and are
rated in one of the two highest categories by S&P or Moody's.
Investors may purchase beneficial interests in REMICs, which are
known as "regular" interests, or "residual" interests. Guaranteed REMIC
pass-through certificates ("REMIC Certificates") issued by Fannie Mae or
FHLMC represent beneficial ownership interests in a REMIC trust
consisting principally of mortgage loans or Fannie Mae, FHLMC or
GNMA-guaranteed mortgage pass-through certificates. For FHLMC REMIC
Certificates, FHLMC guarantees the timely payment of interest. GNMA REMIC
Certificates are backed by the full faith and credit of the U.S.
Government.
ADJUSTABLE RATE MORTGAGE SECURITIES ("ARMS")
ARMS are a form of pass-through security representing interests in
pools of mortgage loans whose interest rates are adjusted from time to
time. The adjustments usually are determined in accordance with a
predetermined interest rate index and may be subject to certain limits.
While the value of ARMS, like other debt securities, generally vary
inversely with changes in market interest rates (increasing in value
during periods of declining interest rates and decreasing in value during
periods of increasing interest rates), the values of ARMS should
generally be more resistant to price swings than other debt securities
because the interest rates of ARMS move with market interest rates. The
adjustable rate feature of ARMS will not, however, eliminate fluctuations
in the prices of ARMS, particularly during periods of extreme
fluctuations in interest rates. Also, since many adjustable rate
mortgages only reset on an annual basis, it can be expected that the
prices of ARMS will fluctuate to the extent that changes in prevailing
interests rates are not immediately reflected in the interest rates
payable on the underlying adjustable rate mortgages.
STRIPPED MORTGAGE-BACKED SECURITIES
Stripped mortgage-backed securities are securities that are created
when a U.S. Government agency or a financial institution separates the
interest and principal components of a mortgage-backed security and sells
them as individual securities. The holder of the "principal-only"
security (PO) receives the principal payments made by the underlying
mortgage-backed security, while the holder of the "interest-only"
security (IO) receives interest payments from the same underlying
security.
The prices of stripped mortgage-backed securities may be particularly
affected by changes in interest rates. As interest rates fall, prepayment
rates tend to increase, which tends to reduce prices of IOs and increase
prices of POs. Rising interest rates can have the opposite effect.
ESTIMATED AVERAGE LIFE
Due to the possibility of prepayments of the underlying mortgage
instruments, mortgage-backed securities generally do not have a known
maturity. In the absence of a known maturity, market participants
generally refer to an estimated average life. An average life estimate is
a function of an assumption regarding anticipated prepayment patterns,
based upon current interest rates, current conditions in the relevant
housing markets and other factors. The assumption is necessarily
subjective, and thus different market participants can produce different
average life estimates with regard to the same security. There can be no
assurance that estimated average life will be a security's actual average
life.
S-6
<PAGE>
REPURCHASE AGREEMENTS
Repurchase agreements are agreements by which a person (E.G., the Fund)
obtains a security and simultaneously commits to return the security to the
seller (a primary securities dealer as recognized by the Federal Reserve Bank of
New York or a national member bank as defined in Section 3(d)(1) of the Federal
Deposit Insurance Act, as amended) 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 Fund for purposes of
its investment limitations. The repurchase agreements entered into by the Fund
will provide that the underlying security at all times shall have a value at
least equal to 102% of the resale price stated in the agreement (the Advisors
monitor compliance with this requirement). Under all repurchase agreements
entered into by the Fund, the appropriate 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 the 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, the
Fund may incur delay and costs in selling the underlying security or may suffer
a loss of principal and interest if the Fund is treated as an unsecured creditor
and required to return the underlying security to the seller's estate.
REVERSE REPURCHASE AGREEMENTS
Reverse repurchase agreements are agreements by which the Fund sells
securities to financial institutions and simultaneously agrees to repurchase
those securities at a mutually agreed-upon date and price. At the time the Fund
enters into a reverse repurchase agreement, the Fund will place liquid assets
having a value equal to the repurchase price in a segregated custodial account
and monitor this account to ensure equivalent value is maintained. Reverse
repurchase agreements involve the risk that the market value of securities sold
by the Fund may decline below the price at which the Fund is obligated to
repurchase the securities. Reverse repurchase agreements may be considered to be
borrowings by the Fund under the 1940 Act.
SECURITIES OF FOREIGN GOVERNMENTS
The Fund may invest in U.S. dollar denominated obligations or securities of
the Government of Canada and its provincial and local governments and U.S.
dollar denominated securities issued or guaranteed by other foreign governments,
their political subdivisions, agencies or instrumentalities. Permissible
investments may consist of obligations or foreign branches of U.S. banks and of
foreign banks, including Yankee Certificates of Deposit. In addition, the Fund
may invest in American Depositary Receipts. These instruments may subject the
Fund to investment risks that differ in some respects from those related to
investments in obligations of U.S. domestic issuers. Such risks include future
adverse political and economic developments, the possible imposition of
withholding taxes on interest or other income, possible seizure,
nationalization, or expropriation of foreign deposits, the possible
establishment of exchange controls or taxation at the source, or the adoption of
other foreign governmental restrictions which might adversely affect the payment
of principal and interest on such obligations. Such investments may also entail
higher custodial fees and sales commissions than domestic investments. Foreign
issuers of securities or obligations are often subject to accounting treatment
and engage in business practices different from those respecting domestic
issuers of similar securities or obligations. Foreign branches of U.S. banks and
foreign banks may be subject to less stringent reserve requirements than those
applicable to domestic branches of U.S. banks.
S-7
<PAGE>
SECURITIES OF FOREIGN ISSUERS--There are certain risks connected with
investing in foreign securities. These include risks of adverse political and
economic developments (including possible governmental seizure or
nationalization of assets), the possible imposition of exchange controls or
other governmental restrictions, less uniformity in accounting and reporting
requirements, the possibility that there will be less information on such
securities and their issuers available to the public, the difficulty of
obtaining or enforcing court judgments abroad, restrictions on foreign
investments in other jurisdictions, difficulties in effecting repatriation of
capital invested abroad, and difficulties in transaction settlements and the
effect of delay on shareholder equity. Foreign securities may be subject to
foreign taxes, and may be less marketable than comparable U.S. securities. The
value of the Fund's investments denominated in foreign currencies will depend on
the relative strengths of those currencies and the U.S. dollar, and the Fund may
be affected favorably or unfavorably by changes in the exchange rates or
exchange control regulations between foreign currencies and the U.S. dollar.
Changes in foreign currency exchange rates also may affect the value of
dividends and interest earned, gains and losses realized on the sale of
securities and net investment income and gains, if any, to be distributed to
shareholders by the Fund.
SUPRANATIONAL AGENCY OBLIGATIONS
Supranational agency obligations are obligations of supranational entities
established through the joint participation of several governments, including
the Asian Development Bank, Inter-American Development Bank, International Bank
for Reconstruction and Development (also known as the "World Bank"), African
Development Bank, European Economic Community, European Investment Bank, and the
Nordic Investment Bank.
UNITED STATES GOVERNMENT AGENCY OBLIGATIONS
U.S. Government agency obligations are obligations issued or guaranteed by
agencies or instrumentalities of the U.S. Government. Agencies of the United
States Government which issue obligations consist of, among others, the Export
Import Bank of the United States, Farmers Home Administration, Federal Farm
Credit Bank, Federal Housing Administration, Government National Mortgage
Association ("GNMA"), Maritime Administration, Small Business Administration and
The Tennessee Valley Authority. Obligations of instrumentalities of the United
States Government include securities issued by, among others, Federal Home Loan
Banks, Federal Home Loan Mortgage Corporation ("FHLMC"), Federal Intermediate
Credit Banks, Federal Land Banks, Fannie Mae and the United States Postal
Service as well as government trust certificates. Some of these securities are
supported by the full faith and credit of the United States Treasury, others are
supported by the right of the issuer to borrow from the Treasury and still
others are supported only by the credit of the instrumentality. Guarantees of
principal by agencies or instrumentalities of the U.S. Government may be a
guarantee of payment at the maturity of the obligation so that in the event of a
default prior to maturity there might not be a market and thus no means of
realizing the value of the obligation prior to maturity.
U.S. GOVERNMENT SECURITIES
U.S. Government securities consist of bills, notes and bonds issued by the
U.S. Treasury, separately traded interest and principal component parts of such
obligations that are transferable through the federal book-entry system known as
Separately Traded Registered Interest and Principal Securities ("STRIPS"), and
obligations issued or guaranteed by agencies of the U.S. Government, including,
among others, the Federal Farm Credit Bank, the Federal Housing Administration
and the Small Business Administration, and obligations issued or guaranteed by
instrumentalities of the U.S. Government, including, among others, FHLMC, the
Federal Land Banks and the U.S. Postal Service. Some of these securities are
supported by the full faith and credit of the U.S. Treasury, others are
supported by the right of the issuer to borrow from the Treasury, while still
others are supported only by the credit of the instrumentality. Guarantees of
principal by agencies or instrumentalities of the U.S. Government may be a
guarantee of
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<PAGE>
payment at the maturity of the obligation so that in the event of a default
prior to maturity there might not be a market and thus no means of realizing on
the obligation prior to maturity. Guarantees as to the timely payment of
principal and interest do not extend to the value or yield of these securities
nor to the value of the Fund's shares.
VARIABLE AND FLOATING RATE SECURITIES
Variable and floating rate instruments involve certain obligations that may
carry variable or floating rates of interest, and may involve a conditional or
unconditional demand feature. Such instruments bear interest at rates which are
not fixed, but which vary with changes in specified market rates or indices. The
interest rates on these securities may be reset daily, weekly, quarterly, or
some other reset period, and may have a set floor or ceiling on interest rate
changes. There is a risk that the current interest rate on such obligations may
not accurately reflect existing market interest rates. A demand instrument with
a demand notice exceeding seven days may be considered illiquid if there is no
secondary market for such security.
WHEN-ISSUED SECURITIES
The Fund may purchase debt obligations on a when-issued basis, in which case
delivery and payment normally take place on a future date. The Fund will make
commitments to purchase obligations on a when-issued basis only with the
intention of actually acquiring the securities, but may sell them before the
settlement date. During the period prior to the settlement date, the securities
are subject to market fluctuation, and no interest accrues on the securities to
the purchaser. The payment obligation and the interest rate that will be
received on the securities at settlement are each fixed at the time the
purchaser enters into the commitment. Purchasing obligations on a when-issued
basis may be used as a form of leveraging because the purchaser may accept the
market risk prior to payment for the securities. The Fund, however, will not use
such purchases for leveraging; instead, as disclosed in the Prospectus, the Fund
will set aside assets to cover its commitments. If the value of these assets
declines, the Fund will place additional liquid assets aside on a daily basis so
that the value of the assets set aside is equal to the amount of the commitment.
INVESTMENT LIMITATIONS
FUNDAMENTAL POLICIES
The following investment limitations are fundamental policies of the Fund
that cannot be changed without the consent of the holders of a majority of the
Fund's outstanding shares. The phrase "majority of the outstanding shares" means
the vote of (i) 67% or more of the Fund's shares present at a meeting, if more
than 50% of the outstanding shares of the Fund are present or represented by
proxy, or (ii) more than 50% of the Fund's outstanding shares, whichever is
less.
The Fund may not:
1. Purchase securities of any issuer (except securities issued or guaranteed by
the United States, its agencies or instrumentalities and repurchase
agreements involving such securities) if as a result more than 5% of the
total assets of the Fund would be invested in the securities of such issuer.
This restriction applies to 75% of the Fund's total assets.
2. Purchase any securities which would cause 25% or more of the total assets of
the Fund to be invested in the securities of one or more issuers conducting
their principal business activities in the same industry, provided that this
limitation does not apply to investments in obligations issued or guaranteed
by the U.S. Government, its agencies or instrumentalities and repurchase
agreements involving such securities. For purposes of this limitation, (i)
utility companies will be divided according to their services, for example,
gas distribution, gas transmission, electric and telephone will each be
considered a separate industry, and (ii) financial service companies will be
classified according to the end users of
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<PAGE>
their services, for example, automobile finance, bank finance and
diversified finance will each be considered a separate industry.
3. Acquire more than 10% of the voting securities of any one issuer.
4. Invest in companies for the purpose of exercising control.
5. Issue any class of senior security or sell any senior security of which it
is the issuer, except that the Fund may borrow from any bank, provided that
immediately after any such borrowing there is asset coverage of at least
300% for all borrowings of the Fund, and further provided that, to the
extent that such borrowings exceed 5% of the Fund's total assets, all
borrowings shall be repaid before the Fund makes additional investments. The
term "senior security" shall not include any temporary borrowings that do
not exceed 5% of the value of the Fund's total assets at the time the Fund
makes such temporary borrowing. In addition, investment strategies that
either obligate the Fund to purchase securities or require the Fund to
segregate assets will not be considered borrowings or senior securities.
This investment limitation shall not preclude the Fund from issuing multiple
classes of shares in reliance on SEC rules or orders.
6. Make loans if, as a result, more than 33 1/3% of its total assets would be
lent to other parties, except that the Fund may (i) purchase or hold debt
instruments in accordance with its investment objective and policies; (ii)
enter into repurchase agreements; and (iii) lend its securities.
7. Purchase or sell real estate, real estate limited partnership interests,
physical commodities or commodities contracts except that the Fund may
purchase commodities contracts relating to financial instruments, such as
financial futures contracts and options on such contracts.
8. Make short sales of securities, maintain a short position or purchase
securities on margin, except that a Fund may obtain short-term credits as
necessary for the clearance of security transactions and sell securities
short "against the box."
9. Act as an underwriter of securities of other issuers except as it may be
deemed an underwriter in selling the Fund security.
10. Purchase securities of other investment companies except as permitted by
the Investment Company Act of 1940, as amended (the "1940 Act") and the
rules and regulations thereunder.
NON-FUNDAMENTAL POLICIES
The following investment limitation of the Fund is non-fundamental and may
be changed by the Trust's Board of Trustees without shareholder approval:
1. The Fund may not invest in illiquid securities in an amount exceeding, in
the aggregate, 15% of the Fund's net assets.
2. The Fund will limit borrowings to no more than 5% of its total assets (fully
collateralized reverse repurchase agreements are not considered borrowings
for purposes of the foregoing limitation).
3. The Fund will refrain from investing in the following derivative
instruments: options, futures, swaps, structured notes or residuals.
Except with respect to the Fund's policy concerning borrowing and illiquid
securities, if a percentage restriction is adhered to at the time of an
investment, a later increase or decrease in percentage resulting from changes in
values or assets will not constitute a violation of such restriction.
THE ADVISER
SAGE Global Funds LLC (the "Adviser" or "SAGE") and the Trust have entered
into an advisory agreement dated October 31, 1997 (the "Advisory Agreement").
The Advisory Agreement provides that
S-10
<PAGE>
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. Under the Advisory Agreement, the Adviser
makes the investment decisions for the assets of the Fund and continuously
reviews, supervises and administers the Fund's investment program, subject to
the supervision of, and policies established by, the Trustees of the Trust.
The Adviser is a professional investment management firm organized as a
Massachusetts limited liability company that was founded in July, 1997. SAGE is
majority-owned by Standard Asset Group, Inc., the Fund's sub-adviser. The
Adviser's principal business address is 55 William Street, Wellesley,
Massachusetts 02481.
The Adviser has not previously served as an investment adviser to a
registered investment company, and, as such, does not have extensive experience
advising a highly regulated entity such as an investment company. This may
present additional risks for the Fund.
For its services, the Adviser is entitled to a fee, which is calculated
daily and paid monthly, at an annual rate of .55% of the average daily net
assets of the Fund. The Adviser has voluntarily agreed to waive a portion of its
advisory fees in order to limit total operating expenses of the Fund to not more
than .90% of average daily net assets. The Adviser reserves the right, in its
sole discretion, to terminate its fee waiver at any time. Additionally, the
Adviser has contractually agreed to waive its entire advisory fee for any
calendar year which follows a calendar year in which the Fund's net asset value
per share declines, adjusted for dividends and distributions paid during such
year. The Adviser may, from its own resources, compensate broker-dealers whose
clients purchase shares of the Funds.
The continuance of the Advisory Agreement, after the first two years, must
be specifically approved at least annually (i) by the vote of the Trustees or by
a vote of the shareholders of the Fund, and (ii) by the vote of a majority of
the Trustees who are not parties to the Agreement or "interested persons" of any
party thereto, cast in person at a meeting called for the purpose of voting on
such approval. The Advisory Agreement will terminate automatically in the event
of its assignment, and is terminable at any time without penalty by the Trustees
of the Trust or, with respect to the Fund, by a majority of the outstanding
shares of that Fund, on not less than 30 days' nor more than 60 days' written
notice to the Adviser, or by the Adviser on 90 days' written notice to the
Trust.
For the fiscal period beginning November 1, 1997 and ended October 31, 1998,
the Fund paid advisory fees of $ .
THE SUB-ADVISER
Standard Asset Group, Inc. (the "Sub-Adviser") serves as investment
sub-adviser to the Fund pursuant to a sub-advisory agreement by and between
Standard Asset Group, Inc. and the Adviser (the "Sub-Advisory Agreement").
Pursuant to the Sub-Advisory Agreement, Standard Asset Group, Inc. is entitled
to receive a sub-advisory fee, which is calculated daily and paid monthly at an
annual rate of .20% of the average daily net assets of the Fund. The Sub-Advisor
has voluntarily agreed to waive its sub-advisory fees in the same proportion as
the Adviser waives its advisory fees from the Fund. In addition, the Sub-Adviser
will not be entitled to receive sub-advisory fees during any calendar year in
which the Adviser is not entitled to receive any advisory fees.
The Sub-Adviser is a professional investment management firm organized as
Massachusetts corporation that was founded in 1987. Gordon J. Rollert controls a
majority of the Sub-Adviser's outstanding voting stock. As of , 1999,
the Sub-Adviser had approximately $ million of assets under management. The
Sub-Adviser currently serves as the investment adviser or sub-adviser to
institutional clients including SAGE Advisory Services, LLC, which, in turn,
provides advisory services to individuals. The Sub-Adviser's principal business
address is 55 William Street, Wellesley, Massachusetts 02481.
S-11
<PAGE>
The Sub-Adviser has been retained under the Sub-Advisory Agreement to act as
the investment sub-adviser for the Fund. Under the Sub-Advisory Agreement, the
Sub-Adviser manages the investments of the Fund, selects investments, and places
all orders for purchases and sales of the Fund's securities, subject to the
general supervision of the Trustees of the Trust and the Adviser.
Gordon J. Rollert has had primary responsibility for managing the Fund since
it commenced operations. Mr. Rollert has served as President of the Sub-Adviser
since 1987. He has managed institutional portfolios since 1965, initially as a
portfolio manager with Eaton Vance and later as a portfolio manager and
executive officer of the following investment advisory firms: Alliance Capital,
Rollert & Sullivan, Trust Management Bank, the Nova Fund and SAGE Advisory
Services LLC. He is a Chartered Financial Analyst and member of the Boston
Security Analysts Society and the New York Society of Security Analysts. He
holds a BA in Economics and History from DePauw University and a MBA from the
University of Michigan. He is a trustee of DePauw University, chairing the
Finance and Investment Committees.
For the fiscal period beginning November 1, 1997 and ended October 31, 1998,
SAGE paid the Sub-Adviser sub-advisory fees of $ .
THE ADMINISTRATOR
SEI Investments Mutual Funds Services (the "Administrator"), provides the
Fund with administrative services, including regulatory reporting and all
necessary office space, equipment, personnel and facilities.
For these administrative services, the Administrator is entitled to a fee,
which is calculated daily and paid monthly, at an annual rate of: 0.15% on the
first $100 million of the Fund's average daily net assets; 0.125% on the next
$100 million of average daily net assets; and 0.10% on the average daily net
assets over $200 million. However, the Fund pays a minimum annual administration
fee of $75,000, which would be increased by $15,000 per additional class. Due to
the minimum annual administration fee, the administration fee that the Fund pays
will decline according to the administration fee schedule described above only
after the Fund's net asset level reaches $50 million.
The Administration Agreement provides that the Administrator shall not be
liable for any error of judgment or mistake of law or for any loss suffered by
the Fund in connection with the matters to which the Administration Agreement
relates, except a loss resulting from willful misfeasance, bad faith or gross
negligence on the part of the Administrator in the performance of its duties or
from reckless disregard of its duties and obligations thereunder.
The Administration Agreement shall remain effective for the initial term of
the Agreement and each renewal term thereof unless earlier terminated (a) by the
mutual written agreement of the parties; (b) by either party of the
Administration Agreement on 90 days' written notice, as of the end of the
initial term or the end of any renewal term; (c) by either party of the
Administration Agreement on such date as is specified in written notice given by
the terminating party, in the event of a material breach of the Administration
Agreement by the other party, provided the terminating party has notified the
other party of such breach at least 45 days' prior to the specified date of
termination and the breaching party has not remedied such breach by the
specified date; (d) effective upon the liquidation of the Administrator; or (e)
as to the Fund or the Trust, effective upon the liquidation of the Fund or the
Trust, as the case may be.
The Administrator, a Delaware business trust, has its principal business
offices at Oaks, Pennsylvania 19456. SEI Investments Management Corporation
("SIMC"), a wholly-owned subsidiary of SEI Investments Company ("SEI
Investments"), is the owner of all beneficial interest in the Administrator. SEI
Investments and its subsidiaries and affiliates, including the Administrator,
are leading providers of funds evaluation services, trust accounting systems,
and brokerage and information services to financial institutions, institutional
investors, and money managers. The Administrator and its affiliates also serve
as administrator or sub-administrator to the following other mutual funds: The
Achievement Funds Trust,
S-12
<PAGE>
The Arbor Fund, ARK Funds, Armada Funds, Bishop Street Funds, Boston 1784
Funds-Registered Trademark-, CrestFunds, Inc., CUFUND, The Expedition Funds,
First American Funds, Inc., First American Investment Funds, Inc., First
American Strategy Funds, Inc., HighMark Funds, Monitor Funds, The Nevis Funds,
Oak Associates Funds, The PBHG Funds, Inc., PBHG Advisor Funds, Inc., PBHG
Insurance Series Fund, Inc., The Pillar Funds, SEI Asset Allocation Trust, SEI
Daily Income Trust, SEI Index Funds, SEI Institutional International Trust, SEI
Institutional Investments Trust, SEI Institutional Managed Trust, SEI Liquid
Asset Trust, SEI Tax Exempt Trust, STI Classic Funds, STI Classic Variable
Trust, TIP Funds and Alpha Select Funds.
The Administrator will not be required to bear expenses of the Fund to an
extent which would result in the Fund's inability to qualify as a regulated
investment company under provisions of the Code. The term "expenses" is defined
in such laws or regulations, and generally excludes brokerage commissions,
distribution expenses, taxes, interest and extraordinary expenses.
For the fiscal period beginning November 1, 1997 and ended October 31, 1998,
the Fund paid administration fees of $ .
THE DISTRIBUTOR
SEI Investments Distribution Co. (the "Distributor"), a wholly-owned
subsidiary of SEI Investments, and the Trust are parties to a distribution
agreement (the "Distribution Agreement"). The Distributor will not receive
compensation for distribution of shares of the Fund.
The Distribution Agreement shall remain in effect for a period of two years
after the effective date of the agreement and is renewable annually. The
Distribution Agreement may be terminated by the Distributor, by a majority vote
of the Trustees who are not interested persons and have no financial interest in
the Distribution Agreement or by a majority vote of the outstanding securities
of the Trust upon not more than 60 days' written notice by either party or upon
assignment by the Distributor.
No compensation is paid to the Distributor for distribution services for the
shares of the Fund.
THE TRANSFER AGENT
DST Systems, Inc., 330 W. 9th Street, Kansas City, MO 64105 serves as the
Fund's transfer agent.
THE CUSTODIAN
First Union National Bank, Broad and Chestnut Streets, P.O. Box 7618,
Philadelphia, Pennsylvania 19101 acts as custodian (the "Custodian") of the
Fund. The Custodian holds cash, securities and other assets of the Fund as
required by the 1940 Act.
INDEPENDENT PUBLIC ACCOUNTANTS
Arthur Andersen LLP serves as independent public accountants for the Fund.
LEGAL COUNSEL
Morgan, Lewis & Bockius LLP 1800 M Street, N.W., Washington, D.C. serves as
legal counsel to the Fund.
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. The Trustees have approved
contracts under which, as described above, certain companies provide essential
management services to the Trust. The Trust pays the fees for unaffiliated
Trustees.
S-13
<PAGE>
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, Armada Funds, Bishop
Street Funds, Boston 1784 Funds-Registered Trademark-, CrestFunds, Inc., CUFUND,
The Expedition Funds, First American Funds, Inc., First American Investment
Funds, Inc., First American Strategy Funds, Inc., HighMark Funds, Monitor Funds,
Oak Associates Funds, The PBHG Funds, Inc., PBHG Advisor Funds, Inc., PBHG
Insurance Series Fund, Inc., The Pillar Funds, SEI Asset Allocation Trust, SEI
Daily Income Trust, SEI Index Funds, SEI Institutional International Trust, SEI
Institutional Investments Trust, SEI Institutional Managed Trust, SEI Liquid
Asset Trust, SEI Tax Exempt Trust, STI Classic Funds, STI Classic Variable
Trust, TIP Funds and Alpha Select Funds, each of which is an open-end management
investment company managed by SEI Investments Mutual Funds Services or its
affiliates and, except for PBHG Advisor 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, 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
Institutional International Trust, SEI Liquid Asset Trust and SEI Tax Exempt
Trust.
JOHN T. COONEY (DOB 01/20/27)--Trustee**--Vice Chairman of Ameritrust Texas
N.A., 1989-1992, and MTrust Corp., 1985-1989. Trustee of The Arbor Fund, The
Expedition Funds, and Oak Associates Funds.
WILLIAM M. DORAN (DOB 05/26/40)--Trustee*--1701 Market Street, Philadelphia,
PA 19103-2921. Partner, Morgan, Lewis & Bockius LLP (law firm), counsel to the
Trust, SEI Investments, the Administrator and the Distributor. Director and
Secretary of SEI Investments and Secretary of the Administrator and the
Distributor. Trustee of The Arbor Fund, The Expedition Funds, Oak Associates
Funds, SEI Asset Allocation Trust, SEI Daily Income Trust, SEI Index Funds, SEI
Institutional Investments Trust, SEI Institutional Managed Trust, SEI
Institutional International Trust, SEI Liquid Asset Trust and SEI Tax Exempt
Trust.
ROBERT A. PATTERSON (DOB 11/05/27)--Trustee**--Pennsylvania State
University, Senior Vice President, Treasurer (Emeritus). Financial and
Investment Consultant, Professor of Transportation (1984-present). Vice
President-Investments, Treasurer, Senior Vice President (Emeritus) (1982-1984).
Director, Pennsylvania Research Corp.; Member and Treasurer, Board of Trustees
of Grove City College. Trustee of The Arbor Fund, The Expedition Funds 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 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, Oak Associates Funds, SEI Asset Allocation Trust, SEI Daily Income Trust,
SEI Index Funds, SEI Institutional Investments Trust, SEI Institutional Managed
Trust, SEI Institutional International Trust, SEI Liquid Asset Trust and SEI Tax
Exempt Trust.
S-14
<PAGE>
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.
JAMES R. FOGGO (DOB 06/30/64)--Vice President and Assistant Secretary--Vice
President and Assistant Secretary of the Administrator and the Distributor since
1998. Associate, Paul Weiss, Rifkind, Wharton & Garrison (law firm), 1998.
Associate, Baker & McKenzie (law firm), 1995-1998. Associate, Battle Fowler
L.L.P. (law firm), 1993-1995. Operations Manager, The Shareholder Services
Group, Inc., 1986-1990.
LYDIA A. GAVALIS (DOB 06/05/64)--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.
KATHY HEILIG (DOB 12/21/58)--Vice President and Assistant
Secretary--Treasurer of SEI Investments since 1997; Assistant Controller of SEI
Investments since 1995; Vice President of SEI Investments since 1991; Director
of Taxes of SEI Investments, 1987 to 1991. Tax Manager, Arthur Anderson LLP
prior to 1987.
JOSEPH M. O'DONNELL (DOB 11/13/54)--Vice President and Assistant
Secretary--Vice President and Assistant Secretary of the Administrator and the
Distributor since 1998. Vice President and General Counsel, FPS Services, Inc.,
1993-1997. Staff Counsel and Secretary, Provident Mutual Family of Funds,
1990-1993.
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.
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.
MARK E. NAGLE (DOB 10/20/59)--Controller and Chief Financial 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 December 1997. Vice President, Fund Accounting, BISYS Fund Services,
September 1995 to November 1996. Senior Vice President and Site Manager,
Fidelity Investments 1981 to September 1995.
JOHN H. GRADY, JR. (DOB 06/01/61)--Secretary--1701 Market Street,
Philadelphia, PA 19103-2921, Partner since 1995, Morgan, Lewis & Bockius LLP
(law firm), counsel to the Trust, SEI Investments, the Administrator and the
Distributor.
- ------------------------
* 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, Patterson, Peters and Storey serve as members of the Audit
Committee of the Fund.
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.
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<PAGE>
The following table exhibits Trustee compensation for the fiscal period
beginning November 1, 1997 and ended October 31, 1998.
<TABLE>
<CAPTION>
AGGREGATE
COMPENSATION PENSION OR TOTAL COMPENSATION FROM
FROM REGISTRANT RETIREMENT ESTIMATED REGISTRANT AND FUND COMPLEX*
FOR THE FISCAL PERIOD BENEFITS ACCRUED ANNUAL PAID TO TRUSTEES FOR THE
ENDED OCTOBER 31, AS PART OF BENEFITS UPON FISCAL PERIOD ENDED OCTOBER
NAME OF PERSON, POSITION 1998 TRUST EXPENSES RETIREMNT 31, 1998
- --------------------------------- --------------------- ------------------- ----------------- ----------------------------
<S> <C> <C> <C> <C>
John T. Cooney, Trustee.......... $ N/A N/A $ for services on 1 board
Frank E. Morris, Trustee......... $ N/A N/A $ for services on 1 board
Robert Patterson, Trustee........ $ N/A N/A $ for services on 1 board
Eugene B. Peters, Trustee........ $ N/A N/A $ for services on 1 board
James M. Storey, Esq., Trustee... $ N/A N/A $ for services on 1 board
William M. Doran, Esq.,
Trustee........................ $ 0 N/A N/A $0 for service on 1 board
Robert A. Nesher, Chairman of
the Board...................... $ 0 N/A N/A $0 for service on 1 board
</TABLE>
PERFORMANCE INFORMATION
From time to time, the Trust may advertise yield and total return of the
Fund. These figures will be based on historical earnings and are not intended to
indicate future performance. No representation can be made concerning actual
future yields or returns.
PERFORMANCE COMPARISONS
The Fund may periodically compare its performance to other mutual funds
tracked by mutual fund rating services, to broad groups of comparable mutual
funds, or to unmanaged indices. These comparisons may assume reinvestment of
dividends but generally do not reflect deductions for administrative and
management costs.
COMPUTATION OF YIELD
The yield of the Fund refers to the annualized income generated by an
investment in the Fund over a specified 30-day period. The yield is calculated
by assuming that the income generated by the investment during that 30-day
period is generated in each period over one year and is shown as a percentage of
the investment. In particular, yield will be calculated according to the
following formula:
Yield = 2[((a-b)/cd + 1) TO THE POWER OF (6) - 1], where a = dividends
and interest earned during the period; b = expenses accrued for the period
(net of reimbursement); c = the average daily number of shares 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 , the Fund's yield was .
CALCULATION OF TOTAL RETURN
The total return of the Fund refers to the average compounded rate of return
to a hypothetical investment for designated time periods (including, but not
limited to, the period from which that Fund commenced operations through the
specified date), assuming that the entire investment is redeemed at the end of
each period. In particular, total return will be calculated according to the
following formula:
P(1 + T) TO THE POWER OF (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 period from November 1, 1997 (commencement of operations) through
October 31, 1998, the Fund's total return was .
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<PAGE>
PURCHASING SHARES
Purchases and redemptions may be made through the Distributor on a day on
which the Federal Reserve Banks are open for business, except Good Friday.
Shares of the Fund are offered on a continuous basis. Currently, the holidays
observed by the Federal Reserve Banks are as follows: New Year's Day,
Presidents' Day, Martin Luther King Jr. Day, Memorial Day, Independence Day,
Labor Day, Columbus Day, Veterans' Day, Thanksgiving and Christmas.
REDEEMING SHARES
It is currently the Trust's policy to pay all redemptions in cash. The Trust
retains the right, however, to alter this policy to provide for redemptions in
whole or in part by a distribution in-kind of securities held by a Fund in lieu
of cash. Shareholders may incur brokerage charges on the sale of any such
securities so received in payment of redemptions. The Trust has received
exemptive relief from the Securities and Exchange Commission (the "SEC"), which
permits the Trust to make in-kind redemptions to those shareholders that are
affiliated with the Fund solely by their ownership of a certain percentage of
the Fund.
A Shareholder will at all times be entitled to aggregate cash redemptions
from all portfolios of the Trust during any 90-day period of up to the lesser of
$250,000 or 1% of the Trust's net assets.
The Trust reserves the right to suspend the right of redemption and/or to
postpone the date of payment upon redemption for any period on which trading on
the New York Stock Exchange is restricted, or during the existence of an
emergency (as determined by the SEC by rule or regulation) as a result of which
the disposal or valuation of the Fund's securities is not reasonably
practicable, or for such other periods as the SEC has by order permitted. The
Trust also reserves the right to suspend sales of shares of any Fund for any
period during which the New York Stock Exchange, the Federal Reserve Banks, the
Adviser, the Administrator, the Transfer Agent and/or the Custodian are not open
for business.
DETERMINATION OF NET ASSET VALUE
The securities of the Fund are valued by the Administrator. The
Administrator will use an independent pricing service to obtain valuations of
securities. The pricing service relies primarily on prices of actual market
transactions as well as trader quotations. However, the service may also use a
matrix system to determine valuations of fixed income securities, which system
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 additional federal income tax
considerations generally affecting the Fund and its shareholders that are not
described in the Fund's prospectus. No attempt is made to present a detailed
explanation of the tax treatment of the Fund or its shareholders, and the
discussion here and in the Fund's prospectus is not intended as a substitute for
careful tax planning. Shareholders are urged to consult their tax advisors with
specific reference to their own tax situations, including their state and local
tax liabilities.
FEDERAL INCOME TAX TREATMENT OF DIVIDENDS AND DISTRIBUTIONS
The following general discussion of certain federal income tax consequences
is based on the Internal Revenue Code of 1986, as amended (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.
S-17
<PAGE>
QUALIFICATION AS REGULATED INVESTMENT COMPANY
The Fund intends to qualify and elect to be treated as a "regulated
investment company" ("RIC") under Subchapter M of the Code. By following such a
policy, the Fund expects to eliminate or reduce to a nominal amount the federal
taxes to which it may be subject.
In order to qualify as a RIC, the Fund must distribute at least 90% of its
net investment income (generally, dividends, taxable interest, and the excess of
net short-term capital gains over net long-term capital losses less operating
expenses) and at least 90% of its net tax exempt interest income, for each tax
year, if any, to its shareholders and also must meet several additional
requirements. Among these requirements are the following: (i) at least 90% of
the Fund's gross income each taxable year must be derived from dividends,
interest, payments with respect to securities loans, and gains from the sale or
other disposition of stock or securities, or certain other income; (ii) at the
close of each quarter of the Fund's taxable year, at least 50% of the value of
its total assets must be represented by cash and cash items, U.S. Government
securities, securities of other RICs and other securities, with such other
securities limited, in respect to any one issuer, to an amount that does not
exceed 5% of the value of the Fund's assets and that does not represent more
than 10% of the outstanding voting securities of such issuer; and (iii) at the
close of each quarter of the Fund's taxable year, not more than 25% of the value
of its assets may be invested in securities (other than U.S. Government
securities or the securities of other RICs) of any one issuer or of two or more
issuers that the Fund controls and that are engaged in the same, similar or
related trades or businesses.
Although the Fund intends to distribute substantially all of its net
investment income and may distribute its capital gains for any taxable year, the
Fund will be subject to federal income taxation to the extent any such income or
gains are not distributed.
If the Fund fails to qualify for any taxable year as a RIC, all of its
taxable income will be subject to tax at regular corporate income tax rates
without any deduction for distributions to shareholders and such distributions
generally will be taxable to shareholders as ordinary dividends to the extent of
the Fund's current and accumulated earnings and profits. In this event,
distributions generally will be eligible for the dividends-received deduction
for corporate shareholders.
FUND DISTRIBUTIONS
Distributions of investment company taxable income will be taxable to
shareholders as ordinary income, regardless of whether such distributions are
paid in cash or are reinvested in additional Shares, to the extent of the Fund's
earnings and profits. The Fund anticipates that it will distribute substantially
all of its investment company taxable income for each taxable year.
The Fund may either retain or distribute to shareholders its excess of net
long-term capital gains over net short-term capital losses ("net capital
gains"). If such gains are distributed as a capital gains distribution, they are
taxable to shareholders who are individuals at a maximum rate of 20%, regardless
of the length of time the shareholder has held shares. If any such gains are
retained, the Fund will pay federal income tax thereon.
In the case of corporate shareholders, distributions (other than capital
gains distributions) from a RIC generally qualify for the dividends-received
deduction only to the extent of the gross amount of qualifying dividends
received by the Fund for the year. Generally, and subject to certain
limitations, a dividend will be treated as a qualifying dividend if it has been
received from a domestic corporation. Accordingly, it is not expected that any
Fund distribution will qualify for the corporate dividends-received deduction.
Ordinarily, investors should include all dividends as income in the year of
payment. However, dividends declared payable to shareholders of record in
December of one year, but paid in January of the following year, will be deemed
for tax purposes to have been received by the shareholder and paid by the Fund
in the year in which the dividends were declared.
S-18
<PAGE>
The Fund will provide a statement annually to shareholders as to the federal
tax status of distributions paid (or deemed to be paid) by the Fund during the
year, including the amount of dividends eligible for the corporate
dividends-received deduction.
SALE OR EXCHANGE OF FUND SHARES
Generally, gain or loss on the sale or exchange of a Share will be capital
gain or loss that will be long-term if the Share has been held for more than
twelve months and otherwise will be short-term. For individuals, long-term
capital gains are currently taxed at a maximum rate of 20% and short-term
capital gains are currently taxed at ordinary income tax rates. However, if a
shareholder realizes a loss on the sale, exchange or redemption of a Share held
for six months or less and has previously received a capital gains distribution
with respect to the Share (or any undistributed net capital gains of the Fund
with respect to such Share are included in determining the shareholder's
long-term capital gains), the shareholder must treat the loss as a long-term
capital loss to the extent of the amount of the prior capital gains distribution
(or any undistributed net capital gains of the Fund that have been included in
determining such shareholder's long-term capital gains). In addition, any loss
realized on a sale or other disposition of Shares will be disallowed to the
extent an investor repurchases (or enters into a contract or option to
repurchase) Shares within a period of 61 days (beginning 30 days before and
ending 30 days after the disposition of the Shares). This loss disallowance rule
will apply to Shares received through the reinvestment of dividends during the
61-day period.
In certain cases, the Fund will be required to withhold, and remit to the
United States Treasury, 31% of any distributions paid to a shareholder who (1)
has failed to provide a correct taxpayer identification number, (2) is subject
to backup withholding by the Internal Revenue Service, or (3) has failed to
certify the Fund that such shareholder is not subject to backup withholding.
FEDERAL EXCISE TAX
If the Fund fails to distribute in a calendar year at least 98% of its
ordinary income for the 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 October 31 of that year (and any retained amount
from the prior calendar year), the Fund will be subject to a nondeductible 4%
Federal excise tax on the undistributed amounts. The Fund intends to make
sufficient distributions to avoid imposition of this tax, or to retain, at most
its net capital gains and pay tax thereon.
STATE AND LOCAL TAXES
The Fund is not liable for any income or franchise tax in Massachusetts if
it qualifies as a RIC for federal income tax purposes. Fund shareholders should
consult with their tax advisers regarding the state and local tax consequences
of investments in the Fund.
FUND TRANSACTIONS
The Fund has no obligation to deal with any broker-dealer or group of
broker-dealers in the execution of transactions in portfolio securities. Subject
to policies established by the Trustees of the Trust, the Adviser and
Sub-Adviser are responsible for placing the orders to execute transactions for
the Fund. In placing orders, it is the policy of the Trust to seek to obtain the
best net results taking into account such factors as price (including the
applicable dealer spread), the size, type and difficulty of the transaction
involved, the firm's general execution and operational facilities and the firm's
risk in positioning the securities involved. While each of the Adviser and
Sub-Adviser generally seeks reasonably competitive spreads or commissions, the
Fund will not necessarily be paying the lowest spread or commission available.
The money market instruments in which the Fund invests are traded primarily
in the over-the-counter market. Bonds and debentures are usually traded
over-the-counter, but may be traded on an exchange.
S-19
<PAGE>
Where possible, the Adviser and Sub-Adviser will deal directly with the dealers
who make a market in the securities involved except in those circumstances where
better prices and execution are available elsewhere. Such dealers usually are
acting as principal for their own account. On occasion, securities may be
purchased directly from the issuer. Money market instruments are generally
traded on a net basis and do not normally involve either brokerage commissions
or transfer taxes. The cost of executing portfolio securities transactions of
the Fund will primarily consist of dealer spreads and underwriting commissions.
TRADING PRACTICES AND BROKERAGE
The Trust selects brokers or dealers to execute transactions for the
purchase or sale of portfolio securities on the basis of its judgment of their
professional capability to provide the service. The primary consideration is to
have brokers or dealers provide transactions at best price and execution for the
Trust. Best price and execution includes many factors, including the price paid
or received for a security, the commission charged, the promptness and
reliability of execution, the confidentiality and placement accorded the order
and other factors affecting the overall benefit obtained by the account on the
transaction. The Trust's determination of what are reasonably competitive rates
is based upon the professional knowledge of its trading department as to rates
paid and charged for similar transactions throughout the securities industry. In
some instances, the Trust pays a minimal share transaction cost when the
transaction presents no difficulty. Some trades are made on a net basis where
the Trust either buys securities directly from the dealer or sells them to the
dealer. In these instances, there is no direct commission charged but there is a
spread (the difference between the buy and sell price) which is the equivalent
of a commission.
The Trust may allocate out of all commission business generated by the fund
and accounts under management by the Adviser, brokerage business to brokers or
dealers who provide brokerage and research services. 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. Such services are used by the Adviser in connection with its
investment decision-making process with respect to one or more funds and
accounts managed by it, and may not be used exclusively with respect to the fund
or account generating the brokerage.
As provided in the Securities Exchange Act of 1934 (the "1934 Act") higher
commissions may be paid to broker-dealers who provide brokerage and research
services than to broker-dealers who do not provide such services if such higher
commissions are deemed reasonable in relation to the value of the brokerage and
research services provided. Although transactions are directed to broker-dealers
who provide such brokerage and research services, the Trust believes that the
commissions paid to such broker-dealers are not, in general, higher than
commissions that would be paid to broker-dealers not providing such services and
that such commissions are reasonable in relation to the value of the brokerage
and research services provided. In addition, portfolio transactions which
generate commissions or their equivalent are directed to broker-dealers who
provide daily portfolio pricing services to the Trust. Subject to best price and
execution, commissions used for pricing may or may not be generated by the funds
receiving the pricing service.
The Adviser may place a combined order for two or more accounts or funds
engaged in the purchase or sale of the same security if, in its judgment, joint
execution is in the best interest of each participant and will result in best
price and execution. Transactions involving commingled orders are allocated in a
manner deemed equitable to each account or fund. It is believed that the ability
of the accounts to participate in volume transactions will generally be
beneficial to the accounts and funds. Although it is recognized that, in some
cases, the joint execution of orders could adversely affect the price or volume
of the security that a particular account or the Fund may obtain, it is the
opinion of the Adviser and the Trust's Board of
S-20
<PAGE>
Trustees that the advantages of combined orders outweigh the possible
disadvantages of separate transactions.
Consistent with the Conduct Rules of the National Association of Securities
Dealers, Inc., and subject to seeking best price and execution, the Fund, at the
request of the Distributor, give consideration to sales of shares of the Trust
as a factor in the selection of brokers and dealers to execute Trust portfolio
transactions.
It is expected that the Fund may execute brokerage or other agency
transactions through the Distributor, which is a registered broker-dealer, for a
commission in conformity with the 1940 Act, the Securities Exchange Act of 1934
and rules promulgated by the SEC. Under these provisions, the Distributor is
permitted to receive and retain compensation for effecting portfolio
transactions for the Fund on an exchange if a written contract is in effect
between the Distributor and the Trust expressly permitting the Distributor to
receive and retain such compensation. These rules further require that
commissions paid to the Distributor by the Fund for exchange transactions not
exceed "usual and customary" brokerage commissions. The rules define "usual and
customary" commissions to include amounts which are "reasonable and fair
compared to the commission, fee or other remuneration received or to be received
by other brokers in connection with comparable transactions involving similar
securities being purchased or sold on a securities exchange during a comparable
period of time." The Trustees, including those who are not "interested persons"
of the Trust, have adopted procedures for evaluating the reasonableness of
commissions paid to the Distributor and will review these procedures
periodically.
For the fiscal period beginning November 1, 1997 and ended October 31, 1998,
the Fund paid $ on total brokerage commissions and paid $ to SEI
Investments.
For the fiscal period beginning November 1, 1997 and ended October 31, 1998,
the Fund paid the following brokerage commissions:
<TABLE>
<CAPTION>
TOTAL $ AMOUNT OF TOTAL $ AMOUNT OF BROKERAGE % OF TOTAL BROKERAGE % OF TOTAL BROKERAGE
BROKERAGE COMMISSIONS COMMISSIONS PAID TO COMMISSIONS PAID TO THE TRANSACTIONS EFFECTED
PAID AFFILIATED BROKERS AFFILIATED BROKERS THROUGH AFFILIATED BROKERS
- ---------------------- --------------------------- ------------------------- ---------------------------
<S> <C> <C> <C>
$ $ % %
</TABLE>
Since the Trust does not market its shares through intermediary brokers or
dealers, it is not the Trust's practice to allocate brokerage or principal
business on the basis of sales of its shares which may be made through such
firms. However, the Adviser and Sub-Adviser may place portfolio orders with
qualified broker-dealers who recommend the Fund's shares to clients, and may,
when a number of brokers and dealers can provide best net results on a
particular transaction, consider such recommendations by a broker or dealer in
selecting among broker-dealers.
The Fund is required to identify any securities of its "regular brokers or
dealers" (as such term is defined in the 1940 Act, which the Fund has acquired
during its most recent fiscal year). For the fiscal period beginning November 1,
1997 and ended October 31, 1998, the Fund held $ of debt securities issued
by .
For the fiscal period beginning November 1, 1997 and ended October 31, 1998,
the portfolio turnover rate for the Fund was .
DESCRIPTION OF SHARES
The Declaration of Trust authorizes the issuance of an unlimited number of
portfolios and shares of each portfolio, each of which represents an equal
proportionate interest in the portfolio with each other share. Shares are
entitled upon liquidation to a pro rata share in the net assets of the
portfolio. Shareholders have no preemptive rights. The Declaration of Trust
provides that the Trustees of the Trust may create additional series of shares.
All consideration received by the Trust for shares of any additional
S-21
<PAGE>
series and all assets in which such consideration is invested would belong to
that series and would be subject to the liabilities related thereto. Share
certificates representing shares will not be issued.
SHAREHOLDER LIABILITY
The 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.
YEAR 2000
The Trust depends on the smooth functioning of computer systems in almost
every aspect of its business. Like other mutual funds, businesses and
individuals around the world, the Trust could be adversely affected if the
computer systems used by its service providers do not properly process dates on
and after January 1, 2000 and distinguish between the year 2000 and the year
1900. The Trust has asked its service providers whether they expect to have
their computer systems adjusted for the year 2000 transition, and received
assurances from each that its system is expected to accommodate the year 2000
without material adverse consequences to the Trust. The Trust and its
shareholders may experience losses if these assurances prove to be incorrect or
as a result of year 2000 computer difficulties experienced by issuers of
portfolio securities or third parties, such as custodians, banks, broker-dealers
or others with which the Trust does business.
5% AND 25% SHAREHOLDERS
As of February 1, 1999, the following persons were the only persons who were
record owners (or to the knowledge of the Trust, beneficial owners) of 5% and
25% or more of the Fund's shares. Persons who owned of record or beneficially
more than 25% of the Fund's outstanding shares may be deemed to control the Fund
within the meaning of the Act.
The Trust believes that most of the shares referred to above were held for
the record owner's fiduciary, agency or custodial customers.
S-22
<PAGE>
EXPERTS
The financial statements of the Trust 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 for the fiscal period beginning November 1, 1997
and ended October 31, 1998, including notes thereto and the report of Arthur
Andersen LLP thereon, are herein incorporated by reference in reliance upon the
authority of said firm as experts in giving said report. A copy of the 1998
Annual Report to Shareholders must accompany the delivery of this Statement of
Additional Information.
S-23
<PAGE>
THE ADVISORS' INNER CIRCLE FUND
Class A Shares and Institutional Shares
PROSPECTUS
MARCH 1, 1999
CRA REALTY SHARES PORTFOLIO
INVESTMENT ADVISER: CRA REAL ESTATE SECURITIES, L.P.
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED ANY
PORTFOLIO SHARES OR DETERMINED WHETHER THIS PROSPECTUS
IS ACCURATE OR COMPLETE.
IT IS A CRIME FOR ANYONE TO TELL YOU OTHERWISE.
Page 1 of 24
<PAGE>
HOW TO READ THIS PROSPECTUS
This prospectus gives you important information about the Class A Shares and
Institutional Shares of the CRA Realty Shares Portfolio (Portfolio) that you
should know before investing. Please read this prospectus and keep it for
future reference. This prospectus has been arranged into different sections so
that you can easily review this important information. On the next page, there
is some general information you should know about the Portfolio.
FOR MORE DETAILED INFORMATION ABOUT THE PORTFOLIO:
<TABLE>
PAGE
<S> <C>
PRINCIPAL INVESTMENT STRATEGIES AND RISKS,
PERFORMANCE INFORMATION AND EXPENSES 5
MORE INFORMATION ABOUT RISK 9
EACH PORTFOLIO'S OTHER INVESTMENTS 10
THE INVESTMENT ADVISER AND PORTFOLIO MANAGER 11
PURCHASING AND SELLING PORTFOLIO SHARES 12
DIVIDENDS, DISTRIBUTIONS AND TAXES 20
FINANCIAL HIGHLIGHTS 22
HOW PORTFOLIO SHARES ARE DISTRIBUTED 23
HOW TO OBTAIN MORE INFORMATION ABOUT THE
CRA REALTY SHARES PORTFOLIO 23
</TABLE>
Page 2 of 24
<PAGE>
Introduction
The Portfolio is a mutual fund. A mutual fund pools shareholders' money and,
using professional investment managers, invests it in securities.
The Portfolio has its own investment goal and strategies for reaching that goal.
The Adviser invests Portfolio assets in a way that the Adviser believes will
help the Portfolio achieve its goal. Still, investing in the Portfolio involves
risks and there is no guarantee that a Portfolio will achieve its goal. The
Adviser's judgments about the markets, the economy, or companies may not
anticipate actual market movements, economic conditions or company performance,
and these judgments may affect the return on your investment. In fact, no
matter how good a job the Adviser does, you could lose money on your investment
in the Portfolio, just as you could with other investments.
The value of your investment in the Portfolio is based on the market value of
the securities the Portfolio holds. These prices change daily due to economic
and other events that affect particular companies and other issuers. These
price movements, sometimes called volatility, may be greater or lesser depending
on the types of securities the Portfolio owns and the markets in which they
trade. The effect on the Portfolio of a change in the value of a single
security will depend on how widely the Portfolio diversifies its holdings.
Page 3 of 24
<PAGE>
CRA Realty Shares Portfolio
PORTFOLIO SUMMARY
Investment Goal Total return through a combination of
income and long-term capital
appreciation
Investment Focus Equity securities of real estate
companies
Share Price Volatility Medium
Principal Investment Strategy Investing in dividend paying equity
securities of real estate companies
Investor Profile Investors who seek long-term capital
appreciation and income through
exposure to the real estate industry
and who can accept the greater risk of
volatility inherent in a narrowly
focused fund
INVESTMENT STRATEGY OF THE CRA REALTY SHARES PORTFOLIO
The Portfolio invests primarily in income-producing equity securities of U.S.
real estate investment trusts (REITs) and real estate companies. The Adviser
uses systematic, top-down research to evaluate property market conditions and
trends to judge which market sectors offer potentially attractive returns. The
Adviser uses proprietary analytical techniques to identify the securities which
it believes will provide an above-average dividend yield.
The Portfolio investment approach, with its emphasis on investments in companies
primarily engaged in the real estate industry, is expected to produce a total
return that is closely tied to the performance of the market for publicly traded
real estate companies, including REITs, which is a narrow segment of the overall
U.S. stock market.
Page 4 of 24
<PAGE>
PRINCIPAL RISKS OF INVESTING IN THE CRA REALTY SHARES PORTFOLIO
The Portfolio is subject to the risk that stock prices will fall over short or
extended periods of time. The equity markets move in cycles, and the value of
the Portfolio's equity securities may fluctuate drastically from day-to-day.
Individual companies may report poor results or be negatively affected by
industry and/or economic trends and developments. The prices of securities
issued by such companies may suffer a decline in response.
The Portfolio is subject to the risk that the relatively few securities of
issuers in the same industry that the Portfolio purchases will underperform the
market as a whole. To the extent that the Portfolio's investments are
concentrated in issuers conducting business in the real estate industry, the
Portfolio is subject to legislative or regulatory changes, adverse market
conditions and/or increased competition affecting that industry.
Since the Portfolio's investments are focused on a single economic sector, it is
subject to the risk that the real estate sector will underperform the broader
market, as well as the risk that issuers in that sector will be impacted by
market conditions, legislative or regulatory changes, or competition.
The Portfolio is also subject to the risk that its market segment, equity income
securities of real estate companies, may underperform other equity market
segments or the equity markets as a whole.
The Portfolio is non-diversified, which means that it may invest in the
securities of relatively few issuers. As a result, the Portfolio may be more
susceptible to a single adverse economic or political occurrence affecting one
or more of these issuers, and may experience increased volatility due to its
investments in those securities.
PERFORMANCE INFORMATION
The bar chart and the performance table below illustrate the risks and
volatility of an investment in the Portfolio. Of course, the Portfolio's past
performance does not necessarily indicate how the Portfolio will perform in the
future.
The performance of Class A Shares and Institutional Shares will differ slightly
due to differences in expenses. As of December 31, 1998, Class A Shares were
not available to investors.
This bar chart shows changes in the performance of the Portfolio's Institutional
Shares.
Page 5 of 24
<PAGE>
The chart does not reflect sales charges. If sales charges had been reflected,
returns would be less than those shown below.
THIS TABLE COMPARES THE PORTFOLIO'S AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS
ENDING DECEMBER 31, 1998 TO THOSE OF THE S&P 500 INDEX AND THE WILSHIRE REAL
ESTATE SECURITIES INDEX.
<TABLE>
<CAPTION>
----------------------------------------------------------------------
INSTITUTIONAL SHARES 1 YEAR SINCE INCEPTION
----------------------------------------------------------------------
<S> <C> <C>
CRA Realty Shares Portfolio X.XX% X.XX%
----------------------------------------------------------------------
S&P 500 Index X.XX% X.XX%*
----------------------------------------------------------------------
Wilshire Real Estate
Securities Index X.XX% X.XX%**
----------------------------------------------------------------------
</TABLE>
*SINCE [INCEPTION DATE]
**SINCE [CALC. DATE FOR INDEX]
WHAT IS AN INDEX?
An index measures the market prices of a specific group of securities in a
particular market or securities in a market sector. You cannot invest directly
in an index. Unlike a mutual fund, an index does not have an investment Adviser
and does not pay any commissions or expenses. If an index had expenses, its
performance would be lower.
The S&P 500 Index is a widely-recognized, market value-weighted (higher market
value stocks have more influence than lower market value stocks) index of 500
stocks designed to mimic the overall equity market's industry weightings. Most,
but not all, large capitalization stocks are in the index. There are also some
small capitalization stocks in the index. Stocks included in the index are
mostly NYSE listed companies, with some AMEX and Nasdaq Stock Market stocks.
The Wilshire Real Estate Securities Index is a market capitalization weighted
index of publicly traded real estate securities, such as real estate investment
trusts (REITs), real estate operating companies (REOCs) and partnerships. The
index is comprised of companies whose charter is the equity ownership and
operation of commercial real estate.
CRA REALTY SHARES PORTFOLIO
Page 6 of 24
<PAGE>
PORTFOLIO FEES AND EXPENSES
THIS TABLE DESCRIBES THE SHAREHOLDER FEES THAT YOU MAY PAY IF YOU PURCHASE OR
SELL PORTFOLIO SHARES. YOU WOULD PAY THESE FEES DIRECTLY FROM YOUR INVESTMENT
IN THE PORTFOLIO.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
CLASS A SHARES INSTITUTIONAL SHARES
- --------------------------------------------------------------------------------
<S> <C> <C>
Maximum Sales Charge 4.25% None
(Load) Imposed on
Purchases (as a
percentage of offering
price)
- --------------------------------------------------------------------------------
Maximum Deferred Sales None None
Charge (Load) (as a
percentage of net asset
value)
- --------------------------------------------------------------------------------
Maximum Sales Charge None None
(Load) Imposed or
Reinvested Dividends and
other Distributions (as a
percentage of offering
price)
- --------------------------------------------------------------------------------
Redemption Fee (as a None 0.75%
percentage of amount
redeemed)
- --------------------------------------------------------------------------------
</TABLE>
EVERY MUTUAL FUND HAS OPERATING EXPENSES TO PAY FOR SERVICES SUCH AS
PROFESSIONAL ADVISORY, SHAREHOLDER, DISTRIBUTION, ADMINISTRATION AND CUSTODY
SERVICES AND OTHER COSTS OF DOING BUSINESS. THIS TABLE DESCRIBES THE HIGHEST
FEES AND EXPENSES THAT YOU MAY PAY INDIRECTLY IF YOU HOLD SHARES OF THE
PORTFOLIO.
ANNUAL PORTFOLIO OPERATING EXPENSES
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
CLASS A SHARES INSTITUTIONAL SHARES
- ----------------------------------------------------------------------------------------
<S> <C> <C>
Investment Advisory Fees .XX% .XX%
- ----------------------------------------------------------------------------------------
Distribution and Service (12b-1) Fees .XX% .XX%
- ----------------------------------------------------------------------------------------
Other Expenses .XX% .XX%
---- ----
- ----------------------------------------------------------------------------------------
Total Annual Fund Operating Expenses X.XX% X.XX%
- ----------------------------------------------------------------------------------------
</TABLE>
The table shows the highest expenses that could be currently charged to the
Portfolio. Actual expenses are lower because the Adviser is voluntarily waiving
a portion of its fees. Actual Investment Advisory Fees and Total Operating
Expenses are [ %] and [ %], respectively. The
Page 7 of 24
<PAGE>
Adviser could discontinue this voluntary waivers at any time. For more
information about these fees, see "Investment Adviser" and "Distribution of
Portfolio Shares."
EXAMPLE
This Example is intended to help you compare the cost of investing in the
Portfolio with the cost of investing in other mutual funds. The Example assumes
that you invest $10,000 in the Portfolio for the time periods indicated and that
you sell your shares at the end of the period.
The Example also assumes that each year your investment has a 5% return and
Portfolio expenses remain the same. Although your actual costs and returns
might be different, your approximate costs of investing $10,000 in the Portfolio
would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A Shares $XXX $XXX $XXX $XXX
Institutional Shares $XXX $XXX $XXX $XXX
</TABLE>
Page 8 of 24
<PAGE>
MORE INFORMATION ABOUT RISK
EQUITY RISK - The Portfolio may invest in public and
privately issued equity securities, including common and
preferred stocks, warrants, rights to subscribe to common
stock and convertible securities, as well as instruments that
attempt to track the price movement of equity indices.
Investments in equity securities and equity derivatives in
general are subject to market risks that may cause their
prices to fluctuate over time. The value of securities
convertible into equity securities, such as warrants or
convertible debt, is also affected by prevailing interest
rates, the credit quality of the issuer and any call
provision. Fluctuations in the value of equity securities in
which the Portfolio invest will cause the net asset value of
the Portfolio to fluctuate. An investment in the Portfolio
may be more suitable for long-term investors who can bear
the risk of share price fluctuations.
REAL ESTATE INVESTING - The Portfolio will invest in the
securities of REITs and companies principally engaged in
the real estate industry. These investments may subject
the Portfolio to the risks associated with the direct
ownership of real estate. Equity REITs may be affected
by changes in the value of the underlying property owned
by the REITs, while Mortgage REITs may be affected by
the quality of credit extended. In addition to these risks,
REITs are dependent on specialized management skills
and some REITs may have investments in relatively few
properties, or in a small geographic area or a single type of
property. These factors may increase the volatility of the
Portfolio's investments in REITs.
YEAR 2000 RISK - The Portfolio depends on the smooth
functioning of computer systems in almost every aspect of
their business. Like other mutual funds, businesses and
individuals around the world, the Portfolio could be
adversely affected if the computer systems used by its
Page 9 of 24
<PAGE>
service providers do not properly process dates on and
after January 1, 2000, and distinguish between the year
2000 and the year 1900. The Portfolio has asked its
service providers whether they expect to have its computer
systems adjusted for the year 2000 transition, and is
seeking assurances from each service provider that they
are devoting significant resources to prevent material
adverse consequences to the Portfolio. While it is likely
that such assurances will be obtained, the Portfolio and its
shareholders may experience losses if these assurances
prove to be incorrect or as a result of year 2000 computer
difficulties experienced by issuers of portfolio securities or
third parties, such as custodians, banks, broker-dealers or
others with which the Portfolio does business.
THE PORTFOLIO'S OTHER INVESTMENTS
In addition to the investments and strategies described in this prospectus, the
Portfolio also may invest in other securities, use other strategies and engage
in other investment practices, which are described in detail in our Statement of
Additional Information. Of course, we cannot guarantee that the Portfolio will
achieve its investment goal.
The investments and strategies described in this prospectus are those that we
use under normal conditions. During unusual economic or market conditions, or
for temporary defensive or liquidity purposes, each Portfolio may invest up to
100% of its assets in cash and money market instruments that would not
ordinarily be consistent with the Portfolio's objectives. The Portfolio will do
so only if the Adviser believes that the risk of loss outweighs the opportunity
for capital gains or higher income.
Page 10 of 24
<PAGE>
INVESTMENT ADVISER
The Investment Adviser makes investment decisions for the Portfolio and
continuously reviews, supervises and administers its Portfolio's investment
program. The Board of Trustees supervises the Adviser and establishes policies
that the Adviser must follow in its management activities.
CRA Real Estate Securities, L.P., serves as the Adviser to the CRA Realty Shares
Portfolio. As of December 31, 1998, the Adviser had approximately $___ in
assets under management. For the fiscal period ended October 31, 1998, CRA Real
Estate Securities, L.P. received advisory fees of:
CRA REALTY SHARES
PORTFOLIO ___%
The Adviser may use its affiliates as brokers for Portfolio transactions.
PORTFOLIO MANAGERS
Kenneth D. Campbell has served as Chairman, Co-Chief Investment Officer and
Co-Portfolio Manager of CRA Real Estate Securities, L.P. since 1969. He has
co-managed the CRA Realty Shares Portfolio since its inception. He has more
than 29 years of investment experience. Prior to joining the Adviser, Mr.
Campbell had managed real estate securities portfolios since 1980 for a select
number of institutional and individual accounts.
T. Ritson Ferguson, CFA has served as President, Co-Chief Investment Officer and
Co-Portfolio Manager of CRA Real Estate Securities, L.P. since 1992. He has
co-managed the CRA Realty Shares Portfolio since its inception. He has more
than 12 years of investment experience. Prior to joining the Adviser, Mr.
Ferguson gained extensive direct real estate investment experience at Radnor
Advisers and Trammell Crow Company where he was involved with acquisition,
development and management of commercial real estate since 1986.
Page 11 of 24
<PAGE>
PURCHASING PORTFOLIO SHARES
HOW TO PURCHASE PORTFOLIO SHARES
You may purchase shares by:
- - Mail
- - Telephone, or
- - Wire
You may purchase shares on any day that the New York Stock Exchange is open for
business (a Business Day).
To purchase shares directly from us, please call 1-800-808-4921. Write your
check, payable in U.S. dollars, to "CRA Realty Shares Portfolio". We cannot
accept third-party checks, credit cards, credit card checks or cash. You may
also purchase shares through authorized brokers and dealers or other
financial institutions that have executed dealer agreements. We may reject
any purchase order if we determine that accepting the order would not be in
the best interests of the Portfolio or its shareholders.
The price per share (the offering price) will be the net asset value per share
(NAV) next determined after we receive your purchase order, plus, in the case of
Class A Shares, the applicable front-end sales charge.
We calculate the Portfolio's NAV once each Business Day at the
regularly-scheduled close of normal trading on the New York Stock Exchange
(normally, 4:00 p.m. Eastern time). So, for you to receive the current Business
Day's NAV, generally we must receive your purchase order before 4:00 p.m.
Eastern time.
Certain investors who deal with a financial institution or financial
intermediary will have to follow the institution's or intermediary's procedures
for transacting with the Portfolio. If you purchase or sell Portfolio shares
through a financial institution (rather than directly from us), you may have to
transmit your purchase and sale requests to your financial institution at an
earlier time for your transaction to become effective that day. This allows the
financial institution time to process your request and transmit it to us. For
more information about how to purchase or sell
Page 12 of 24
<PAGE>
Portfolio shares through your financial institution, you should contact your
financial institution directly.
How We Calculate NAV
NAV for one Portfolio share is the value of that share's portion of all of the
assets in the Portfolio.
In calculating NAV, we generally value the Portfolio's investment portfolio at
market price. If market prices are unavailable or we think that they are
unreliable, fair value prices may be determined in good faith using methods
approved by the Board of Trustees.
MINIMUM PURCHASES
To purchase shares for the first time, you must invest at least:
<TABLE>
<S> <C>
Class A Shares $5,000
Institutional Shares $100,000
</TABLE>
We may accept investments of smaller amounts for either class of shares at our
discretion.
SYSTEMATIC INVESTMENT PLAN
You may purchase shares of either class automatically through regular deductions
by Automated Clearing House (ACH) from your checking or savings account of at
least $50 per month.
Page 13 of 24
<PAGE>
SALES CHARGES
FRONT-END SALES CHARGES - CLASS A SHARES
The offering price of Class A Shares is the NAV next calculated after we receive
your request, plus the front-end sales load.
The amount of any front-end sales charge included in your offering price varies,
depending on the amount of your investment:
<TABLE>
<CAPTION>
YOUR SALES CHARGE AS A YOUR SALES CHARGE AS A
PERCENTAGE OF OFFERING PERCENTAGE OF YOUR NET
IF YOUR INVESTMENT IS: PRICE INVESTMENT
- --------------------------------------------------------------------------------
<S> <C> <C>
Less than $50,000 4.75% X.XX%
$50,000 to $99,999 4.00% X.XX%
$100,000 to $249,999 3.50% X.XX%
$250,000 to $499,999 2.75% X.XX%
$500,000 to $999,999 2.00% X.XX%
$1,000,000 and over 0.00% X.XX%
</TABLE>
WAIVER OF FRONT-END SALES CHARGE -CLASS A SHARES
The front-end sales charge will be waived on Class A Shares purchased:
- - by reinvestment of dividends and distributions;
- - by employees, and members of their immediate family, of CRA Real Estate
Securities, L.P. and its affiliates;
- - by Trustees and officers of The Advisors' Inner Circle Fund; or
- - through dealers, retirement plans, asset allocation programs and financial
institutions that have entered into an agreement with the Portfolio's
administrator or its affiliates.
REDUCED SALES CHARGES - CLASS A SHARES
Page 14 of 24
<PAGE>
RIGHTS OF ACCUMULATION. In calculating the appropriate sales charge rate, this
right allows you to add the value of the Class A Shares you already own to the
amount that you are currently purchasing. We will combine the value of your
current purchases with the current value of any Class A Shares you purchased
previously for (i) your account, (ii) your spouse's account, (iii) a joint
account with your spouse, or (iv) your minor children's trust or custodial
accounts. A fiduciary purchasing shares for the same fiduciary account, trust
or estate may also use this right of accumulation. We will only consider the
value of Class A Shares purchased previously that were sold subject to a sales
charge. TO BE ENTITLED TO A REDUCED SALES CHARGE BASED ON SHARES ALREADY OWNED,
YOU MUST ASK US FOR THE REDUCTION AT THE TIME OF PURCHASE. You must provide us
with your account number(s) and, if applicable, the account numbers for your
spouse and/or children (and provide the children's ages). We may amend or
terminate this right of accumulation at any time.
LETTER OF INTENT. You may purchase Class A Shares at the sales charge rate
applicable to the total amount of the purchases you intend to make over a
13-month period. In other words, a Letter of Intent allows you to purchase
Class A Shares of the Portfolio over a 13-month period and receive the same
sales charge as if you had purchased all the shares at the same time. We will
only consider the value of Class A Shares sold subject to a sales charge. As a
result, shares of the Class A Shares purchased with dividends or distributions
will not be included in the calculation. To be entitled to a reduced sales
charge based on shares you intend to purchase over the 13-month period, you must
send us a Letter of Intent. In calculating the total amount of purchases you may
include in your letter purchases made up to 90 days before the date of the
Letter. The 13-month period begins on the date of the first purchase, including
those purchases made in the 90-day period before the date of the Letter. Please
note that the purchase price of these prior purchases will not be adjusted.
You are not legally bound by the terms of your Letter of Intent to purchase the
amount of your shares stated in the Letter. The Letter does, however, authorize
us to hold in escrow 4.0% of the total amount you intend to purchase. If you do
not complete the total intended purchase at the end of the 13-month period, the
transfer agent will redeem the necessary portion of the escrowed shares to make
up the difference between the reduced rate sales charge (based on the amount you
intended to purchase) and the sales charge that would normally apply (based on
the actual amount you purchased).
COMBINED PURCHASE/QUANTITY DISCOUNT PRIVILEGE. When calculating the appropriate
sales charge rate, we will combine same day purchases of Class A Shares (that
are subject to a sales charge) made by you, your spouse and your minor children
(under age 21). This combination also applies to Class A Shares you purchase
with a Letter of Intent.
From time to time, some financial institutions, including brokerage firms
affiliated with the Adviser or the Distributor may be reallowed up to the entire
sales charge. Firms that receive a
Page 15 of 24
<PAGE>
reallowance of the entire sales charge may be considered underwriters for the
purpose of federal securities law.
The Distributor may, from time to time in its sole discretion, institute one or
more promotional incentive programs for dealers, which will be paid for by the
Distributor from any sales charge it receives or from any other source available
to it. Under any such program, the Distributor may provide incentives, in the
form of cash or other compensation, including merchandise, airline vouchers,
trips and vacation packages, to dealers selling shares of the Portfolio.
SELLING PORTFOLIO SHARES
HOW TO SELL YOUR PORTFOLIO SHARES
You may sell (sometimes called "redeem") your shares on any Business Day by
contacting us directly by mail or telephone by calling 1-800-808-4921.
If you would like your sale proceeds to be sent to a third-party or an address
other than your own, please notify us in writing and include a signature
guarantee (a notarized signature is not sufficient).
The sale price of each share will be the next NAV determined after we receive
your request.
SYSTEMATIC WITHDRAWAL PLAN
If you have at least $25,000 in your account, you may use the systematic
withdrawal plan. Under the plan you may arrange monthly, quarterly, semi-annual
or annual automatic withdrawals of at least $100 from the Portfolio. The
proceeds of each withdrawal will be mailed to you by check, electronically
transferred to your checking or savings account by Federal Reserve wire or ACH
wire transfer.
Page 16 of 24
<PAGE>
Receiving Your Money
Normally, we will send your sale proceeds within seven Business Days after we
receive your request. Your proceeds can be wired to your bank account (subject
to a $10.00 fee) or sent to you by check. IF YOU RECENTLY PURCHASED YOUR SHARES
BY CHECK OR THROUGH ACH, REDEMPTION PROCEEDS MAY NOT BE AVAILABLE UNTIL YOUR
CHECK HAS CLEARED (WHICH MAY TAKE UP TO 15 BUSINESS DAYS).
Redemption Fee (Institutional Shares)
We charge a redemption fee of 0.75% on redemptions of Institutional Shares that
have been held less than six months. The fee will be deducted from your sale
proceeds and cannot be paid separately. The fee does not apply to shares
purchased with reinvested dividends or distributions. The redemption fee is
designed to discourage short-term trading and any proceeds of the fee will be
credited to the assets of the Portfolio.
Redemptions in Kind
We generally pay sale (redemption) proceeds in cash. However, under unusual
conditions that make the payment of cash unwise (and for the protection of the
Portfolio's remaining shareholders) we might pay all or part of your redemption
proceeds in liquid securities with a market value equal to the redemption price
(redemption in kind). It is highly unlikely that your shares would ever be
redeemed in kind but if they were you would probably have to pay transaction
costs to sell the securities distributed to you, as well as taxes on any capital
gains from the sale as with any redemption.
INVOLUNTARY SALES OF YOUR SHARES
If your account balance drops below the required minimum because of redemptions
you may be required to sell your shares. The account balance minimums are:
<TABLE>
<S> <C>
Class A Shares $5,000
Institutional Shares $100,000
</TABLE>
Page 17 of 24
<PAGE>
But, we will always give you at least 60 days' written notice to give you time
to add to your account and avoid the sale of your shares.
SUSPENSION OF YOUR RIGHT TO SELL YOUR SHARES
We may suspend your right to sell your shares if the NYSE restricts trading, the
SEC declares an emergency or for other reasons. More information about this is
in our Statement of Additional Information.
TELEPHONE TRANSACTIONS
Purchasing, selling and exchanging Portfolio shares over the telephone is
extremely convenient, but not without risk. Although we have certain safeguards
and procedures to confirm the identity of callers and the authenticity of
instructions, we are not responsible for any losses or costs incurred by
following telephone instructions we reasonably believe to be genuine. If you or
your financial institution transact with us over the telephone, you will
generally bear the risk of any loss.
Page 18 of 24
<PAGE>
DISTRIBUTION OF PORTFOLIO SHARES
The Portfolio has adopted a distribution plan that allows the Portfolio to pay
and distribute fees for the sale and distribution of their shares, and for
services provided to Class A shareholders. Because these fees are paid out of
the Portfolio's assets continuously, over time these fees will increase the cost
of your investment and may cost you more than paying other types of sales
charges.
Distribution and service fees, as a percentage of average daily net assets are
0.25% for Class A Shares.
Page 19 of 24
<PAGE>
OTHER INFORMATION
DIVIDENDS AND DISTRIBUTIONS
The Portfolio distributes its income in the form of quarterly dividends and
makes distributions of capital gains, if any, at least annually. If you own
Portfolio shares on the Portfolio's record date, you will be entitled to receive
the distribution.
You will receive dividends and distributions in the form of additional Portfolio
shares unless you elect to receive payment in cash. To elect cash payment, you
must notify us in writing prior to the date of the distribution. Your election
will be effective for dividends and distributions paid after we receive your
written notice. To cancel your election, simply send us written notice.
TAXES
PLEASE CONSULT YOUR TAX ADVISER REGARDING YOUR SPECIFIC QUESTIONS ABOUT FEDERAL,
STATE AND LOCAL INCOME TAXES. Below we have summarized some important tax issues
that affect the Portfolio and its shareholders. This summary is based on
current tax laws, which may change.
The Portfolio will distribute substantially all of its income and capital gains,
if any. The dividends and distributions you receive may be subject to federal,
state and local taxation, depending upon your tax situation. Distributions you
receive from the Portfolio may be taxable whether or not you reinvest them.
Capital gains distributions may be taxable at different rates depending on the
length of time the Portfolio holds its portfolio securities. YOU MAY BE TAXED ON
EACH SALE OF PORTFOLIO SHARES.
IMPORTANT NOTE ON TAX REPORTING FOR THE PORTFOLIO
- - A large portion of the dividends paid by REITs may represent a "return of
capital." Consequently, a portion of the Portfolio's distributions may
also represent a return of capital. Return of capital distributions are
not taxable to you, but you must deduct them from the cost basis of your
investment in the Portfolio. Returns of capital are listed as "nontaxable
distributions" on Form 1099-DIV.
Page 20 of 24
<PAGE>
- - REITs typically do not indicate what portion of their dividends represent
return of capital in time for the Portfolio to meet its January 31 deadline
for sending 1099-DIV forms to investors. To ensure that you receive
accurate and complete tax information, we will send your 1099-DIV for the
Portfolio in February (subject to IRS approval).
MORE INFORMATION ABOUT TAXES IS IN OUR STATEMENT OF ADDITIONAL INFORMATION.
Page 21 of 24
<PAGE>
FINANCIAL HIGHLIGHTS
The table that follows presents performance information about the Institutional
Shares of the Portfolio. This information is intended to help you understand
the Portfolio's financial performance for the past five years, or, if shorter,
the period of the Portfolio's operations. Some of this information reflects
financial information for a single Portfolio share. The total returns in the
table represent the rate that you would have earned (or lost) on an investment
in the Portfolio, assuming you reinvested all of your dividends and
distributions. As of October 31, 1998, Class A Shares were not available to
investors.
This information has been audited by Arthur Andersen LLP, independent public
accountants. Their report, along with the Portfolio's financial statements,
appears in the annual report that accompanies our Statement of Additional
Information. You can obtain the annual report, which contains more performance
information, at no charge by calling 1-888-712-1103.
Page 22 of 24
<PAGE>
THE ADVISORS' INNER CIRCLE FUND
CRA REALTY SHARES PORTFOLIO
INVESTMENT ADVISER
CRA Real Estate Securities, L.P.
259 North Radnor-Chester Road
Suite 205
Radnor, Pennsylvania 19087
DISTRIBUTOR
SEI Investments Distribution Co.
One Freedom Valley Drive
Oaks, Pennsylvania 19456
LEGAL COUNSEL
Morgan, Lewis & Bockius LLP
1800 M Street, N.W.
Washington, DC 20036
More information about the Portfolio is available without charge through the
following:
STATEMENT OF ADDITIONAL INFORMATION (SAI)
---------------------------------------
Our SAI dated March 1, 1999, includes detailed information about The
Advisors' Inner Circle Fund and the CRA Realty Shares Portfolio. The SAI is
on file with the SEC and is incorporated by reference into this prospectus.
This means that the SAI, for legal purposes, is a part of this prospectus.
ANNUAL AND SEMI-ANNUAL REPORTS
---------------------------------------
These reports list the Portfolio's holdings and contain information from the
Portfolio's managers about strategies, and recent market conditions and trends.
The reports also contain detailed financial information about the Portfolio.
TO OBTAIN MORE INFORMATION:
Page 23 of 24
<PAGE>
BY TELEPHONE: CALL
1-888-712-1103
BY MAIL: Write to us
CRA Realty Shares Portfolio
c/o The Advisors' Inner Circle Fund
P.O. Box 419009
Kansas City, Missouri 64141-6009
BY E-MAIL:
www.crainvest.com
- -----------------
FROM THE SEC: You can also obtain the SAI or the Annual and Semi-annual
reports, as well as other information about The Advisors' Inner Circle Fund,
from the SEC's website ("http://www.sec.gov"). You may review and copy documents
at the SEC Public Reference Room in Washington, DC (for information call
1-800-SEC-0330). You may request documents by mail from the SEC, upon payment
of a duplicating fee, by writing to: Securities and Exchange Commission, Public
Reference Section, Washington, DC 20549-6009. The Fund's Investment Company Act
registration number is 811-6400.
Page 24 of 24
<PAGE>
FUND:
THE ADVISORS' INNER CIRCLE FUND
Portfolio:
CRA Realty Shares Portfolio
Investment Adviser:
CRA Real Estate Securities, L.P.
This STATEMENT OF ADDITIONAL INFORMATION is not a prospectus and relates
only to the CRA Realty Shares Portfolio (the "Portfolio"). It is intended to
provide additional information regarding the activities and operations of The
Advisors' Inner Circle Fund (the "Fund") and the Portfolio and should be read in
conjunction with the Portfolio's Prospectus dated March 1, 1999. The Prospectus
for the Portfolio may be obtained by calling 1-888-712-1103.
TABLE OF CONTENTS
<TABLE>
<S> <C>
The Fund.................................................................. S-2
Investment Objectives and Policies........................................ S-2
General Investment Policies............................................... S-3
Description of Permitted Investments...................................... S-4
Investment Limitations.................................................... S-12
The Adviser............................................................... S-13
The Administrator......................................................... S-14
The Distributor........................................................... S-15
The Transfer Agent........................................................ S-16
The Custodian............................................................. S-16
Independent Public Accountants............................................ S-16
Legal Counsel............................................................. S-16
Trustees and Officers of The Fund......................................... S-16
Performance Information................................................... S-19
Calculation of Total Return............................................... S-19
Purchasing Shares......................................................... S-19
Redeeming of Shares....................................................... S-20
Determination of Net Asset Value.......................................... S-20
Taxes..................................................................... S-20
Portfolio Transactions.................................................... S-22
Trading Practices and Brokerage........................................... S-23
Description of Shares..................................................... S-25
Shareholder Liability..................................................... S-25
Limitation of Trustees' Liability......................................... S-25
Year 2000................................................................. S-26
5% and 25% Shareholders................................................... S-26
Experts................................................................... S-27
Financial Statements...................................................... S-27
Appendix.................................................................. A-1
</TABLE>
March 1, 1999
[CRA-F-002-02]
<PAGE>
THE FUND
This Statement of Additional Information relates only to the CRA Realty
Shares Portfolio (the "Portfolio"). The Portfolio is a separate series of The
Advisors' Inner Circle Fund (the "Fund"), an open-end investment management
company that offers shares of diversified and non-diversified portfolios,
established under Massachusetts law as a Massachusetts business trust under a
Declaration of Trust dated July 18, 1991. The Declaration of Trust permits the
Fund to offer separate series ("portfolios") of shares of beneficial interest
("shares"). Each portfolio is a separate mutual fund, and each share of each
portfolio represents an equal proportionate interest in that portfolio. See
"Description of Shares." No investment in shares of a portfolio should be made
without first reading that portfolio's prospectus. Capitalized terms not defined
herein are defined in the Prospectus offering shares of the Portfolio.
The Portfolio pays its (i) operating expenses, including fees of its service
providers, expenses of preparing prospectuses, proxy solicitation material and
reports to shareholders, costs of custodial services and registering its shares
under federal and state securities laws, pricing and insurance expenses,
brokerage costs, interest charges, taxes and organization expenses and (ii) pro
rata share of the Fund's other expenses, including audit and legal expenses. The
Portfolio's expense ratios are disclosed under "Portfolio Fees and Expenses" in
the Prospectus.
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the Portfolio is total return through investment
in real estate securities. The Portfolio seeks to achieve its investment through
a combination of above-average income and long-term growth of capital by
investing primarily in income-producing common stocks of companies principally
engaged in the U.S. real estate industry, including Real Estate Investment
Trusts ("REITs"). The Portfolio seeks to invest in equity securities of real
estate companies that provide a dividend yield that generally exceeds the
composite dividend yield of securities comprising the S&P 500 Index. There is no
assurance that the Portfolio will achieve its investment objective.
The Portfolio invests primarily in income producing equity securities of
publicly traded companies principally engaged in the real estate industry ("real
estate companies"). Under normal circumstances, at least 65% of the Portfolio's
total assets will be invested in income producing equity securities of real
estate companies. Such equity securities are common stocks (including shares or
units of beneficial interest of REITs), rights or warrants to purchase common
stocks and preferred stock. For purposes of the Portfolio's investment policies,
a company is "principally engaged" in the real estate industry if (i) it derives
at least 50% of its revenues or profits from the ownership, construction,
management, financing or sale of residential, commercial or industrial real
estate, or (ii) it has at least 50% of the fair market value of its assets
invested in residential, commercial or industrial real estate. Companies
principally engaged in the real estate industry include REITs, master limited
partnerships ("MLPs"), and real estate owners, real estate managers, real estate
brokers and real estate dealers.
REAL ESTATE INVESTMENT TRUSTS--It is expected that the majority of the
Portfolio's total assets will be invested in securities issued by REITs. REITs
pool investors' funds for investment primarily in income producing real estate
or real estate related loans or interests. A REIT is not taxed at the federal
level on income distributed to its shareholders or unitholders if it complies
with regulatory requirements relating to its organization, ownership, assets and
income, and with a regulatory requirement that it distribute to its shareholders
or unitholders at least 95% of its taxable income for each taxable year.
Generally, REITs can be classified as Equity REITs or Mortgage REITs. Equity
REITs invest the majority of their assets directly in ownership of real property
and derive their income primarily from rental income. Equity REITs are further
categorized according to the types of real estate properties they own, E.G.,
apartment properties, retail shopping centers, office and industrial properties,
hotels, health-care facilities, manufactured housing and mixed-property types.
Mortgage REITs invest the majority of their assets in real estate mortgages and
derive their income primarily from interest payments on the credit they have
extended. The Portfolio will invest primarily in Equity REITs. Shareholders in
the Portfolio should realize
S-2
<PAGE>
that by investing in REITs indirectly through the Portfolio, they will bear not
only their proportionate share of the expenses of the Portfolio but also,
indirectly, the management expenses of underlying REITs.
The Portfolio may invest any remaining assets in debt securities issued or
guaranteed by real estate companies or secured by real estate assets and rated,
at time of purchase, in one of the four highest rating categories by a
nationally recognized statistical rating organization (an "NRSRO") or determined
by the Adviser to be of comparable quality at the time of purchase. Investment
grade securities are securities that are rated in one of the four highest rating
categories by an NRSRO. Securities rated in the lowest category of investment
grade securities have speculative characteristics. The Portfolio may also invest
in debt securities rated below investment grade (commonly known as "junk bonds")
although the Portfolio will not purchase such bonds if such investment would
cause more than 5% of its net assets to be so invested. Although there is no
lower limit to the rating assigned to a given security, in the event that a
security held by the Portfolio is downgraded below the stated rating categories,
the Adviser will review and take appropriate action with regard to the security.
The Portfolio anticipates that its annual portfolio turnover rate will not
exceed 100%, but the turnover rate will not be a limiting factor when the
Adviser deems portfolio changes appropriate. The turnover rate may vary greatly
from year to year. A high portfolio turnover rate may result in higher brokerage
commissions and higher levels of realized capital gains than if the turnover
rate was lower.
GENERAL INVESTMENT POLICIES
BORROWING
The Portfolio's fundamental investment limitations set forth the extent to
which the Portfolio may borrow money. However, the Portfolio's investment policy
further limits its borrowings as follows: (i) the Portfolio will not borrow
money except from banks for temporary or emergency purposes (E.G., to facilitate
orderly redemption of its shares while avoiding untimely disposition of
portfolio holdings); (ii) the Portfolio will not borrow money in excess of 10%
of the value of its total assets (excluding the amount borrowed), at the time of
the borrowing or (iii) mortgage, pledge or hypothecate any assets except to
secure permitted borrowings and then only in an amount not in excess of 15% of
the value of its total assets (excluding the amount borrowed) at the time of
such borrowings. The Portfolio will not borrow for the purpose of leveraging its
investment portfolio. The Portfolio may not purchase additional securities while
its outstanding borrowings exceed 5% of its total assets. The Portfolio's
investment policy with respect to borrowing may be changed by vote of the Board
of Trustees without a shareholder vote.
MONEY MARKET INSTRUMENTS; TEMPORARY DEFENSIVE INVESTMENTS
In order to meet liquidity needs, the Portfolio may hold cash reserves and
invest in money market instruments (including securities issued or guaranteed by
the United States Government, its agencies or instrumentalities, repurchase
agreements, certificates of deposit and bankers' acceptances issued by banks or
savings and loan associations having net assets of at least $500 million as of
the end of their most recent fiscal year and commercial paper) rated at time of
purchase in the top two categories by an NRSRO or determined to be of comparable
quality by the Adviser at the time of purchase.
For temporary defensive purposes when the Adviser determines that market
conditions warrant, the Portfolio may invest up to 100% of its assets in the
money market instruments described above and other long and short-term debt
instruments which are rated at time of purchase in the top two categories by an
NRSRO or determined to be of comparable quality by the Adviser at the time of
purchase, and may hold a portion of its assets in cash. To the extent the
Portfolio is engaged in temporary defensive investments, the Portfolio will not
be pursuing its investment objective.
S-3
<PAGE>
NON-PUBLICLY TRADED SECURITIES AND RESTRICTED SECURITIES; RULE 144A SECURITIES
The Portfolio may invest in securities that are neither listed on a stock
exchange nor traded over-the-counter, including privately placed securities.
Such unlisted equity securities may involve a higher degree of business and
financial risk that can result in substantial losses. As a result of the absence
of a public trading market for these securities, they may be less liquid than
publicly traded securities. Although these securities may be resold in privately
negotiated transactions, the prices realized from these sales could be less than
those originally paid by the Portfolio or less than what may be considered the
fair value of such securities. Furthermore, companies whose securities are not
publicly traded may not be subject to the disclosure and other investor
protection requirements which might be applicable if their securities were
publicly traded. If such securities are required to be registered under the
securities laws of one or more jurisdictions before being resold, the Portfolio
may be required to bear the expenses of registration. The Portfolio may not
invest more than 15% of its net assets in illiquid securities, including
securities for which there is not a readily available secondary market.
The Portfolio may invest in Restricted Securities that can be offered and
sold to qualified institutional buyers under Rule 144A under that Act ("144A
Securities"). The Board of Trustees has adopted guidelines and delegated to the
Adviser, subject to the supervision of the Board of Trustees, the daily function
of determining and monitoring the liquidity of 144A Securities. 144A Securities
may become illiquid if qualified institutional buyers are not interested in
acquiring the securities.
SECURITIES LENDING
The Portfolio may lend up to 33 1/3% of its total assets to qualified
investors for the purpose of realizing additional income; however, the Portfolio
has no present intention to lend its securities.
OPTIONS AND FUTURES
The Portfolio may purchase or write options, futures and options on futures
for the purpose of managing or hedging portfolio risks, to remain fully invested
and to reduce transaction costs. The Portfolio will not enter into futures
transactions for speculation or achieving leverage. Risks associated with
investing in options and futures may include lack of a liquid secondary market,
trading restrictions which may be imposed by an exchange, government regulations
which may restrict trading, an imperfect correlation between the prices of
securities held by the Portfolio and the price of an option or future.
The phrase "principally invests" as used in the prospectus means that the
Fund invests at least 65% of its assets in the securities as described in the
sentence.
DESCRIPTION OF PERMITTED INVESTMENTS
BANKERS' ACCEPTANCES--A bankers' acceptance is a bill of exchange or time
draft drawn on and accepted by a commercial bank. It is used by corporations to
finance the shipment and storage of goods and to furnish dollar exchange.
Maturities are generally six months or less.
CERTIFICATES OF DEPOSIT--A certificate of deposit is a negotiable,
interest-bearing instrument with a specific maturity. Certificates of deposit
are issued by banks and savings and loan institutions in exchange for the
deposit of funds, and normally can be traded in the secondary market prior to
maturity. Certificates of deposit have penalties for early withdrawal.
COMMERCIAL PAPER--Commercial paper is the term used to designate unsecured,
short-term promissory notes issued by corporations and other entities.
Maturities on these issues vary from a day to nine months.
CONVERTIBLE SECURITIES--Convertible securities are securities issued by
corporations that are exchangeable for a set number of another security at a
prestated price. The market value of a convertible
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security tends to move with the market value of the underlying stock. The value
of a convertible security is also affected by prevailing interest rates, the
credit quality of the issuer, and any call option provisions.
EQUITY SECURITIES--Equity securities represent ownership interests in a
company or corporation and include common stock, preferred stock, and warrants
and other rights to acquire such instruments. 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 Portfolio's net asset value.
FIXED INCOME SECURITIES--Fixed income securities are debt obligations issued
by corporations, municipalities and other borrowers. The market value of fixed
income investments will generally change in response to interest rate changes
and other factors. During periods of falling interest rates, the values of
outstanding fixed income securities generally rise. Conversely, during periods
of rising interest rates, the values of such securities generally decline.
Moreover, while securities with longer maturities tend to produce higher yields,
the prices of longer maturity securities are also subject to greater market
fluctuations as a result of changes in interest rates. Changes by recognized
agencies in the rating of any fixed income security and in the ability of an
issuer to make payments of interest and principal will also affect the value of
these investments. Changes in the value of portfolio securities will not affect
cash income derived from these securities but will affect the Portfolio's net
asset value.
FUTURE CONTRACTS AND OPTIONS ON FUTURE 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 purchase 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 Portfolio 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. They may also be used to minimize fluctuations in foreign
currencies or to gain exposure to a particular market or instrument. The
Portfolio 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 and for which there appears to be a liquid secondary market.
Index futures are futures contracts for various indices that are traded on
registered securities exchanges. An index futures contract obligates the seller
to deliver (and the purchaser to take) an amount of cash equal to a specific
dollar amount times the difference between the value of a specific index at the
close of the last trading day of the contract and the price at which the
agreement is made.
Although futures contracts by their terms call for actual delivery or
acceptance of the underlying securities, in most cases the contracts are closed
out before the settlement date without the making or taking of delivery. Closing
out an open futures position is done by taking an opposite position ("buying" a
contract which has previously been "sold" or "selling" a contract which has
previously been "purchased") in an identical contract to terminate the position.
Brokerage commissions are incurred when a futures contract is bought or sold.
Futures traders are required to make a good faith margin deposit in cash or
government securities with or for the account of a broker or custodian to
initiate and maintain open secondary market will exist for any particular
futures contract at any specific time. Thus, it may not be possible to close a
futures position. In the event of adverse price movements, the Portfolio would
continue to be required to make daily cash payments to maintain its required
margin. In such situations, if the Portfolio has insufficient cash, it may have
to sell portfolio securities to meet daily margin requirements at a time when it
may be disadvantageous to do so. In addition, the Portfolio may be required to
make delivery of the instruments underlying the futures contracts they hold. The
inability to close options and futures positions also could have an adverse
impact on the ability to effectively hedge the underlying securities.
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The risk of loss in trading futures contracts can be substantial, due both
to the low margin deposits required and the extremely high degree of leverage
involved in futures pricing. As a result, a relatively small price movement in a
futures contract may result in immediate and substantial loss (or gain) to the
Portfolio. For example, if at the time of purchase, 10% of the value of the
futures contract is deposited as margin, a subsequent 10% decrease in the value
of the futures contract would result in a total loss of the margin deposit,
before any deduction for the transaction costs, if the account were then closed
out. A 15% decrease would result in a loss equal to 150% of the original margin
deposit if the contract were closed out. Thus, a purchase or sale of a futures
contract may result in losses in excess of the amount invested in the contract.
However, because the Portfolio will be engaged in futures transactions only for
hedging purposes, the Adviser does not believe that the Portfolio will generally
be subject to the risks of loss frequently associated with futures transactions.
The Portfolio presumably would have sustained comparable losses if, instead of
the futures contract, they had invested in the underlying financial instrument
and sold it after the decline. The risk of loss from the purchase of options is
less as compared with the purchase or sale of futures contracts because the
maximum amount at risk is the premium paid for the option.
Utilization of futures transactions by the Portfolio does involve the risk
of imperfect or no correlation where the securities underlying futures contracts
have different maturities than the fund securities being hedged. It is also
possible that the Portfolio could both lose money on futures contracts and
experience a decline in value of its fund securities. There is also the risk of
loss by the Portfolio of margin deposits in the event of the bankruptcy of a
broker with whom the Portfolio has an open position in a futures contract or
related option.
Most futures exchanges limit the amount of fluctuation permitted in futures
contract prices during a single trading day. The daily limit establishes the
maximum amount that the price of a futures contract may vary either up or down
from the previous day's settlement price at the end of a trading session. Once
the daily limit has been reached in a particular type of contract, no trades may
be made on that day at a price beyond that limit. The daily limit governs only
price movement during a particular trading day and therefore does not limit
potential losses because the limit may prevent the liquidation of unfavorable
positions. Futures contract prices have occasionally moved to the daily limit
for several consecutive trading days with little or no trading, thereby
preventing prompt liquidation of future positions and subjecting some futures
traders to substantial losses.
ILLIQUID SECURITIES--Illiquid securities are securities that cannot be
disposed of within seven business days at approximately the price at which they
are being carried on the Fund's books. Illiquid securities include demand
instruments with a demand notice period exceeding seven days, securities for
which there is no secondary market, and repurchase agreements with durations
over 7 days in length.
LOWER RATED SECURITIES--The Portfolio may invest in lower rated securities.
Lower rated securities (I.E., high yield securities or "junk bonds") are more
likely to react to developments affecting market and credit risk than are more
highly rated securities, which primarily react to movements in the general level
of interest rates. Yields and market values of high yield securities will
fluctuate over time, reflecting not only changing interest rates but the
market's perception of credit quality and the outlook for economic growth. When
economic conditions appear to be deteriorating, medium to lower rated securities
may decline in value due to heightened concern over credit quality, regardless
of prevailing interest rates.. Lower rated securities are defined as securities
below the fourth highest rating category by a nationally recognized statistical
rating organization ("NRSRO"). Such obligations are speculative and may be in
default. There is no bottom limit on the ratings of high-yield securities that
may be purchased or held by the Portfolio.
CERTAIN RISK FACTORS RELATING TO HIGH-YIELD, HIGH-RISK SECURITIES. The
descriptions below are intended to supplement the discussion in the Prospectus
under "Risk Factors."
GROWTH OF HIGH-YIELD BOND, HIGH-RISK BOND MARKET. The widespread expansion
of government, consumer and corporate debt within the U.S. economy has made the
corporate sector more vulnerable to
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economic downturns or increased interest rates. Further, an economic downturn
could severely disrupt the market for lower rated bonds and adversely affect the
value of outstanding bonds and the ability of the issuers to repay principal and
interest.
SENSITIVITY TO INTEREST RATE AND ECONOMIC CHANGES. Lower rated bonds are
very sensitive to adverse economic changes and corporate developments. During an
economic downturn or substantial period of rising interest rates, highly
leveraged issuers may experience financial stress that would adversely affect
their ability to service their principal and interest payment obligations, to
meet projected business goals, and to obtain additional financing. If the issuer
of a bond defaulted on its obligations to pay interest or principal or entered
into bankruptcy proceedings, the Portfolio may incur losses or expenses in
seeking recovery of amounts owed to it. In addition, periods of economic
uncertainty and change can be expected to result in increased volatility of
market prices of high-yield, high-risk bonds and the Portfolio's net asset
value.
PAYMENT EXPECTATIONS. High-yield, high-risk bonds may contain redemption or
call provisions. If an issuer exercised these provisions in a declining interest
rate market, the Portfolio would have to replace the security with a lower
yielding security, resulting in a decreased return for investors. Conversely, a
high-yield, high-risk bond's value will decrease in a rising interest rate
market, as will the value of the Portfolio's assets. If the Portfolio
experiences significant unexpected net redemptions, this may force it to sell
high-yield, high-risk bonds without regard to their investment merits, thereby
decreasing the asset base upon which expenses can be spread and possibly
reducing the Portfolio's rate of return.
LIQUIDITY AND VALUATION. There may be little trading in the secondary
market for particular bonds, which may affect adversely the Portfolio's ability
to value accurately or dispose of such bonds. Adverse publicity and investor
perception, whether or not based on fundamental analysis, may decrease the
values and liquidity of high-yield, high-risk bonds, especially in a thin
market.
LEGISLATION. Federal laws require the divestiture by federally insured
savings and loan associations of their investments in lower rated bonds and
limit the deductibility of interest by certain corporate issuers of high-yield
bonds. These laws could adversely affect the Portfolio's net asset value and
investment practices, the secondary market for high-yield securities, the
financial condition of issuers of these securities and the value of outstanding
high-yield securities.
TAXES. The Portfolio may purchase debt securities (such as zero-coupon or
pay-in-kind securities) that contain original issue discount. Original issue
discount that accrues in a taxable year is treated as earned by the Portfolio
and therefore is subject to the distribution requirements of the tax code.
Because the original issue discount earned by the Portfolio in a taxable year
may not be represented by cash income, the Portfolio may have to dispose of
other securities and use the proceeds to make distributions to shareholders.
MONEY MARKET INSTRUMENTS--Money market securities are high-quality, U.S.
dollar-denominated, short-term debt instruments. They consist of: (i) bankers'
acceptances, certificates of deposits, notes and time deposits of highly-rated
U.S. banks and U.S. branches of foreign banks; (ii) U.S. Treasury obligations
and obligations issued or guaranteed by the agencies and instrumentalities of
the U.S. Government; (iii) high-quality commercial paper issued by U.S. and
foreign corporations; (iv) debt obligations with a maturity of one year or less
issued by corporations with outstanding high-quality commercial papers; and (v)
repurchase agreements involving any of the foregoing obligations entered into
with highly-rated banks and broker-dealers.
NON-DIVERSIFICATION--Investment in the Portfolio, a non-diversified mutual
fund, may entail greater risk than would investment in a diversified investment
company because the concentration in securities of relatively few issuers could
result in greater fluctuation in the total market value of the Portfolio's
holdings. Any economic, political, or regulatory developments affecting the
value of the securities the Portfolio holds could have a greater impact on the
total value of the Portfolio's holdings than
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would be the case if the portfolio securities were diversified among more
issuers. The Portfolio intends to comply with the diversification requirements
of Subchapter M of the Code. In accordance with these requirements, the
Portfolio will not invest more than 5% of its total assets in any one issuer;
this limitation applies to 50% of the Portfolio's total assets.
OPTIONS--The Portfolio may write call options on a covered basis only, and
will not engage in option writing strategies for speculative purposes. A call
option gives the purchaser of such option the right to buy, and the writer, in
this case the Portfolio, the obligation to sell the underlying security at the
exercise price during the option period. The advantage to the Portfolio of
writing covered calls is that the Portfolio receive a premium which is
additional income. However, if the security rises in value, the Portfolio may
not fully participate in the market appreciation.
During the option period, a covered call option writer may be assigned an
exercise notice by the broker-dealer through whom such call option was sold
requiring the writer to deliver the underlying security against payment of the
exercise price. This obligation is terminated upon the expiration of the option
period or at such earlier time in which the writer effects a closing purchase
transaction. A closing purchase transaction is one in which the Portfolio, when
obligated as a writer of an option, terminates its obligation by purchasing an
option of the same series as the option previously written.
A closing purchase transaction cannot be effected with respect to an option
once the option writer has received an exercise notice for such option.
Closing purchase transactions will ordinarily be effected to realize a
profit on an outstanding call option, to prevent an underlying security from
being called, to permit the sale of the underlying security or to enable the
Portfolio to write another call option on the underlying security with either a
different exercise price or expiration date or both. The Portfolio may realize a
net gain or loss from a closing purchase transaction depending upon whether the
net amount of the original premium received on the call option is more or less
than the cost of effecting the closing purchase transaction. Any loss incurred
in a closing purchase transaction may be partially or entirely offset by the
premium received from a sale of a different call option on the same underlying
security. Such a loss may also be wholly or partially offset by unrealized
appreciation in the market value of the underlying security.
If a call option expires unexercised, the Portfolio will realize a
short-term capital gain in the amount of the premium on the option, less the
commission paid. Such a gain, however, may be offset by depreciation in the
market value of the underlying security during the option period. If a call
option is exercised, the Portfolio will realize a gain or loss from the sale of
the underlying security equal to the difference between the cost of the
underlying security, and the proceeds of the sale of the security plus the
amount of the premium on the option, less the commission paid.
The market value of a call option generally reflects the market price of an
underlying security. Other principal factors affecting market value include
supply and demand, interest rates, the price volatility of the underlying
security, and the time remaining until the expiration date.
The Portfolio will write call options only on a covered basis, which means
that the Portfolio will own the underlying security subject to a call option at
all times during the option period. Unless a closing purchase transaction is
effected, the Portfolio would be required to continue to hold a security which
it might otherwise wish to sell, or deliver a security it would want to hold.
Options written by the Portfolio will normally have expiration dates between one
and nine months from the date written. The exercise price of a call option may
be below, equal to, or above the current market value of the underlying security
at the time the option is written.
REAL ESTATE INVESTMENT TRUSTS--A REIT is a corporation or business trust
(that would otherwise be taxed as a corporation) which meets the definitional
requirements of the Internal Revenue Code of 1986, as amended (the "Code"). The
Code permits a qualifying REIT to deduct from taxable income the dividends paid,
thereby effectively eliminating corporate level federal income tax and making
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the REIT a pass-through vehicle for federal income tax purposes. To meet the
definitional requirements of the Code, a REIT must, among other things: invest
substantially all of its assets in interests in real estate (including mortgages
and other REITs), cash and government securities; derive most of its income from
rents from real property or interest on loans secured by mortgages on real
property; and distribute annually 95% or more of its otherwise taxable income to
shareholders.
REITs are sometimes informally characterized as Equity REITs and Mortgage
REITs. An Equity REIT invests primarily in the fee ownership or leasehold
ownership of land and buildings; a Mortgage REIT invests primarily in mortgages
on real property, which may secure construction, development or long-term loans.
REITs in which the Portfolio invests may be affected by changes in
underlying real estate values, which may have an exaggerated effect to the
extent that REITs in which the Portfolio invests may concentrate investments in
particular geographic regions or property types. Additionally, rising interest
rates may cause investors in REITs to demand a higher annual yield from future
distributions, which may in turn decrease market prices for equity securities
issued by REITs. Rising interest rates also generally increase the costs of
obtaining financing, which could cause the value of the Portfolio's investments
to decline. During periods of declining interest rates, certain Mortgage REITs
may hold mortgages that the mortgagors elect to prepay, which prepayment may
diminish the yield on securities issued by such Mortgage REITs. In addition,
Mortgage REITs may be affected by the ability of borrowers to repay when due the
debt extended by the REIT and equity REITs may be affected by the ability of
tenants to pay rent.
Certain REITs have relatively small market capitalization, which may tend to
increase the volatility of the market price of securities issued by such REITs.
Furthermore, REITs are dependent upon specialized management skills, have
limited diversification and are, therefore, subject to risks inherent in
operating and financing a limited number of projects. By investing in REITs
indirectly through the Portfolio, a shareholder will bear not only his
proportionate share of the expenses of the Portfolio, but also, indirectly,
similar expenses of the REITs. REITs depend generally on their ability to
generate cash flow to make distributions to shareholders.
In addition to these risks, Equity REITs may be affected by changes in the
value of the underlying property owned by the trusts, while Mortgage REITs may
be affected by the quality of any credit extended. Further, Equity and Mortgage
REITs are dependent upon management skills and generally may not be diversified.
Equity and Mortgage REITs are also subject to heavy cash flow dependency
defaults by borrowers and self-liquidation. In addition, Equity and Mortgage
REITs could possibly fail to qualify for tax free pass-through of income under
the Code or to maintain their exemptions from registration under the 1940 Act.
The above factors may also adversely affect a borrower's or a lessee's ability
to meet its obligations to the REIT. In the event of a default by a borrower or
lessee, the REIT may experience delays in enforcing its rights as a mortgagee or
lessor and may incur substantial costs associated with protecting its
investments.
REAL ESTATE SECURITIES--The Portfolio may be subject to the risks associated
with the direct ownership of real estate because of its policy of concentration
in the securities of companies principally engaged in the real estate industry.
For example, real estate values may fluctuate as a result of general and local
economic conditions, overbuilding and increased competition, increases in
property taxes and operating expenses, demographic trends and variations in
rental income, changes in zoning laws, casualty or condemnation losses,
regulatory limitations on rents, changes in neighborhood values, related party
risks, changes in how appealing properties are to tenants, changes in interest
rates and other real estate capital market influences. The value of securities
of companies which service the real estate business sector may also be affected
by such risks.
Because the Portfolio may invest a substantial portion of its assets in
REITs, the Portfolio may also be subject to certain risks associated with the
direct investments of the REITs. REITs may be affected by changes in the value
of their underlying properties and by defaults by borrowers or tenants. Mortgage
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REITs may be affected by the quality of the credit extended. Furthermore, REITs
are dependent on specialized management skills. Some REITs may have limited
diversification and may be subject to risks inherent in financing a limited
number of properties. REITs depend generally on their ability to generate cash
flow to make distributions to shareholders or unitholders, and may be subject to
defaults by borrowers and to self-liquidations. In addition, the performance of
a REIT may be affected by its failure to qualify for tax-free pass-through of
income under the Code or its failure to maintain exemption from registration
under the 1940 Act. Changes in prevailing interest rates may inversely affect
the value of the debt securities in which the Portfolio will invest. Changes in
the value of portfolio securities will not necessarily affect cash income
derived from these securities but will affect the Portfolio's net asset value.
Generally, increases in interest rates will increase the costs of obtaining
financing which could directly and indirectly decrease the value of the
Portfolio's investments.
REPURCHASE AGREEMENTS--Repurchase agreements are agreements by which a
person (E.G., the Portfolio) 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 Portfolio for
purposes of its investment limitations. The repurchase agreements entered into
by the Portfolio will provide that the underlying security at all times shall
have a value at least equal to 102% of the resale price stated in the agreement
(the Adviser monitors compliance with this requirement). Under all repurchase
agreements entered into by the Portfolio, the custodian or its agent must take
possession of the underlying collateral. However, if the seller defaults, the
Portfolio could realize a loss on the sale of the underlying security to the
extent that the proceeds of the 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, the
Portfolio may incur delay and costs in selling the underlying security or may
suffer a loss of principal and interest if the Portfolio is treated as an
unsecured creditor and is required to return the underlying security to the
seller's estate.
RESTRICTED SECURITIES--Restricted securities are securities that may not be
sold freely to the public absent registration under the Securities Act of 1933,
as amended (the "1933 Act"), or an exemption from registration. Section 4(2)
commercial paper is issued in reliance on an exemption from registration under
Section 4(2) of the 1933 Act, and is generally sold to institutional investors
who purchase for investment. Any resale of such commercial paper must be in an
exempt transaction, usually to an institutional investor through the issuer or
investment dealers who make a market on such commercial paper. Rule 144A
securities are securities re-sold in reliance on an exemption from registration
provided by Rule 144A under the 1933 Act.
SECURITIES LENDING--In order to generate additional income, the Portfolio
may lend its securities pursuant to agreements requiring that the loans be
continuously secured by cash, securities of the U.S. Government or its agencies,
or any combination of cash and such securities, in an amount at least equal to
the market value of the loaned securities. Loans are made only to borrowers
deemed by the Adviser to be in good standing and when, in the judgment of the
Adviser, the consideration that can be earned currently from such loaned
securities justifies the attendant risk. Any loan may be terminated by either
party upon reasonable notice to the other party. The Portfolio may use the
Distributor as a broker in these transactions.
TIME DEPOSITS--Time deposits are non-negotiable receipts issued by a bank in
exchange for the deposit of funds. Like a certificate of deposit, it earns a
specified rate of interest over a definite period of
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time; however, it cannot be traded in the secondary market. Time deposits with a
withdrawal penalty or that mature in more than seven days are considered to be
illiquid securities.
VARIABLE AND FLOATING RATE INSTRUMENTS--Variable and floating rate
instruments involve certain obligations that may carry variable or floating
rates of interest, and may involve a conditional or unconditional demand
feature. Such instruments bear interest at rates which are not fixed, but which
vary with changes in specified market rates or indices. The interest rates on
these securities may be reset daily, weekly, quarterly, or some other reset
period, and may have a set floor or ceiling on interest rate changes. There is a
risk that the current interest rate on such obligations may not accurately
reflect existing market interest rates. A demand instrument with a demand notice
exceeding seven days may be considered illiquid if there is no secondary market
for such security.
WHEN-ISSUED SECURITIES--When-Issued securities are securities that involve
the purchase of debt obligations on a when-issued basis, in which case delivery
and payment normally take place within 45 days after the date of commitment to
purchase. The Portfolio 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 to the purchaser during this
period. The payment obligation and the interest rate that will be received on
the securities are each fixed at the time the purchaser enters into the
commitment. Purchasing when-issued obligations results in 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. The
Portfolio will establish a segregated account with the Custodian and maintain
liquid assets in an amount at least equal in value to that Portfolio's
commitments to purchase when-issued securities. If the value of these assets
declines, the Portfolio involved 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. Currently, the Portfolio intends to limit its
commitments to purchase when-issued securities to less than 5% of its net
assets.
OTHER INVESTMENTS
The Fund is not prohibited from investing in obligations of banks that are
clients of SEI Investments Company ("SEI Investments"). However, the purchase of
shares of the Fund by them or by their customers will not be a consideration in
determining which bank obligations the Fund will purchase. The Fund will not
purchase obligations of any of the advisers to the Fund. Distributions by the
Portfolio out of income from taxable securities will generally be taxable to
shareholders of such Portfolio as ordinary income.
INVESTMENT COMPANY SHARES
The Portfolio 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 Portfolio. The Portfolio'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 Portfolio
expenses. Under applicable regulations, the Portfolio is prohibited from
acquiring the securities of another investment company if, as a result of such
acquisition: (1) the Portfolio owns more than 3% of the total voting stock of
the other company; (2) securities issued by any one investment company represent
more than 5% of the Portfolio's total assets; or (3) securities (other than
treasury stock) issued by all investment companies represent more than 10% of
the total assets of the Portfolio. Additionally, the Portfolio currently intends
to limit its investment in shares of other investment companies to less than 5%
of its net assets. See also "Investment Limitations."
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INVESTMENT LIMITATIONS
FUNDAMENTAL POLICIES
The following investment limitations are fundamental policies of the
Portfolio that cannot be changed without the consent of the holders of a
majority of the Portfolio's outstanding shares. The phrase "majority of the
outstanding shares" means the vote of (i) 67% or more of the Portfolio's shares
present at a meeting, if more than 50% of the outstanding shares of the
Portfolio are present or represented by proxy, or (ii) more than 50% of the
Portfolio's outstanding shares, whichever is less. The Portfolio is classified
as a "non-diversified" investment company under the Investment Company Act of
1940, as amended (the "1940 Act"), which means that the Portfolio is not limited
by the 1940 Act in the proportion of its assets that may be invested in the
securities of a single issuer. However, the Portfolio intends to conduct its
operations so as to qualify as a regulated investment company for purposes of
the Internal Revenue Code of 1986, as amended (the "Code"), which will relieve
the Portfolio of any liability for federal income tax to the extent its earnings
are distributed to shareholders. See "Taxes" in the Prospectus.
The Portfolio may not:
1. Purchase or sell real estate, except that the Portfolio may purchase
securities issued by companies primarily engaged in the real estate industry
and will, as a matter of fundamental policy, concentrate its investments in
such securities of companies principally engaged in the real estate
business.
2. Make short sales of securities, maintain a short position or purchase
securities on margin, except that the Portfolio may obtain short-term
credits as necessary for the clearance of security transactions.
3. Acquire more than 10% of the voting securities of any one issuer.
4. Invest in companies for the purpose of exercising control.
5. Issue any class of senior security or sell any senior security of which it
is the issuer, except that the Portfolio may borrow from any bank, provided
that immediately after any such borrowing there is asset coverage of at
least 300% for all borrowings of the Portfolio, and further provided that,
to the extent that such borrowings exceed 5% of the Portfolio's total
assets, all borrowings shall be repaid before the Portfolio makes additional
investments. The term "senior security" shall not include any temporary
borrowings that do not exceed 5% of the value of the Portfolio's total
assets at the time the Portfolio makes such temporary borrowing. In
addition, investment strategies that either obligate the Portfolio to
purchase securities or require the Portfolio to segregate assets will not be
considered borrowings or senior securities. This investment limitation shall
not preclude the Portfolio from issuing multiple classes of shares in
reliance on SEC rules or orders.
6. Make loans if, as a result, more than 33 1/3% of its total assets would be
lent to other parties, except that the Portfolio may (i) purchase or hold
debt instruments in accordance with its investment objective and policies;
(ii) enter into repurchase agreements; and (iii) lend its securities.
7. Purchase or sell real estate, physical commodities, or commodities
contracts, except that the Portfolio may purchase (i) marketable securities
issued by companies which own or invest in real estate (including real
estate investment trusts), commodities or commodities contracts, and (ii)
commodities contracts relating to financial instruments, such as financial
futures contracts and options on such contracts.
8. Act as an underwriter of securities of other issuers except as it may be
deemed an underwriter in selling a portfolio security.
9. Purchase securities of other investment companies except as permitted by the
1940 Act and the rules and regulations thereunder.
The foregoing percentages will apply at the time of the purchase of a
security.
S-12
<PAGE>
In addition to the foregoing fundamental limitations, it is a fundamental
policy of the Portfolio to concentrate in securities issued by companies
primarily engaged in the real estate industry.
NON-FUNDAMENTAL POLICIES
The following investment limitation of the Portfolio is non-fundamental and
may be changed by the Fund's Board of Trustees without shareholder approval:
1. The Portfolio may not invest in illiquid securities in an amount exceeding,
in the aggregate, 15% of the Portfolio's net assets.
THE ADVISER
The Fund and CRA Real Estate Securities, L.P. (the "Adviser") have entered
into an advisory agreement with respect to the Portfolio (the "Advisory
Agreement"). The Advisory Agreement provides that the Adviser shall not be
protected against any liability to the Fund or its shareholders by reason of
willful misfeasance, bad faith or gross negligence on its part in the
performance of its duties or from reckless disregard of its obligations or
duties thereunder.
The Adviser is a registered investment adviser and through its predecessors
has been managing investments in real estate securities on behalf of
institutional investors since 1984. CRA Real Estate Securities, L.P. a wholly
owned subsidiary of Nationale--Nederlanden Interfinance, B.V. and its
subsidiaries (collectively, "ING"), a member of the ING Group. ING is a
multinational, integrated financial services company based in the Netherlands .
ING operates in more than 60 countries and has total assets of more than $450
million. As of , 1999, the Adviser had approximately $ billion in
assets under management. The principal business address of the Adviser is Suite
205, 259 North Radnor-Chester Road, Radnor, Pennsylvania 19087.
The Adviser uses a two part investment approach comprised of securities
analysis and portfolio allocation. For securities analysis, the Adviser employs
proprietary analytical techniques and databases to identify companies offering,
in the Adviser's view, above-average investment value. For portfolio allocation
purposes, CRA draws upon the proprietary private real estate market knowledge of
its affiliate Clarion Partners, which manages approximately $ billion of real
estate on behalf of its pension clients. The Adviser uses systematic, top-down
research to evaluate property market conditions and trends and to make
judgements regarding which market sectors offer potentially attractive returns.
The Adviser serves as the investment adviser for the Portfolio under the
Advisory Agreement with the Fund. Under the Advisory Agreement, the Adviser
makes the investment decisions for the assets of the Portfolio and continuously
reviews, supervises and administers the investment program of the Portfolio,
subject to the supervision of, and policies established by, the Trustees of the
Fund.
For its services, the Adviser is entitled to a fee, which is calculated
daily and paid monthly, at an annual rate of 0.70% of the average daily net
assets of the Portfolio. The Adviser has voluntarily agreed to waive all or a
portion of its fee for the Portfolio and to reimburse expenses of the Portfolio
in order to limit total operating expenses to an annual rate of not more than
1.25% of average daily net assets for Class A shares and 1.00% of average daily
net assets for Institutional shares. The Adviser reserves the right, in its sole
discretion, to terminate its voluntary fee waivers and reimbursements at any
time.
For the fiscal period ended October 31, 1997 and the fiscal year ended
October 31, 1998, the Adviser was paid $35,870 and $ , respectively, and
waived fees of $84,679 and $ , respectively, with respect to the Portfolio.
The continuance of the Advisory Agreement after the first two years must be
specifically approved at least annually (i) by the vote of the Trustees or by a
vote of the shareholders of the Portfolio 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
S-13
<PAGE>
Advisory Agreement will terminate automatically in the event of its assignment,
and is terminable at any time without penalty by the Trustees of the Fund or by
a majority of the outstanding shares of the Portfolio, on not less than 30 days'
nor more than 60 days' written notice to the Adviser, or by the Adviser on 90
days' written notice to the Fund.
PORTFOLIO MANAGERS
Kenneth D. Campbell and T. Ritson Ferguson, CFA have shared primary
responsibility for managing the assets of the Portfolio since commencement of
operations.
KENNETH D. CAMPBELL is the Chairman, Co-Chief Investment Officer and
Co-Portfolio Manager of the Adviser. Mr. Campbell has been with the Adviser and
its predecessors since 1969, and has managed real estate securities portfolios
since 1980 for a select number of institutional and individual accounts. An MBA
graduate with distinction from New York University and a BA from Capital
University, Mr. Campbell founded and published REALTY STOCK REVIEW, an industry
advisory service, from 1970 until its sale in 1990. He is the editor and
principal author of several book-length investment studies of REITs, including
REAL ESTATE INVESTMENT TRUSTS: AMERICA'S NEWEST BILLIONAIRES (1971). He received
the REIT Industry Leadership Award from the National Association of Real Estate
Investment Trusts (NAREIT) in 1996. He is a member of the New York and
Philadelphia Societies of Security Analysts, the Real Estate Analyst's Group and
an associate member of NAREIT.
T. RITSON FERGUSON, CFA is President, Co-Chief Investment Officer and
Co-Portfolio Manager of the Adviser. Mr. Ferguson provides oversight of CRA's
operations and is a member of the firm's Investment Policy Committee and
Investment Committee. Mr. Ferguson has been a portfolio manager with the Adviser
and its predecessors since 1992. Before joining CRA, Mr. Ferguson gained
extensive direct real estate investment experience at Radnor Advisors and
Trammell Crow Company where he was involved in all facets of the acquisition,
development and management of commercial real estate since 1986. Mr. Ferguson
also served as a Captain in the U.S. Air Force. He received his MBA with
distinction from Wharton (University of Pennsylvania) and holds a B.S. from Duke
University (summa cum laude, Phi Beta Kappa). Mr. Ferguson studied at Oxford
University as an A.B. Duke Scholar. He is a member of the Financial Analysts of
Philadelphia and an associate member of NAREIT. He is a Chartered Financial
Analyst (CFA).
THE ADMINISTRATOR
SEI Investments Mutual Funds Services (the "Administrator") serves as the
administrator of the Fund. The Administrator provides the Fund with
administrative services, including regulatory reporting and all necessary office
space, equipment, personnel and facilities. For these administrative services,
the Administrator is entitled to a fee from the Portfolio, which fee is
calculated daily and paid monthly, at an annual rate of 0.15% of the first $100
million of the Portfolio's average daily net assets; 0.125% of the next $100
million of the Portfolio's average daily net assets; 0.10% of the next $100
million of the Portfolio's average daily net assets; and 0.08% of the
Portfolio's average daily net assets over $300 million. However, the Portfolio
pays the Administrator a minimum annual fee of $75,000.
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 Portfolio in connection with the matters to which the Administration
Agreement relates, except a loss resulting from willful misfeasance, bad faith
or gross negligence on the part of the Administrator in the performance of its
duties or from reckless disregard of its duties and obligations thereunder.
For the fiscal period ended October 31, 1997 and the fiscal year ended
October 31, 1998, the Administrator received a fee of $38,014 and $ ,
respectively, from the Portfolio and voluntarily waived fees of $24,486 and
$ , respectively.
S-14
<PAGE>
The Administration Agreement shall remain effective for the initial term of
the Agreement and each renewal term thereof unless earlier terminated (a) by the
mutual written agreement of the parties; (b) by either party of the
Administration Agreement on 90 days' written notice, as of the end of the
initial term or the end of any renewal term; (c) by either party of the
Administration Agreement on such date as is specified in written notice given by
the terminating party, in the event of a material breach of the Administration
Agreement by the other party, provided the terminating party has notified the
other party of such breach at least 45 days prior to the specified date of
termination and the breaching party has not remedied such breach by the
specified date; (d) effective upon the liquidation of the Administrator; or (e)
as to the Portfolio or the Fund, effective upon the liquidation of the Portfolio
or the Fund, as the case may be.
The Administrator, a Delaware business trust, has its principal business
offices at Oaks, Pennsylvania 19456. SEI Investments Management Corporation
("SIMC"), a wholly-owned subsidiary of SEI Investments Company ("SEI
Investments"), is the owner of all beneficial interest in the Administrator. SEI
Investments and its subsidiaries and affiliates, including the Administrator,
are leading providers of funds evaluation services, trust accounting systems,
and brokerage and information services to financial institutions, institutional
investors, and money managers. The Administrator and its affiliates also serve
as administrator or sub-administrator to the following other mutual funds: The
Achievement Funds Trust, The Arbor Fund, ARK Funds, Armada Funds, Bishop Street
Funds, Boston 1784 Funds-Registered Trademark-, CrestFunds, Inc., CUFUND, The
Expedition Funds, First American Funds, Inc., First American Investment Funds,
Inc., First American Strategy Funds, Inc., HighMark Funds, Monitor Funds, The
Nevis Funds, Oak Associates Funds, The PBHG Funds, Inc., PBHG Advisor Funds,
Inc., PBHG Insurance Series Fund, Inc., The Pillar Funds, SEI Asset Allocation
Trust, SEI Daily Income Trust, SEI Index Funds, SEI Institutional International
Trust, SEI Institutional Investments Trust, SEI Institutional Managed Trust, SEI
Liquid Asset Trust, SEI Tax Exempt Trust, STI Classic Funds, STI Classic
Variable Trust, TIP Funds and Alpha Select Funds.
If operating expenses of any Fund exceed limitations established by certain
states, the Administrator will pay such excess. The Administrator will not be
required to bear expenses of any Fund to an extent which would result in the
Fund's inability to qualify as a regulated investment company under provisions
of the Internal Revenue Code. The term "expenses" is defined in such laws or
regulations, and generally excludes brokerage commissions, distribution
expenses, taxes, interest and extraordinary expenses.
THE DISTRIBUTOR
SEI Investments Distribution Co. (the "Distributor"), a wholly-owned
subsidiary of SEI Investments, and the Fund are parties to a distribution
agreement (the "Distribution Agreement"). The Distributor will not receive
compensation for distribution of shares of the Portfolio.
The Distribution Agreement shall remain in effect for a period of two years
after the effective date of the agreement and is renewable annually. The
Distribution Agreement may be terminated by the Distributor, by a majority vote
of the Trustees who are not interested persons and have no financial interest in
the Distribution Agreement or by a majority vote of the outstanding securities
of the Fund upon not more than 60 days' written notice by either party or upon
assignment by the Distributor.
CLASS A PLAN
Class A Shares of the Portfolio are subject to the terms of a distribution
plan adopted in May 1998 (the "Class A Plan"). The Class A Plan provides that
the Class A shares of the Portfolio will pay the Distributor a fee of .25% of
the average daily net assets of the Class A shares which the Distributor may
make payments pursuant to written agreements to financial institutions and
intermediaries such as banks, savings and loan associations, insurance companies
including, without limit, other subsidiaries and affiliates of CRA, investment
counselors, broker-dealers and the Distributor's affiliates and subsidiaries
(collectively, "Agents") as compensation for services, reimbursement of expenses
incurred in connection
S-15
<PAGE>
with distribution assistance or provision of shareholder services. The Class A
Plan is characterized as a compensation plan since the distribution fee will be
paid to the Distributor without regard to the distribution or shareholder
service expenses incurred by the Distributor or the amount of payments made to
other financial institutions and intermediaries. Investors should understand
that some Agents may charge their clients fees in connection with purchases of
Class A shares or the provision of shareholder services with respect to Class A
shares. The Fund intends to operate the Class A Plan in accordance with its
terms and with the NASD rules concerning sales charges.
The Fund has adopted the Class A Plan in accordance with the provisions of
Rule 12b-1 under the 1940 Act, which regulates circumstances under which an
investment company may directly or indirectly bear expenses relating to the
distribution of its shares. Continuance of the Class A Plan must be approved
annually by a majority of the Trustees of the Fund and by a majority of the
Trustees who are not parties to the Distribution Agreement or interested persons
(as defined by the 1940 Act) of any party to the Distribution Agreement
("Qualified Trustees"). The Class A Plan requires that quarterly written reports
of amounts spent under the Class A Plan and the purposes of such expenditures be
furnished to and reviewed by the Trustees. The Class A Plan may not be amended
to increase materially the amount which may be spent thereunder without approval
by a majority of the outstanding Class A shares of the Portfolio. All material
amendments of the Plan will require approval by a majority of the Trustees of
the Fund and of the Qualified Trustees.
As of the fiscal year ended October 31, 1998, Class A shares were not
available to investors.
For the fiscal year ended October 31, 1998, the Distributor received fees of
$ .
THE TRANSFER AGENT
DST Systems, Inc., 330 W. 9th Street, Kansas City, MO 64105 serves as the
Fund's transfer agent.
THE CUSTODIAN
First Union National Bank, Broad and Chestnut Streets, P.O. Box 7618,
Philadelphia, Pennsylvania 19101 acts as custodian (the "Custodian") of the
Fund. The Custodian holds cash, securities and other assets of the Fund as
required by the 1940 Act.
INDEPENDENT PUBLIC ACCOUNTANTS
Arthur Andersen LLP serves as independent public accountants for the Fund.
LEGAL COUNSEL
Morgan, Lewis & Bockius LLP 1800 M Street, N.W., Washington, D.C. serves as
legal counsel to the Fund.
TRUSTEES AND OFFICERS OF THE FUND
The management and affairs of the Fund are supervised by the Trustees under
the laws of the Commonwealth of Massachusetts. The Trustees have approved
contracts under which, as described above, certain companies provide essential
management services to the Fund. The Fund pays the fees for unaffiliated
Trustees.
The Trustees and Executive Officers of the Fund, their respective dates of
birth, and their principal occupations for the last five years are set forth
below. Each may have held other positions with 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 Fund also serve as officers of some or all of the following: The
Achievement Funds Trust, The Arbor Fund, ARK Funds, Armada Funds, Bishop Street
Funds, Boston 1784 Funds-Registered Trademark-, CrestFunds, Inc., CUFUND, The
S-16
<PAGE>
Expedition Funds, First American Funds, Inc., First American Investment Funds,
Inc., First American Strategy Funds, Inc., HighMark Funds, Monitor Funds, Oak
Associates Funds, The PBHG Funds, Inc., PBHG Advisor Funds, Inc., PBHG Insurance
Series Fund, Inc., The Pillar Funds, SEI Asset Allocation Trust, SEI Daily
Income Trust, SEI Index Funds, SEI Institutional International Trust, SEI
Institutional Investments Trust, SEI Institutional Managed Trust, SEI Liquid
Asset Trust, SEI Tax Exempt Trust, STI Classic Funds, STI Classic Variable
Trust, TIP Funds and Alpha Select Funds, each of which is an open-end management
investment company managed by SEI Investments Mutual Funds Services or its
affiliates and, except for PBHG Advisor 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, 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
Institutional International Trust, SEI Liquid Asset Trust and SEI Tax Exempt
Trust.
JOHN T. COONEY (DOB 01/20/27)--Trustee**--Vice Chairman of Ameritrust Texas
N.A., 1989-1992, and MTrust Corp., 1985-1989. Trustee of The Arbor Fund, The
Expedition Funds, and Oak Associates Funds.
WILLIAM M. DORAN (DOB 05/26/40)--Trustee*--1701 Market Street, Philadelphia,
PA 19103-2921. Partner, Morgan, Lewis & Bockius LLP (law firm), counsel to the
Trust, SEI Investments, the Administrator and the Distributor. Director and
Secretary of SEI Investments and Secretary of the Administrator and the
Distributor. Trustee of The Arbor Fund, The Expedition Funds, Oak Associates
Funds, SEI Asset Allocation Trust, SEI Daily Income Trust, SEI Index Funds, SEI
Institutional Investments Trust, SEI Institutional Managed Trust, SEI
Institutional International Trust, SEI Liquid Asset Trust and SEI Tax Exempt
Trust.
ROBERT A. PATTERSON (DOB 11/05/27)--Trustee**--Pennsylvania State
University, Senior Vice President, Treasurer (Emeritus). Financial and
Investment Consultant, Professor of Transportation (1984-present). Vice
President-Investments, Treasurer, Senior Vice President (Emeritus) (1982-1984).
Director, Pennsylvania Research Corp.; Member and Treasurer, Board of Trustees
of Grove City College. Trustee of The Arbor Fund, The Expedition Funds 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 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, Oak Associates Funds, SEI Asset Allocation Trust, SEI Daily Income Trust,
SEI Index Funds, SEI Institutional Investments Trust, SEI Institutional Managed
Trust, SEI Institutional International Trust, SEI Liquid Asset Trust and SEI Tax
Exempt Trust.
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.
JAMES R. FOGGO (DOB 06/30/64)--Vice President and Assistant Secretary--Vice
President and Assistant Secretary of the Administrator and the Distributor since
1998. Associate, Paul Weiss, Rifkind, Wharton & Garrison (law firm), 1998.
Associate, Baker & McKenzie (law firm), 1995-1998. Associate,
S-17
<PAGE>
Battle Fowler L.L.P. (law firm), 1993-1995. Operations Manager, The Shareholder
Services Group, Inc., 1986-1990.
LYDIA A. GAVALIS (DOB 06/05/64)--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.
KATHY HEILIG (DOB 12/21/58)--Vice President and Assistant
Secretary--Treasurer of SEI Investments since 1997; Assistant Controller of SEI
Investments since 1995; Vice President of SEI Investments since 1991; Director
of Taxes of SEI Investments, 1987 to 1991. Tax Manager, Arthur Anderson LLP
prior to 1987.
JOSEPH M. O'DONNELL (DOB 11/13/54)--Vice President and Assistant
Secretary--Vice President and Assistant Secretary of the Administrator and the
Distributor since 1998. Vice President and General Counsel, FPS Services, Inc.,
1993-1997. Staff Counsel and Secretary, Provident Mutual Family of Funds,
1990-1993.
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.
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.
MARK E. NAGLE (DOB 10/20/59)--Controller and Chief Financial 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 December 1997. Vice President, Fund Accounting, BISYS Fund Services,
September 1995 to November 1996. Senior Vice President and Site Manager,
Fidelity Investments 1981 to September 1995.
JOHN H. GRADY, JR. (DOB 06/01/61)--Secretary--1701 Market Street,
Philadelphia, PA 19103-2921, Partner since 1995, Morgan, Lewis & Bockius LLP
(law firm), counsel to the Trust, SEI Investments, the Administrator and the
Distributor.
- ------------------------
* Messrs. Nesher and Doran are Trustees who may be deemed to be "interested"
persons of the Portfolio as that term is defined in the 1940 Act.
** Messrs. Cooney, Patterson, Peters and Storey serve as members of the Audit
Committee of the Portfolio.
The Trustees and officers of the Fund own less than 1% of the outstanding
shares of the Fund. The Fund pays the fees for unaffiliated Trustees.
S-18
<PAGE>
The following table exhibits Trustee compensation for the fiscal year ended
October 31, 1998.
<TABLE>
<CAPTION>
AGGREGATE TOTAL COMPENSATION FROM
COMPENSATION FROM PENSION OR REGISTRANT AND FUND COMPLEX*
REGISTRANT FOR THE RETIREMENT BENEFITS ESTIMATED ANNUAL PAID TO TRUSTEES FOR THE
FISCAL YEAR ENDED ACCRUED AS PART OF BENEFITS UPON FISCAL YEAR ENDED OCTOBER
NAME OF PERSON, POSITION OCTOBER 31, 1998 FUND EXPENSES RETIREMENT 31, 1998
- --------------------------------- --------------------- ------------------- ----------------- ----------------------------
<S> <C> <C> <C> <C>
John T. Cooney................... $ N/A N/A $ for services on 1
board
Frank E. Morris.................. $ N/A N/A $ for services on 1
board
Robert Patterson................. $ N/A N/A $ for services on 1
board
Eugene B. Peters................. $ N/A N/A $ for services on 1
board
James M. Storey, Esq............. $ N/A N/A $ 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 purposes of this table, the Fund is the only investment company in the
"Fund Complex."
PERFORMANCE INFORMATION
From time to time the Fund may advertise total return of the Portfolio.
These figures will be based on historical earnings and are not intended to
indicate future performance. No representation can be made concerning actual
future returns.
CLASSES OF SHARES AND PERFORMANCE
The performance figures for Class A shares will generally be lower than
those for Institutional shares because of the shareholder servicing fees charged
to Class A shares.
PERFORMANCE COMPARISONS
The Portfolio may periodically compare its performance to other mutual funds
tracked by mutual fund rating services, to broad groups of comparable mutual
funds, or to unmanaged indices. These comparisons may assume reinvestment of
dividends but generally do not reflect deductions for administrative and
management costs.
CALCULATION OF TOTAL RETURN
The total return of the Portfolio refers to the average annual compounded
rate of return to a hypothetical investment for designated time periods
(including but not limited to, the period from which the Portfolio 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) TO THE POWER OF (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 period from January 1, 1997 (commencement of operations)
through October 31, 1998, the total return for the Institutional Shares of the
Portfolio was % (cumulative) and % (annualized).
PURCHASING SHARES
Purchases and redemptions may be made through the Transfer Agent on any day
the New York Stock Exchange is open for business. Currently, the Fund is closed
for business when the following holidays are observed: New Year's Day, Martin
Luther King Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence
Day, Labor Day, Columbus Day, Veterans' Day, Thanksgiving and Christmas. Shares
of the Portfolio are offered on a continuous basis.
S-19
<PAGE>
As discussed in the Prospectus, the minimum investment levels may be waived
for certain classes of investors, including "rabbi trusts." A rabbi trust is a
grantor trust established by an employer that can be used to fund certain
deferred compensation plans. The assets of such trusts are subject to the
employer's creditor's in bankruptcy.
REDEEMING SHARES
It is currently the Fund's policy to pay all redemptions in cash. The Fund
retains the right, however, to alter this policy to provide for redemptions in
whole or in part by a distribution in-kind of securities held by the Portfolio
in lieu of cash. Shareholders may incur brokerage charges on the sale of any
such securities so received in payment of redemptions. The Fund has obtained an
exemptive order from the SEC that permits the Fund to make in-kind redemptions
to those shareholders that are affiliated with the Fund solely by their
ownership of a certain percentage of the Fund's investment portfolios.
A Shareholder will at all times be entitled to aggregate cash redemptions
from all portfolios of the Fund during any 90-day period of up to the lesser of
$250,000 or 1% of the Fund's net assets.
The Fund reserves the right to suspend the right of redemption and/or to
postpone the date of payment upon redemption for any period on which trading on
the New York Stock Exchange is restricted, or during the existence of an
emergency (as determined by the SEC by rule or regulation) as a result of which
disposal or valuation of the Portfolio's securities is not reasonably
practicable, or for such other periods as the SEC has by order permitted. The
Fund also reserves the right to suspend sales of shares of the Portfolio for any
period during which the New York Stock Exchange, the Adviser, the Administrator,
the Transfer Agent and/or the custodian are not open for business.
DETERMINATION OF NET ASSET VALUE
The securities of the Portfolio are valued by the Administrator. The
Administrator will use an independent pricing service to obtain valuations of
securities. The pricing service relies primarily on prices of actual market
transactions as well as trade quotations. However, the service may also use a
matrix system to determine valuations of certain securities, which system
considers such factors as security prices, yields, maturities, call features,
ratings and developments relating to specific securities. The procedures of the
pricing service and its valuations are reviewed by the officers of the Fund
under the general supervision of the Trustees.
TAXES
The following is only a summary of certain additional federal income tax
considerations generally affecting the Portfolio and its shareholders that are
not described in the Portfolio's prospectus. No attempt is made to present a
detailed explanation of the tax treatment of the Portfolio or its shareholders,
and the discussion here and in the Portfolio's prospectus is not intended as a
substitute for careful tax planning. Shareholders are urged to consult their tax
advisors with specific reference to their own tax situations, including their
sate and local tax liabilities.
FEDERAL INCOME TAX TREATMENT OF DIVIDENDS AND DISTRIBUTIONS
The following general discussion of certain federal income tax consequences
is based on the Internal Revenue Code of 1986, as amended (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.
S-20
<PAGE>
QUALIFICATION AS REGULATED INVESTMENT COMPANY
The Portfolio intends to qualify and elect to be treated as a "regulated
investment company" ("RIC") under Subchapter M of the Code. By following such a
policy, the Portfolio expects to eliminate or reduce to a nominal amount the
federal taxes to which it may be subject.
In order to qualify as a RIC, the Portfolio must distribute at least 90% of
its net investment income (generally, dividends, taxable interest, and the
excess of net short-term capital gains over net long-term capital losses less
operating expenses) and at least 90% of its net tax exempt interest income, for
each tax year, if any, to its shareholders and also must meet several additional
requirements. Among these requirements are the following: (i) at least 90% of
the Portfolio's gross income each taxable year must be derived from dividends,
interest, payments with respect to securities loans and gains from the sale or
other disposition of stock or securities, or certain other income; (ii) at the
close of each quarter of the Portfolio's taxable year, at least 50% of the value
of its total assets must be represented by cash and cash items, U.S. Government
securities, securities of other RICs and other securities, with such other
securities limited, in respect to any one issuer, to an amount that does not
exceed 5% of the value of the Portfolio's assets and that does not represent
more than 10% of the outstanding voting securities of such issuer; and (iii) at
the close of each quarter of the Portfolio's taxable year, not more than 25% of
the value of its assets may be invested in securities (other than U.S.
Government securities or the securities of other RICs) of any one issuer or of
two or more issuers that the Portfolio controls or that are engaged in the same,
similar or related trades or business. For purposes of the 90% of gross income
requirement described above, investments in REITs are stock or securities.
Although the Portfolio intends to distribute substantially all of its net
investment income and may distribute its capital gains for any taxable year, the
Portfolio will be subject to federal income taxation to the extent any such
income or gains are not distributed.
If the Portfolio fails to qualify for any taxable year as a RIC, all of its
taxable income will be subject to tax at regular corporate income tax rates
without any deduction for distributions to shareholders and such distributions
generally will be taxable to shareholders as ordinary dividends to the extent of
the Portfolio's current and accumulated earnings and profits. In this event,
distributions generally will be eligible for the dividends-received deduction
for corporate shareholders.
PORTFOLIO DISTRIBUTIONS
Distributions of investment company taxable income will be taxable to
shareholders as ordinary income, regardless of whether such distributions are
paid in cash or are reinvested in additional Shares, to the extent of the
Portfolio's earnings and profits. The Portfolio anticipates that it will
distribute substantially all of its investment company taxable income for each
taxable year.
The Portfolio may either retain or distribute to shareholders its excess of
net long-term capital gains over net short-term capital losses ("net capital
gains"). If such gains are distributed as a capital gains distribution, they are
taxable to shareholders who are individuals at a maximum rate of 20%, regardless
of the length of time the shareholder has held shares. If any such gains are
retained, the Portfolio will pay federal income tax thereon.
In the case of corporate shareholders, distributions (other than capital
gains distributions) from a RIC generally qualify for the dividends-received
deduction only to the extent of the gross amount of qualifying dividends
received by the Portfolio for the year. Generally, and subject to certain
limitations, a dividend will be treated as a qualifying dividend if it has been
received from a domestic corporation. Because REIT distributions do not qualify
for the dividends-received deduction, it is not expected that all Portfolio
distributions will qualify for the corporate dividends-received deduction.
Ordinarily, investors should include all dividends as income in the year of
payment. However, dividends declared payable to shareholders of record in
December of one year, but paid in January of the
S-21
<PAGE>
following year, will be deemed for tax purposes to have been received by the
shareholder and paid by the Portfolio in the year in which the dividends were
declared.
The Portfolio will provide a statement annually to shareholders as to the
federal tax status of distributions paid (or deemed to be paid) by the Portfolio
during the year, including the amount of dividends eligible for the corporate
dividends-received deduction.
SALE OR EXCHANGE OF PORTFOLIO SHARES
Generally, gain or loss on the sale or exchange of a Share will be capital
gain or loss that will be long-term if the Share has been held for more than
twelve months and otherwise will be short-term. For individuals, long-term
capital gains are currently taxed at a maximum rate of 20% and short-term
capital gains are currently taxed at ordinary income tax rates. However, if a
shareholder realizes a loss on the sale, exchange or redemption of a Share held
for six months or less and has previously received a capital gains distribution
with respect to the Share (or any undistributed net capital gains of the
Portfolio with respect to such Share are included in determining the
shareholder's long-term capital gains), the shareholder must treat the loss as a
long-term capital loss to the extent of the amount of the prior capital gains
distribution (or any undistributed net capital gains of the Portfolio that have
been included in determining such shareholder's long-term capital gains). In
addition, any loss realized on a sale or other disposition of Shares will be
disallowed to the extent an investor repurchases (or enters into a contract or
option to repurchase) Shares within a period of 61 days (beginning 30 days
before and ending 30 days after the disposition of the Shares). This loss
disallowance rule will apply to Shares received through the reinvestment of
dividends during the 61-day period.
In certain cases, the Portfolio will be required to withhold, and remit to
the United States Treasury, 31% of any distributions paid to a shareholder who
(1) has failed to provide a correct taxpayer identification number, (2) is
subject to backup withholding by the Internal Revenue Service, or (3) has failed
to certify to the Portfolio that such shareholder is not subject to backup
withholding.
FEDERAL EXCISE TAX
If the Portfolio fails to distribute in a calendar year at least 98% of its
ordinary income for the 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 October 31 of that year (and any retained amount
from the prior calendar year), the Portfolio will be subject to a nondeductible
4% Federal excise tax on the undistributed amounts. The Portfolio intends to
make sufficient distributions to avoid imposition of this tax, or to retain, at
most its net capital gains and pay tax thereon.
STATE AND LOCAL TAXES
The Portfolio is not liable for any income or franchise tax in Massachusetts
if it qualifies as a RIC for federal income tax purposes. Distributions by the
Portfolio to shareholders and the ownership of shares may be subject to state
and local taxes.
PORTFOLIO TRANSACTIONS
The Adviser is authorized to select brokers and dealers to effect securities
transactions for the Portfolio. The Portfolio will seek to obtain the most
favorable net results by taking into account various factors, including price,
commission, if any, size of the transactions and difficulty of executions, the
firm's general execution and operational facilities and the firm's risk in
positioning the securities involved. While the Adviser generally seeks
reasonably competitive spreads or commissions, the Portfolio will not
necessarily be paying the lowest spread or commission available. The Adviser
seeks to select brokers or dealers that offer the Portfolio best price and
execution or other services which are of benefit to the Portfolio.
S-22
<PAGE>
The Adviser may, consistent with the interests of the Portfolio, select
brokers on the basis of the research services they provide to the Adviser. Such
services may include analyses of the business or prospects of a company,
industry or economic sector, or statistical and pricing services. Information so
received by the Adviser will be in addition to and not in lieu of the services
required to be performed by the Adviser under the Advisory Agreement. If, in the
judgment of the Adviser, the Portfolio or other accounts managed by the Adviser
will be benefitted by supplemental research services, the Adviser is authorized
to pay brokerage commissions to a broker furnishing such services which are in
excess of commissions which another broker may have charged for effecting the
same transaction. These research services include advice, either directly or
through publications or writings, as to the value of securities, the
advisability of investing in, purchasing or selling securities, and the
availability of securities or purchasers or sellers of securities; furnishing of
analyses and reports concerning issuers, securities or industries; providing
information on economic factors and trends; assisting in determining portfolio
strategy; providing computer software used in security analyses; and providing
portfolio performance evaluation and technical market analyses. The expenses of
the Adviser will not necessarily be reduced as a result of the receipt of such
supplemental information, such services may not be used exclusively with respect
to the Portfolio or account generating the brokerage, and there can be no
guarantee that the Adviser will find all of such services of value in advising
that Portfolio.
TRADING PRACTICES AND BROKERAGE
The Fund selects brokers or dealers to execute transactions for the purchase
or sale of portfolio securities on the basis of its judgment of their
professional capability to provide the service. The primary consideration is to
have brokers or dealers provide transactions at best price and execution for the
Fund. Best price and execution includes many factors, including the price paid
or received for a security, the commission charged, the promptness and
reliability of execution, the confidentiality and placement accorded the order
and other factors affecting the overall benefit obtained by the account on the
transaction. The Fund's determination of what are reasonably competitive rates
is based upon the professional knowledge of its trading department as to rates
paid and charged for similar transactions throughout the securities industry. In
some instances, the Fund pays a minimal share transaction cost when the
transaction presents no difficulty. Some trades are made on a net basis where
the Fund either buys securities directly from the dealer or sells them to the
dealer. In these instances, there is no direct commission charged but there is a
spread (the difference between the buy and sell price) which is the equivalent
of a commission.
The Fund may allocate out of all commission business generated by the fund
and accounts under management by the Adviser, brokerage business to brokers or
dealers who provide brokerage and research services. 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. Such services are used by the Adviser in connection with its
investment decision-making process with respect to one or more funds and
accounts managed by it, and may not be used exclusively with respect to the fund
or account generating the brokerage.
As provided in the Securities Exchange Act of 1934 (the "1934 Act") higher
commissions may be paid to broker-dealers who provide brokerage and research
services than to broker-dealers who do not provide such services if such higher
commissions are deemed reasonable in relation to the value of the brokerage and
research services provided. Although transactions are directed to broker-dealers
who provide such brokerage and research services, the Fund believes that the
commissions paid to such broker-dealers are not, in general, higher than
commissions that would be paid to broker-dealers not providing such services and
that such commissions are reasonable in relation to the value of the brokerage
and research services provided. In addition, portfolio transactions which
generate commissions or their equivalent are directed
S-23
<PAGE>
to broker-dealers who provide daily portfolio pricing services to the Fund.
Subject to best price and execution, commissions used for pricing may or may not
be generated by the funds receiving the pricing service.
The Adviser may place a combined order for two or more accounts or funds
engaged in the purchase or sale of the same security if, in its judgment, joint
execution is in the best interest of each participant and will result in best
price and execution. Transactions involving commingled orders are allocated in a
manner deemed equitable to each account or fund. It is believed that the ability
of the accounts to participate in volume transactions will generally be
beneficial to the accounts and funds. Although it is recognized that, in some
cases, the joint execution of orders could adversely affect the price or volume
of the security that a particular account or the Portfolio may obtain, it is the
opinion of the Adviser and the Trust's Board of Trustees that the advantages of
combined orders outweigh the possible disadvantages of separate transactions.
Consistent with the Conduct Rules of the National Association of Securities
Dealers, Inc., and subject to seeking best price and execution, the Portfolio,
at the request of the Distributor, give consideration to sales of shares of the
Fund as a factor in the selection of brokers and dealers to execute Fund
portfolio transactions.
It is expected that the Portfolio may execute brokerage or other agency
transactions through the Distributor, which is a registered broker-dealer, for a
commission in conformity with the 1940 Act, the Securities Exchange Act of 1934,
as amended, and rules promulgated by the SEC. Under these provisions, the
Distributor is permitted to receive and retain compensation for effecting
portfolio transactions for the Portfolio on an exchange if a written contract is
in effect between the Distributor and the Portfolio expressly permitting the
Distributor to receive and retain such compensation. These rules further require
that commissions paid to the Distributor by the Portfolio for exchange
transactions not exceed "usual and customary" brokerage commissions. The rules
define "usual and customary" commissions to include amounts which are
"reasonable and fair compared to the commission, fee or other remuneration
received or to be received by other brokers in connection with comparable
transactions involving similar securities being purchased or sold on a
securities exchange during a comparable period of time." The Trustees, including
those who are not "interested persons" of the Fund, have adopted procedures for
evaluating the reasonableness of commissions paid to the Distributor and will
review these procedures periodically.
For the fiscal year ended October 31, 1998, the following commissions were
paid on brokerage transactions, pursuant to an agreement or understanding, to
brokers because of research services provided by the brokers:
<TABLE>
<CAPTION>
TOTAL DOLLAR AMOUNT
TOTAL DOLLAR AMOUNT OF TRANSACTIONS
OF BROKERAGE INVOLVING DIRECTED
COMMISSIONS FOR BROKERAGE COMMISSIONS
RESEARCH SERVICES FOR RESEARCH SERVICES
- --------------------- ---------------------
<S> <C>
$ $
</TABLE>
For the fiscal years ended October 31, 1997 and 1998, the Portfolio paid the
following brokerage commissions:
<TABLE>
<CAPTION>
AMOUNT PAID TO SEI
TOTAL BROKERAGE COMMISSIONS INVESTMENTS(1)
- ---------------------------------- -------------------------------
1996 1997 1998 1996 1997 1998
- ---------- ---------- ---------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
* $ 110,005 $ * $ 317 $
</TABLE>
- ------------------------
* An asterisk indicates that the Portfolio had not commenced operations for the
period indicated.
(1) The amounts paid to SEI Investments reflect fees paid in connection with
repurchase agreement transactions.
S-24
<PAGE>
For the fiscal years indicated, the Portfolio paid the following brokerage
commissions:
<TABLE>
<CAPTION>
% OF TOTAL % OF TOTAL
TOTAL $ AMOUNT OF BROKERAGE BROKERAGE BROKERAGE
COMMISSIONS PAID TO TRANSACTIONS
TOTAL $ AMOUNT OF BROKERAGE COMMISSIONS PAID TO AFFILIATED THE AFFILIATED EFFECTED THROUGH
COMMISSIONS PAID BROKERS BROKERS AFFILIATED BROKERS
- ---------------------------------- ------------------------------- ------------------- -------------------
1996 1997 1998 1996 1997 1998 1998 1998
- ---------- ---------- ---------- --------- --------- --------- ------------------- -------------------
<S> <C> <C> <C> <C> <C> <C> <C>
* $ 110,005 $ * 0 $ % %
</TABLE>
- ------------------------
* An asterisk indicates that the Portfolio had not commenced operations as of
the period indicated.
Because the Portfolio does not market its shares through intermediary
brokers or dealers, it is the Portfolio's practice to allocate brokerage or
principal business on the basis of sales of its shares which may be made through
such firms. However, the Adviser may place portfolio orders with qualified
broker-dealers who recommend the Portfolio's shares to clients, and may, when a
number of brokers and dealers can provide best net results on a particular
transaction, consider such recommendations by a broker or dealer in selecting
among broker-dealers.
The Portfolio is required to identify any securities of its "regular brokers
or dealers" (such term is defined in the 1940 Act, which the Portfolio has
acquired during its most recent fiscal year. As of October 31, 1998, the
Portfolio held repurchase agreements valued at $ with Lehman Brothers).
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 Fund for shares of any portfolio 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 Fund is an entity of the type commonly known as a "Massachusetts
business trust." Under Massachusetts law, shareholders of such a trust could,
under certain circumstances, be held personally liable as partners for the
obligations of the trust. Even if, however, the Fund were held to be a
partnership, the possibility of the shareholders incurring financial loss for
that reason appears remote because the Fund's Declaration of Trust contains an
express disclaimer of shareholder liability for obligations of the Fund and
requires that notice of such disclaimer be given in each agreement, obligation
or instrument entered into or executed by or on behalf of the Fund or the
Trustees, and because the Declaration of Trust provides for indemnification out
of the Fund property for any shareholder held personally liable for the
obligations of the Fund.
LIMITATION OF TRUSTEES' LIABILITY
The Declaration of Trust provides that a Trustee shall be liable only for
his or her own willful defaults and, if reasonable care has been exercised in
the selection of officers, agents, employees or investment advisers, shall not
be liable for any neglect or wrongdoing of any such person. The Declaration of
Trust also provides that the Fund will indemnify its Trustees and officers
against liabilities and expenses incurred in connection with actual or
threatened litigation in which they may be involved because of their offices
with the Fund unless it is determined in the manner provided in the Declaration
of Trust that they have not acted in good faith in the reasonable belief that
their actions were in the best interests of the Fund. However, nothing in the
Declaration of Trust shall protect or indemnify a Trustee against any liability
for his or her willful misfeasance, bad faith, gross negligence or reckless
disregard of his or her duties.
S-25
<PAGE>
YEAR 2000
The Fund depends on the smooth functioning of computer systems in almost
every aspect of its business. Like other mutual funds, businesses and
individuals around the world, the Fund could be adversely affected if the
computer systems used by its service providers do not properly process dates on
and after January 1, 2000 and distinguish between the year 2000 and the year
1900. The Fund has asked its service providers whether they expect to have their
computer systems adjusted for the year 2000 transition, and received assurances
from each that its system is expected to accommodate the year 2000 without
material adverse consequences to the Fund. The Fund and its shareholders may
experience losses if these assurances prove to be incorrect or as a result of
year 2000 computer difficulties experienced by issuers of portfolio securities
or third parties, such as custodians, banks, broker-dealers or others with which
the Fund does business.
5% AND 25% SHAREHOLDERS
As of February 1, 1999, the following persons were the only persons who were
record owners (or to the knowledge of the Fund, beneficial owners) of 5% and 25%
or more of each class of the Portfolio's shares.
<TABLE>
<CAPTION>
SHAREHOLDER NUMBER OF SHARES PERCENTAGE
- ------------------------------------------------------------ ---------------- ----------
<S> <C> <C>
Dorrance H. Hamilton & Barbara Cobb Tr. %
U/A March 15, 1996..........................................
Dorrance H. Hamilton Trust
200 Eagle Rd. Ste 316
Wayne, PA 19087-3115
Hep & Co.................................................... %
P.O. Box 9800
Calabasas, CA 91372-0800
First Trust Na. Tr. %
U/A 10/1/1995...............................................
Foodbrands America Inc. Master Tr.
Att Mutual Funds #21707707
P.O. Box 64010
Saint Paul, MN 55164-0010
Bentley College............................................. %
175 Forest St.
Waltham, MA 02154-4705
Robert Mintz & Barnard Gottstein Tr. %
U/A 07/16/1993..............................................
Barnard Jacob Gottstein Revocable Living Trust
550 W. 7th Ave. Ste 1540
Anchorage, AK 99501-3567
</TABLE>
S-26
<PAGE>
<TABLE>
<CAPTION>
SHAREHOLDER NUMBER OF SHARES PERCENTAGE
- ------------------------------------------------------------ ---------------- ----------
<S> <C> <C>
Miami University Foundation................................. %
c/o Edward J. Demske
202 Roudebush Hall
Oxford, OH 45056
Cynvestors Limited Partnership.............................. %
2620 N. Helen St. Apt. 103
Appleton, WI 54911-2306
Trenton Fire & Police Pension Board......................... %
2800 3rd St.
Trenton, MI 48183-2918
</TABLE>
The Fund 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 incorporated by reference have been audited by
Arthur Andersen LLP, independent public accountants, as indicated in their
report with respect thereto, in reliance upon the authority of said firm as
experts in giving said reports.
FINANCIAL STATEMENTS
The financial statements for the fiscal year ended October 31, 1998,
including notes thereto and the report of Arthur Andersen LLP thereon, are
herein incorporated by reference in reliance upon the authority of said firm as
experts in giving said report. A copy of the 1998 Annual Report to Shareholders
must accompany the delivery of this Statement of Additional Information.
S-27
<PAGE>
APPENDIX
DESCRIPTION OF CORPORATE BOND RATINGS
The following descriptions of corporate bond ratings have been published by
Standard & Poor's Corporation ("S&P") and Moody's Investors Service, Inc.
("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 qualities 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 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, B, CCC, CC and C is regarded as having predominately
speculative characteristics with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. BB indicates the least
degree of speculation and C the highest degree of speculation. While such debt
will likely have some quality and protective characteristics, these are
outweighed by large uncertainties of major risk exposures to adverse conditions.
The rating CI is reserved for income bonds on which no interest is being
paid.
Debt rated D is in default, and payment of interest and/or repayment of
principal is in arrears.
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 risk 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 sometime in the future.
Bonds rated Baa are considered as medium grade obligations (I.E., they are
neither highly protected nor poorly secured). Interest payments and principal
security appear adequate for the present but certain protective elements may be
lacking or may be characteristically unreliable over any great length of time.
Such bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.
Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well-assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
A-1
<PAGE>
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.
Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.
Bonds which are rated C are the lowest rated class of bonds and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
DESCRIPTION OF COMMERCIAL PAPER RATINGS
The following descriptions of commercial paper ratings have been published
by S&P and 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.
PRIME-2--Issuers rated Prime-2 (or supporting institutions) by Moody's have
a strong ability for repayment of senior short-term debt obligations. This will
normally be evidenced by many of the characteristics cited above but to a lesser
degree. Earnings trends and coverage ratios, while sound, may be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
A-2
<PAGE>
PART C: OTHER INFORMATION
POST EFFECTIVE AMENDMENT NO. 34
ITEM 23. EXHIBITS:
<TABLE>
<S> <C>
(a)(1) Registrant's Agreement and Declaration of Trust dated July 18, 1991, as
originally filed with the SEC on August 29, 1991, is incorporated herein
by reference to Post- Effective Amendment No. 32 to Registrant's
Registration Statement on Form N-1A (File No. 33-42484), filed with the
Securities and Exchange Commission on February 27, 1998.
(a)(2) Registrant's Amendment to the Agreement and Declaration of Trust dated
December 2, 1996, is incorporated herein by reference to Post-Effective
Amendment No. 27 to Registrant's Registration Statement on Form N-1A (File
No. 33-42484), filed with the Securities and Exchange Commission on
December 13, 1996.
(a)(3) Registrant's Amendment to the Agreement and Declaration of Trust dated
February 18, 1997, is incorporated herein by reference to Post-Effective
Amendment No. 28 to Registrant's Registration Statement on Form N-1A (File
No. 33-42484), filed with the Securities and Exchange Commission on
February 27, 1997.
(b)(1) Registrant's By-Laws are incorporated herein by reference to Registrant's
Registration Statement on Form N-1A (File No. 33-42484), filed with the
Securities and Exchange Commission on August 29, 1991.
(b)(2) Registrant's Amended and Restated By-Laws are incorporated herein by
reference to Post-Effective Amendment No. 27 to Registrant's Registration
Statement on Form N-1A (File No. 33-42484), filed with the Securities and
Exchange Commission on December 12, 1996.
(c) Not Applicable.
(d)(1) Investment Advisory Agreement between Registrant and HGK Asset Management,
Inc. with respect to HGK Fixed Income Fund dated August 15, 1994 as
originally filed with Post-Effective Amendment No. 15 to Registrant's
Registration Statement on Form N-1A (File No. 33-42484), filed with the
Securities and Exchange Commission on June 15, 1994 is incorporated herein
by reference to Post-Effective Amendment No. 24 filed on February 28,
1996.
(d)(2) Investment Advisory Agreement between Registrant and AIG Capital Management
Corp. with respect to AIG Money Market Fund originally filed with
Post-Effective Amendment No. 17 to Registrant's Registration Statement on
Form N-1A (File No. 33-42484), filed with the Securities and Exchange
Commission on September 19, 1994 is incorporated herein by reference to
Post-Effective Amendment No. 28 filed February 27, 1997.
(d)(3) Investment Advisory Agreement between Registrant and First Manhattan Co.
with respect to FMC Select Fund dated May 3, 1995 as originally filed with
Post-Effective Amendment No. 19 to Registrant's Registration Statement on
Form N-1A (File No. 33-42484) filed with the Securities and Exchange
Commission on February 1, 1995 is incorporated herein by reference to
Post-Effective Amendment No. 24 filed on February 28, 1996.
(d)(4) Investment Advisory Agreement between Registrant and CRA Real Estate
Securities L.P. dated December 31, 1996 with respect to the CRA Realty
Shares Portfolio is incorporated herein by reference to Post-Effective
Amendment No. 29 to Registrant's Registration Statement on Form N-1A (File
No. 33-42484) filed with the Securities and Exchange Commission on May 22,
1997.
</TABLE>
C-1
<PAGE>
<TABLE>
<S> <C>
(d)(5) Investment Advisory Agreement between Registrant and MDL Capital Management,
Inc. with respect to the MDL Broad Market Fixed Income Portfolio and the
MDL Large Cap Growth Equity Portfolio is incorporated herein by reference
to Post-Effective Amendment No. 32 to Registrant's Registration Statement
on Form N-1A (File No. 33-42484), filed with the Securities and Exchange
Commission on February 27, 1998.
(d)(6) Investment Advisory Agreement between Registrant and SAGE Global Funds, LLC
with respect to the SAGE Corporate Bond Fund is incorporated herein by
reference to Post-Effective Amendment No. 32 to Registrant's Registration
Statement on Form N-1A (File No. 33-42484), filed with the Securities and
Exchange Commission on February 27, 1998.
(d)(7) Investment Sub-Advisory Agreement between SAGE Global Funds, LLC and
Standard Asset Group, Inc. with respect to the SAGE Corporate Bond Fund is
incorporated herein by reference to Post-Effective Amendment No. 33 to
Registrant's Registration Statement on Form N-1A (File No. 33-42484),
filed with the Securities and Exchange Commission on May 18, 1998.
(d)(8) Form of Investment Advisory Agreement between Registrant and LSV Asset
Management Company is filed herewith.
(d)(9) Amended and Restated Schedule to the Investment Advisory Agreement dated May
3, 1995 between Registrant and First Manhattan Company is filed herewith.
(e)(1) Amended and Restated Distribution Agreement between Registrant and SEI
Financial Services Company dated August 8, 1994 as originally filed with
Post-Effective Amendment No. 17 to Registrant's Registration Statement on
Form N-1A (File No. 33-42484) filed with the Securities and Exchange
Commission on September 19, 1994 is incorporated herein by reference to
Post-Effective Amendment No. 24 filed on February 28, 1996.
(e)(2) Distribution Agreement between Registrant and CCM Securities, Inc. dated
February 28, 1997 is incorporated herein by reference to Post-Effective
Amendment No. 30 to Registrant's Registration Statement on Form N-1A (File
No. 33-42484), filed with the Securities and Exchange Commission on June
30, 1997.
(e)(3) Amended and Restated Sub-Distribution and Servicing Agreement between SEI
Investments Company and AIG Equity Sales Corporation is incorporated
herein by reference to Post-Effective Amendment No. 32 to Registrant's
Registration Statement on Form N-1A (File No. 33-42484), filed with the
Securities and Exchange Commission on February 27, 1998.
(f) Not Applicable.
(g) Custodian Agreement between Registrant and CoreStates Bank N.A. originally
filed Pre-Effective Amendment No. 1 to Registrant's Registration Statement
on Form N-1A (File No. 33-42484), filed with the Securities and Exchange
Commission on October 28, 1991 is incorporated herein by reference to
Post-Effective Amendment No. 28 filed on February 27, 1997.
(h)(1) Amended and Restated Administration Agreement between Registrant and SEI
Financial Management Corporation, including schedules relating to Clover
Capital Equity Value Fund, Clover Capital Fixed Income Fund, White Oak
Growth Stock Fund, Pin Oak Aggressive Stock Fund, Roulston Midwest Growth
Fund, Roulston Growth and Income Fund, Roulston Government Securities
Fund, A+P Large-Cap Fund, Turner Fixed Income Fund, Turner Small Cap Fund,
Turner Growth Equity Fund, Morgan Grenfell Fixed Income Fund, Morgan
Grenfell Municipal Bond Fund and HGK Fixed Income Fund dated May 17, 1994
as originally filed with Post-Effective Amendment No. 15 to Registrant's
Registration Statement on Form N-1A (File No. 33-42484), filed with the
Securities and Exchange Commission on June 15, 1994 is incorporated herein
by reference to Post-Effective Amendment No. 24 filed on February 28,
1996.
</TABLE>
C-2
<PAGE>
<TABLE>
<S> <C>
(h)(2) Schedule dated November 11, 1996 to Administration Agreement dated November
14, 1991 as Amended and Restated May 17, 1994 adding the CRA Realty Shares
Portfolio is incorporated herein by reference to Post-Effective Amendment
No. 29 to Registrant's Registration Statement on Form N-1A (File No.
33-42484), filed with the Securities and Exchange Commission on May 22,
1997.
(h)(3) Shareholder Service Plan and Agreement for the Class A Shares of the CRA
Realty Shares Portfolio is incorporated herein by reference to
Post-Effective Amendment No. 30 to Registrant's Registration Statement on
Form N-1A (File No. 33-42484), filed with the Securities and Exchange
Commission on June 30, 1997.
(h)(4) Schedule to Amended and Restated Administration Agreement dated May 8, 1995
to the Administration Agreement dated November 14, 1991 as Amended and
Restated May 17, 1994 with respect to the FMC Select Fund is incorporated
herein by reference to Post-Effective Amendment No. 28 to Registrant's
Registration Statement on Form N-1A (File No. 33-42484), filed with the
Securities and Exchange Commission on February 27, 1997.
(h)(5) Consent to Assignment and Assumption of Administration Agreement dated June
1, 1996 is incorporated herein by reference to Post-Effective Amendment
No. 28 to Registrant's Registration Statement on Form N-1A (File No.
33-42484), filed with the Securities and Exchange Commission on February
27, 1997.
(h)(6) Schedule to the Amended and Restated Administration Agreement adding the MDL
Broad Market Fixed Income Fund and the MDL Large Cap Growth Equity Fund
incorporated herein by reference to Post-Effective Amendment No. 32 to
Registrant's Registration Statement on Form N-1A (File No. 33-42484),
filed with the Securities and Exchange Commission on February 27, 1998.
(h)(7) Schedule to the Amended and Restated Administration Agreement adding the
SAGE Corporate Fixed Bond Fund is incorporated herein by reference to
Post-Effective Amendment No. 32 to Registrant's Registration Statement on
Form N-1A (File No. 33-42484), filed with the Securities and Exchange
Commission on February 27, 1998.
(h)(8) Schedule dated May 19, 1997 to Administration Agreement dated November 14,
1991 between the Advisors' Inner Circle Fund and SEI Financial Management
Corporation adding the AIG Money Market Fund is incorporated herein by
reference to Post-Effective Amendment No. 32 to Registrant's Registration
Statement on Form N-1A (File No. 33-42484), filed with the Securities and
Exchange Commission on February 27, 1998.
(h)(9) Schedule to Administration Agreement relating to the CRA Realty Portfolio is
incorporated herein by reference to Post-Effective Amendment No. 32 to
Registrant's Registration Statement on Form N-1A (File No. 33-42484),
filed with the Securities and Exchange Commission on February 27, 1998.
(h)(10) [Form of] Shareholder Servicing Agreement for AIG Money Market Fund is
incorporated herein by reference to Post-Effective Amendment No. 32 to
Registrant's Registration Statement on Form N-1A (File No. 33-42484),
filed with the Securities and Exchange Commission on February 27, 1998.
(h)(11) Transfer Agency Agreement dated November 30, 1994 is incorporated herein by
reference to Post-Effective Amendment No. 33 to Registrant's Registration
Statement on Form N-1A (File No. 33-42484), filed with the Securities and
Exchange Commission on May 18, 1998.
(h)(12) Amendment dated August 17, 1998 to the Schedule dated May 8, 1995 to the
Administration Agreement dated November 14, 1991 as amended and restated
May 17, 1994 between Registrant and SEI Financial Management Corporation
is filed herewith.
</TABLE>
C-3
<PAGE>
<TABLE>
<S> <C>
(h)(13) Assignment and Assumption Agreement dated February 27, 1998 between
Registrant and Oak Associates Funds is filed herewith.
(i) Opinion and Consent of Counsel dated October 24, 1991, as originally filed
October 28, 1991, is incorporated herein by reference to Post-Effective
Amendment No. 32 to Registrant's Registration Statement on Form N-1A (File
No. 33-42484), filed with the Securities and Exchange Commission on
February 27, 1998.
(j) Consent of Independent Public Accountants is filed herewith.
(k) Not Applicable.
(l) Not Applicable.
(m) Distribution Plan for The Advisors' Inner Circle Fund as originally filed
with Post-Effective Amendment No. 17 to Registrant's Registration
Statement on Form N-1A (File No. 33-42484), filed with the Securities and
Exchange Commission on September 19, 1994 is incorporated herein by
reference to Post-Effective Amendment No. 24 filed on February 28, 1996.
(n) To be filed by Amendment.
(o) Rule 18f-3 Plan dated May 15, 1995, as originally filed June 1, 1995, is
incorporated herein by reference to Post-Effective Amendment No. 32 to
Registrant's Registration Statement on Form N-1A (File No. 33-42484),
filed with the Securities and Exchange Commission on February 27, 1998.
(p) Powers of Attorney for Mark E. Nagle, John T. Cooney, William M. Doran,
Frank E. Morris, Robert A. Nesher, Eugene B. Peters, Robert A. Patterson
and James M. Storey are filed herewith.
</TABLE>
ITEM 24. Persons Controlled by or under Common Control with Registrant:
See Statements of Additional Information regarding the control relationships
of The Advisors' Inner Circle Fund (the "Fund"). SEI Investments Management
Corporation a wholly-owned subsidiary of SEI Investments Company ("SEI"), is the
owner of all beneficial interest in SEI Investments Mutual Funds Services ("the
Administrator"). SEI 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.
ITEM 25. Indemnification:
Article VIII of the Agreement and Declaration of Trust filed as Exhibit a to
the Registration Statement is incorporated by reference. Insofar as
indemnification for liabilities arising under the Securities Act of 1933 may be
permitted to trustees, directors, officers and controlling persons of the
Registrant by the Registrant pursuant to the Declaration of Trust or otherwise,
the Registrant is aware that in the opinion of the Securities and Exchange
Commission, such indemnification is against public policy as expressed in the
Act and, therefore, is unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by trustees, directors, officers or
controlling persons of the Registrant in connection with the successful defense
of any act, suit or proceeding) is asserted by such trustees, directors,
officers or controlling persons in connection with the shares being registered,
the Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issues.
C-4
<PAGE>
ITEM 26. Business and Other Connections of Investment Adviser:
Other business, profession, vocation, or employment of a substantial nature
in which each director or principal officer of the Adviser is or has been, at
any time during the last two fiscal years, engaged for his own account or in the
capacity of director, officer, employee, partner or trustee are as follows:
HGK ASSET MANAGEMENT, INC.
- --------------------------
HGK Asset Management, Inc. is the investment adviser for the HGK Fixed
Income Fund. The principal address of HGK Asset Management, Inc. is Newport
Tower, 525 Washington Blvd., Jersey City, NJ 07310.
The list required by this Item 26 of general partners of HGK Asset
Management, Inc., together with information as to any other business profession,
vocation, or employment of a substantial nature engaged in by such general
partners during the past two years is incorporated by reference to Schedules B
and D of Form ADV filed by HGK Asset Management, Inc. under the Advisers Act of
1940 (SEC File No. 801-19314).
AIG CAPITAL MANAGEMENT CORP.
- ----------------------------
AIG Capital Management Corp. is the investment adviser for the AIG Money
Market Fund. The principal address of AIG Capital Management Corp. is 70 Pine
Street, New York, NY 10270.
The list required by this Item 26 of directors and officers of AIG Capital
Management Corp., together with information as to any other business profession,
vocation, or employment of a substantial nature engaged in by such directors and
officers during the past two years is incorporated by reference to Schedules A
and D of Form ADV filed by AIG Capital Management Corp. under the Advisers Act
of 1940 (SEC File No. 801-47192).
FIRST MANHATTAN CO.
- -------------------
First Manhattan Co. is the investment adviser for the FMC Select Fund. The
principal address of First Manhattan Co. is 437 Madison Avenue, New York, NY
10022.
The list required by this Item 26 of general partners of First Manhattan
Co., together with information as to any other business profession, vocation, or
employment of a substantial nature engaged in by such general partners during
the past two years is incorporated by reference to Schedules B and D of Form ADV
filed by First Manhattan Co. under the Advisers Act of 1940 (SEC File No.
801-12411).
CRA REAL ESTATE SECURITIES L.P.
- -------------------------------
CRA Real Estate Securities L.P. is the investment adviser for the CRA Realty
Shares Portfolio. The principal address of CRA Real Estate Securities L.P. is
Suite 205, 259 North Radnor-Chester Road, Radnor, PA 19087.
The list required by this Item 26 of general partners of CRA Real Estate
Securities L.P., together with information as to any other business profession,
vocation, or employment of a substantial nature engaged in by such general
partners during the past two years is incorporated by reference to Schedules B
and D of Form ADV filed by CRA Real Estate Securities L.P. under the Advisers
Act of 1940 (SEC File No. 801-49083).
MDL CAPITAL MANAGEMENT, INC.
- ----------------------------
MDL Capital Management, Inc. is the investment adviser for the MDL Broad
Market Fixed Income Portfolio and the MDL Large Cap Growth Equity Portfolio. The
principal address of MDL Capital Management, Inc. is 225 Ross Street,
Pittsburgh, PA 15222.
C-5
<PAGE>
The list required by this Item 26 of general partners of MDL Capital
Management, Inc., together with information as to any other business profession,
vocation, or employment of a substantial nature engaged in by such general
partners during the past two years is incorporated by reference to Schedules B
and D of Form ADV filed by MDL Capital Management, Inc. under the Advisers Act
of 1940 (SEC File No. 801-43419).
SAGE GLOBAL FUNDS, LLC
- ----------------------
SAGE Global Funds, LLC is the investment adviser for the SAGE Corporate Bond
Fund. The principal address of SAGE Global Funds, LLC is 55 William Street,
Suite G-40, Wellesley, MA 02181.
The list required by this Item 26 of general partners of SAGE Global Funds,
LLC, together with information as to any other business profession, vocation, or
employment of a substantial nature engaged in by such general partners during
the past two years is incorporated by reference to Schedules B and D of Form ADV
filed by SAGE Global Funds, LLC under the Advisers Act of 1940 (SEC File No.
801-54753).
STANDARD ASSET GROUP, INC.
- --------------------------
Standard Asset Group, Inc. Is the investment sub-adviser for the SAGE
Corporate Bond Fund. The principal address of Standard Asset Group, Inc. is 55
William Street, Suite G-40, Wellesley, MA 02181.
The list required by this Item 26 of general partners of Standard Asset
Group, Inc., together with information as to any other business profession,
vocation, or employment of a substantial nature engaged in by such general
partners during the past two years is incorporated by reference to Schedules B
and D of Form ADV filed by Standard Asset Group, Inc. under the Advisers Act of
1940 (SEC File No. 801-29883).
LSV ASSET MANAGEMENT COMPANY
- ----------------------------
LSV Asset Management Company is the investment adviser for the LSV Value
Equity Fund. The address of LSV Asset Management Company 200 W. Madison Street,
27th Floor, Chicago, Illinois 60606.
The list required by this Item 26 of general partners of LSV Asset
Management Company, together with information as to any other business
profession, vocation, or employment of a substantial nature engaged in by such
general partners during the past two years is incorporated by reference to
Schedules B and D of Form ADV filed by LSV Asset Management Company under the
Advisers Act of 1940 (SEC File No. 801-47689).
ITEM 27. PRINCIPAL UNDERWRITERS:
(a) Furnish the name of each investment company (other than the Registrant)
for which each principal underwriter currently distributing the securities of
the Registrant also acts as a principal underwriter, distributor or investment
adviser.
C-6
<PAGE>
Registrant's distributor, SEI Investments Distribution Co. (the
"Distributor"), acts as distributor for:
SEI Daily Income Trust July 15, 1982
SEI Liquid Asset Trust November 29, 1982
SEI Tax Exempt Trust December 3, 1982
SEI Index Funds July 10, 1985
SEI Institutional Managed Trust January 22, 1987
SEI Institutional International Trust August 30, 1988
The Pillar Funds February 28, 1992
CUFUND May 1, 1992
STI Classic Funds May 29, 1992
First American Funds, Inc. November 1, 1992
First American Investment Funds, Inc. November 1, 1992
The Arbor Fund January 28, 1993
Boston 1784 Funds-Registered Trademark- June 1, 1993
The PBHG Funds, Inc. July 16, 1993
Morgan Grenfell Investment Trust January 3, 1994
The Achievement Funds Trust December 27, 1994
Bishop Street Funds January 27, 1995
CrestFunds, Inc. March 1, 1995
STI Classic Variable Trust August 18, 1995
ARK Funds November 1, 1995
Monitor Funds January 11, 1996
SEI Asset Allocation Trust April 1, 1996
TIP Funds April 28, 1996
SEI Institutional Investments Trust June 14, 1996
First American Strategy Funds, Inc. October 1, 1996
HighMark Funds February 15, 1997
Armada Funds March 8, 1997
PBHG Insurance Series Fund, Inc. April 1, 1997
The Expedition Funds June 9, 1997
Alpha Select Funds January 1, 1998
Oak Associates Funds February 27, 1998
The Nevis Funds, Inc. June 29, 1998
The Parkstone Group of Funds September 14, 1998
The Distributor provides numerous financial services to investment managers,
pension plan sponsors, and bank trust departments. These services include
portfolio evaluation, performance measurement and consulting services
("Funds Evaluation") and automated execution, clearing and settlement of
securities transactions ("MarketLink").
(b) Furnish the Information required by the following table with respect to
each director, officer or partner of each principal underwriter named in the
answer to Item 21 of Part B. Unless otherwise noted, the business address of
each director or officer is Oaks, PA 19456.
<TABLE>
<CAPTION>
POSITION AND OFFICE POSITIONS AND OFFICES
NAME WITH UNDERWRITER WITH REGISTRANT
- ------------------------------- ------------------------------------------------------ ------------------------
<S> <C> <C>
Alfred P. West, Jr. Director, Chairman of the Board of Directors --
Henry H. Greer Director --
Carmen V. Romeo Director --
Gilbert L. Beebower Executive Vice President --
</TABLE>
C-7
<PAGE>
<TABLE>
<CAPTION>
POSITION AND OFFICE POSITIONS AND OFFICES
NAME WITH UNDERWRITER WITH REGISTRANT
- ------------------------------- ------------------------------------------------------ ------------------------
<S> <C> <C>
Richard B. Lieb Executive Vice President --
Dennis J. McGonigle Executive Vice President --
Robert M. Silvestri Chief Financial Officer & Treasurer --
Leo J. Dolan, Jr. Senior Vice President --
Carl A. Guarino Senior Vice President --
Larry Hutchison Senior Vice President --
Jack May Senior Vice President --
Hartland J. McKeown Senior Vice President --
Barbara J. Moore Senior Vice President --
Kevin P. Robins Senior Vice President & General Counsel Vice President,
Assistant Secretary
Patrick K. Walsh Senior Vice President --
Robert Aller Vice President --
Gordon W. Carpenter Vice President --
Todd Cipperman Vice President & Assistant Secretary Vice President,
Assistant Secretary
S. Courtney E. Collier Vice President & Assistant Secretary --
Robert Crudup Vice President & Managing Director --
Barbara Doyne Vice President --
Jeff Drennen Vice President --
Vic Galef Vice President & Managing Director --
Lydia A. Gavalis Vice President & Assistant Secretary Vice President,
Assistant Secretary
Greg Gettinger Vice President & Assistant Secretary --
Kathy Heilig Vice President Vice President,
Assistant Secretary
Jeff Jacobs Vice President --
Samuel King Vice President --
Kim Kirk Vice President & Managing Director --
John Krzeminski Vice President & Managing Director --
Carolyn McLaurin Vice President & Managing Director --
W. Kelso Morrill Vice President --
Mark Nagle Vice President Controller & Chief
Financial Officer
Joanne Nelson Vice President --
Joseph M. O'Donnell Vice President & Assistant Secretary Vice President,
Assistant Secretary
Sandra K. Orlow Vice President & Assistant Secretary Vice President,
Assistant Secretary
</TABLE>
C-8
<PAGE>
<TABLE>
<CAPTION>
POSITION AND OFFICE POSITIONS AND OFFICES
NAME WITH UNDERWRITER WITH REGISTRANT
- ------------------------------- ------------------------------------------------------ ------------------------
<S> <C> <C>
Cynthia M. Parrish Vice President & Assistant Secretary --
Kim Rainey Vice President --
Rob Redican Vice President --
Maria Rinehart Vice President --
Mark Samuels Vice President & Managing Director --
Steve Smith Vice President --
Daniel Spaventa Vice President --
Kathryn L. Stanton Vice President & Assistant Secretary Vice President,
Assistant Secretary
Lydia J. Streigel Vice President & Assistant Secretary Vice President,
Assistant Secretary
Lori L. White Vice President & Assistant Secretary --
Wayne M. Withrow Vice President & Managing Director --
</TABLE>
ITEM 28. Location of Accounts and Records:
Books or other documents required to be maintained by Section 31(a) of the
Investment Company Act of 1940, and the rules promulgated thereunder, are
maintained as follows:
(a) With respect to Rules 31a-1(a); 31a-1(b)(1); (2)(a) and (b); (3);
(6); (8); (12); and 31a-I (d), the required books and records are maintained
at the offices of Registrant's Custodian:
First Union National Bank
Broad & Chestnut Streets
P.O. Box 7618
Philadelphia, PA 19101
(b)/(c) With respect to Rules 31a-1(a); 31a-1 (b)(1),(4); (2)(C) and
(D); (4); (5); (6); (8); (9); (10); (11); and 31a-1(f), the required books
and records are maintained at the offices of Registrant's Administrator:
SEI Investments Mutual Funds Services
Oaks, PA 19456
(c) With respect to Rules 31a-1 (b)(5), (6), (9) and (10) and 31a-1 (f),
the required books and records are maintained at the offices of the
Registrant's Advisers:
HGK Asset Management, Inc.
Newport Tower
525 Washington Blvd.
Jersey City, NJ 07310
AIG Capital Management Corp.
70 Pine Street
20th Floor
New York, NY 10270
First Manhattan Co.
437 Madison Avenue
New York, NY 10022-7022
C-9
<PAGE>
CRA Real Estate Securities L.P.
Suite 205
259 North Radnor-Chester Road
Radnor, PA 19087
MDL Capital Management, Inc.
225 Ross Street
Pittsburgh, PA 15222
SAGE Global Funds, LLC
55 William Street, Suite G-40
Wellesley, MA 02181
Standard Asset Group, Inc.
55 William Street
Wellesley, MA 02181
LSV Asset Management Company
200 W. Madison Street, 27th Floor
Chicago, Illinois 60606
ITEM 29. MANAGEMENT SERVICES:
None.
ITEM 30. UNDERTAKINGS:
Registrant hereby undertakes that whenever shareholders meeting the
requirements of Section 16(c) of the Investment Company Act of 1940 inform the
Board of Trustees of their desire to communicate with shareholders of the Fund,
the Trustees will inform such shareholders as to the approximate number of
shareholders of record and the approximate costs of mailing or afford said
shareholders access to a list of shareholders.
Registrant hereby undertakes to call a meeting of shareholders for the
purpose of voting upon the question of removal of a Trustee(s) when requested in
writing to do so by the holders of at least 10% of Registrant's outstanding
shares and in connection with such meetings to assist in communications with
other shareholders as required by the provisions of Section 16(c) of the
Investment Company Act of 1940.
Registrant hereby undertakes to furnish each prospective person to whom a
prospectus for any series of the Registrant is delivered with a copy of the
Registrant's latest annual report to shareholders for such series, when such
annual report is issued containing information called for by Item 5A of Form
N-1A, upon request and without charge.
NOTICE
A copy of the Agreement and Declaration of Trust for The Advisors' Inner
Circle Fund is on file with the Secretary of State of The Commonwealth of
Massachusetts and notice is hereby given that this Registration Statement has
been executed on behalf of the Fund by an officer of the Fund as an officer and
by its Trustees as trustees and not individually and the obligations of or
arising out of this Registration Statement are not binding upon any of the
Trustees, officers, or shareholders individually but are binding only upon the
assets and property of the Fund.
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this Amendment
No. 34 to the Registration Statement to be signed on its behalf by the
undersigned, thereto duly authorized, in the City of Oaks, Commonwealth of
Pennsylvania on the 29th day of December, 1998.
THE ADVISORS' INNER CIRCLE FUND
By: /s/ MARK E. NAGLE
-----------------------------------------
Mark E. Nagle
President
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement has been signed below by the following persons in
the capacity and on the dates indicated.
*
- ------------------------------ Trustee December 29, 1998
John T. Cooney
*
- ------------------------------ Trustee December 29, 1998
William M. Doran
*
- ------------------------------ Trustee December 29, 1998
Frank E. Morris
*
- ------------------------------ Trustee December 29, 1998
Robert A. Nesher
*
- ------------------------------ Trustee December 29, 1998
Robert A. Patterson
*
- ------------------------------ Trustee December 29, 1998
Eugene Peters
*
- ------------------------------ Trustee December 29, 1998
James M. Storey
/s/ MARK E. NAGLE
- ------------------------------ President, Controller & December 29, 1998
Mark E. Nagle Chief Financial Officer
*By: /s/ MARK E. NAGLE
-------------------------
Mark E. Nagle
Attorney-in-Fact
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<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. and Description
<S> <C>
- ----------------------------------------------------------------------------------------------
EX-99.A1 Registrant's Agreement and Declaration of Trust dated July 18, 1991, as
originally filed with the SEC on August 29, 1991, is incorporated herein by
reference to Post-Effective Amendment No. 32 to Registrant's Registration
Statement on Form N-1A (File No. 33-42484), filed with the Securities and
Exchange Commission on February 27, 1998.
EX-99.A2 Registrant's Amendment to the Agreement and Declaration of Trust dated December
2, 1996, is incorporated herein by reference to Post-Effective Amendment No. 27
to Registrant's Registration Statement on Form N-1A (File No. 33-42484), filed
with the Securities and Exchange Commission on December 13, 1996.
EX-99.A3 Registrant's Amendment to the Agreement and Declaration of Trust dated February
18, 1997, is incorporated herein by reference to Post-Effective Amendment No.
28 to Registrant's Registration Statement on Form N-1A (File No. 33-42484),
filed with the Securities and Exchange Commission on February 27, 1997.
EX-99.B1 Registrant's By-Laws are incorporated herein by reference to Registrant's
Registration Statement on Form N-1A (File No. 33-42484), filed with the
Securities and Exchange Commission on August 29, 1991.
EX-99.B2 Registrant's Amended and Restated By-Laws are incorporated herein by reference to
Post-Effective Amendment No. 27 to Registrant's Registration Statement on Form
N-1A (File No. 33-42484), filed with the Securities and Exchange Commission on
December 12, 1996.
EX-99.C Not Applicable.
EX-99.D1 Investment Advisory Agreement between Registrant and HGK Asset Management, Inc.
with respect to HGK Fixed Income Fund dated August 15, 1994 as originally filed
with Post-Effective Amendment No. 15 to Registrant's Registration Statement on
Form N-1A (File No. 33-42484), filed with the Securities and Exchange
Commission on June 15, 1994 is incorporated herein by reference to
Post-Effective Amendment No. 24 filed on February 28, 1996.
EX-99.D2 Investment Advisory Agreement between Registrant and AIG Capital Management Corp.
with respect to AIG Money Market Fund is incorporated herein by reference to
Post-Effective Amendment No. 17 to Registrant's Registration Statement on Form
N-1A (File No. 33-42484), filed with the Securities and Exchange Commission on
September 19, 1994 is incorporated herein by reference to Post-Effective
Amendment No. 28 filed February 27, 1997.
EX-99.D3 Investment Advisory Agreement Between Registrant and First Manhattan Co. with
respect to FMC Select Fund dated May 3, 1995 as originally filed with
Post-Effective Amendment No. 19 to Registrant's Registration Statement on Form
N-1A (File No. 33-42484), filed with the Securities and Exchange Commission on
February 1, 1995 is incorporated herein by reference to Post-Effective
Amendment No. 24 filed on February 28, 1996.
EX-99.D4 Investment Advisory Agreement between Registrant and CRA Real Estate Securities
L.P. dated December 31, 1996 with respect to the CRA Realty Shares Portfolio is
incorporated herein by reference to Post-Effective Amendment No. 29 to
Registrant's Registration Statement on From N-1A (File No. 33-42484) filed with
the Securities and Exchange Commission on May 22, 1997.
EX-99.D5 Investment Advisory Agreement between Registrant and MDL Capital Management, Inc.
with respect to the MDL Broad Market Fixed Income Portfolio and the MDL Large
Cap Growth Equity Portfolio is incorporated herein by reference to
Post-Effective Amendment No. 32 to Registrant's Registration Statement on Form
N-1A (File No. 33-42484), filed with the Securities and Exchange Commission on
February 27, 1998.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. and Description
- ----------------------------------------------------------------------------------------------
<S> <C>
EX-99.D6 Investment Advisory Agreement between Registrant and SAGE Global Funds, LLC with
respect to the SAGE Corporate Bond Fund is incorporated herein by reference to
Post-Effective Amendment No. 32 to Registrant's Registration Statement on Form
N-1A (File No. 33-42484), filed with the Securities and Exchange Commission on
February 27, 1998.
EX-99.D7 Investment Sub-Advisory Agreement between SAGE Global Funds, LLC and Standard
Asset Group, Inc. with respect to the SAGE Corporate Bond Fund is incorporated
herein by reference to Post-Effective Amendment No. 33 to Registrant's
Registration Statement on Form N-1A (File No. 33-42484), filed with the
Securities and Exchange Commission on May 18, 1998.
EX-99.D8 Form of Investment Advisory Agreement between Registrant and LSV Asset Management
Company is filed herewith.
EX-99.D9 Amended and Restated Schedule to the Investment Advisory Agreement dated May 3,
1995 between Registrant and First Manhattan Company is filed herewith.
EX-99.E1 Amended and Restated Distribution Agreement between Registrant and SEI Financial
Services Company dated August 8, 1994 as originally filed with Post-Effective
Amendment No. 17 to Registrant's Registration Statement on Form N-1A (File No.
33-42484), filed with the Securities and Exchange Commission on September 19,
1994 is incorporated herein by reference to Post-Effective Amendment No. 24
filed on February 28, 1996.
EX-99.E2 Distribution Agreement between Registrant and CCM Securities, Inc. dated February
28, 1997 is incorporated herein by reference to Post-Effective Amendment No. 30
to Registrant's Registration Statement on From N-1A (File No. 33-42484), filed
with the Securities and Exchange Commission on June 30, 1997.
EX-99.E3 Amended and Restated Sub-Distribution and Servicing Agreement between \ SEI
Investments Company and AIG Equity Sales Corporation is incorporated herein by
reference to Post-Effective Amendment No. 32 to Registrant's Registration
Statement on Form N-1A (File No. 33-42484), filed with the Securities and
Exchange Commission on February 27, 1998.
EX-99.F Not Applicable.
EX-99.G Custodian Agreement between Registrant and CoreStates Bank N.A. is incorporated
herein by reference to Pre-Effective Amendment No. 1 to Registrant's
Registration Statement on Form N-1A (File No. 33-42484), filed with the
Securities and Exchange Commission on October 28, 1991 is incorporated herein
by reference to Post-Effective Amendment No. 28 filed on February 27, 1997.
EX-99.H1 Amended and Restated Administration Agreement between Registrant and SEI
Financial Management Corporation, including schedules relating to Clover
Capital Equity Value Fund, Clover Capital Fixed Income Fund, White Oak Growth
Stock Fund, Pin Oak Aggressive Stock Fund, Roulston Midwest Growth Fund,
Roulston Growth and Income Fund, Roulston Government Securities Fund, A+P
Large-Cap Fund, Turner Fixed Income Fund, Turner Small Cap Fund, Turner Growth
Equity Fund, Morgan Grenfell Fixed Income Fund, Morgan Grenfell Municipal Bond
Fund and HGK Fixed Income Fund dated May 17, 1994 as originally filed with
Post-Effective Amendment No. 15 to Registrant's Registration Statement on Form
N-1A (File No. 33-42484), filed with the Securities and Exchange Commission on
June 15, 1994 is incorporated herein by reference to Post-Effective Amendment
No. 24 filed on February 28, 1996.
EX-99.H2 Schedule dated November 11, 1996 to Administration Agreement dated November 14,
1991 as Amended and Restated May 17, 1994 adding the CRA Realty Shares
Portfolio is incorporated herein by reference to Post-Effective Amendment No.
29 to Registrant's Registration Statement on Form N-1A (File No. 33-42484),
filed with the Securities and Exchange Commission on May 22, 1997.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. and Description
- ----------------------------------------------------------------------------------------------
<S> <C>
EX-99.H3 Shareholder Service Plan and Agreement for the Class A Shares of the CRA Realty
Shares Portfolio is incorporated herein by reference to Post-Effective
Amendment No. 30 to Registrant's Registration Statement on Form N-1A (File No.
33-42484), filed with the Securities and Exchange Commission on June 30, 1997.
EX-99.H4 Schedule to Amended and Restated Administration Agreement dated May 8, 1995 to
the Administration Agreement dated November 14, 1991 as Amended and Restated
May 17, 1994 with respect to the FMC Select Fund is incorporated herein by
reference to Post-Effective Amendment No. 28 to Registrant's Registration
Statement on Form N-1A (File No. 33-42484), filed with the Securities and
Exchange Commission on February 27, 1997.
EX-99.H5 Consent to Assignment and Assumption of Administration Agreement dated June 1,
1996 is incorporated herein by reference to Post-Effective Amendment No. 28 to
Registrant's Registration Statement on Form N-1A (File No. 33-42484), filed
with the Securities and Exchange Commission on February 27, 1997.
EX-99.H6 Schedule to the Amended and Restated Administration Agreement adding the MDL
Broad Market Fixed Income Fund and the MDL Large Cap Growth Equity Fund is
incorporated herein by reference to Post-Effective Amendment No. 32 to
Registrant's Registration Statement on Form N-1A (File No. 33-42484), filed
with the Securities and Exchange Commission on February 27, 1998.
EX-99.H7 Schedule to the Amended and Restated Administration Agreement adding the SAGE
Corporate Fixed Bond Fund incorporated herein by reference to Post-Effective
Amendment No. 32 to Registrant's Registration Statement on Form N-1A (File No.
33-42484), filed with the Securities and Exchange Commission on February 27,
1998.
EX-99.H8 Schedule dated May 19, 1997 to Administration Agreement dated November 14, 1991
between the Advisors' Inner Circle Fund and SEI Financial Management
Corporation adding the AIG Money Market Fund is incorporated herein by
reference to Post-Effective Amendment No. 32 to Registrant's Registration
Statement on Form N-1A (File No. 33-42484), filed with the Securities and
Exchange Commission on February 27, 1998.
EX-99.H9 Schedule to Administration Agreement relating to the CRA Realty Portfolios is
incorporated herein by reference to Post-Effective Amendment No. 32 to
Registrant's Registration Statement on Form N-1A (File No. 33-42484), filed
with the Securities and Exchange Commission on February 27, 1998.
EX-99.H10 [Form of] Shareholder Servicing Agreement for AIG Money Market Fund is
incorporated herein by reference to Post-Effective Amendment No. 32 to
Registrant's Registration Statement on Form N-1A (File No. 33-42484), filed
with the Securities and Exchange Commission on February 27, 1998.
EX-99.H11 Transfer Agency Agreement dated November 30, 1994 is incorporated herein by
reference to Post-Effective Amendment No. 33 to Registrant's Registration
Statement on Form N-1A (File No. 33-42484), filed with the Securities and
Exchange Commission on May 18, 1998.
EX-99.H12 Amendment dated August 17, 1998 to the Schedule dated May 8, 1995 to the
Administration Agreement dated November 14, 1991 as amended and restated May
17, 1994 between Registrant and SEI Financial Management Corporation is filed
herewith.
EX.99.H13 Assignment and Assumption Agreement dated February 27, 1998 between Registrant
and Oak Associates Funds is filed herewith.
EX-99.I Opinion and Consent of Counsel dated October 24, 1991, as originally filed
October 28, 1991, is incorporated herein by reference to Post-Effective
Amendment No. 32 to Registrant's Registration Statement on Form N-1A (File No.
33-42484), filed with the Securities and Exchange Commission on February 27,
1998.
EX-99.J Consent of Independent Public Accountants is filed herewith.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. and Description
- ----------------------------------------------------------------------------------------------
<S> <C>
EX-99.K Not Applicable.
EX-99.L Not Applicable.
EX-99.M Distribution Plan for The Advisors' Inner Circle Fund as originally filed with
Post-Effective Amendment No. 17 to Registrant's Registration Statement on Form
N-1A (File No. 33-42484), filed with the Securities and Exchange Commission on
September 19, 1994 is incorporated herein by reference to Post-Effective
Amendment No. 24 filed on February 28, 1996.
EX-99.N To be filed by Amendment.
EX-99.O Rule 18f-3 Plan dated May 15, 1995, as originally filed June 1, 1995, is
incorporated herein by reference to Post-Effective Amendment No. 32 to
Registrant's Registration Statement on Form N-1A (File No. 33-42484), filed
with the Securities and Exchange Commission on February 27, 1998.
EX-99.P Powers of Attorney for Mark E. Nagle, John T. Cooney, William M. Doran, Frank E.
Morris, Robert A. Nesher, Eugene B. Peters, Robert A. Patterson and James M.
Storey are filed herewith.
</TABLE>
<PAGE>
INVESTMENT ADVISORY AGREEMENT
AGREEMENT made this ____ day of _________, 1998, by and between The
Advisors' Inner Circle Fund, a Massachusetts business trust (the "Trust"), and
LSV Asset Management (the "Adviser").
WHEREAS, the Trust is an open-end, diversified management investment
company registered under the Investment Company Act of 1940, as amended, (the
"1940 Act") consisting of several series of shares, each having its own
investment policies; and
WHEREAS, the Trust has retained SEI Fund Resources (the "Administrator") to
provide administration of the Trust's operations, subject to the control of the
Board of Trustees;
WHEREAS, the Trust desires to retain the Adviser to render investment
management services with respect to its LSV Value Equity Fund and such other
portfolios as the Trust and the Adviser may agree upon (the "Portfolios"), and
the Adviser is willing to render such services:
NOW, THEREFORE, in consideration of mutual covenants herein contained, the
parties hereto agree as follows:
1. DUTIES OF THE ADVISER. The Trust employs the Adviser to manage
the investment and reinvestment of the assets, and to
continuously review, supervise, and administer the investment
program of the Portfolios, to determine in its discretion the
securities to be purchased or sold, to provide the Administrator
and the Trust with records concerning the Adviser's activities
which the Trust is required to maintain, and to render regular
reports to the Administrator and to the Trust's Officers and
Trustees concerning the Adviser's discharge of the foregoing
responsibilities.
The Adviser shall discharge the foregoing responsibilities
subject to the control of the Board of Trustees of the Trust and
in compliance with such policies as the Trustees may from time to
time establish, and in compliance with the objectives, policies,
and limitations for each such Portfolio set forth in the
Portfolio's prospectus and statement of additional information as
amended from time to time, and applicable laws and regulations.
The Adviser accepts such employment and agrees, at its own
expense, to render the services and to provide the office space,
furnishings and equipment and the personnel required by it to
perform the services on the terms and for
<PAGE>
the compensation provided herein.
2. PORTFOLIO TRANSACTIONS. The Adviser is authorized to select the
brokers or dealers that will execute the purchases and sales of
portfolio securities for the Portfolios and is directed to use
its best efforts to obtain the best net results as described from
time to time in the Portfolios' Prospectuses and Statement of
Additional Information. The Adviser will promptly communicate to
the Administrator and to the officers and the Trustees of the
Trust such information relating to portfolio transactions as they
may reasonably request.
It is understood that the Adviser will not be deemed to have
acted unlawfully, or to have breached a fiduciary duty to the
Trust or be in breach of any obligation owing to the Trust under
this Agreement, or otherwise, by reason of its having directed a
securities transaction on behalf of the Trust to a broker-dealer
in compliance with the provisions of Section 28(e) of the
Securities Exchange Act of 1934 or as described from time to time
by the Portfolios' Prospectuses and Statement of Additional
Information.
3. COMPENSATION OF THE ADVISER. For the services to be rendered by
the Adviser as provided in Sections 1 and 2 of this Agreement,
the Trust shall pay to the Adviser compensation at the rate
specified in the Schedule(s) which are attached hereto and made a
part of this Agreement. Such compensation shall be paid to the
Adviser at the end of each month, and calculated by applying a
daily rate, based on the annual percentage rates as specified in
the attached Schedule(s), to the assets. The fee shall be based
on the average daily net assets for the month involved.
All rights of compensation under this Agreement for services
performed as of the termination date shall survive the
termination of this Agreement.
4. OTHER EXPENSES. The Adviser shall pay all expenses of printing
and mailing reports, prospectuses, statements of additional
information, and sales literature relating to the solicitation of
prospective clients. The Trust shall pay all expenses relating
to mailing to existing shareholders prospectuses, statements of
additional information, proxy solicitation material and
shareholder reports.
5. EXCESS EXPENSES. If the expenses for any Portfolio for any
fiscal year (including fees and other amounts payable to the
Adviser, but excluding interest, taxes, brokerage costs,
litigation, and other extraordinary costs) as calculated every
business day would exceed the expense limitations imposed on
investment companies by any applicable statute or regulatory
authority of any jurisdiction in which shares of a Portfolio are
qualified for offer
<PAGE>
and sale, the Adviser shall bear such excess cost.
However, the Adviser will not bear expenses of any Portfolio
which would result in the Portfolio's inability to qualify as a
regulated investment company under provisions of the Internal
Revenue Code. Payment of expenses by the Adviser pursuant to
this Section 5 shall be settled on a monthly basis (subject to
fiscal year end reconciliation) by a reduction in the fee payable
to the Adviser for such month pursuant to Section 3 and, if such
reduction shall be insufficient to offset such expenses, by
reimbursing the Trust.
6. REPORTS. The Trust and the Adviser agree to furnish to each
other, if applicable, current prospectuses, proxy statements,
reports to shareholders, certified copies of their financial
statements, and such other information with regard to their
affairs as each may reasonably request.
7. STATUS OF THE ADVISER. The services of the Adviser to the Trust
are not to be deemed exclusive, and the Adviser shall be free to
render similar services to others so long as its services to the
Trust are not impaired thereby. The Adviser shall be deemed to
be an independent contractor and shall, unless otherwise
expressly provided or authorized, have no authority to act for or
represent the Trust in any way or otherwise be deemed an agent of
the Trust.
8. CERTAIN RECORDS. Any records required to be maintained and
preserved pursuant to the provisions of Rule 31a-1 and Rule 31a-2
promulgated under the 1940 Act which are prepared or maintained
by the Adviser on behalf of the Trust are the property of the
Trust and will be surrendered promptly to the Trust on request.
9. LIMITATION OF LIABILITY OF THE ADVISER. The duties of the
Adviser shall be confined to those expressly set forth herein,
and no implied duties are assumed by or may be asserted against
the Adviser hereunder. The Adviser shall not be liable for any
error of judgment or mistake of law or for any loss arising out
of any investment or for any act or omission in carrying out its
duties hereunder, except a loss resulting from willful
misfeasance, bad faith or gross negligence in the performance of
its duties, or by reason of reckless disregard of its obligations
and duties hereunder, except as may otherwise be provided under
provisions of applicable state law or Federal securities law
which cannot be waived or modified hereby. (As used in this
Paragraph 9, the term "Adviser" shall include directors,
officers, employees and other corporate agents of the Adviser as
well as that corporation itself).
<PAGE>
10. PERMISSIBLE INTERESTS. Trustees, agents, and shareholders of the
Trust are or may be interested in the Adviser (or any successor
thereof) as directors, partners, officers, or shareholders, or
otherwise; directors, partners, officers, agents, and
shareholders of the Adviser are or may be interested in the Trust
as Trustees, shareholders or otherwise; and the Adviser (or any
successor) is or may be interested in the Trust as a shareholder
or otherwise. In addition, brokerage transactions for the Trust
may be effected through affiliates of the Adviser if approved by
the Board of Trustees, subject to the rules and regulations of
the Securities and Exchange Commission.
11. LICENSE OF THE ADVISER'S NAME. The Adviser hereby agrees to
grant a license to the Trust for use of its name in the names of
the Portfolios for the term of this Agreement and such license
shall terminate upon termination of this Agreement.
12. DURATION AND TERMINATION. This Agreement, unless sooner
terminated as provided herein, shall remain in effect until two
years from date of execution, and thereafter, for periods of one
year so long as such continuance thereafter is specifically
approved at least annually (a) by the vote of a majority of those
Trustees of the Trust who are not parties to this Agreement or
interested persons of any such party, cast in person at a meeting
called for the purpose of voting on such approval, and (b) by the
Trustees of the Trust or by vote of a majority of the outstanding
voting securities of each Portfolio; provided, however, that if
the shareholders of any Portfolio fail to approve the Agreement
as provided herein, the Adviser may continue to serve hereunder
in the manner and to the extent permitted by the 1940 Act and
rules and regulations thereunder. The foregoing requirement that
continuance of this Agreement be "specifically approved at least
annually" shall be construed in a manner consistent with the 1940
Act and the rules and regulations thereunder.
This Agreement may be terminated as to any Portfolio at any time,
without the payment of any penalty by vote of a majority of the
Trustees of the Trust or by vote of a majority of the outstanding
voting securities of the Portfolio on not less than 30 days nor
more than 60 days written notice to the Adviser, or by the
Adviser at any time without the payment of any penalty, on 90
days written notice to the Trust. This Agreement will
automatically and immediately terminate in the event of its
assignment. Any notice under this Agreement shall be given in
writing, addressed and delivered, or mailed postpaid, to the
other party at any office of such party.
As used in this Section 11, the terms "assignment", "interested
persons", and a "vote of a majority of the outstanding voting
securities" shall have the
<PAGE>
respective meanings set forth in the 1940 Act and the rules and
regulations thereunder; subject to such exemptions as may be
granted by the Securities and Exchange Commission under said Act.
14. CHANGE IN THE ADVISER'S MEMBERSHIP. The Adviser agrees that it
shall notify the Trust of any change in the membership of the
Adviser within a reasonable time after such change.
15. NOTICE. Any notice required or permitted to be given by either
party to the other shall be deemed sufficient if sent by
registered or certified mail, postage prepaid, addressed by the
party giving notice to the other party at the last address
furnished by the other party to the party giving notice: if to
the Trust, at Oaks, PA 19456 and if to the Adviser at
16. SEVERABILITY. If any provision of this Agreement shall be held
or made invalid by a court decision, statute, rule or otherwise,
the remainder of this Agreement shall not be affected thereby.
17. GOVERNING LAW. This Agreement shall be governed by the internal
laws of the Commonwealth of Massachusetts, without regard to
conflict of law principles; provided, however, that nothing
herein shall be construed as being inconsistent with the 1940
Act.
A copy of the Agreement and Declaration of Trust of the Trust is on file with
the Secretary of the Commonwealth of Massachusetts, and notice is hereby given
that this instrument is executed on behalf of the Trustees of the Trust as
Trustees, and is not binding upon any of the Trustees, officers, or shareholders
of the Trust individually but binding only upon the assets and property of the
Trust.
No portfolio of the Trust shall be liable for the obligations of any other
portfolio of the Trust. Without limiting the generality of the foregoing, the
Adviser shall look only to the assets of the Portfolios for payment of fees for
services rendered to the Portfolios.
IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be executed
as of the day and year first written above.
THE ADVISORS' INNER CIRCLE FUND
By:
-----------------------------
Attest:
-------------------------
<PAGE>
LSV ASSET MANAGEMENT
By:
-----------------------------
Attest:
-------------------------
<PAGE>
SCHEDULE
TO THE
INVESTMENT ADVISORY AGREEMENT
BETWEEN
THE ADVISORS' INNER CIRCLE FUND
AND
LSV ASSET MANAGEMENT
Pursuant to Article 3, the Trust shall pay the Adviser compensation at an annual
rate as follows:
<TABLE>
<CAPTION>
Portfolio Fee (in basis points)
- ---------------------- ------------------------------------
<S> <C>
LSV Value Equity Fund .55% of the average daily net assets
</TABLE>
<PAGE>
AMENDED AND RESTATED
SCHEDULE TO THE
INVESTMENT ADVISORY AGREEMENT DATED MAY 3, 1995
BETWEEN
THE ADVISORS' INNER CIRCLE FUND
AND
FIRST MANHATTAN CO.
Pursuant to Article 3, the Trust shall pay the Adviser compensation at an annual
rate as follows:
<TABLE>
<CAPTION>
Portfolio Fee
- --------- ---
<S> <C>
FMC Select Fund .80% of the average daily net assets
FMC Strategic Value Fund 1.00% of the average daily net assets
</TABLE>
<PAGE>
FMC SELECT FUND
FMC STRATEGIC VALUE FUND
AMENDMENT DATED AUGUST 17, 1998 TO
SCHEDULE DATED MAY 8, 1995
TO THE ADMINISTRATION AGREEMENT
DATED NOVEMBER 14, 1991
AS AMENDED AND RESTATED MAY 17, 1994
BETWEEN
THE ADVISORS' INNER CIRCLE FUND
AND
SEI FINANCIAL MANAGEMENT CORPORATION
Fees: Pursuant to Article 6, Section A, the Trust shall pay the
Administrator compensation for services rendered to the FMC
Select Fund and the FMC Strategic Value Fund (the "Portfolios")
at an annual rate equal 0.15% of the Portfolios' total average
daily net assets. There is a minimum annual administration fee
of $75,000 per portfolio.
Term: Pursuant to Article 9, the term of this Agreement shall commence
on May 8, 1995 and shall remain in effect with respect to the
Portfolios for 5 years (the "Initial Term"). This Agreement
shall continue in effect for successive periods of 2 years after
the Initial Term, unless terminated by either party on not less
than 90 days prior written notice to the other party. In the
event of a material breach of this Agreement by either party, the
non-breaching party shall notify the breaching party in writing
of such breach and upon receipt of such notice, the breaching
party shall have 45 days to remedy the breach or the nonbreaching
party may immediately terminate this Agreement.
<PAGE>
ASSIGNMENT AND ASSUMPTION AGREEMENT
(Selling Agreements)
THIS ASSIGNMENT AND ASSUMPTION AGREEMENT (the "Agreement"), dated as of
February 27, 1998, is made by and between The Advisors' Inner Circle Fund (the
"Transferor"), on behalf of its White Oak Growth Stock and Pin Oak Aggressive
Stock Funds (the "AIC Funds"), and Oak Associates Trust (the "Transferee"), on
behalf of its White Oak Growth Stock and Pin Oak Aggressive Stock Portfolios
(the "Portfolios"), with reference to the following Recitals.
a. Transferor is an open-end management investment company, which
currently consists of, among others, the AIC Funds;
a. Transferee is an open-end management investment company, which
currently consists of the Portfolios;
c. Transferor has entered into a number of agreements (the "Selling
Agreements") relating to the sale of the AIC Funds' shares with
certain third parties ("Third Parties"), and such Selling Agreements
and Third Parties are listed on Annex I hereto;
d. Transferor has delegated certain duties and responsibilities to the
respective Third Parties with respect to the AIC Funds' pursuant to
the corresponding Selling Agreements;
e. Transferor has agreed to assign all of its rights and delegate all of
its obligations (the "Assignment") under each Selling Agreement to
Transferee on behalf of its White Oak Growth Stock Portfolio and Pin
Oak Aggressive Stock Portfolio (the "Portfolios"), as of the date
first set forth above; and
f. Transferee has agreed, that at the time of the Assignment, to assume
all rights and obligations of Transferor on behalf of the Portfolios
under each said Selling Agreement.
NOW THEREFORE, in consideration of the terms and conditions of this
Agreement and other good and valuable consideration, the receipt of which is
hereby acknowledged, and intending to be legally bound, the parties hereto agree
as follows:
a. Transferor hereby grants, sells, conveys, transfers and delivers to
Transferee, on behalf of the Portfolios, all of Transferor's right,
title and interest in and to each Selling Agreement, on behalf of the
AIC Funds;
b. Transferee, on behalf of the Portfolios, hereby assumes and agrees to
perform or to pay or discharge the obligations and liabilities of
Transferor described in each
<PAGE>
Selling Agreement and agrees to be liable to the Transferee for any
default or breach of each Selling Agreement to the extent the default
or breach occurs on or after the date of execution of this Agreement;
and
c. This Agreement shall inure to the benefit of and shall be binding upon
the successors and assigns of the respective parties to this
Agreement. This Agreement shall be governed and interpreted in
accordance with the law of the State of Pennsylvania without reference
to the conflicts of laws principles of such state.
d. A copy of the Declaration of Trust of the Transferor is on file with
the Secretary of State of the Commonwealth of Massachusetts, and
notice is hereby given that this Agreement is executed by an officer
of the Transferor on behalf of the Trustees of the Transferor, as
Trustees and not individually, on further behalf of the Transferor,
and that the obligations of this Agreement shall be binding upon the
assets and properties of the Transferor only and shall not be binding
upon the assets and properties of any other series of the Transferor
or upon any of the Trustees, officers, employees, agents or
shareholders of the Transferor or the Transferor individually.
e. Nothwithstanding anything to the contrary contained herein, no
portfolio of the Transferor shall be liable for the obligations of any
other portfolio of the Transferor. Without limiting the generality of
the foregoing, the parties hereto shall look only to the assets of the
AIC Funds for payment of fees for services rendered to the AIC Funds.
f. A copy of the Declaration of Trust of the Transferee is on file with
the Secretary of State of the Commonwealth of Massachusetts, and
notice is hereby given that this Agreement is executed by an officer
of the Transferee on behalf of the Trustees of the Transferee, as
Trustees and not individually, on further behalf of the Transferee,
and that the obligations of this Agreement shall be binding upon the
assets and properties of the Transferee only and shall not be binding
upon the assets and properties of any other series of the Transferee
or upon any of the Trustees, officers, employees, agents or
shareholders of the Transferee or the Transferee individually.
g. Nothwithstanding anything to the contrary contained herein, no
portfolio of the Transferee shall be liable for the obligations of any
other portfolio of the Transferee. Without limiting the generality of
the foregoing, the parties hereto shall look only to the assets of the
Portfolios for payment of fees for services rendered to the
Portfolios.
This Agreement may be executed in counterparts, each of which shall be
deemed an
<PAGE>
original, but which together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the undersigned have caused this instrument to be duly
executed as of the date first set forth above.
Transferee: Transferor:
Oak Associates Funds, The Advisors' Inner Circle Fund,
on behalf of its White Oak Growth on behalf of its White Oak Growth
Stock Portfolio and the Pin Oak Stock Fund and the Pin Oak
Aggressive Stock Portfolio Aggressive Stock Fund
By: /s/ Joseph M O'Donnell By: Joseph M. O'Donnell
------------------------ ------------------------
Title: Vice President Title: Vice President
--------------------- --------------------
Date: 2/27/98 Date: 2/27/98
---------------------- ---------------------
<PAGE>
Annex I
Selling Agreements
- ----------------------------------------
Name of Third Party
- ----------------------------------------
Charles Schwab OneSource
- ----------------------------------------
Fidelity Funds Network
- ----------------------------------------
Jach White No-Fee
- ----------------------------------------
DATAlynx Advisors
- ----------------------------------------
Bidwell & Company FundSource
- ----------------------------------------
Waterhouse Securities - NISC
- ----------------------------------------
PaineWebber - PACE
- ----------------------------------------
ABN Amro Chicago Corp.
- ----------------------------------------
Accutrade Inc.
- ----------------------------------------
Advance Clearing Corp.
- ----------------------------------------
Ameritrade Inc.
- ----------------------------------------
Amerivest Inc.
- ----------------------------------------
BA Investment Services Inc.
- ----------------------------------------
BancAmerica Robertson Stephens
- ----------------------------------------
Bear Sterns & Co., Inc.
- ----------------------------------------
Bidwell & Co.
- ----------------------------------------
Bornhoft Group Securities Corp.
- ----------------------------------------
Bradford (J.C.) & Co.
- ----------------------------------------
BT Alex Brown, Inc.
- ----------------------------------------
Datek Online
- ----------------------------------------
Emmit A. Larkin Co., Inc.
- ----------------------------------------
Ernst & Company
- ----------------------------------------
Evereen Securities, Inc.
- ----------------------------------------
<PAGE>
- ----------------------------------------
FBS Investment Services, Inc.
- ----------------------------------------
Ferris, Baker Watts, Inc.
- ----------------------------------------
Fidelity
- ----------------------------------------
Financial Network Investment Corp.
- ----------------------------------------
First Montuak Securities
- ----------------------------------------
Firserv Correspondent Services, Inc.
- ----------------------------------------
Freeman Wellwood & Co., Inc.
- ----------------------------------------
Gruntel & Co., L.L.C.
- ----------------------------------------
J.B. Oxford & Co.
- ----------------------------------------
Jack White & Co.
- ----------------------------------------
Kennedy, Cabot & Co.
- ----------------------------------------
KMS Financial Services, Inc.
- ----------------------------------------
Lewco Securities
- ----------------------------------------
Locust Street Securities, Inc.
- ----------------------------------------
McDonald & Co. Securities, Inc.
- ----------------------------------------
Mesirow Financial, Inc.
- ----------------------------------------
Montgomery Securities
- ----------------------------------------
National Financial Services Corporation
- ----------------------------------------
National Investors Services Corp.
- ----------------------------------------
National Securities Corp.
- ----------------------------------------
NBC Securities
- ----------------------------------------
Newbridge Securities, Inc.
- ----------------------------------------
Oppenheimer & Co., Inc.
- ----------------------------------------
Paine Webber Inc.
- ----------------------------------------
Pension Financial Services, Inc.
- ----------------------------------------
Prime Capital Services, Inc.
- ----------------------------------------
Shepard & Vrbanac Securities, Inc.
- ----------------------------------------
<PAGE>
- ----------------------------------------
Southwest Securities, Inc.
- ----------------------------------------
Stern, Agee & Leach, Inc.
- ----------------------------------------
Swiss American Securities Inc.
- ----------------------------------------
U.S. Clearing Corp.
- ----------------------------------------
Vista Financial Services Group
- ----------------------------------------
Wall Street Discount Corp.
- ----------------------------------------
Wall Street Trading
- ----------------------------------------
<PAGE>
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our firm name
included in the Post-Effective Amendment No. 34 to the Registration Statement on
Form N-1A of The Advisors' Inner Circle (File No. 33-42484), and to all
references to our firm included in this Registration Statement.
/s/ Arthur Andersen LLP
Philadelphia, Pennsylvania
December 28, 1998
<PAGE>
THE ARBOR FUND
THE ADVISORS' INNER CIRCLE FUND
THE EXPEDITION FUNDS
OAK ASSOCIATES FUNDS
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned trustee and/or
officer of the above referenced funds (the "Trusts"), each a business trust
organized under the laws of The Commonwealth of Massachusetts, hereby
constitutes and appoints Mark E. Nagle, Joseph M. O'Donnell and Kevin P. Robins,
each of them singly, his true and lawful attorney-in-fact and agent with full
power of substitution and resubstitution, to sign for him and in his name, place
and stead, and in the capacity indicated below, to sign any and all Registration
Statements and all amendments thereto relating to the offering of the Trust's
shares under the provisions of the Investment Company Act of 1940 and/or the
Securities Act of 1933, each such Act as amended, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, acting alone, full power and authority to do and
perform each and every act and thing requisite or necessary to be done in and
about the premises, as fully to all intents and purposes as he might or could do
in person, hereby ratifying and confirming all that said attorneys-in-fact and
agents or any of them, or their substitute or substitutes, may lawfully do or
cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal as
of the date set forth below.
/s/ Robert A. Nesher Date: 9-11-98
- -------------------------------- -----------------------
Robert A. Nesher, Trustee
<PAGE>
THE ARBOR FUND
THE ADVISORS' INNER CIRCLE FUND
THE EXPEDITION FUNDS
OAK ASSOCIATES FUNDS
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned trustee and/or
officer of the above referenced funds (the "Trusts"), each a business trust
organized under the laws of The Commonwealth of Massachusetts, hereby
constitutes and appoints Mark E. Nagle, Joseph M. O'Donnell and Kevin P. Robins,
each of them singly, his true and lawful attorney-in-fact and agent with full
power of substitution and resubstitution, to sign for him and in his name, place
and stead, and in the capacity indicated below, to sign any and all Registration
Statements and all amendments thereto relating to the offering of the Trust's
shares under the provisions of the Investment Company Act of 1940 and/or the
Securities Act of 1933, each such Act as amended, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, acting alone, full power and authority to do and
perform each and every act and thing requisite or necessary to be done in and
about the premises, as fully to all intents and purposes as he might or could do
in person, hereby ratifying and confirming all that said attorneys-in-fact and
agents or any of them, or their substitute or substitutes, may lawfully do or
cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal as
of the date set forth below.
/s/ John T. Cooney Date: 9-9-98
- -------------------------------- -----------------------
John T. Cooney, Trustee
<PAGE>
THE ARBOR FUND
THE ADVISORS' INNER CIRCLE FUND
THE EXPEDITION FUNDS
OAK ASSOCIATES FUNDS
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned trustee and/or
officer of the above referenced funds (the "Trusts"), each a business trust
organized under the laws of The Commonwealth of Massachusetts, hereby
constitutes and appoints Mark E. Nagle, Joseph M. O'Donnell and Kevin P. Robins,
each of them singly, his true and lawful attorney-in-fact and agent with full
power of substitution and resubstitution, to sign for him and in his name, place
and stead, and in the capacity indicated below, to sign any and all Registration
Statements and all amendments thereto relating to the offering of the Trust's
shares under the provisions of the Investment Company Act of 1940 and/or the
Securities Act of 1933, each such Act as amended, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, acting alone, full power and authority to do and
perform each and every act and thing requisite or necessary to be done in and
about the premises, as fully to all intents and purposes as he might or could do
in person, hereby ratifying and confirming all that said attorneys-in-fact and
agents or any of them, or their substitute or substitutes, may lawfully do or
cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal as
of the date set forth below.
/s/ William M. Doran Date: 9/9/98
- -------------------------------- -----------------------
William M. Doran, Trustee
<PAGE>
THE ARBOR FUND
THE ADVISORS' INNER CIRCLE FUND
THE EXPEDITION FUNDS
OAK ASSOCIATES FUNDS
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned trustee and/or
officer of the above referenced funds (the "Trusts"), each a business trust
organized under the laws of The Commonwealth of Massachusetts, hereby
constitutes and appoints Mark E. Nagle, Joseph M. O'Donnell and Kevin P. Robins,
each of them singly, his true and lawful attorney-in-fact and agent with full
power of substitution and resubstitution, to sign for him and in his name, place
and stead, and in the capacity indicated below, to sign any and all Registration
Statements and all amendments thereto relating to the offering of the Trust's
shares under the provisions of the Investment Company Act of 1940 and/or the
Securities Act of 1933, each such Act as amended, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, acting alone, full power and authority to do and
perform each and every act and thing requisite or necessary to be done in and
about the premises, as fully to all intents and purposes as he might or could do
in person, hereby ratifying and confirming all that said attorneys-in-fact and
agents or any of them, or their substitute or substitutes, may lawfully do or
cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal as
of the date set forth below.
/s/ Frank E. Morris Date: 9/9/98
- -------------------------------- -----------------------
Frank E. Morris, Trustee
<PAGE>
THE ARBOR FUND
THE ADVISORS' INNER CIRCLE FUND
THE EXPEDITION FUNDS
OAK ASSOCIATES FUNDS
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned trustee and/or
officer of the above referenced funds (the "Trusts"), each a business trust
organized under the laws of The Commonwealth of Massachusetts, hereby
constitutes and appoints Mark E. Nagle, Joseph M. O'Donnell and Kevin P. Robins,
each of them singly, his true and lawful attorney-in-fact and agent with full
power of substitution and resubstitution, to sign for him and in his name, place
and stead, and in the capacity indicated below, to sign any and all Registration
Statements and all amendments thereto relating to the offering of the Trust's
shares under the provisions of the Investment Company Act of 1940 and/or the
Securities Act of 1933, each such Act as amended, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, acting alone, full power and authority to do and
perform each and every act and thing requisite or necessary to be done in and
about the premises, as fully to all intents and purposes as he might or could do
in person, hereby ratifying and confirming all that said attorneys-in-fact and
agents or any of them, or their substitute or substitutes, may lawfully do or
cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal as
of the date set forth below.
/s/ Robert A. Patterson Date: 9-9-98
- -------------------------------- -----------------------
Robert A. Patterson, Trustee
<PAGE>
THE ARBOR FUND
THE ADVISORS' INNER CIRCLE FUND
THE EXPEDITION FUNDS
OAK ASSOCIATES FUNDS
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned trustee and/or
officer of the above referenced funds (the "Trusts"), each a business trust
organized under the laws of The Commonwealth of Massachusetts, hereby
constitutes and appoints Mark E. Nagle, Joseph M. O'Donnell and Kevin P. Robins,
each of them singly, his true and lawful attorney-in-fact and agent with full
power of substitution and resubstitution, to sign for him and in his name, place
and stead, and in the capacity indicated below, to sign any and all Registration
Statements and all amendments thereto relating to the offering of the Trust's
shares under the provisions of the Investment Company Act of 1940 and/or the
Securities Act of 1933, each such Act as amended, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, acting alone, full power and authority to do and
perform each and every act and thing requisite or necessary to be done in and
about the premises, as fully to all intents and purposes as he might or could do
in person, hereby ratifying and confirming all that said attorneys-in-fact and
agents or any of them, or their substitute or substitutes, may lawfully do or
cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal as
of the date set forth below.
/s/ Eugene B. Peters Date: 10 Sept. '98
- -------------------------------- -----------------------
Eugene B. Peters, Trustee
<PAGE>
THE ARBOR FUND
THE ADVISORS' INNER CIRCLE FUND
THE EXPEDITION FUNDS
OAK ASSOCIATES FUNDS
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned trustee and/or
officer of the above referenced funds (the "Trusts"), each a business trust
organized under the laws of The Commonwealth of Massachusetts, hereby
constitutes and appoints Mark E. Nagle, Joseph M. O'Donnell and Kevin P. Robins,
each of them singly, his true and lawful attorney-in-fact and agent with full
power of substitution and resubstitution, to sign for him and in his name, place
and stead, and in the capacity indicated below, to sign any and all Registration
Statements and all amendments thereto relating to the offering of the Trust's
shares under the provisions of the Investment Company Act of 1940 and/or the
Securities Act of 1933, each such Act as amended, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, acting alone, full power and authority to do and
perform each and every act and thing requisite or necessary to be done in and
about the premises, as fully to all intents and purposes as he might or could do
in person, hereby ratifying and confirming all that said attorneys-in-fact and
agents or any of them, or their substitute or substitutes, may lawfully do or
cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal as
of the date set forth below.
/s/ James M. Storey Date: 9/10/98
- -------------------------------- -----------------------
James M. Storey, Trustee
<PAGE>
THE ARBOR FUND
THE ADVISORS' INNER CIRCLE FUND
THE EXPEDITION FUNDS
OAK ASSOCIATES FUNDS
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned trustee and/or
officer of the above referenced funds (the "Trusts"), each a business trust
organized under the laws of The Commonwealth of Massachusetts, hereby
constitutes and appoints Kevin P. Robins and Joseph M. O'Donnell, each of them
singly, his true and lawful attorney-in-fact and agent with full power of
substitution and resubstitution, to sign for him and in his name, place and
stead, and in the capacity indicated below, to sign any and all Registration
Statements and all amendments thereto relating to the offering of the Trust's
shares under the provisions of the Investment Company Act of 1940 and/or the
Securities Act of 1933, each such Act as amended, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, acting alone, full power and authority to do and
perform each and every act and thing requisite or necessary to be done in and
about the premises, as fully to all intents and purposes as he might or could do
in person, hereby ratifying and confirming all that said attorneys-in-fact and
agents or any of them, or their substitute or substitutes, may lawfully do or
cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal as
of the date set forth below.
/s/ Mark E. Nagle Date: September 9, 1998
- -------------------------------- -----------------------
Mark E. Nagle, President
