<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 27, 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. 32 /X/
AND
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940
AMENDMENT NO. 33 /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
DAVID G. LEE
OAKS, PENNSYLVANIA 19456
(NAME AND ADDRESS OF AGENT FOR SERVICE)
Copies to:
RICHARD W. GRANT, ESQUIRE JOHN H. GRADY, JR., ESQUIRE
MORGAN, LEWIS & BOCKIUS LLP MORGAN, LEWIS & BOCKIUS LLP
2000 ONE LOGAN SQUARE 1800 M STREET, N.W.
PHILADELPHIA, PENNSYLVANIA 19103 WASHINGTON, D.C. 20036
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It is proposed that this filing become effective (check appropriate box)
/X/ immediately upon filing pursuant to paragraph (b)
/ / on [date] pursuant to paragraph (b)
/ / 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.
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<PAGE>
THE ADVISORS' INNER CIRCLE FUND
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
N-1A ITEM NO. LOCATION
- --------------------------------------------------------------------------------------------------------------
<S> <C>
PART A - HGK FIXED INCOME FUND
Item 1. Cover Page Cover Page
Item 2. Synopsis Summary; Expense Summary
Item 3. Condensed Financial Information Financial Highlights
Item 4. General Description of Registrant The Fund and the Portfolio; Investment Objective and Policies;
Investment Limitations; General Information - The Fund
Item 5. Management of the Fund General Information - Trustees of the Fund; The Adviser; The
Administrator; The Transfer Agent
Item 5A. Management's Discussion of Fund **
Performance
Item 6. Capital Stock and Other Securities General Information - Voting Rights; General Information - Shareholder
Inquiries; General Information - Dividends and Distributions; Taxes
Item 7. Purchase of Securities Being Offered Purchase and Redemption of Shares
Item 8. Redemption or Repurchase Purchase and Redemption of Shares
Item 9. Pending Legal Proceedings The Adviser
PART B - HGK FIXED INCOME FUND
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Item 10. Cover Page Cover Page
Item 11. Table of Contents Table of Contents
Item 12. General Information and History The Fund
Item 13. Investment Objectives and Policies Investment Objective and Policies (Prospectus); Investment Limitations
Item 14. Management of the Registrant General Information - Trustees of the Fund (Prospectus); Trustees and
Officers of the Fund; The Administrator
Item 15. Control Persons and Principal Trustees and Officers of the
Holders of Securities Fund
Item 16. Investment Advisory and Other The Adviser (Prospectus and
Services Statement of Additional Information); The Administrator (Prospectus and
Statement of Additional Information); The Distributor (Prospectus and
Statement of Additional Information); The Transfer Agent (Prospectus);
General Information -Counsel and Independent Public Accountants
(Prospectus); General Information - Custodian (Prospectus)
Item 17. Brokerage Allocation Portfolio Transactions
Item 18. Capital Stock and Other Securities Description of Shares
Item 19. Purchase, Redemption, and Pricing of Purchase and Redemption of
Securities Being Offered Shares (Prospectus and Statement of Additional Information);
Determination of Net Asset Value
Item 20. Tax Status Taxes (Prospectus); Taxes
Item 21. Underwriters The Distributor
Item 22. Calculation of Performance Data Computation of Yield and Total Return
Item 23. Financial Statements Financial Information
PART A - AIG MONEY MARKET FUND CLASS A SHARES
Item 1. Cover Page Cover Page
Item 2. Synopsis Summary; Expense Summary
Item 3. Condensed Financial Information Financial Highlights
Item 4. General Description of Registrant The Fund and the Portfolio; Investment Objective and Policies;
Investment Limitations; General Information - The Fund
Item 5. Management of the Fund General Information - Trustees of the Fund; The Adviser; The
Administrator; The Transfer Agent
Item 5A. Management's Discussion of Fund **
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Performance
Item 6. Capital Stock and Other Securities General Information - Voting Rights; General Information - Shareholder
Inquiries; General Information - Dividends and Distributions; Taxes
Item 7. Purchase of Securities Being Offered Purchase and Redemption of Shares
Item 8. Redemption or Repurchase Purchase and Redemption of Shares
Item 9. Pending Legal Proceedings *
PART A - AIG MONEY MARKET FUND CLASS B SHARES
Item 1. Cover Page Cover Page
Item 2. Synopsis Summary; Expense Summary
Item 3. Condensed Financial Information Financial Highlights
Item 4. General Description of Registrant The Fund and the Portfolio; Investment Objective and Policies;
Investment Limitations; General Information - The Fund
Item 5. Management of the Fund General Information - Trustees of the Fund; The Adviser; The
Administrator; The Transfer Agent
Item 5A. Management's Discussion of Fund **
Performance
Item 6. Capital Stock and Other Securities General Information - Voting Rights; General Information - Shareholder
Inquiries; General Information - Dividends and Distributions; Taxes
Item 7. Purchase of Securities Being Offered Purchase and Redemption of Shares
Item 8. Redemption or Repurchase Purchase and Redemption of Shares
Item 9. Pending Legal Proceedings *
PART B - AIG MONEY MARKET FUND CLASS A AND CLASS B SHARES
Item 10. Cover Page Cover Page
Item 11. Table of Contents Table of Contents
Item 12. General Information and History The Fund
Item 13. Investment Objectives and Policies Investment Objective and Policies (Prospectus); Investment Limitations
Item 14. Management of the Registrant General Information - Trustees of the Fund (Prospectus); Trustees and
Officers of the Fund; The Administrator
Item 15. Control Persons and Principal Trustees and Officers of the
Holders of Securities Fund
Item 16. Investment Advisory and Other The Adviser (Prospectus and
</TABLE>
iii
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<TABLE>
<CAPTION>
<S> <C>
Services Statement of Additional Information); The Administrator (Prospectus and
Statement of Additional Information); The Distributor (Prospectus and
Statement of Additional Information); The Transfer Agent (Prospectus);
General Information -Counsel and Independent Public Accountants
(Prospectus); General Information - Custodian (Prospectus)
Item 17. Brokerage Allocation Portfolio Transactions
Item 18. Capital Stock and Other Securities Description of Shares
Item 19. Purchase, Redemption, and Pricing of Purchase and Redemption of
Securities Being Offered Shares (Prospectus and Statement of Additional Information);
Determination of Net Asset Value
Item 20. Tax Status Taxes (Prospectus); Taxes
Item 21. Underwriters The Distributor
Item 22. Calculation of Performance Data Computation of Yield
Item 23. Financial Statements Financial Information
PART A - FMC SELECT FUND
Item 1. Cover Page Cover Page
Item 2. Synopsis Summary; Expense Summary
Item 3. Condensed Financial Information Financial Highlights
Item 4. General Description of Registrant The Fund and the Portfolio; Investment Objective and Policies;
Investment Limitations; General Information - The Fund
Item 5. Management of the Fund General Information - Trustees of the Fund; The Adviser; The
Administrator; The Transfer Agent
Item 5A. Management's Discussion of Fund *
Performance
Item 6. Capital Stock and Other Securities General Information - Voting Rights; General Information - Shareholder
Inquiries; General Information - Dividends and Distributions; Taxes
Item 7. Purchase of Securities Being Offered Purchase and Redemption of Shares
Item 8. Redemption or Repurchase Purchase and Redemption of Shares
Item 9. Pending Legal Proceedings *
</TABLE>
iv
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<TABLE>
<CAPTION>
<S> <C>
PART B - FMC SELECT FUND
Item 10. Cover Page Cover Page
Item 11. Table of Contents Table of Contents
Item 12. General Information and History The Fund
Item 13. Investment Objectives and Policies Investment Objective and Policies (Prospectus);
Item 14. Management of the Registrant Investment Limitations General Information - Trustees
of the Fund (Prospectus); Trustees and Officers
of the Fund; The Administrator
Item 15. Control Persons and Principal Trustees and Officers of the
Holders of Securities Fund
Item 16. Investment Advisory and Other The Adviser (Prospectus and Statement of Additional
Services Information); The Administrator (Prospectus and Statement
of Additional Information); The Distributor (Prospectus and
Statement of Additional Information); The Transfer Agent
(Prospectus); General Information -Counsel and Independent
Public Accountants (Prospectus); General Information -
Custodian (Prospectus)
Item 17. Brokerage Allocation Portfolio Transactions
Item 18. Capital Stock and Other Securities Description of Shares
Item 19. Purchase, Redemption, and Pricing of Purchase and Redemption of Shares (Prospectus and
Securities Being Offered Statement of Additional Information);
Determination of Net Asset Value
Item 20. Tax Status Taxes (Prospectus); Taxes
Item 21. Underwriters The Distributor
Item 22. Calculation of Performance Data Computation of Total Return
Item 23. Financial Statements Financial Information
PART A - CRA REALTY SHARES PORTFOLIO
Item 1. Cover Page Cover Page
Item 2. Synopsis Summary; Expense Summary
Item 3. Condensed Financial Information *
Item 4. General Description of Registrant The Fund and the Portfolio; Investment Objective and Policies;
Investment Limitations; General Information - The Fund
</TABLE>
v
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Item 5. Management of the Fund General Information - Trustees of the Fund; The Adviser; The
Administrator; The Transfer Agent
Item 5A. Management's Discussion of Fund *
Performance
Item 6. Capital Stock and Other Securities General Information - Voting Rights; General Information - Shareholder
Inquiries; General Information - Dividends and Distributions; Taxes
Item 7. Purchase of Securities Being Offered Purchase and Redemption of Shares
Item 8. Redemption or Repurchase Purchase and Redemption of Shares
Item 9. Pending Legal Proceedings *
PART B - CRA REALTY SHARES PORTFOLIO
Item 10. Cover Page Cover Page
Item 11. Table of Contents Table of Contents
Item 12. General Information and History The Fund
Item 13. Investment Objectives and Policies Investment Objective and Policies (Prospectus); Investment Limitations
Item 14. Management of the Registrant General Information - Trustees of the Fund (Prospectus); Trustees and
Officers of the Fund; The Administrator
Item 15. Control Persons and Principal Trustees and Officers of the
Holders of Securities Fund
Item 16. Investment Advisory and Other The Adviser (Prospectus and Statement of Additional
Services Information); The Administrator (Prospectus and Statement
of Additional Information); The Distributor (Prospectus and
Statement of Additional Information); The Transfer Agent
(Prospectus); General Information -Counsel and Independent
Public Accountants (Prospectus); General Information -
Custodian (Prospectus)
Item 17. Brokerage Allocation Portfolio Transactions
Item 18. Capital Stock and Other Securities Description of Shares
Item 19. Purchase, Redemption, and Pricing of Purchase and Redemption of
Securities Being Offered Shares (Prospectus and Statement of Additional Information);
Determination of Net Asset Value
Item 20. Tax Status Taxes (Prospectus); Taxes
Item 21. Underwriters The Distributor
</TABLE>
vi
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<TABLE>
<CAPTION>
<S> <C>
Item 22. Calculation of Performance Data Computation of Total Return
Item 23. Financial Statements Financial Information
</TABLE>
PART C
Information required to be included in Part C is set forth under the appropriate
item, so numbered, in Part C of this Registration Statement.
*Not Applicable
**Information required under Item 5A is or will be (as applicable) contained in
the Fund's Annual Reports to Shareholders.
vii
<PAGE>
THE ADVISORS' INNER CIRCLE FUND
Investment Adviser:
HGK ASSET MANAGEMENT, INC.
The Advisors' Inner Circle Fund (the "Fund") provides a convenient and
economical means of investing in professionally managed portfolios of
securities. This Prospectus offers shares of the following mutual fund (the
"Portfolio"), which is a separate series of the Fund.
HGK FIXED INCOME FUND
This Prospectus sets forth concisely the information about the Fund and the
Portfolio that a prospective investor should know before investing. Investors
are advised to read this Prospectus and retain it for future reference. A
Statement of Additional Information dated February 27, 1998 has been filed with
the Securities and Exchange Commission and is available without charge by
calling 1-800-932-7781. The Statement of Additional Information is incorporated
into this Prospectus by reference. The Statement of Additional Information,
material incorporated by reference into this document, and other information
regarding the Fund is maintained electronically with the Securities and Exchange
Commission at its internet web site (http://www.sec.gov).
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
February 27, 1998
HGK-F-001-06
<PAGE>
SUMMARY
The following provides basic information about the HGK Fixed Income Fund (the
"Portfolio"). The Portfolio is one of the mutual funds comprising The Advisors'
Inner Circle Fund (the "Fund"). This summary is qualified in its entirety by
reference to the more detailed information provided elsewhere in this Prospectus
and in the Statement of Additional Information.
WHAT IS THE INVESTMENT OBJECTIVE? The Portfolio seeks total return through
current income and capital appreciation consistent with the preservation of
capital.
WHAT ARE THE PERMITTED INVESTMENTS? The Portfolio intends to invest primarily
in U.S. dollar denominated fixed income securities. See "Investment Objective
and Policies" and "Description of Permitted Investments and Risk Factors."
WHAT ARE THE RISKS INVOLVED WITH AN INVESTMENT IN THE PORTFOLIO? An investment
in the Portfolio entails certain risks and considerations of which investors
should be aware. The Portfolio invests in securities that fluctuate in value,
and investors should expect the Portfolio's net asset value per share to
fluctuate. Values of fixed income securities and, correspondingly, of mutual
funds invested in such securities, such as the Portfolio, generally tend to vary
inversely with interest rates and may be affected by other market and economic
factors as well. The Portfolio may invest in securities that have speculative
characteristics. Investing in the securities of foreign issuers involves
special risks and considerations not typically associated with investing in U.S.
issuers. The purchase of asset-backed securities raises risk considerations
peculiar to the financing of the instruments underlying such securities,
including prepayment risk, which may vary depending on the type of asset. See
"Investment Objective and Policies" and "Description of Permitted Investments
and Risk Factors."
WHO IS THE ADVISER? HGK Asset Management, Inc. (the "Adviser") serves as the
investment adviser of the Portfolio. See "Expense Summary" and "The Adviser."
WHO IS THE ADMINISTRATOR? SEI Fund Resources (the "Administrator") serves as
the administrator and shareholder servicing agent of the Portfolio. See "The
Administrator."
WHO IS THE TRANSFER AGENT? DST Systems, Inc. (the "Transfer Agent") serves as
the transfer agent and dividend disbursing agent for the Fund. See "The
Transfer Agent."
WHO IS THE DISTRIBUTOR? SEI Investments Distribution Co. (the "Distributor")
acts as the distributor of the Portfolio's shares. See "The Distributor."
IS THERE A SALES LOAD? No, shares of the Portfolio are offered on a no-load
basis.
2
<PAGE>
IS THERE A MINIMUM INVESTMENT? The Portfolio has a minimum initial investment
of $2,000, which the Distributor may waive at its discretion.
HOW DO I PURCHASE AND REDEEM SHARES? Purchases and redemptions may be made
through the Transfer Agent on any day when the New York Stock Exchange is open
for business (a "Business Day"). A purchase order will be effective as of the
Business Day received by the Transfer Agent if the Transfer Agent receives an
order and payment by check or with readily available funds prior to the time the
Portfolio calculates its net asset value (normally, 4:00 p.m., Eastern time).
To open an account by wire, you must first call 1-800-808-4921. Redemption
orders placed with the Transfer Agent prior to the time the Portfolio calculates
its net asset value (normally, 4:00 p.m., Eastern time) on any Business Day will
be effective that day. The Fund has also authorized certain broker-dealers and
other financial intermediaries to accept purchase orders and redemption requests
up to the times mentioned above on behalf of the Portfolio. The purchase and
redemption price for shares is the net asset value per share determined as of
the end of the day the order is effective. See "Purchase and Redemption of
Shares."
HOW ARE DISTRIBUTIONS PAID? The Portfolio distributes substantially all of its
net investment income (exclusive of capital gains) in the form of dividends
declared daily and paid monthly. Shares normally begin earning dividends within
two Business Days after the purchase order is effective. Any capital gain is
distributed at least annually. Distributions are paid in additional shares
unless the shareholder elects to take the payment in cash. See "Dividends and
Distributions."
3
<PAGE>
EXPENSE SUMMARY
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
HGK FIXED INCOME FUND
- --------------------------------------------------------------------------------
<S> <C>
Maximum Sales Load Imposed on Purchases. . . . . . . . . . . . . . . . . . .None
Maximum Sales Load Imposed on Reinvested Dividends . . . . . . . . . . . . .None
Deferred Sales Load. . . . . . . . . . . . . . . . . . . . . . . . . . . .None
Redemption Fees(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .None
Exchange Fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .None
- --------------------------------------------------------------------------------
</TABLE>
(1) A wire redemption charge, currently $10.00, is deducted from the amount of
a Federal Reserve wire redemption payment made at the request of a
shareholder.
ANNUAL OPERATING EXPENSES
(as a percentage of average net assets)
<TABLE>
<CAPTION>
HGK FIXED INCOME FUND
- --------------------------------------------------------------------------------
<S> <C>
Advisory Fees (after fee waivers) (2). . . . . . . . . . . . . . . . 0.00%
Other Expenses (after reimbursements) (2). . . . . . . . . . . . . . 1.00%
- --------------------------------------------------------------------------------
Total Operating Expenses (after fee waivers and
reimbursements) (2) . . . . . . . . . . . . . . . . . . . . . . . . 1.00%
- --------------------------------------------------------------------------------
</TABLE>
(2) 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. Absent such waivers and
reimbursements, Advisory Fees, Other Expenses and Total Operating Expenses
for the Portfolio would be .50%, 1.14% and 1.64%, respectively.
EXAMPLE
<TABLE>
<CAPTION>
HGK FIXED INCOME FUND
- --------------------------------------------------------------------------------
1 year 3 years 5 years 10 years
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
An investor would pay the following
expenses on a $1,000 investment
assuming (1) 5% annual return and (2) $10 $32 $55 $122
redemption at the end of each time
period:
- --------------------------------------------------------------------------------
</TABLE>
THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. The purpose
of the expense table and example is to assist the investor in understanding the
various costs and expenses that may be directly or indirectly borne by
shareholders of the Portfolio. Additional information may be found under "The
Adviser" and "The Administrator."
4
<PAGE>
FINANCIAL HIGHLIGHTS THE ADVISORS' INNER CIRCLE FUND
The following information on the HGK Fixed Income Fund has been audited by
Arthur Andersen LLP, the Fund's independent public accountants, as indicated in
their report dated December 12, 1997 on the Fund's financial statements as of
October 31, 1997. This table should be read in conjunction with the Fund's
audited financial statements and notes thereto. The Portfolio's financial
statements and additional performance information are contained in the Annual
Report to Shareholders, which is available without charge by calling 1-800-932-
7781.
For a Share of the Portfolio Outstanding Throughout the Period:
<TABLE>
<CAPTION>
HGK
Fixed
Income
Fund
- --------------------------------------------------------------------------------------
11/01/96 11/01/95 11/03/94(1)
to to to
10/31/97 10/31/96 10/31/95
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD . . . $10.29 $10.88 $10.00
- --------------------------------------------------------------------------------------
Income From Investment Operations:
Net Investment Income. . . . . . . . . . 0.60 0.61 0.67
Realized and Unrealized
Gains (or Losses) on Securities. . . . 0.24 (0.17) 0.88
- --------------------------------------------------------------------------------------
Total From Investment Operations . . . . . 0.84 0.44 1.55
- --------------------------------------------------------------------------------------
Less Distributions:
Distributions From Net Investment Income . (0.60) (0.61) (0.67)
Distributions From Capital Gains . . . . . -- (0.42) --
Total Distributions. . . . . . . . . . (0.60) (1.03) (0.67)
- --------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD . . . . . . $10.53 $10.29 $10.88
- --------------------------------------------------------------------------------------
TOTAL RETURN . . . . . . . . . . . . . . . 8.47% 4.29% 16.07%*
- --------------------------------------------------------------------------------------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End Of Period (000) . . . . . . $13,371 $12,515 $10,420
Ratio Of Expenses To Average Net Assets . . 1.00% 1.00% 1.00%*
Ratio Of Expenses To Average Net Assets
(Excluding Waivers and
Reimbursements) . . . . . . . . . . . . 1.64% 1.51% 2.37%*
Ratio Of Net Investment Income To Average
Net Assets. . . . . . . . . . . . . . . 5.85% 5.92% 6.38%*
Ratio Of Net Investment Income to Average
Net Assets (Excluding Waivers
and Reimbursements. . . . . . . . . . . 5.21% 5.41% 5.01%*
Portfolio Turnover Rate. . . . . . . . . . 256.52% 264.02% 300.48%
- --------------------------------------------------------------------------------------
</TABLE>
* Annualized
(1) The HGK Fixed Income Fund commenced operations on November 3, 1994.
5
<PAGE>
THE FUND AND THE PORTFOLIO
The Advisors' Inner Circle Fund (the "Fund") offers shares of a number of
separately-managed mutual funds, each of which is a separate series
("portfolio") of the Fund. Each share of each portfolio represents an
undivided, proportionate interest in that portfolio. This Prospectus offers
shares of the Fund's HGK Fixed Income Fund (the "Portfolio"), a diversified
portfolio. Information regarding the other portfolios in the Fund is contained
in separate prospectuses that may be obtained by calling 1-800-932-7781.
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
6
<PAGE>
expected life of such securities, which is based upon the anticipated prepayment
patterns of the underlying mortgages.
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 historical turnover rates are set forth under "Financial
Highlights." 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.
7
<PAGE>
For a further discussion of the Portfolio's permitted investments, see
"Description of Permitted Investments and Risk Factors" below and
"Description of Permitted Investments" in the Statement of Additional
Information.
INVESTMENT LIMITATIONS
The investment objective and the investment limitations set forth here and in
the Statement of Additional Information are fundamental policies of the
Portfolio. Fundamental policies cannot be changed without the consent of the
holders of a majority of the Portfolio's outstanding shares.
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. Make loans, except that the Portfolio may purchase or hold debt instruments
in accordance with its investment objective and policies.
4. Borrow money except for temporary or emergency purposes and then only in an
amount not exceeding 33 1/3% of the value of its total assets.
The foregoing percentages will apply at the time of the purchase of a security,
except for the percentage limitations specified in paragraph 4 above, which will
apply at all times.
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THE ADVISER
HGK Asset Management, Inc. (the "Adviser") was incorporated in 1983. Jeffrey
T. Harris and Joseph E. Kutzel each own a controlling interest in the
Adviser. The Adviser has provided equity, fixed income and balanced fund
management of individually structured portfolios since its inception. As of
December 31, 1997, total assets under management were approximately $1.8
billion. The principal business address of the Adviser is 17 State Street,
15th Floor, New York, New York 10004.
The Adviser serves as the Portfolio's investment adviser and 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 Ms. Bernabeo has been with the Adviser since 1992.
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, 1997, the Adviser received an advisory fee of
.00% of the Portfolio's average daily net assets, and the Adviser reimbursed
expenses equal to .14% of the Portfolio's average daily net assets.
THE ADMINISTRATOR
SEI Fund Resources (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.
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The Administrator also serves as shareholder servicing agent for the Portfolio.
THE TRANSFER AGENT
DST Systems, Inc., 1004 Baltimore Street, Kansas City, Missouri 64105 (the
"Transfer Agent") serves as the transfer agent and dividend disbursing agent for
the Fund.
THE DISTRIBUTOR
SEI Investments Distribution Co. (the "Distributor"), Oaks, Pennsylvania 19456,
a wholly-owned subsidiary of SEI Investments Company, serves as the Fund's
distributor. No compensation is paid to the Distributor for distribution
services for the shares of the Portfolio.
PURCHASE AND REDEMPTION OF SHARES
Investors may purchase and redeem shares of the Portfolio directly through the
Transfer Agent at: The Advisors' Inner Circle Fund, P.O. Box 419009, Kansas
City, Missouri 64141-6009 by mail or wire transfer. All shareholders may place
orders by telephone; when market conditions are extremely busy, it is possible
that investors may experience difficulties placing orders by telephone and may
wish to place orders by mail. Purchases and redemptions of shares of the
Portfolio may be made on any day on which the New York Stock Exchange is open
for business (a "Business Day"). Shares of the Portfolio are offered only to
residents of states in which such shares are eligible for purchase. In
addition, the Fund has authorized certain broker-dealers and other financial
intermediaries (collectively "Authorized Broker-Dealers") to act as the
Portfolio's agent for the purposes of accepting purchase orders and redemption
requests. The Portfolio will be deemed to have received a purchase order or
redemption request upon receipt of the order or request by an Authorized
Broker-Dealer.
The minimum initial investment in the Portfolio is $2,000 and subsequent
purchases must be at least $1,000. The Distributor may waive these minimums at
its discretion. No minimum applies to subsequent purchases effected by dividend
reinvestment.
PURCHASES BY MAIL
An account may be opened by mailing a check or other negotiable bank draft
(payable to HGK Fixed Income Fund) for $2,000 or more, together with a completed
Account Application to the Transfer Agent at: The Advisors' Inner Circle Fund,
P.O. Box 419009, Kansas City, Missouri 64141-6009. Third-party checks, credit
cards, credit card checks and cash will not be accepted. Subsequent investments
may also be mailed directly to the Transfer Agent.
PURCHASES BY WIRE TRANSFER
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INITIAL PURCHASES: Before making an initial investment by wire, an investor
must first telephone 1-800-808-4921 to be assigned an account number. The
investor's name, account number, taxpayer identification number or Social
Security number, and address must be specified in the wire. In addition, an
Account Application should be promptly forwarded to the Transfer Agent at: The
Advisors' Inner Circle Fund, P.O. Box 419009, Kansas City, Missouri 64141-6009.
Shareholders having an account with a commercial bank that is a member of the
Federal Reserve System may purchase shares of the Portfolio by requesting their
bank to transmit funds by wire to: United Missouri Bank; ABA #10-10-00695; for
Account Number 98-7060-014-5; Further Credit: HGK Fixed Income Fund. The
shareholder's name and account number must be specified in the wire.
SUBSEQUENT PURCHASES: Additional investments may be made at any time through
the wire procedures described above, which must include a shareholder's name and
account number. The investor's bank may impose a fee for investments by wire.
GENERAL INFORMATION REGARDING PURCHASES
A purchase order will be effective as of the day received by the Transfer Agent
if the Transfer Agent receives the order and payment before the Portfolio
calculates its net asset value (normally, 4:00 p.m., Eastern time). Payment may
be made by check or readily available funds. The purchase price of shares of
the Portfolio is the net asset value per share next determined after a purchase
order is effective. Purchases will be made in full and fractional shares of the
Portfolio calculated to three decimal places. The Fund will not issue
certificates representing shares of the Portfolio.
If a check received for the purchase of shares does not clear, the purchase will
be canceled, and the investor could be liable for any losses or fees incurred.
The Fund reserves the right to reject a purchase order when the Fund determines
that it is not in the best interest of the Fund or its shareholders to accept
such order.
SYSTEMATIC INVESTMENT PLAN
A shareholder may also arrange for periodic additional investments in the
Portfolio through automatic deductions by Automated Clearing House ("ACH")
transactions from a checking or savings account by completing the appropriate
section of the Account Application form. This Systematic Investment Plan is
subject to account minimum initial purchase amounts and a minimum pre-authorized
investment amount of $25 per month. An Account Application form may be obtained
by calling 1-800-932-7781.
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TAX DEFERRED INVESTMENT
The Portfolio is eligible for investment by tax-deferred retirement programs
such as 401(k) plans, Simplified Employee Pension Plans ("SEP accounts") and
IRAs. The minimum initial investment amount for an account established under
such programs is $2,000. All accounts established in the Portfolio under such
programs must elect to have all dividends reinvested in the Portfolio.
REDEMPTIONS
Redemption orders received by the Transfer Agent prior to the time the
Portfolio calculates its net asset value (normally, 4:00 p.m., Eastern time)
on any Business Day will be effective that day. The redemption price of
shares is the net asset value per share of the Portfolio next determined after
a valid redemption order, in good form, is received. Payment on redemption
will be made as promptly as possible and, in any event, within seven days after
the redemption order is received, provided, however, that the investment being
redeemed has been in the shareholder's account for a minimum of 15 days.
Shareholders may not close their accounts by telephone.
Shareholders may receive redemption payments in the form of a check or by
Federal Reserve or ACH wire transfer. There is no charge for having a check for
redemption proceeds mailed. The custodian will deduct a wire charge, currently
$10.00, from the amount of a Federal Reserve wire redemption payment made at the
request of a shareholder. Shareholders cannot redeem shares of the Portfolio by
Federal Reserve wire on federal holidays restricting wire transfers. The Fund
does not charge for ACH wire transactions; however, such transactions will not
be posted to a shareholder's bank account until the second Business Day
following the transaction.
SYSTEMATIC WITHDRAWAL PLAN
The Portfolio offers a Systematic Withdrawal Plan ("SWP") for shareholders who
wish to receive regular distributions from their account. Upon commencement of
the SWP, the account must have a current value of $50,000 or more. Shareholders
may elect to receive automatic payments via ACH wire transfers of $100 or more
on a monthly, quarterly, semi-annual or annual basis. An application form for
SWP may be obtained by calling 1-800-932-7781.
Shareholders should realize that if withdrawals exceed income dividends, their
invested principal in the account will be depleted. Thus, depending on the
frequency and amounts of the withdrawal payments and/or fluctuations in the net
asset value per share, their original investment could be exhausted entirely.
To participate in the SWP, shareholders must have their dividends automatically
reinvested. Shareholder may change or cancel the SWP at any time, upon written
notice to the Transfer Agent.
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ADDITIONAL REDEMPTION INFORMATION
Neither the Fund nor the Transfer Agent will be responsible for the authenticity
of the redemption instructions received by telephone if it reasonably believes
those instructions are genuine. The Fund and the Transfer Agent will each
employ reasonable procedures to confirm that telephone instructions are genuine,
and may be liable for losses resulting from unauthorized or fraudulent telephone
transactions if it does not employ those procedures. Such procedures may include
taping of telephone conversations.
The right of redemption may be suspended, or the date of payment of redemption
proceeds postponed, during certain periods as set forth more fully in the
Statement of Additional Information.
CALCULATION OF NET ASSET VALUE
The net asset value per share of the Portfolio is determined by dividing the
total market value of the Portfolio's investments and other assets, less any
liabilities, by the total outstanding shares of the Portfolio. Net asset value
per share is determined daily as of the close of regular trading on the New York
Stock Exchange (normally 4:00 p.m., Eastern time) on any Business Day. Purchase
or redemption orders received by the Portfolio after its net asset value has
been calculated will be priced at the next Business Day's net asset value. The
Portfolio will use a pricing service to provide market quotations. The pricing
service may use a matrix system of valuation which considers factors such as
securities prices, yield features, call features, ratings and developments
related to a specific security.
PERFORMANCE
From time to time, the Portfolio may advertise its yield and total return.
These figures will be based on historical earnings and are not intended to
indicate future performance. No representation can be made regarding actual
future yields or returns. The yield of the Portfolio refers to the annualized
income generated by an investment in the Portfolio over a specified 30-day
period. The yield is calculated by assuming that the same amount of income
generated by the investment during that period is generated in each 30-day
period over one year and is shown as a percentage of the investment.
The total return of a Portfolio refers to the average compounded rate of return
on a hypothetical investment, for designated time periods (including but not
limited to the period from which the Portfolio commenced operations through the
specified date), assuming that the entire investment is redeemed at the end of
each period and assuming the reinvestment of all dividend and capital gain
distributions.
The Portfolio may periodically compare its performance to that of other mutual
funds tracked by mutual fund rating services (such as Lipper Analytical
Services, Inc.), financial and business publications and periodicals, broad
groups of comparable mutual funds and unmanaged indices. The performance of
unmanaged indices may assume investment of dividends but generally do
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not reflect deductions for administrative and management costs, or other
investment alternatives. The Portfolio may quote Morningstar, Inc., a service
that ranks mutual funds on the basis of risk-adjusted performance. The
Portfolio may quote Ibbotson Associates of Chicago, Illinois, which provides
historical returns of the capital markets in the United States. The
Portfolio may use long-term performance of these capital markets to
demonstrate general long-term risk versus reward scenarios and could include
the value of a hypothetical investment in any of the capital markets. The
Portfolio may also quote financial and business publications and periodicals
as they relate to fund management, investment philosophy and investment
techniques.
The Portfolio may quote various measures of volatility and benchmark correlation
in advertising and may compare these measures to those of other funds. Measures
of volatility attempt to compare historical share price fluctuations or total
returns to a benchmark while measures of benchmark correlation indicate how
valid a comparative benchmark might be. Measures of volatility and correlation
are calculated using averages of historical data and cannot be calculated
precisely.
TAXES
The following summary of certain federal income tax consequences is based on
current tax laws and regulations, which may be changed by legislative, judicial
or administrative action.
No attempt has been made to present a detailed explanation of the federal, state
or local income tax treatment of the Portfolio or its shareholders.
Accordingly, shareholders are urged to consult their tax advisers regarding
specific questions as to federal, state and local income taxes.
TAX STATUS OF THE PORTFOLIO
The Portfolio is treated as a separate entity for federal income tax purposes
and is not combined with the Fund's other portfolios. The Portfolio intends to
continue to qualify for the special tax treatment afforded regulated investment
companies as defined under Subchapter M of the Internal Revenue Code of 1986, as
amended (the "Code"). So long as the Portfolio qualifies for this special tax
treatment, it will be relieved of federal income tax on that part of its net
investment income and net capital gain (the excess of net long-term capital gain
over net short-term capital loss) which it distributes to shareholders.
TAX STATUS OF DISTRIBUTIONS
The Portfolio will distribute all of its net investment income (including, for
this purpose, net short-term capital gain) to shareholders. Dividends from net
investment income will be taxable to shareholders as ordinary income whether
received in cash or in additional shares. Distributions from net investment
income will qualify for the dividends-received deduction for corporate
shareholders only to the extent such distributions are derived from dividends
paid by domestic corporations; dividends of the Portfolio are not expected to
qualify for this deduction.
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Any net capital gain will be distributed annually and will be taxed to
shareholders as gain from the sale of a capital asset held for more than one
year, regardless of how long the shareholder has held shares. The Portfolio
will make annual reports to shareholders of the federal income tax status of all
distributions.
Certain securities purchased by the Portfolio (such as STRIPS, defined in
"Description of Permitted Investments and Risk Factors" below) are sold with
original issue discount and thus generally do not make periodic cash interest
payments. The Portfolio will be required to include as part of its current
income the accrued discount on such obligations even though the Portfolio has
not received any interest payments on such obligations during that period.
Because the Portfolio distributes all of its net investment income to its
shareholders, the Portfolio may have to sell portfolio securities to distribute
such accrued income, which may occur at a time when the Adviser would not have
chosen to sell such securities and which may result in a taxable gain or loss.
Income received on direct U.S. obligations is exempt from income tax at the
state level when received directly and may be exempt, depending on the state,
when received by a shareholder from the Portfolio provided certain
state-specific conditions are satisfied. The Portfolio will inform shareholders
annually of the percentage of income and distributions derived from direct U.S.
obligations. Shareholders should consult their tax advisers to determine
whether any portion of the income dividends received from the Portfolio is
considered tax exempt in their particular state.
Dividends declared by the Portfolio in October, November or December of any year
and payable to shareholders of record on a date in one of those months will be
deemed to have been paid by the Portfolio and received by the shareholders on
December 31 of that year, if paid by the Portfolio at any time during the
following January.
The Portfolio intends to make sufficient distributions prior to the end of each
calendar year to avoid liability for federal excise tax.
A sale, exchange or redemption of the Portfolio's shares is a taxable event to
the shareholder.
Income derived by the Portfolio from securities of foreign issuers may be
subject to foreign withholding taxes. The Portfolio will not be able to elect
to treat shareholders as having paid their proportionate share of such foreign
taxes.
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GENERAL INFORMATION
THE FUND
The Fund, an open-end management investment company, was organized under
Massachusetts law as a business trust under a Declaration of Trust dated July
18, 1991. The Declaration of Trust permits the Fund to offer separate series
("portfolios") of shares. All consideration received by the Fund for shares of
any portfolio and all assets of such portfolio belong to that portfolio and are
subject to liabilities related thereto. The Fund reserves the right to create
and issue shares of additional portfolios.
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.
TRUSTEES 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.
VOTING RIGHTS
Each share held entitles the shareholder of record to one vote. The Portfolio
will vote separately on matters relating solely to it. As a Massachusetts
business trust, the Fund is not required, and does not intend, to hold annual
meetings of shareholders. Shareholder approval will be sought, however, for
certain changes in the operation of the Fund and for the election of Trustees
under certain circumstances. In addition, a Trustee may be removed by the
remaining Trustees or by shareholders at a special meeting called upon written
request of shareholders owning at least 10% of the outstanding shares of the
Fund. In the event that such a meeting is requested, the Fund will provide
appropriate assistance and information to the shareholders requesting the
meeting.
REPORTING
The Fund issues unaudited financial information semiannually and audited
financial statements annually for the Portfolio. The Fund also furnishes
periodic reports and, as necessary, proxy statements to shareholders of record.
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SHAREHOLDER INQUIRIES
Shareholder inquiries should be directed to The Advisors' Inner Circle Fund,
P.O. Box 419009, Kansas City, Missouri 64141-6009 or by calling 1-800-932-7781.
Purchase and redemption transactions should be made through the Transfer Agent
by calling 1-800-808-4921.
DIVIDENDS AND DISTRIBUTIONS
The Portfolio declares dividends of substantially all of its net investment
income (exclusive of capital gains) daily and distributes such dividends on the
first Business Day of each month. Shares purchased begin earning dividends on
the Business Day following receipt of funds by the Transfer Agent. Normally,
this will occur within two Business Days after an order is effective. If any
capital gain is realized, substantially all of it will be distributed at least
annually.
Shareholders automatically receive all income dividends and capital gain
distributions in additional shares, unless the shareholder has elected to take
such payment in cash. Shareholders may change their election by providing
written notice to the Transfer Agent at least 15 days prior to the distribution.
Shareholders may receive payments for cash distributions in the form of a check
or by Federal Reserve or ACH wire transfer.
Dividends and other distributions of the Portfolio are paid on a per-share
basis. The value of each share will be reduced by the amount of the payment.
If shares are purchased shortly before the record date for a distribution of
capital gains, a shareholder will pay the full price for the shares and receive
some portion of the price back as a taxable distribution or dividend.
COUNSEL AND INDEPENDENT PUBLIC ACCOUNTANTS
Morgan, Lewis & Bockius LLP serves as counsel to the Fund. Arthur Andersen LLP
serves as the independent public accountants of the Fund.
CUSTODIAN
CoreStates Bank, N.A., Broad and Chestnut Streets, P.O. Box 7618, Philadelphia,
Pennsylvania 19101 acts as custodian (the "Custodian") of the Fund. The
Custodian holds cash, securities and other assets of the Fund as required by the
Investment Company Act of 1940, as amended (the "1940 Act").
DESCRIPTION OF PERMITTED INVESTMENTS AND RISK FACTORS
The following is a description of some permitted investments for the Portfolio,
and the associated risk factors:
ASSET-BACKED SECURITIES - Asset-backed securities are secured by non-mortgage
assets such as company receivables, truck and auto loans, leases and credit card
receivables. Such securities are generally issued as pass-through certificates,
which represent undivided fractional ownership
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interests in the underlying pools of assets. Such securities also may be debt
instruments, which are also known as collateralized obligations and are
generally issued as the debt of a special purpose entity, such as a trust,
organized solely for the purpose of owning such assets and issuing such debt.
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.
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.
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 investments. Changes
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in the value of portfolio securities will not affect cash income derived from
these securities but will affect the Portfolio's net asset value.
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 ("GNMA"), Fannie
Mae and the Federal Home Loan Mortgage Corporation ("FHLMC"). Fannie Mae and
FHLMC obligations are not backed by the full faith and credit of the U.S.
Government as GNMA certificates are, but Fannie Mae and FHLMC securities are
supported by the instrumentalities' right to borrow from the U.S. Treasury.
GNMA, Fannie Mae and FHLMC each guarantees timely distributions of interest
to certificate holders. GNMA and Fannie Mae also each guarantees timely
distributions of scheduled principal. FHLMC has in the past guaranteed only
the ultimate collection of principal of the underlying mortgage loan;
however, FHLMC now issues mortgage-backed securities (FHLMC Gold PCS) which
also guarantee timely payment of monthly principal reductions. Government
and private guarantees do not extend to the securities' value, which is
likely to vary inversely with fluctuations in interest rates.
PRIVATE PASS-THROUGH SECURITIES: These are mortgage-backed securities issued by
a non-governmental entity, such as a trust. These securities include
collateralized mortgage obligations ("CMOs") and real estate mortgage investment
conduits ("REMICS") that are rated in one of the top four rating categories.
While they are generally structured with one or more types of credit
enhancement, private pass-through securities typically lack a guarantee by an
entity having the credit status of a governmental agency or instrumentality.
CMOs: CMOs are debt obligations or multiclass pass-through certificates issued
by agencies or instrumentalities of the U.S. Government or by private
originators or investors in mortgage loans. In a CMO, series of bonds or
certificates are usually issued in multiple classes. Principal
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and interest paid on the underlying mortgage assets may be allocated among the
several classes of a series of a CMO in a variety of ways. Each class of a CMO,
often referred to as a "tranche," is issued with a specific fixed or floating
coupon rate and has a stated maturity or final distribution date. Principal
payments on the underlying mortgage assets may cause CMOs to be retired
substantially earlier then their stated maturities or final distribution dates,
resulting in a loss of all or part of any premium paid.
REMICs: A REMIC is a CMO that qualifies for special tax treatment under the
Code and invests in certain mortgages principally secured by interests in real
property. Investors may purchase beneficial interests in REMICs, which are
known as "regular" interests, or "residual" interests. Guaranteed REMIC pass-
through certificates ("REMIC Certificates") issued by Fannie Mae 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, and also guarantees the payment of principal as payments are
required to be made on the underlying mortgage participation certificates.
Fannie Mae REMIC Certificates are issued and guaranteed as to timely
distribution of principal and interest by Fannie Mae. GNMA REMIC Certificates
are supported by the full faith of the U.S. Treasury.
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.
REPURCHASE AGREEMENTS - Repurchase agreements are agreements by which the
Portfolio obtains a security and simultaneously commits to return the security
to the seller at an agreed upon price on an agreed upon date within a number of
days from the date of purchase. The Custodian will hold the security as
collateral for the repurchase agreement. The Portfolio bears a risk of loss in
the event the other party defaults on its obligations and the Portfolio is
delayed or prevented from exercising its right to dispose of the collateral or
if the Portfolio realizes a loss on the sale of the collateral. The Portfolio
will enter into repurchase agreements only with financial institutions deemed to
present minimal risk of bankruptcy during the term of the agreement based on
established guidelines. Repurchase agreements are considered loans under the
1940 Act.
RESTRICTED SECURITIES - Restricted securities are securities that may not be
sold freely to the public absent registration under the Securities Act of 1933
or an exemption from registration.
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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.
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.
21
<PAGE>
U.S. GOVERNMENT AGENCIES - 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, the FHLMC, the Federal Land Banks and the U.S. Postal
Service. Some of these securities are supported by the full faith and credit of
the U.S. Treasury, others are supported by the right of the issuer to borrow
from the Treasury, while still others are supported only by the credit of the
instrumentality. Guarantees of principal by agencies or instrumentalities of
the U.S. Government may be a guarantee of payment at the maturity of the
obligation so that in the event of a default prior to maturity there might not
be a market and thus no means of realizing on the obligation prior to maturity.
Guarantees as to the timely payment of principal and interest do not extend to
the value or yield of these securities nor to the value of the Portfolio's
shares.
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, and may have a floor or ceiling on interest rate changes. There
is a risk that the current interest rate on such obligations may not accurately
reflect existing market interest rates. A demand instrument with a demand
notice exceeding seven days may be considered illiquid if there is no secondary
market for such security.
WHEN-ISSUED 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 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 securities that do
not bear any interest, but instead are issued at a deep discount from par. The
value of a zero coupon obligation increases over time to reflect the interest
accreted. Such obligations will not result in the
22
<PAGE>
payment of interest until maturity, and will have greater price volatility than
similar securities that are issued at par and pay interest periodically.
23
<PAGE>
TABLE OF CONTENTS
SUMMARY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
EXPENSE SUMMARY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
FINANCIAL HIGHLIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
THE FUND AND THE PORTFOLIO . . . . . . . . . . . . . . . . . . . . . . . . . 6
INVESTMENT OBJECTIVE AND POLICIES. . . . . . . . . . . . . . . . . . . . . . 6
INVESTMENT LIMITATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
THE ADVISER. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
THE ADMINISTRATOR. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
THE TRANSFER AGENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10
THE DISTRIBUTOR. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10
PURCHASE AND REDEMPTION OF SHARES. . . . . . . . . . . . . . . . . . . . . .10
PERFORMANCE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13
TAXES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14
GENERAL INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . .16
DESCRIPTION OF PERMITTED INVESTMENTS AND RISK FACTORS. . . . . . . . . . . .17
<PAGE>
Fund:
THE ADVISORS' INNER CIRCLE FUND
Portfolio:
HGK FIXED INCOME FUND
Adviser:
HGK ASSET MANAGEMENT, INC.
Distributor:
SEI INVESTMENTS DISTRIBUTION CO.
Administrator:
SEI FUND RESOURCES
Legal Counsel:
MORGAN, LEWIS & BOCKIUS LLP
Independent Public Accountants:
ARTHUR ANDERSEN LLP
February 27, 1998
<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 February 27, 1998. The
Prospectus for the Portfolio may be obtained by calling 1-800-932-7781.
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
THE FUND . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .S - 2
DESCRIPTION OF PERMITTED INVESTMENTS . . . . . . . . . . . . . . . . . . . . . .S - 2
INVESTMENT LIMITATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . .S - 3
THE ADVISER. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .S - 4
THE ADMINISTRATOR. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .S - 5
THE DISTRIBUTOR. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .S - 6
TRUSTEES AND OFFICERS OF THE FUND. . . . . . . . . . . . . . . . . . . . . . . .S - 6
COMPUTATION OF YIELD AND TOTAL RETURN. . . . . . . . . . . . . . . . . . . . . S - 10
PURCHASE AND REDEMPTION OF SHARES. . . . . . . . . . . . . . . . . . . . . . . S - 10
DETERMINATION OF NET ASSET VALUE . . . . . . . . . . . . . . . . . . . . . . . S - 11
TAXES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S - 11
PORTFOLIO TRANSACTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . S - 13
DESCRIPTION OF SHARES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . S - 16
SHAREHOLDER LIABILITY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . S - 17
LIMITATION OF TRUSTEES' LIABILITY. . . . . . . . . . . . . . . . . . . . . . . S - 17
5% SHAREHOLDERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S - 17
EXPERTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S - 18
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S - 18
</TABLE>
February 27, 1998
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.
DESCRIPTION OF PERMITTED INVESTMENTS
The following sets forth certain information as a supplement to the "Investment
Objective and Policies" and "Description of Permitted Investments and Risk
Factors" sections of the Prospectus.
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.
RESTRICTED SECURITIES are securities that may not be sold to the public without
registration under the Securities Act of 1933 (the "1933 Act") absent an
exemption from registration. Certain of the permitted investments of the
Portfolio may be restricted securities and the Adviser may invest up to 15% of
the net assets of the Portfolio in restricted securities provided it determines
that at the time of investment such securities are not illiquid (generally, an
illiquid security cannot be disposed of within seven days in the ordinary course
of business at its full value), based on guidelines which are the responsibility
of and are periodically reviewed 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,
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<PAGE>
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, the Adviser intends to
purchase securities that are exempt from registration under Rule 144A
promulgated under the 1933 Act. Investing in Rule 144A securities could have
the effect of increasing the level of Portfolio illiquidity to the extent that
qualified institutional buyers become, for a time, uninterested in purchasing
these securities. Rule 144A securities are not subject to the foregoing limit
on restricted securities.
Certain U.S. GOVERNMENT AGENCIES have been established as instrumentalities of
the U.S. Government to supervise and finance certain types of activities.
Issues of these agencies, while not direct obligations of the U.S. Government,
are either backed by the full faith and credit of the United States or supported
by the issuing agency's right to borrow from the Treasury. The issues of other
agencies are supported only by the credit of the instrumentality.
INVESTMENT LIMITATIONS
The Portfolio may not:
1. Acquire more than 10% of the voting securities of any one issuer.
2. Invest in companies for the purpose of exercising control.
3. 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.
4. 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.
5. Pledge, mortgage or hypothecate assets except to secure temporary
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.
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<PAGE>
6. 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.
7. 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.
8. Act as an underwriter of securities of other issuers except as it may be
deemed an underwriter in selling the Portfolio security.
9. 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.
10. 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.
11. 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.
12. Invest in interests in oil, gas or other mineral exploration or development
programs and oil, gas or mineral leases.
13. 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.
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<PAGE>
For the fiscal period ended October 31, 1995 and fiscal years ended October 31,
1996 and October 31, 1997, the Adviser was paid $0, $0, and $0 respectively,
waived fees of $39,390, $58,143 and $65,793, respectively, and reimbursed
expenses of $68,886, $1,464, and $18.783, 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
The Fund and SEI Fund Resources (the "Administrator") have entered into an
administration agreement (the "Administration Agreement"). The Administration
Agreement provides that the Administrator shall not be liable for any error of
judgment or mistake of law or for any loss suffered by the Fund in connection
with the matters to which the Administration Agreement relates, except a loss
resulting from willful misfeasance, bad faith or gross negligence on the part of
the Administrator in the performance of its duties or from reckless disregard by
it of its duties and obligations thereunder. The Administration Agreement shall
remain in effect with respect to the Portfolio until 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 period ended October 31, 1995 and the fiscal years ended October 31,
1996 and October 31, 1997, the Administrator received fees of $74,589 and
$75,034 and $74,964, 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, is the owner
of all beneficial interest in the Administrator. SEI Investments and its
subsidiaries and affiliates, including the
S-5
<PAGE>
Administrator, are leading providers of funds evaluation services, trust
accounting systems, and brokerage and information services to financial
institutions, institutional investors, and money managers. The Administrator
and its affiliates also serve as administrator or sub-administrator to the
following other mutual funds: The Achievement Funds Trust, The Arbor Fund, ARK
Funds, Bishop Street Funds, Boston 1784 Funds-Registered Trademark-,CoreFunds,
Inc., CrestFunds, Inc., CUFUND, The Expedition Funds, FMB Funds, Inc., First
American Funds, Inc., First American Investment Funds, Inc., First American
Strategy Funds, Inc., HighMark Funds, Marquis Funds-Registered Trademark-,
Monitor Funds, Morgan Grenfell Investment Trust, The PBHG Funds, Inc., PBHG
Insurance Series Fund, Inc., The Pillar Funds, Rembrandt Funds-Registered
Trademark-, Santa Barbara Group of Mutual Funds, Inc., SEI Asset Allocation
Trust, SEI Daily Income Trust, SEI Index Funds, SEI Institutional Investments
Trust, SEI Institutional Managed Trust, SEI International Trust, SEI Liquid
Asset Trust, SEI Tax Exempt Trust, STI Classic Funds, STI Classic Variable
Trust, TIP Funds and TIP Institutional Funds.
THE DISTRIBUTOR
SEI Investments Distribution Co. (the "Distributor"), a wholly-owned subsidiary
of SEI, 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.
TRUSTEES AND OFFICERS OF THE FUND
The management and affairs of the Fund are supervised by the Trustees under the
laws of the Commonwealth of Massachusetts. The Fund pays the fees for
unaffiliated Trustees.
The Trustees and Executive Officers of the Fund, their respective dates of
birth, and their principal occupations for the last five years are set forth
below. Each may have held other positions with 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, Bishop Street Funds,
Boston 1784 Funds-Registered Trademark-, CoreFunds, Inc., CrestFunds, Inc.,
CUFUND, The Expedition Funds, FMB Funds, Inc., First American Funds, Inc., First
American Investment Funds, Inc., First American Strategy Funds, Inc., HighMark
Funds, Marquis Funds-Registered Trademark-, Monitor Funds, Morgan Grenfell
Investment Trust, The PBHG Funds,
S-6
<PAGE>
Inc., PBHG Insurance Series Fund, Inc., The Pillar Funds, Santa Barbara Group of
Mutual Funds, Inc., SEI Asset Allocation Trust, SEI Daily Income Trust, SEI
Index Funds, SEI Institutional Investments Trust, SEI Institutional Managed
Trust, SEI International Trust, SEI Liquid Asset Trust, SEI Tax Exempt Trust,
STI Classic Funds, STI Classic Variable Trust, TIP Funds and TIP Institutional
Funds, open-end management investment companies which are managed by SEI Fund
Resources or its affiliates and, except for Profit Funds Investment Trust and
Santa Barbara Group of Mutual Funds, Inc., are distributed by SEI Investments
Distribution Co.
ROBERT A. NESHER (DOB 08/17/46) -- Chairman of the Board of Trustees* --
Currently performs various services on behalf of SEI Investments for which Mr.
Nesher is compensated. Executive Vice President of SEI Investments, 1986-1994.
Director and Executive Vice President of the Administrator and the Distributor,
1981-1994. Trustee of The Advisors' Inner Circle Fund, The Arbor Fund, Boston
1784 Funds-Registered Trademark-, The Expedition Funds, Marquis Funds-Registered
Trademark-, Pillar Funds, Rembrandt Funds -Registered Trademark-, SEI Asset
Allocation Trust, SEI Daily Income Trust, SEI Index Funds, SEI Institutional
Investments Trust, SEI Institutional Managed Trust, SEI International Trust, SEI
Liquid Asset Trust and SEI Tax Exempt Trust.
JOHN T. COONEY (DOB 01/20/27) -- Trustee** -- Retired since 1992. Formerly Vice
Chairman of Ameritrust Texas N.A., 1989-1992, and MTrust Corp., 1985-1989.
Trustee of The Advisors' Inner Circle Fund, The Arbor Fund, The Expedition
Funds and Marquis Funds-Registered Trademark-.
WILLIAM M. DORAN (DOB 05/26/40) -- Trustee* -- 2000 One Logan Square,
Philadelphia, PA 19103. Partner, Morgan, Lewis & Bockius LLP (law firm),
counsel to the Trust, Administrator and Distributor, Director and Secretary of
SEI Investments. Trustee of The Advisors' Inner Circle Fund, The Arbor Fund,
The Expedition Funds, Marquis Funds-Registered Trademark-, SEI Asset Allocation
Trust, SEI Daily Income Trust, SEI Index Funds, SEI Institutional Investments
Trust, SEI Institutional Managed Trust, SEI International Trust, SEI Liquid
Asset Trust and SEI Tax Exempt Trust.
FRANK E. MORRIS (DOB 12/30/23) -- Trustee** -- Retired since 1990. Peter
Drucker Professor of Management, Boston College, 1989-1990. President, Federal
Reserve Bank of Boston, 1968-1988. Trustee of The Advisors' Inner Circle Fund,
The Arbor Fund, The Expedition Funds, Marquis Funds-Registered Trademark-, SEI
Asset Allocation Trust, SEI Daily Income Trust, SEI Index Funds, SEI
Institutional Investments Trust, SEI Institutional Managed Trust, SEI
International Trust, SEI Liquid Asset Trust and SEI Tax Exempt Trust.
ROBERT A. PATTERSON (DOB 11/05/27) -- Trustee** -- Pennsylvania State
University, Senior Vice President, Treasurer (Emeritus). Financial and
Investment Consultant, Professor of Transportation (1984-present). Vice
President-Investments, Treasurer, Senior Vice President (Emeritus) (1982-1984).
Director, Pennsylvania Research
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<PAGE>
Corp.; Member and Treasurer, Board of Trustees of Grove City College. Trustee
of The Advisors' Inner Circle Fund, The Arbor Fund, The Expedition Funds, and
Marquis Funds-Registered Trademark-.
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 Advisors' Inner
Circle Fund, The Arbor Fund, The Expedition Funds and Marquis Funds-Registered
Trademark-.
JAMES M. STOREY (DOB 04/12/31) -- Trustee** -- Partner, Dechert Price & Rhoads,
from September 1987 - December 1993; Trustee of The Advisors' Inner Circle Fund,
The Arbor Fund, The Expedition Funds, Marquis Funds-Registered Trademark-, SEI
Asset Allocation Trust, SEI Daily Income Trust, SEI Index Funds, SEI
Institutional Investments Trust, SEI Institutional Managed Trust, SEI
International Trust, SEI Liquid Asset Trust and SEI Tax Exempt Trust.
DAVID G. LEE (DOB 04/16/52) -- President and Chief Executive Officer -- Senior
Vice President of the Administrator and Distributor since 1993. Vice President
of the Administrator and Distributor, 1991-1993. President, GW Sierra Trust
Funds before 1991.
SANDRA K. ORLOW (DOB 10/18/53) -- Vice President and Assistant Secretary -- Vice
President and Assistant Secretary of the Administrator and Distributor since
1988.
KEVIN P. ROBINS (DOB 04/15/61) -- Vice President and Assistant Secretary --
Senior Vice President, General Counsel and Assistant Secretary of SEI
Investments, Senior Vice President, General Counsel and Secretary of the
Administrator and Distributor since 1994. Vice President and Assistant
Secretary of SEI Investments, the Administrator and Distributor, 1992-1994.
Associate, Morgan, Lewis & Bockius LLP (law firm), 1988-1992.
RICHARD W. GRANT (DOB 10/25/45) -- Secretary -- 2000 One Logan Square,
Philadelphia, PA 19103, Partner, Morgan, Lewis & Bockius LLP (law firm), counsel
to the Trust, Administrator and Distributor.
KATHRYN L. STANTON (DOB 11/19/58) -- Vice President and Assistant Secretary--
Deputy General Counsel of SEI Investments, Vice President and Assistant
Secretary of the Administrator and Distributor since 1994. Associate, Morgan,
Lewis & Bockius LLP (law firm), 1989-1994.
MARK E. NAGLE (DOB 10/20/59) -- Controller and Chief Financial Officer -- Vice
President of Fund Accounting and Administration of SEI Fund Resources since
November 1996. Vice President of Fund Accounting, BISYS Fund Services,
S-8
<PAGE>
September 1995 to November 1996. Senior Vice President and Site Manager,
Fidelity Investments, 1981 to September 1995.
TODD B. CIPPERMAN (DOB 02/14/66) -- Vice President and Assistant Secretary --
Vice President and Assistant Secretary of SEI Investments, the Administrator and
the Distributor since 1995. Associate, Dewey Ballantine (law firm) (1994-1995).
Associate, Winston & Strawn (law firm) (1991-1994).
JOSEPH M. O'DONNELL (DOB 11/13/54) -- Vice President and Assistant Secretary --
Vice President and Assistant Secretary of the Administrator and Distributor
since 1998. Vice President and General Counsel, FPS Services, Inc., 1993-1997.
Staff Counsel and Secretary, Provident Mutual Family of Funds, 1990-1993 .
- ---------------------------------------
*Messrs. Nesher and Doran are Trustees who may be deemed to be "interested"
persons of the Fund as that term is defined in the 1940 Act.
**Messrs. Cooney, Morris, Patterson, Peters and Storey serve as members of the
Audit Committee of the Fund.
The Trustees and officers of the Fund own less than 1% of the outstanding
shares of the Fund. The Fund pays the fees for unaffiliated Trustees.
The following table exhibits Trustee compensation for the fiscal period ended
October 31, 1997.
<TABLE>
<CAPTION>
Total Compensation From
Registrant and Fund
Complex* Paid to
Aggregate Compensation From Pension or Retirement Estimated Annual Trustees for the Fiscal
Registrant for the Fiscal Benefits Accrued as Part Benefits Upon Year Ended October 31,
Name of Person, Position Year Ended October 31, 1997 of Fund Expenses Retirement 1997
------------------------ --------------------------- ------------------------ ---------------- -----------------------
<S> <C> <C> <C> <C>
John T. Cooney $8,154 N/A N/A $8,154 for
services on 1 board
Frank E. Morris $8,154 N/A N/A $8,154 for
services on 1 board
Robert Patterson $8,154 N/A N/A $8,154 for
services on 1 board
Eugene B. Peters $8,154 N/A N/A $8,154 for
services on 1 board
James M. Storey, Esq. $8,154 N/A N/A $8,154 for
services on 1 board
S-9
<PAGE>
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 purposes of this table, the Fund is the only investment company in the
"Fund Complex."
COMPUTATION OF YIELD AND TOTAL RETURN
From time to time, the Fund may advertise yield and total return of the
Portfolios. 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:
6
Yield = 2[((a-b)/cd+1) -1], where a = dividends and interest earned during the
period; b = expenses accrued for the period (net of reimbursement); c = the
average daily number of shares outstanding during the period that were entitled
to receive dividends; and d = the maximum offering price per share on the last
day of the period.
For the 30-day period ended October 31, 1997, the Portfolio's yield was 5.88%.
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
n
according to the following formula: P (1 + T) = ERV, where P = a hypothetical
initial payment of $1,000; T = average annual total return; n = number of years;
and ERV = ending redeemable value, as of the end of the designated time period,
of a hypothetical $1,000 payment made at the beginning of the designated time
period.
For the fiscal year ended October 31, 1997 and for the period from November 3,
1994 (commencement of operations) through October 31, 1997, the total return was
8.47% and 9.48%, respectively.
PURCHASE AND REDEMPTION OF 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
S-10
<PAGE>
are observed: New Year's Day, Martin Luther King Jr. Day, President's Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving and Christmas.
It is currently the 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.
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 federal income tax considerations
generally affecting the Portfolio and its shareholders, and is not intended as a
substitute for careful tax planning. Shareholders are urged to consult their
tax advisors with specific reference to their own tax situations, including
their state and local tax liabilities.
S-11
<PAGE>
FEDERAL INCOME TAX
The following discussion of federal income tax consequences is based on the
Internal Revenue Code of 1986 (the "Code") and the regulations issued thereunder
as in effect on the date of this Statement of Additional Information. New
legislation, as well as administrative changes or court decisions, may
significantly change the conclusions expressed herein, and may have a
retroactive effect with respect to the transactions contemplated herein.
The Portfolio intends to qualify as a "regulated investment company" ("RIC") as
defined under Subchapter M of the Code. By following such a policy, the
Portfolio expects to eliminate or reduce to a nominal amount the federal taxes
to which it may be subject.
In order to qualify for treatment as a RIC under the Code, the Portfolio must
distribute annually to its shareholders at least the sum of 90% of its net
interest income excludable from gross income plus 90% of its investment company
taxable income (generally, net investment income plus net short-term capital
gain) ("Distribution Requirement") and also must meet several additional
requirements. Among these requirements are the following: (i) at least 90% of
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 which the Portfolio controls or which are engaged in the
same, similar or related trades or business.
Notwithstanding the Distribution Requirement described above, which requires
only that the Portfolio distribute at least 90% of its annual investment company
taxable income and does not require any minimum distribution of net capital gain
(the excess of net long-term capital gain over net short-term capital loss), the
Portfolio will be subject to a nondeductible 4% federal excise tax to the extent
it fails to distribute by the end of any calendar year 98% of its ordinary
income for that year and 98% of its capital gain net income (the excess of
short- and long-term capital gains over short- and long-term capital losses) for
the one-year period ending on October 31 of that year, plus certain other
amounts.
S-12
<PAGE>
Any gain or loss recognized on a sale or redemption of shares of a Portfolio by
a non-exempt shareholder who is not a dealer in securities generally will be
treated as a long-term capital gain or loss if the shares have been held for
more than eighteen months, will be treated as a mid-term capital gain if the
shares have been held for more than twelve, but not more than eighteen, months
and otherwise generally will be treated as a short-term capital gain or loss.
If shares of the Portfolio on which a net capital gain distribution has been
received are subsequently sold or redeemed and such shares have been held for
six months or less, any loss recognized will be treated as a long-term capital
loss to the extent of the long-term capital gain distribution.
In certain cases, the Portfolio will be required to withhold, and remit to the
United States Treasury, 31% of any distributions paid to a shareholder who (1)
has failed to provide a correct taxpayer identification number, (2) is subject
to backup withholding by the Internal Revenue Service, or (3) has not certified
to the Portfolio that such shareholder is not subject to backup withholding.
If the Portfolio fails to qualify as a RIC for any taxable year, it will be
taxable at regular corporate rates. In such an event, all distributions
(including capital gains distributions) will be taxable as ordinary dividends to
the extent of the Portfolio's current and accumulated earnings and profits and
such distributions will generally be eligible for the corporate
dividends-received deduction.
STATE TAXES
The Portfolio is not liable for any income or franchise tax in Massachusetts if
it qualifies as a RIC for federal income tax purposes. 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
S-13
<PAGE>
dealers who make a market in the securities involved except in those
circumstances where better prices and execution are available elsewhere. Such
dealers usually are acting as principal for their own account. On occasion,
securities may be purchased directly from the issuer. Money market instruments
are generally traded on a net basis and do not normally involve either brokerage
commissions or transfer taxes. The cost of executing portfolio securities
transactions of the Portfolio will primarily consist of dealer spreads and
underwriting commissions.
The Adviser may, consistent with the interests of the Portfolio, select brokers
on the basis of the research services they provide to the Adviser. Such
services may include analyses of the business or prospects of a company,
industry or economic sector, or statistical and pricing services. Information
so received by the Adviser will be in addition to and not in lieu of the
services required to be performed by the Adviser under the Advisory Agreement.
If, in the judgment of the Adviser, 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, 1997, the
Portfolio directed [no transactions] to broker-dealers for research services.
It is expected that the Portfolio may execute brokerage or other agency
transactions through the Distributor, which is a registered broker-dealer, for a
commission in conformity with the 1940 Act, the Securities Exchange Act of 1934
and rules promulgated by the SEC. Under these provisions, the Distributor is
permitted to receive and retain compensation for effecting portfolio
transactions for the Portfolio on an exchange if a written contract is in effect
between the Distributor and the Fund expressly permitting the Distributor to
receive and retain such compensation. These rules further require that
commissions paid to the Distributor by the Portfolio for exchange transactions
not exceed "usual and customary" brokerage commissions. The rules define "usual
and customary" commissions to include amounts which are "reasonable and fair
compared to the commission, fee or other remuneration received or to be received
by other brokers in connection with comparable transactions involving similar
securities being purchased or sold on a securities exchange during a comparable
period of time." The Trustees, including those who are not "interested
S-14
<PAGE>
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, 1997, 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 Total Dollar Amount of
Brokerage Commissions for Transactions Involving
Research Services Directed Brokerage
Commissions for Research
Services
<S> <C>
$0 $0
</TABLE>
For the fiscal years ended October 31, 1995, 1996 and 1997, the Portfolio paid
the following brokerage commissions:
<TABLE>
<CAPTION>
Total Brokerage Amount Paid to SEI
Commissions Investments(1)
<S> <C> <C> <C> <C> <C>
1995 1996 1997 1995 1996 1997
$0 $0 $0 $139 $190 $113
</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.
For the fiscal years indicated, the Portfolio paid the following brokerage
commissions:
<TABLE>
<CAPTION>
% of Total % of Total
Total $ Amount of Total $ Amount of Brokerage Brokerage
Brokerage Brokerage Commissions Transactions
Commissions Paid Commissions Paid Paid to the Effected
to Affiliated Brokers Affiliated Through
Brokers Affiliated
Brokers
<S> <C> <C> <C> <C> <C> <C> <C>
1995 1996 1997 1995 1996 1997 1997 1997
$0 $0 $0 $0 $0 $0 $0 $0
</TABLE>
* An asterisk indicates that the Portfolio had not commenced operations as of
the period indicated.
S-15
<PAGE>
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, 1997, the
Portfolio held $561,256 of Lehman Brothers' corporate bonds and repurchase
agreements , $186,594 of Paine Webber's corporate bonds, and $251,875 of J. P.
Morgan's corporate bonds.
For the fiscal years ended October 31, 1996 and 1997, the portfolio turnover
rate for the Portfolio was 264.02% and 256.52%, 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 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.
S-16
<PAGE>
SHAREHOLDER LIABILITY
The Fund is an entity of the type commonly known as a "Massachusetts business
trust." Under Massachusetts law, shareholders of such a trust could, under
certain circumstances, be held personally liable as partners for the obligations
of the trust. Even if, however, the Fund were held to be a partnership, the
possibility of the shareholders incurring financial loss for that reason appears
remote because the Fund's Declaration of Trust contains an express disclaimer of
shareholder liability for obligations of the Fund and requires that notice of
such disclaimer be given in each agreement, obligation or instrument entered
into or executed by or on behalf of the Fund or the Trustees, and because the
Declaration of Trust provides for indemnification out of the Fund property for
any shareholder held personally liable for the obligations of the Fund.
LIMITATION OF TRUSTEES' LIABILITY
The Declaration of Trust provides that a Trustee shall be liable only for his or
her own willful defaults and, if reasonable care has been exercised in the
selection of officers, agents, employees or investment advisers, shall not be
liable for any neglect or wrongdoing of any such person. The Declaration of
Trust also provides that the Fund will indemnify its Trustees and officers
against liabilities and expenses incurred in connection with actual or
threatened litigation in which they may be involved because of their offices
with the Fund unless it is determined in the manner provided in the Declaration
of Trust that they have not acted in good faith in the reasonable belief that
their actions were in the best interests of the Fund. However, nothing in the
Declaration of Trust shall protect or indemnify a Trustee against any liability
for his or her willful misfeasance, bad faith, gross negligence or reckless
disregard of his or her duties.
5% SHAREHOLDERS
As of February 1, 1998, the following persons were the only persons who were
record owners (or to the knowledge of the Fund, beneficial owners) of 5% or more
of the shares of the Portfolios.
HGK FIXED INCOME FUND
<TABLE>
<CAPTION>
Shareholder Number of Shares %
- ----------- ---------------- -
<S> <C> <C>
Sam Agatittee 151,324.9580 11.42%
Laborers Local #322
General Fund
P.O. Box 361
Massena, NY 13662
S-17
<PAGE>
West Chester Heavy Construction 126,510.2000 9.55%
Local 60 General Fund
c/o Mr. Joseph Dominick
140 Broadway
Hawthorne, NY 10532
Mechanical Contractors Association 78,053.4660 5.89%
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 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, 1997, including
notes thereto and the report of Arthur Andersen LLP thereon, are herein
incorporated by reference. A copy of the 1997 Annual Report to Shareholders
must accompany the delivery of this Statement of Additional Information.
S-18
<PAGE>
AIG MONEY MARKET FUND
Class A Shares
Investment Adviser:
AIG CAPITAL MANAGEMENT CORP.
AIG Money Market Fund (the "Portfolio") is a diversified money market fund that
offers investors a convenient and economical way to invest in a professionally
managed diversified portfolio of short-term, high quality securities.
This Prospectus offers Class A shares of the Portfolio. Class A shares are
offered to institutional investors acting for themselves or in a fiduciary,
advisory, agency, custodial or similar capacity, and to AIG Persons (as defined
herein). Eligibility to invest in Class A shares is contingent upon an investor
maintaining a minimum aggregate investment of $10,000,000 in the Portfolio,
subject to certain limited exceptions as described on page 10.
AN INVESTMENT IN THE PORTFOLIO IS NEITHER INSURED NOR GUARANTEED BY THE UNITED
STATES GOVERNMENT, AND THERE IS NO ASSURANCE THAT THE PORTFOLIO WILL BE ABLE TO
MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE.
This Prospectus sets forth concisely information about The Advisors' Inner
Circle Fund (the "Fund") and the Portfolio that a prospective investor should
know before investing. The Portfolio is a separate series of the Fund.
Investors are advised to read this Prospectus and retain it for future
reference.
A Statement of Additional Information dated February 27, 1998, as amended or
supplemented from time to time, has been filed with the Securities and Exchange
Commission and is available without charge by calling 1-800-249-7445. The
Statement of Additional Information is incorporated into this Prospectus by
reference. The Statement of Additional Information, material incorporated by
reference into this document, and other information regarding the Fund is
maintained electronically with the Securities and Exchange Commission at its
internet web site (http://www.sec.gov).
THE FUND'S SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK. THE FUND'S SHARES ARE NOT FEDERALLY INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER
GOVERNMENT AGENCY. INVESTMENT IN THE SHARES INVOLVES RISK, INCLUDING POSSIBLE
LOSS OF THE PRINCIPAL AMOUNT INVESTED.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
February 27, 1998
AIG-F-001-04
<PAGE>
SUMMARY
The following provides basic information about the Class A shares of the AIG
Money Market Fund (the "Portfolio"). The Portfolio is one of the mutual funds
comprising The Advisors' Inner Circle Fund (the "Fund"). The Fund also offers
Class B Shares of the Portfolio in a separate prospectus. The Class B shares of
the Portfolio have a distribution plan pursuant to Rule 12b-1 and are subject to
an annual distribution fee. This summary is qualified in its entirety by
reference to the more detailed information provided elsewhere in this Prospectus
and in the Statement of Additional Information.
WHAT IS THE INVESTMENT OBJECTIVE? The Portfolio seeks to preserve principal
value and maintain a high degree of liquidity while providing current income.
There can be no assurance that the Portfolio will achieve its investment
objective or be able to maintain a net asset value of $1.00 per share on a
continuous basis. See "Investment Objective and Policies."
WHAT ARE THE RISKS INVOLVED WITH AN INVESTMENT IN THE PORTFOLIO? The Portfolio
will attempt to maintain a constant net asset value of $1.00 per share but there
is no assurance that it can do so on a continuous basis. See "Description of
Permitted Investments and Risk Factors."
WHAT ARE THE PERMITTED INVESTMENTS? The Portfolio will invest in a broad range
of short-term, high quality U.S. dollar denominated money market instruments,
which satisfy certain quality, maturity and diversification criteria, including
criteria set by applicable laws and regulations. The Portfolio may invest in
obligations of the U.S. Treasury and agencies and instrumentalities of the U.S.
Government; obligations of domestic banks and U.S. dollar denominated
obligations of foreign banks; short-term obligations of domestic and foreign
corporate issuers; obligations of supranational entities; obligations of foreign
governments; and repurchase agreements involving any of such obligations. See
"Investment Objective and Policies" and "Description of Permitted Investments
and Risk Factors."
WHO IS THE ADVISER? AIG Capital Management Corp. (the "Adviser") serves as the
investment adviser of the Portfolio. See "Expense Summary" and "The Adviser."
WHO IS THE ADMINISTRATOR? SEI Fund Resources (the "Administrator") serves as
the administrator and shareholder servicing agent of the Fund. See "The
Administrator."
WHO IS THE TRANSFER AGENT? DST Systems, Inc. (the "Transfer Agent") serves as
the transfer agent and dividend disbursing agent for the Fund. See "The
Transfer Agent."
WHO IS THE DISTRIBUTOR? SEI Investments Distribution Co. serves as the (the
"Distributor") distributor of the Portfolio's shares. See "The Distributor."
2
<PAGE>
IS THERE A SALES LOAD? No, Class A shares of the Portfolio are offered on a
no-load basis. See "The Distributor."
IS THERE A MINIMUM INVESTMENT? There is a minimum investment requirement of
$10,000,000 for Class A shares, with limited exceptions as described in
"Purchase and Redemption of Shares." Class B Shares, which are offered through
a separate prospectus, have a $25,000 minimum investment requirement. See
"Purchase and Redemption of Shares."
HOW DO I PURCHASE AND REDEEM SHARES? Purchases and redemptions may be made
through the Transfer Agent on any day when the New York Stock Exchange and
Federal Reserve Bank are open for business (a "Business Day"). A purchase order
will be effective as of the Business Day received by the Transfer Agent if the
Transfer Agent receives an order prior to 1:00 p.m. Eastern time and receives
payment with readily available funds prior to 3:00 p.m. Eastern time. To
purchase shares by wire, you must FIRST call 1-800-845-3885. Redemption orders
placed with the Transfer Agent prior to 1:00 p.m. Eastern time on any Business
Day will be effective that Business Day. The purchase and redemption price for
shares is the net asset value per share next determined after a purchase or
redemption order has been received by the Transfer Agent and becomes effective.
The net asset value per share is determined as of the earlier of 2:00 p.m.
Eastern time or the close of regular trading on the New York Stork Exchange on
each Business Day. The Fund has also authorized certain broker-dealers and
other financial intermediaries to accept purchase orders and redemption requests
up to the times mentioned above on behalf of the Portfolio. Shares redeemed on
any Business Day will not receive dividends for that day. See "Purchase and
Redemption of Shares."
HOW ARE DIVIDENDS PAID? The Portfolio distributes substantially all of its net
investment income (exclusive of capital gains) in the form of dividends declared
daily and paid monthly. Shares normally begin earning dividends on the Business
Day on which a purchase order is effective. Any capital gain is distributed at
least annually. Distributions are paid in additional shares unless the
shareholder elects to take the payment in cash. See "Purchase and Redemption of
Shares" and "Dividends and Distributions."
3
<PAGE>
EXPENSE SUMMARY
SHAREHOLDER TRANSACTION EXPENSES
AIG MONEY MARKET FUND
CLASS A
- --------------------------------------------------------------------------------
Maximum Sales Load Imposed on Purchases None
Maximum Sales Load Imposed on Reinvested Dividends None
Deferred Sales Load None
Redemption Fees(1) None
Exchange Fees None
- --------------------------------------------------------------------------------
(1) A wire redemption charge, currently $10.00, is deducted from the amount of
a Federal Reserve wire redemption payment made at the request of a
shareholder, except that certain institutions may be exempt from this wire
charge.
ANNUAL OPERATING EXPENSES
(as a percentage of average net assets AIG MONEY MARKET FUND
for the most recent fiscal year)
<TABLE>
<CAPTION>
CLASS A
<S> <C>
- --------------------------------------------------------------------------------
Advisory Fees (after fee waivers) (2) .15%
Other Expenses .12%
- --------------------------------------------------------------------------------
Total Operating Expenses (after fee waivers)(2) .27%
- --------------------------------------------------------------------------------
</TABLE>
(2) The Adviser has, on a voluntary basis, agreed to waive 10 basis points
(.10%) of its fee and to waive additional fees and/or reimburse certain
expenses of the Portfolio so that the total expense ratio does not exceed
.40%. The Adviser reserves the right to terminate its waiver or any
reimbursements at any time upon sixty days' notice to the Portfolio in its
sole discretion. Absent such waivers or any reimbursements, advisory fees
for the Class A shares of the Portfolio would be .25% and total operating
expenses, which include advisory fees, would be .39% of the average daily
net assets of the Portfolio on an annualized basis.
EXAMPLE
<TABLE>
<CAPTION>
AIG MONEY MARKET FUND
- --------------------------------------------------------------------------------
1 year 3 years 5 years 10 years
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
An investor would pay the following
expenses on a $1,000 investment
assuming (1) 5% annual return and (2)
redemption at the end of each time
period: $3 $9 $15 $34
CLASS A
- --------------------------------------------------------------------------------
</TABLE>
THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. The purpose
of the expense table and example is to assist the investor in understanding the
various costs and expenses that may be directly or indirectly borne by
shareholders of the Portfolio. The information set forth in the foregoing table
and example relates only to the Class A shares. Additional information may be
found under "The Adviser" and "The Administrator."
4
<PAGE>
FINANCIAL HIGHLIGHTS THE ADVISORS' INNER CIRCLE FUND
The following information on Class A shares of the AIG Money Market Fund has
been audited by Arthur Andersen LLP, the Fund's independent public accountants,
as indicated in their report dated December 12, 1997 on the Fund's financial
statements as of October 31, 1997. This table should be read in conjunction
with the Fund's audited financial statements and notes thereto. The Portfolio's
financial statements are contained in the Annual Report to Shareholders, which
is available without charge by calling 1-800-249-7445.
For a Class A share of the Portfolio Outstanding Throughout the Period:
<TABLE>
<CAPTION>
AIG
Money Market
Fund
- ---------------------------------------------------------------------------------------------------
11/01/96 11/01/95 12/1/94(1)
to to to
10/31/97 10/31/96 10/31/95
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD . . . . . . . . . $ 1.00 $ 1.00 $ 1.00
- ----------------------------------------------------------------------------------------------------
Income From Investment Operations:
Net Investment Income . . . . . . . . . . . . . . . 0.05 0.05 0.05
- ----------------------------------------------------------------------------------------------------
Total From Investment Operations . . . . . . . . . . . 0.05 0.05 0.05
- ----------------------------------------------------------------------------------------------------
Less Distributions:
Distributions From Net Investment Income . . . . . . . (0.05) (0.05) (0.05)
Total Distributions . . . . . . . . . . . . . . . . (0.05) (0.05) (0.05)
- ----------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD . . . . . . . . . . . . $ 1.00 $ 1.00 $ 1.00
- ----------------------------------------------------------------------------------------------------
TOTAL RETURN . . . . . . . . . . . . . . . . . . . . . 5.41% 5.26% 5.75%*
- ----------------------------------------------------------------------------------------------------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End Of Period (000). . . . . . . . . . . . $329,125 $253,865 $313,657
Ratio Of Expenses To Average Net Assets. . . . . . . . 0.27% 0.39% 0.40%*
Ratio Of Expenses To Average Net Assets
(Excluding Fee Waivers) . . . . . . . . . . . . . . 0.39% 0.41% 0.47%*
Ratio Of Net Investment Income To Average
Net Assets. . . . . . . . . . . . . . . . . . . . . 5.30% 5.15% 5.60%*
Ratio Of Net Investment Income to
Average Net Assets (Excluding Fee Waivers). . . . . 5.18% 5.13% 5.53%*
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
</TABLE>
* Annualized
(1) The Class A shares of the AIG Money Market Fund commenced operations on
December 1, 1994.
5
<PAGE>
THE FUND AND THE PORTFOLIO
The Advisors' Inner Circle Fund (the "Fund") offers shares in a number of
separately-managed mutual funds, each of which is a separate series
("portfolio") of the Fund. Each share of each portfolio represents an
undivided, proportionate interest in that portfolio. This Prospectus offers
Class A shares of the Fund's AIG Money Market Fund (the "Portfolio"), a
diversified portfolio. The Portfolio offers two classes of shares (Class A and
Class B) which provide for variations in distribution costs, voting rights and
dividends. Except for these differences, each share of the Portfolio represents
an undivided proportionate interest in the Portfolio. Information regarding the
Class B shares of the Portfolio and the other portfolios in the Fund is
contained in separate prospectuses that may be obtained by calling
1-800-249-7445.
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the Portfolio is to preserve principal value and
maintain a high degree of liquidity while providing current income. It is also
a fundamental policy of the Portfolio to use its best efforts to maintain a
constant net asset value of $1.00 per share. There is no assurance that the
Portfolio 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.
The Portfolio intends to comply with regulations of the Securities and Exchange
Commission (the "SEC") applicable to money market funds using the amortized cost
method for calculating net asset value. These regulations impose certain
quality, maturity and diversification restraints on Portfolio investments.
Under these regulations, the Portfolio will invest in only U.S. dollar
denominated securities, will maintain an average maturity on a dollar-weighted
basis of 90 days or less, and will acquire only "eligible securities" that both
present minimal credit risks and have a maturity of 397 days or less. For a
further discussion of these rules, see "Description of Permitted Investments and
Risk Factors -- Restraints on Investments by Money Market Funds."
In seeking its investment objective, the Portfolio 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 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
6
<PAGE>
satisfying the credit standards described above or, if not rated, determined by
the Adviser to be of comparable quality.
The Portfolio 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 Portfolio 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
Portfolio may purchase asset-backed securities rated in the highest NRSRO rating
category at the time of investment. The Portfolio may invest in securities
which pay interest on a variable or floating rate basis. In addition, the
Portfolio may acquire securities on a when-issued basis and may buy securities
which are subject to puts or standby commitments. The Portfolio will not invest
more than 10% of its net assets in illiquid securities. The Portfolio reserves
the right to enter into reverse repurchase agreements and engage in securities
lending.
The Portfolio will use NRSROs such as Standard & Poor's Corporation and Moody's
Investors Service, Inc. when determining security credit ratings.
For a description of the above ratings and additional information regarding the
Portfolio's permitted investments see "Description of Permitted Investments and
Risk Factors" in this Prospectus and "Description of Permitted Investments" in
the Statement of Additional Information.
INVESTMENT LIMITATIONS
The investment objective and the investment limitations set forth here and in
the Statement of Additional Information are fundamental policies of the
Portfolio. Fundamental policies cannot be changed without the consent of the
holders of a majority of the Portfolio's outstanding shares.
The Portfolio 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 Portfolio would be invested in the securities of such issuer;
provided, however, that the Portfolio 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 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 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
7
<PAGE>
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; (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 Portfolio 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 Prospectus and in the Statement of Additional Information.
4. Borrow money, except that the Portfolio 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 Portfolio 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.
The foregoing percentages will apply at the time of the purchase of a security,
except for the percentage limitations specified in paragraph 4 above, which will
apply at all times.
THE ADVISER
AIG Capital Management Corp. (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 Portfolio's investment adviser and 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.
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 Portfolio. The
Adviser has voluntarily agreed to waive 10 basis points (.10%) of its fees and
to waive additional fees and/or reimburse certain
8
<PAGE>
expenses of the Portfolio 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 Portfolio. The Adviser reserves the
right to terminate its waiver or any reimbursements at any time upon sixty days'
notice to the Portfolio in its sole discretion. For the fiscal year ended
October 31, 1997, the Adviser received (after fee waivers) a fee equal to 0.15%
of the Portfolio's average daily net assets.
THE ADMINISTRATOR
SEI Fund Resources (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. The Fund 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; (iii) .06% of average daily net assets from $250
million up to $450 million; and (iv) .05% of average daily net assets in excess
of $450 million for the first year of the contract. In the second and third
years of the Agreement compensation shall be paid 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 Administrator also serves as shareholder servicing agent for the Portfolio.
THE TRANSFER AGENT
DST Systems, Inc., 1004 Baltimore Street, Kansas City, Missouri 64105 (the
"Transfer Agent") serves as the transfer agent and dividend disbursing agent for
the Fund.
THE DISTRIBUTOR
SEI Investments Distribution Co. (the "Distributor"), Oaks, Pennsylvania 19456,
a wholly-owned subsidiary of SEI Investments Company serves as the Fund's
distributor pursuant to a distribution agreement (the "Distribution Agreement")
with the Fund which applies to Class A and Class B shares of the Portfolio. The
Class A shares of the Portfolio are offered without distribution fees.
The Portfolio may also execute brokerage or other agency transactions through an
affiliate of the Adviser or through the Distributor for which the affiliate or
the Distributor may receive "usual and customary" compensation.
9
<PAGE>
PURCHASE AND REDEMPTION OF SHARES
Shares of the Portfolio may be purchased by qualified investors by contacting
the Transfer Agent or by calling 1-800-845-3885. Class A shares are offered to
institutional investors acting for themselves or in a fiduciary, advisory,
agency, custodial or similar capacity, and to AIG Persons (as defined below).
Shares of the Portfolio are offered only to residents of states and other
jurisdictions in which the shares are eligible for purchase. In addition, the
Fund has authorized certain broker-dealers and other financial intermediaries
(collectively, "Authorized Broker-Dealers") to act as the Portfolio's agent for
the purposes of accepting purchase orders and redemption requests. The
Portfolio will be deemed to have received a purchase order or redemption request
upon receipt of the order or request by an Authorized Broker-Dealer.
Purchase of shares of the Portfolio may be made on any day when the New York
Stock Exchange and Federal Reserve Bank are open for business (a "Business
Day"). Eligibility to invest in Class A shares is contingent upon an investor
maintaining a minimum aggregate investment of $10,000,000 in the Portfolio
unless: (a) the investor makes an initial investment of at least $5,000,000
and has, in the sole judgment of the Distributor and/or any
sub-distributor(s), intent and availability of funds to invest $10,000,000 in
Class A shares of the Portfolio within three months of the initial
investment; (b) the investor's assets are managed pursuant to an investment
advisory agreement with a registered investment advisor that is wholly-owned
by AIG; or (c) the investor is in one of the following categories: AIG and
any company as to which AIG owns more than 19% of the outstanding capital
stock, C.V. Starr & Co., Inc. and any of its direct or indirect subsidiaries
and affiliates, senior executive officers of AIG and their families
(collectively referred to as "AIG Persons"), as well as entities controlled
by such AIG Persons, and certain employee benefit plans sponsored by AIG.
There is no minimum for subsequent purchases. The minimum investment may be
waived at the Distributor's discretion.
PURCHASES BY WIRE TRANSFER
INITIAL PURCHASES: Before making an initial investment by wire, an investor
must first telephone 1-800-845-3885 to be assigned an account number. The
investor's name, account number, taxpayer identification number or Social
Security number, and address must be specified in the wire. In addition, an
Account Application should be promptly forwarded to the Transfer Agent at: The
Advisors' Inner Circle Fund, P.O. Box 419009, Kansas City, Missouri 64141-6009.
Shareholders having an account with a commercial bank that is a member of the
Federal Reserve System may purchase shares of the Portfolio by requesting their
bank to transmit funds by wire to: United Missouri Bank, N.A.; ABA
#10-10-00695; for Account Number 9870600404; Further Credit: AIG Money Market
Fund. The shareholder's name and account number must be specified in the wire.
10
<PAGE>
SUBSEQUENT PURCHASES: Additional investments may be made at any time through
the wire procedures described above, which must include the shareholder's name
and account number. The investor's bank may impose a fee for investments by
wire.
GENERAL INFORMATION REGARDING PURCHASES
A purchase order for Class A shares will be effective as of the Business Day
received by the Transfer Agent if the Transfer Agent receives an order prior to
1:00 p.m. Eastern time and receives federal funds before 3:00 p.m. Eastern time.
However, an order for Class A shares may be canceled if federal funds are not
received before 3:00 p.m. Eastern time on the same Business Day. Purchases may
not be made by check. The purchase price for shares is the net asset value per
share next determined after a purchase order has been received by the Transfer
Agent and becomes effective.
The Portfolio reserves the right to reject an account application or a purchase
order when the Distributor or Transfer Agent determines that it is not in the
best interest of the Fund and/or its shareholders to accept such application or
purchase order.
REDEMPTIONS
Redemption orders received by the Transfer Agent prior to 1:00 p.m. Eastern time
on any Business Day will be effective that day. The redemption price of shares
is the net asset value per share of the Portfolio next determined after an
effective redemption order, in good form, is received. Shares redeemed will not
receive the dividend declared on that day. Payment on redemption will be made
as promptly as possible and, in any event, within seven days after the
redemption order is received. Shareholders may not close their accounts by
telephone.
Shareholders may receive redemption payments in the form of a check or by
Federal Reserve transfer or Automatic Clearing House ("ACH") wire transfer.
There is no charge for having a check for redemption proceeds mailed. The
custodian will deduct a wire charge, currently $10.00, from the amount of a
Federal Reserve wire redemption payment made at the request of a shareholder,
except that certain institutions may be exempt from this charge. Shareholders
cannot redeem shares of the Portfolio by Federal Reserve wire on federal
holidays restricting wire transfers. The Portfolio does not charge for ACH wire
transfers; however, such transactions will not be posted to a shareholder's bank
account until the second Business Day following the transaction.
Shareholders are granted telephone redemption privileges automatically. Neither
the Fund nor the Transfer Agent will be responsible for the authenticity of the
redemption instructions received by telephone if it reasonably believes those
instructions are genuine. The Fund and the Transfer Agent will each employ
reasonable procedures to confirm that telephone instructions are genuine, and
may be liable for losses resulting from unauthorized or fraudulent telephone
11
<PAGE>
transactions if it does not employ those procedures. Such procedures may include
taping of telephone conversations.
CALCULATION OF NET ASSET VALUE
Net asset value per share of the Portfolio is determined as of the earlier of
2:00 p.m. Eastern time or the close of regular trading on the New York Stock
Exchange on each Business Day, based on the amortized cost method described
in the Statement of Additional Information. No certificates representing
shares will be issued. The net asset value per share of the Portfolio is
determined by dividing the total market value of the Portfolio's investments,
using amortized cost valuations, and other assets, less any liabilities, by
the total number of outstanding shares of the Portfolio.
PERFORMANCE
From time to time the Portfolio advertises its "current yield", "effective
yield" and total return. Both yield figures are based on historical earnings
and are not intended to indicate future performance. No representation can
be made concerning actual future yields. The "current yield" of the
Portfolio refers to the income generated by an investment in the Portfolio
over a stated seven-day period (which period will be stated in the
advertisement). This income is then "annualized." That is, the amount of
income generated by the investment during that week is assumed to be
generated each week over a 52-week period and is shown as a percentage of the
investment. The "effective yield" (also called "effective compound yield")
is calculated similarly but, when annualized, the income earned by an
investment in the Portfolio is assumed to be reinvested. The "effective
yield" will be slightly higher than the "current yield" because of the
compounding effect of this assumed reinvestment. Total return represents the
change, over a specified period of time, in the value of an investment in the
Portfolio after reinvesting all income distributions. It is calculated by
dividing that change by the initial investment and is expressed as a
percentage. 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 separately
for the Class A and Class B shares.
The Portfolio may periodically compare its performance to the performance of
other mutual funds tracked by mutual fund rating services, broad groups of
comparable mutual funds or unmanaged indices which may assume investment of
dividends but generally do not reflect deductions for administrative and
management costs.
TAXES
The following summary of certain federal income tax consequences is based on
current tax laws and regulations, which may be changed by legislative, judicial
or administrative action.
No attempt has been made to present a detailed explanation of the federal, state
or local income tax treatment of the Portfolio or its shareholders.
Accordingly, shareholders are urged to consult their tax advisers regarding
specific questions as to federal, state and local income taxes.
12
<PAGE>
TAX STATUS OF THE PORTFOLIO
The Portfolio is treated as a separate entity for federal income tax purposes
and is not combined with the Fund's other portfolios. The Portfolio intends to
continue to qualify for the special tax treatment afforded regulated investment
companies as defined under Subchapter M of the Internal Revenue Code of 1986, as
amended. So long as the Portfolio qualifies for this special tax treatment, it
will be relieved of federal income tax on that part of its net investment income
and net capital gain (the excess of net long-term capital gain over net
short-term capital loss) that it distributes to shareholders.
TAX STATUS OF DISTRIBUTIONS
The Portfolio will distribute all of its net investment income (including, for
this purpose, net short-term capital gain) to shareholders. Dividends from net
investment income will be taxable to shareholders as ordinary income whether
received in cash or in additional shares. Although the Portfolio does not
expect to recognize any long-term capital gains, any dividends from net capital
gain (the excess of net long-term capital gain over net short-term capital loss)
will be treated as gain from the sale of a capital asset held for more than one
year, regardless of how long the shareholders have held their shares.
Generally, distributions from the Portfolio are taxable to shareholders when
they are paid. However, dividends declared by the Portfolio in October,
November or December of any year and payable to shareholders of record on a date
in one of those months will be deemed to have been paid by the Portfolio and
received by the shareholders on December 31 of that year, if paid by the
Portfolio at any time during the following January.
The Portfolio will inform shareholders annually of the federal income tax status
of all distributions. Corporate shareholders should note that Portfolio
distributions will not qualify for the dividends-received deduction that is
generally available to corporate taxpayers.
Income received on direct United States Government obligations is exempt from
income tax at the state level when received directly and may be exempt,
depending on the state, when received by a shareholder from the Portfolio
provided certain state-specific conditions are satisfied. Interest received on
repurchase agreements normally is not exempt from state taxation. The Portfolio
will inform shareholders annually of the percentage of income and distributions
derived from direct United States Government obligations. Shareholders should
consult their tax advisers to determine whether any portion of the income
dividends received from the Portfolio is considered tax exempt in their
particular state.
The Portfolio intends to make sufficient distributions prior to the end of each
calendar year to avoid liability for federal excise tax.
A sale, exchange or redemption of the Portfolio's shares is a taxable event to
the shareholder.
13
<PAGE>
Income derived by the Portfolio from securities of foreign issuers may be
subject to foreign withholding taxes. The Portfolio will not be able to elect
to treat shareholders as having paid their proportionate share of such foreign
taxes.
Additional information concerning taxes is set forth in the Statement of
Additional Information.
GENERAL INFORMATION
THE FUND
The Fund, an open-end management investment company, was organized under
Massachusetts law as a business trust under a Declaration of Trust dated July
18, 1991. The Declaration of Trust permits the Fund to offer separate series
("portfolios") and classes of shares. All consideration received by the Fund
for shares of any portfolio and all assets of such portfolio belong to that
portfolio and are subject to liabilities related thereto. The Fund reserves the
right to create and issue shares of additional portfolios.
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 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.
Expenses not attributable to a specific portfolio are allocated across all of
the portfolios on the basis of relative net assets.
TRUSTEES 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.
VOTING RIGHTS
Each share held entitles the shareholder of record to one vote. The
shareholders of each class of the Portfolio will vote separately on matters
relating solely to that class. The Portfolio will vote separately on matters
relating solely to it. As a Massachusetts business trust, the Fund is not
required, and does not intend, to hold annual meetings of shareholders.
Shareholder approval will be sought, however, for certain changes in the
operation of the Fund and for the election of Trustees under certain
circumstances.
In addition, a Trustee may be removed by the remaining Trustees or by
shareholders at a special meeting called upon written request of shareholders
owning at least 10% of the outstanding
14
<PAGE>
shares of the Fund. In the event that such a meeting is requested, the Fund
will provide appropriate assistance and information to the shareholders
requesting the meeting.
A of February 2, 1998, AIG Life Insurance owned a controlling interest in the
Class A Shares of the Portfolio as defined by the Investment Company Act of
1940.
REPORTING
The Fund issues unaudited financial information semiannually and audited
financial statements annually for the Portfolio. The Fund also furnishes
periodic reports and, as necessary, proxy statements to shareholders of record.
SHAREHOLDER INQUIRIES
Shareholder inquiries should be directed to AIG Money Market Fund, c/o The
Advisors' Inner Circle Fund, P.O. Box 419009, Kansas City, Missouri 64141-6009
or by calling 1-800-249-7445. Purchase and redemption transactions should be
made through the Transfer Agent by calling 1-800-845-3885.
DIVIDENDS AND DISTRIBUTIONS
The Portfolio declares dividends of substantially all of its net investment
income (exclusive of capital gains) daily and distributes such dividends
monthly. Shares purchased normally begin earning dividends on the Business Day
on which the purchase order relating to such share purchase is effective. If
any capital gain is realized, substantially all of it will be distributed at
least annually.
Shareholders automatically receive all income dividends and capital gain
distributions in additional shares, unless the shareholder has elected to take
such payment in cash. Shareholders may change their election by providing
written notice to the Transfer Agent at least 15 days prior to the distribution.
Shareholders may receive payments for cash distributions in the form of a check
or by Federal Reserve or ACH wire transfer.
The amount of dividends payable on Class A shares will be more than those
payable on Class B shares because of the distribution fees paid by Class B
shares.
COUNSEL AND INDEPENDENT PUBLIC ACCOUNTANTS
Morgan, Lewis & Bockius LLP serves as counsel to the Fund. Arthur Andersen LLP
serves as the independent public accountants of the Fund.
CUSTODIAN
CoreStates Bank, N.A., Broad and Chestnut Streets, P.O. Box 7618, Philadelphia,
Pennsylvania 19101 acts as custodian (the "Custodian") of the Fund. The
Custodian holds cash, securities and
15
<PAGE>
other assets of the Fund as required by the Investment Company Act of 1940, as
amended (the "1940 Act").
DESCRIPTION OF PERMITTED INVESTMENTS AND RISK FACTORS
The following is a description of the permitted investments for the Portfolio,
and the associated risk factors:
ASSET-BACKED SECURITIES - Asset-backed securities are secured by non-mortgage
assets such as company receivables, truck and auto loans, leases and credit card
receivables. Such securities are generally issued as pass-through certificates,
which represent undivided fractional ownership interests in the underlying pools
of assets. Such securities also may be debt instruments, which are also known
as collateralized obligations and are generally issued as the debt of a special
purpose entity, such as a trust, organized solely for the purpose of owning such
assets and issuing such debt.
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.
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 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 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
16
<PAGE>
(World Bank), African Development Bank, European Economic Community, European
Investment Bank and the Nordic Investment Bank.
REPURCHASE AGREEMENTS - Repurchase agreements are agreements by which the
Portfolio obtains a security and simultaneously commits to return the security
to the seller at an agreed upon price on an agreed upon date within a number of
days from the date of purchase. The Custodian will hold the security as
collateral for the repurchase agreement. The Portfolio bears a risk of loss in
the event the other party defaults on its obligations and the Portfolio is
delayed or prevented from exercising its right to dispose of the collateral or
if the Portfolio realizes a loss on the sale of the collateral. The Portfolio
will enter into repurchase agreements only with financial institutions deemed to
present minimal risk of bankruptcy during the term of the agreement based on
established guidelines. Repurchase agreements are considered loans under the
1940 Act.
RESTRICTED SECURITIES - Restricted securities are securities that may not be
sold freely to the public absent registration under the Securities Act of 1933
or an exemption from registration.
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.
REVERSE REPURCHASE AGREEMENTS - Reverse repurchase agreements are agreements by
which the Portfolio sells securities to financial institutions and
simultaneously agrees to repurchase those securities at a mutually agreed-upon
date and price. At the time a Portfolio enters into a reverse repurchase
agreement, the Portfolio 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 Portfolio may decline
below the price at which the Portfolio is obligated to repurchase the
securities. Reverse repurchase agreements are considered to be borrowings by
the Portfolio under the 1940 Act.
17
<PAGE>
STANDBY COMMITMENTS AND PUTS - Securities subject to standby commitments or puts
permit the holder thereof to sell the securities at a fixed price prior to
maturity. Securities subject to a standby commitment or put may be sold at any
time at the current market price. However, unless the standby commitment or put
was an integral part of the security as originally issued, it may not be
marketable or assignable; therefore, the standby commitment or put would only
have value to the Portfolio owning the security to which it relates. In certain
cases, a premium may be paid for a standby commitment or put, which premium will
have the effect of reducing the yield otherwise payable on the underlying
security. The Portfolio will limit standby commitment or put transactions to
institutions believed to present minimal credit risk.
SECURITIES LENDING - In order to generate additional income, the Portfolio may
lend securities which it owns pursuant to agreements requiring that the loan be
continuously secured by collateral consisting of cash, or securities of the U.S.
Government or its agencies equal to at least 100% of the market value of the
securities lent. The Portfolio continues to receive interest on the securities
lent while simultaneously earning interest on the investment of cash collateral.
Collateral is marked to market daily. There may be risks of delay in recovery
of the securities or even loss of rights in the collateral should the borrower
of the securities fail financially or become insolvent.
SECURITIES OF FOREIGN ISSUERS - There are certain risks connected with investing
in securities of foreign issuers. 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.
STRIPPED GOVERNMENT SECURITIES - The Portfolio 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 Portfolio 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 that
mature in more than 7 days are considered to be illiquid securities.
U.S. GOVERNMENT AGENCY SECURITIES - Obligations issued or guaranteed by agencies
of the U.S. Government include, among others, the Federal Farm Credit Bank, the
Federal Housing
18
<PAGE>
Administration and the Small Business Administration, and obligations issued or
guaranteed by instrumentalities of the U.S. Government include, among others,
the Federal Home Loan Mortgage Corporation, the Federal Land Banks and the U.S.
Postal Service. Some of these securities are supported by the full faith and
credit of the U.S. Treasury, others are supported by the right of the issuer to
borrow from the Treasury, while still others are supported only by the credit
of the instrumentality. Guarantees of principal by agencies or
instrumentalities of the U.S. Government may be a guarantee of payment at the
maturity of the obligation so that in the event of a default prior to maturity
there might not be a market and thus no means of realizing on the obligation
prior to maturity. Guarantees as to the timely payment of principal and
interest do not extend to the value or yield of these securities nor to the
value of the Portfolio's shares.
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 Portfolio 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 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.
19
<PAGE>
TABLE OF CONTENTS
SUMMARY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
EXPENSE SUMMARY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
FINANCIAL HIGHLIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
THE FUND AND THE PORTFOLIO . . . . . . . . . . . . . . . . . . . . . . . . 6
INVESTMENT OBJECTIVE AND POLICIES. . . . . . . . . . . . . . . . . . . . . 6
INVESTMENT LIMITATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . 7
THE ADVISER. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
THE ADMINISTRATOR. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
THE TRANSFER AGENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
THE DISTRIBUTOR. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
PURCHASE AND REDEMPTION OF SHARES. . . . . . . . . . . . . . . . . . . . . 10
PERFORMANCE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
TAXES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
GENERAL INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
DESCRIPTION OF PERMITTED INVESTMENTS AND RISK FACTORS. . . . . . . . . . . 16
20
<PAGE>
Fund:
THE ADVISORS' INNER CIRCLE FUND
Portfolio:
AIG MONEY MARKET FUND
Adviser:
AIG CAPITAL MANAGEMENT CORP.
Distributor:
SEI INVESTMENTS DISTRIBUTION CO.
Administrator:
SEI FUND RESOURCES
Legal Counsel:
MORGAN, LEWIS & BOCKIUS LLP
Independent Public Accountants:
ARTHUR ANDERSEN LLP
February 27, 1998
<PAGE>
AIG MONEY MARKET FUND
Class B Shares
Investment Adviser:
AIG CAPITAL MANAGEMENT CORP.
AIG Money Market Fund (the "Portfolio") is a diversified money market fund that
offers investors a convenient and economical way to invest in a professionally
managed diversified portfolio of short-term, high quality securities.
This Prospectus offers Class B shares of the Portfolio, which are offered to
clients of American International Group, Inc. ("AIG"), certain of its
subsidiaries and affiliates, and other institutional investors acting for
themselves or in a fiduciary, advisory, agency, custodial or similar capacity,
and individual investors.
AN INVESTMENT IN THE PORTFOLIO IS NEITHER INSURED NOR GUARANTEED BY THE UNITED
STATES GOVERNMENT, AND THERE IS NO ASSURANCE THAT THE PORTFOLIO WILL BE ABLE TO
MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE.
This Prospectus sets forth concisely information about The Advisors' Inner
Circle Fund (the "Fund") and the Portfolio that a prospective investor should
know before investing. The Portfolio is a separate series of the Fund.
Investors are advised to read this Prospectus and retain it for future
reference.
A Statement of Additional Information dated February 27, 1998, as amended or
supplemented from time to time, has been filed with the Securities and Exchange
Commission and is available without charge by calling 1-800-249-7445. The
Statement of Additional Information is incorporated into this Prospectus by
reference. The Statement of Additional Information, material incorporated by
reference into this document, and other information regarding the Fund is
maintained electronically with the Securities and Exchange Commission at its
internet web site (http://www.sec.gov).
THE FUND'S SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK. THE FUND'S SHARES ARE NOT FEDERALLY INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER
GOVERNMENT AGENCY. INVESTMENT IN THE SHARES INVOLVES RISK, INCLUDING POSSIBLE
LOSS OF THE PRINCIPAL AMOUNT INVESTED.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
February 27, 1998
AIG-F-002-05
<PAGE>
SUMMARY
The following provides basic information about the Class B shares of the AIG
Money Market Fund (the "Portfolio"). The Portfolio is one of the mutual funds
comprising The Advisors' Inner Circle Fund (the "Fund"). The Fund also offers
Class A shares of the Portfolio in a separate prospectus. This summary is
qualified in its entirety by reference to the more detailed information provided
elsewhere in this Prospectus and in the Statement of Additional Information.
WHAT IS THE INVESTMENT OBJECTIVE? The Portfolio seeks to preserve principal
value and maintain a high degree of liquidity while providing current income.
There can be no assurance that the Portfolio will achieve its investment
objective or be able to maintain a net asset value of $1.00 per share on a
continuous basis. See "Investment Objective and Policies."
WHAT ARE THE RISKS INVOLVED WITH AN INVESTMENT IN THE PORTFOLIO? The Portfolio
will attempt to maintain a constant net asset value of $1.00 per share but there
is no assurance that it can do so on a continuous basis. See "Description of
Permitted Investments and Risk Factors."
WHAT ARE THE PERMITTED INVESTMENTS? The Portfolio will invest in a broad range
of short-term, high quality U.S. dollar denominated money market instruments,
which satisfy certain quality, maturity and diversification criteria, including
criteria set by applicable laws and regulations. The Portfolio may invest in
obligations of the U.S. Treasury and agencies and instrumentalities of the U.S.
Government; obligations of domestic banks and U.S. dollar denominated
obligations of foreign banks; short-term obligations of domestic and foreign
corporate issuers; obligations of supranational entities; obligations of foreign
governments; and repurchase agreements involving any of such obligations. See
"Investment Objective and Policies" and "Description of Permitted Investments
and Risk Factors."
WHO IS THE ADVISER? AIG Capital Management Corp. (the "Adviser") serves as the
investment adviser of the Portfolio. See "Expense Summary" and "The Adviser."
WHO IS THE ADMINISTRATOR? SEI Fund Resources (the "Administrator") serves as
the administrator and shareholder servicing agent of the Fund. See "The
Administrator."
WHO IS THE TRANSFER AGENT? DST Systems, Inc. (the "Transfer Agent") serves as
the transfer agent and dividend disbursing agent for the Fund. See "The
Transfer Agent."
WHO IS THE DISTRIBUTOR? SEI Investments Distribution Co. (the "Distributor")
serves as the distributor of the Portfolio's shares. See "The Distributor."
2
<PAGE>
IS THERE A SALES LOAD? Class B shares of the Portfolio are offered without a
front-end sales charge. However, Class B shares are subject to a distribution
fee of .35% of the average daily net assets of the Class B shares. See "The
Distributor."
IS THERE A MINIMUM INVESTMENT? There is a minimum investment requirement of
$25,000 which the Distributor may waive at its discretion.
HOW DO I PURCHASE AND REDEEM SHARES? Purchases and redemptions may be made
through the Transfer Agent on any day when the New York Stock Exchange and
Federal Reserve Bank are open for business (a "Business Day"). A purchase order
will be effective as of the Business Day received by the Transfer Agent if the
Transfer Agent receives an order prior to 1:00 p.m. Eastern time and receives
payment with readily available funds prior to 3:00 p.m. Eastern time. To
purchase shares by wire, you must FIRST call 1-800-845-3885. Redemption orders
placed with the Transfer Agent prior to 1:00 p.m. Eastern time on any Business
Day will be effective that Business Day. The purchase and redemption price for
shares is the net asset value per share next determined after a purchase or
redemption order has been received by the Transfer Agent and becomes effective.
The net asset value per share is determined as of the earlier of 2:00 p.m.
Eastern time or the close of regular trading on the New York Stock Exchange on
each Business Day. The Fund has also authorized certain broker-dealers and
other financial intermediaries to accept purchase orders and redemption requests
up to the times mentioned above on behalf of the Portfolio. Shares redeemed on
any Business Day will not receive dividends for that day. See "Purchase and
Redemption of Shares."
HOW ARE DIVIDENDS PAID? The Portfolio distributes substantially all of its net
investment income (exclusive of capital gains) in the form of dividends declared
daily and paid monthly. Shares normally begin earning dividends on the Business
Day on which a purchase order is effective. Any capital gain is distributed at
least annually. Distributions are paid in additional shares unless the
shareholder elects to take the payment in cash. See "Purchase and Redemption of
Shares" and "Dividends and Distributions."
3
<PAGE>
EXPENSE SUMMARY
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES
AIG MONEY MARKET FUND
CLASS B
- --------------------------------------------------------------------------------------
<S> <C>
Maximum Sales Load Imposed on Purchases None
Maximum Sales Load Imposed on Reinvested Dividends None
Deferred Sales Load None
Redemption Fees(1) None
Exchange Fees None
- --------------------------------------------------------------------------------------
</TABLE>
(1) A wire redemption charge, currently $10.00, is deducted from the amount of
a Federal Reserve wire redemption payment made at the request of a
shareholder, except that certain institutions may be exempt from this wire
charge.
<TABLE>
<CAPTION>
ANNUAL OPERATING EXPENSES
(as a percentage of average net assets for the AIG MONEY MARKET FUND
most recent fiscal year)
CLASS B
- --------------------------------------------------------------------------------------
<S> <C>
Advisory Fees (after fee waivers) (2) .15%
12b-1 Fees .35%
Other Expenses .13%
- --------------------------------------------------------------------------------------
Total Operating Expenses (after fee waivers)(2) .63%
- --------------------------------------------------------------------------------------
</TABLE>
(2) The Adviser has, on a voluntary basis, agreed to waive 10 basis points
(.10%) of its fee and to waive additional fees and/or reimburse certain
expenses of the Portfolio so that the total expense ratio does not exceed
.75%. The Adviser reserves the right to terminate its waiver or any
reimbursements at any time upon sixty days' notice to the Portfolio in its
sole discretion. Absent such waivers or any reimbursements, advisory fees
for the Class B shares of the Portfolio would be .25% and total operating
expenses, which include advisory fees, would be .74% of the average daily
net assets of the Portfolio on an annualized basis.
EXAMPLE
<TABLE>
<CAPTION>
AIG MONEY MARKET FUND
- --------------------------------------------------------------------------------------
1 year 3 years 5 years 10 years
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
An investor would pay the following
expenses on a $1,000 investment
assuming (1) 5% annual return and (2)
redemption at the end of each time period: $6 $20 $35 $79
</TABLE>
CLASS B
- -------------------------------------------------------------------------------
THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. The purpose
of the expense table and example is to assist the investor in understanding the
various costs and expenses that may be directly or indirectly borne by
shareholders of the Portfolio. The information set forth in the foregoing table
and example relates only to the Class B shares. Additional information may be
found under "The Adviser" and "The Administrator."
Long-term Class B shareholders may eventually pay more than the economic
equivalent of the maximum front-end sales charges otherwise permitted by the
Conduct Rules of the National Association of Securities Dealers, Inc. (the
"NASD").
4
<PAGE>
FINANCIAL HIGHLIGHTS THE ADVISORS' INNER CIRCLE FUND
The following information on Class B shares of the AIG Money Market Fund has
been audited by Arthur Andersen LLP, the Fund's independent public accountants,
as indicated in their report dated December 12, 1997 on the Fund's financial
statements as of October 31, 1997. This table should be read in conjunction with
the Fund's audited financial statements and notes thereto. The Portfolio's
financial statements are contained in the Annual Report to Shareholders, which
is available without charge by calling 1-800-249-7445.
For a Class B share of the Portfolio Outstanding Throughout the Period:
<TABLE>
<CAPTION>
AIG
Money Market
Fund
- ------------------------------------------------------------------------------------------
11/01/96 11/01/95 2/16/95(1)
to to to
10/31/97 10/31/96 10/31/95
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD . . . . $1.00 $1.00 $1.00
- -----------------------------------------------------------------------------------------
Income From Investment Operations:
Net Investment Income . . . . . . . . . 0.05 0.05 0.04
- -----------------------------------------------------------------------------------------
Total From Investment Operations . . . . . . 0.05 0.05 0.04
- -----------------------------------------------------------------------------------------
Less Distributions:
Distributions From Net Investment Income . . (0.05) (0.05) (0.04)
Total Distributions. . . . . . . . . (0.05) (0.05) (0.04)
- -----------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD . . . . . . . $1.00 $1.00 $1.00
- -----------------------------------------------------------------------------------------
TOTAL RETURN . . . . . . . . . . . . . . . . 5.04% 4.89% 5.43%*
- -----------------------------------------------------------------------------------------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End Of Period (000). . . . . . . $108,754 $135,384 $120,482
Ratio Of Expenses To Average Net Assets. . . 0.63% 0.74% 0.75%*
Ratio Of Expenses To Average Net Assets
(Excluding Waivers and Reimbursements) . . . 0.74% 0.77% 0.85%*
Ratio Of Net Investment Income To Average
Net Assets . . . . . . . . . . . . . . . . 4.93% 4.79% 5.18%*
Ratio Of Net Investment Income to Average
Net Assets (Excluding Waivers and
Reimbursements) . . . . . . . . . . . 4.82% 4.76% 5.08%*
- ----------------------------------------------------------------------------------------
</TABLE>
* Annualized
(1) The Class B shares of the AIG Money Market Fund commenced operations
on February 16, 1995.
5
<PAGE>
THE FUND AND THE PORTFOLIO
The Advisors' Inner Circle Fund (the "Fund") offers shares in a number of
separately-managed mutual funds, each of which is a separate series
("portfolio") of the Fund. Each share of each portfolio represents an
undivided, proportionate interest in that portfolio. This Prospectus offers
Class B shares of the Fund's AIG Money Market Fund (the "Portfolio"), a
diversified portfolio. The Portfolio offers two classes of shares (Class A and
Class B) which provide for variations in distribution costs, voting rights and
dividends. Except for these differences, each share of the Portfolio represents
an undivided proportionate interest in the Portfolio. Information regarding the
Class A shares of the Portfolio and the other portfolios in the Fund is
contained in separate prospectuses that may be obtained by calling
1-800-249-7445.
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the Portfolio is to preserve principal value and
maintain a high degree of liquidity while providing current income. It is also
a fundamental policy of the Portfolio to use its best efforts to maintain a
constant net asset value of $1.00 per share. There is no assurance that the
Portfolio 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.
The Portfolio intends to comply with regulations of the Securities and Exchange
Commission (the "SEC") applicable to money market funds using the amortized cost
method for calculating net asset value. These regulations impose certain
quality, maturity and diversification restraints on the Portfolio's investments.
Under these regulations, the Portfolio will invest in only U.S. dollar
denominated securities, will maintain an average maturity on a dollar-weighted
basis of 90 days or less, and will acquire only "eligible securities" that both
present minimal credit risks and have a maturity of 397 days or less. For a
further discussion of these rules, see "Description of Permitted Investments and
Risk Factors -- Restraints on Investments by Money Market Funds."
In seeking its investment objective, the Portfolio 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 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
6
<PAGE>
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 Portfolio 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 Portfolio invests more than 25% of its assets in bank obligations, it will
be exposed to the risks associated with that industry as a whole. The Portfolio
may purchase asset-backed securities rated in the highest NRSRO rating category
at the time of investment. The Portfolio may invest in securities which pay
interest on a variable or floating rate basis. In addition, the Portfolio may
acquire securities on a when-issued basis and may buy securities which are
subject to puts or standby commitments. The Portfolio will not invest more than
10% of its net assets in illiquid securities. The Portfolio reserves the right
to enter into reverse repurchase agreements and engage in securities lending.
The Portfolio will use NRSROs such as Standard & Poor's Corporation and Moody's
Investors Service, Inc. when determining security credit ratings.
For a description of the above ratings and additional information regarding the
Portfolio's permitted investments, see "Description of Permitted Investments and
Risk Factors" in this Prospectus and "Description of Permitted Investments" in
the Statement of Additional Information.
INVESTMENT LIMITATIONS
The investment objective and the investment limitations set forth here and in
the Statement of Additional Information are fundamental policies of the
Portfolio. Fundamental policies cannot be changed without the consent of the
holders of a majority of the Portfolio's outstanding shares.
The Portfolio 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 Portfolio would be invested in the securities of such issuer;
provided, however, that the Portfolio 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 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 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
7
<PAGE>
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;
(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 Portfolio 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 Prospectus and in the Statement of Additional Information.
4. Borrow money, except that the Portfolio 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 Portfolio 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.
The foregoing percentages will apply at the time of the purchase of a security,
except for the percentage limitations specified in paragraph 4 above, which will
apply at all times.
THE ADVISER
AIG Capital Management Corp. (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 Portfolio's investment adviser and 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.
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 Portfolio. The
Adviser has voluntarily agreed to
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waive 10 basis points (.10%) of its fees and to waive additional fees and/or
reimburse certain expenses of the Portfolio to the extent necessary in order
to limit net operating expenses to an annual rate of not more than .75% of
the average daily net assets of the Class B shares of the Portfolio. The
Adviser reserves the right to terminate its waiver or any reimbursements at
any time upon sixty days' notice to the Portfolio in its sole discretion.
For the fiscal year ended October 31, 1997, the Adviser received (after fee
waivers) a fee equal to 0.15% of the Portfolio's average daily net assets.
THE ADMINISTRATOR
SEI Fund Resources (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. The Fund 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; (iii) .06% of average daily net
assets from $250 million up to $450 million; and (iv) .05% of average daily
net assets in excess of $450 million for the first year of the contract. In
the second and third years of the Agreement compensation shall be paid 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 Administrator also serves as shareholder servicing agent for the Portfolio.
THE TRANSFER AGENT
DST Systems, Inc., 1004 Baltimore Street, Kansas City, Missouri 64105 (the
"Transfer Agent") serves as the transfer agent and dividend disbursing agent for
the Fund.
THE DISTRIBUTOR
SEI Investments Distribution Co. (the "Distributor"), Oaks, Pennsylvania 19456,
a wholly-owned subsidiary of SEI Investments Company, serves as the Fund's
distributor pursuant to a distribution agreement (the "Distribution Agreement")
with the Fund which applies to Class A and Class B shares of the Portfolio. The
Class B shares of the Portfolio are subject to a distribution plan (the "Class B
Plan") pursuant to Rule 12b-1 under the Investment Company Act of 1940, as
amended (the "1940 Act"). As provided in the Distribution Agreement and the
Class B Plan, the Portfolio pays an annual fee of .35% of the Class B shares'
average daily net assets to the Distributor as compensation for its services.
From this amount the Distributor and any sub-distributor appointed by the
Distributor may make payments pursuant to written
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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 Fund
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., a wholly-owned subsidiary
of AIG and an affiliate of the Adviser, as sub-distributor and servicing agent
with respect to the Class B shares.
The Portfolio may also execute brokerage or other agency transactions through an
affiliate of the Adviser or through the Distributor for which the affiliate or
the Distributor may receive "usual and customary" compensation.
Certain financial institutions offering shares to their customers may be
required to register as dealers pursuant to federal and state laws.
PURCHASE AND REDEMPTION OF SHARES
Shares of the Portfolio may be purchased by qualified investors by contacting
the Transfer Agent or by calling 1-800-845-3885. Shares of the Portfolio are
offered only to residents of states and other jurisdictions in which the
shares are eligible for purchase. In addition, the Fund has authorized
certain broker-dealers and other financial intermediaries (collectively
"Authorized Broker-Dealers") to act as the Portfolio's agent for the purposes
of accepting purchase orders and redemption requests. The Portfolio will be
deemed to have received a purchase order or redemption request upon receipt
of the order or request by an Authorized Broker-Dealer.
Purchase of shares of the Portfolio may be made on any day when the New York
Stock Exchange and Federal Reserve Bank are open for business (a "Business
Day"). The minimum investment in the Class B shares is $25,000; however, the
minimum investment may be waived at the Distributor's discretion. There is
no minimum for subsequent purchases.
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PURCHASES BY WIRE TRANSFER
INITIAL PURCHASES: Before making an initial investment by wire, an investor
must first telephone 1-800-845-3885 to be assigned an account number. The
investor's name, account number, taxpayer identification number or Social
Security number, and address must be specified in the wire. In addition, an
Account Application should be promptly forwarded to the Transfer Agent at: The
Advisors' Inner Circle Fund, P.O. Box 419009, Kansas City, Missouri 64141-6009.
Shareholders having an account with a commercial bank that is a member of the
Federal Reserve System may purchase shares of the Portfolio by requesting their
bank to transmit funds by wire to: United Missouri Bank, N.A.; ABA
#10-10-00695; for Account Number 9870600404; Further Credit: AIG Money Market
Fund. The shareholder's name and account number must be specified in the wire.
SUBSEQUENT PURCHASES: Additional investments may be made at any time through
the wire procedures described above, which must include the shareholder's name
and account number. The investor's bank may impose a fee for investments by
wire.
GENERAL INFORMATION REGARDING PURCHASES
A purchase order for Class B shares will be effective as of the Business Day
received by the Transfer Agent if the Transfer Agent receives an order prior to
1:00 p.m. Eastern time and receives federal funds before 3:00 p.m. Eastern time.
However, an order for Class B shares may be canceled if federal funds are not
received before 3:00 p.m. on the same Business Day. Purchases may not be made
by check. The purchase price for shares is the net asset value per share next
determined after a purchase order has been received by the Transfer Agent and
becomes effective.
The Portfolio reserves the right to reject an account application or a purchase
order when the Distributor or Transfer Agent determines that it is not in the
best interest of the Fund and/or its shareholders to accept such application or
purchase order.
REDEMPTIONS
Redemption orders received by the Transfer Agent prior to 1:00 p.m. Eastern time
on any Business Day will be effective that day. The redemption price of shares
is the net asset value per share of the Portfolio next determined after an
effective redemption order, in good form, is received. Shares redeemed will not
receive the dividends declared on that day. Payment on redemption will be made
as promptly as possible and, in any event, within seven days after the
redemption order is received. Shareholders may not close their accounts by
telephone.
Shareholders may receive redemption payments in the form of a check or by
Federal Reserve transfer or Automatic Clearing House ("ACH") wire transfer.
There is no charge for having a
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check for redemption proceeds mailed. The custodian will deduct a wire
charge, currently $10.00, from the amount of a Federal Reserve wire
redemption payment made at the request of a shareholder, except that certain
institutions may be exempt from this charge. Shareholders cannot redeem
shares of the Portfolio by Federal Reserve wire on federal holidays
restricting wire transfers. The Portfolio does not charge for ACH wire
transfers; however, such transactions will not be posted to a shareholder's
bank account until the second Business Day following the transaction.
Shareholders are granted telephone redemption privileges automatically. Neither
the Fund nor the Transfer Agent will be responsible for the authenticity of the
redemption instructions received by telephone if it reasonably believes those
instructions are genuine. The Fund and the Transfer Agent will each employ
reasonable procedures to confirm that telephone instructions are genuine, and
may be liable for losses resulting from unauthorized or fraudulent telephone
transactions if it does not employ those procedures. Such procedures may include
taping of telephone conversations.
CALCULATION OF NET ASSET VALUE
Net asset value per share of the Portfolio is determined as of the earlier
of 2:00 p.m. Eastern time or the close of regular trading on the New York
Stock Exchange on each Business Day, based on the amortized cost method
described in the Statement of Additional Information. No certificates
representing shares will be issued. The net asset value per share of the
Portfolio is determined by dividing the total market value of the Portfolio's
investments using amortized cost valuations, and other assets, less any
liabilities, by the total number of outstanding shares of the Portfolio.
PERFORMANCE
From time to time the Portfolio advertises its "current yield", "effective
yield" and total return. Both yield figures are based on historical earnings
and are not intended to indicate future performance. No representation can
be made concerning actual future yields. The "current yield" of the
Portfolio refers to the income generated by an investment in the Portfolio
over a stated seven-day period (which period will be stated in the
advertisement). This income is then "annualized." That is, the amount of
income generated by the investment during that week is assumed to be
generated each week over a 52-week period and is shown as a percentage of the
investment. The "effective yield" (also called "effective compound yield")
is calculated similarly but, when annualized, the income earned by an
investment in the Portfolio is assumed to be reinvested. The "effective
yield" will be slightly higher than the "current yield" because of the
compounding effect of this assumed reinvestment. Total return represents the
change, over a specified period of time, in the value of an investment in the
Portfolio after reinvesting all income distributions. It is calculated by
dividing that change by the initial investment and is expressed as a
percentage. 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 separately
for the Class A and Class B shares.
The Portfolio may periodically compare its performance to the performance of
other mutual funds tracked by mutual fund rating services, broad groups of
comparable mutual funds
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or unmanaged indices which may assume investment of dividends but generally
do not reflect deductions for administrative and management costs.
TAXES
The following summary of certain federal income tax consequences is based on
current tax laws and regulations, which may be changed by legislative, judicial
or administrative action.
No attempt has been made to present a detailed explanation of the federal, state
or local income tax treatment of the Portfolio or its shareholders.
Accordingly, shareholders are urged to consult their tax advisers regarding
specific questions as to federal, state and local income taxes.
TAX STATUS OF THE PORTFOLIO
The Portfolio is treated as a separate entity for federal income tax purposes
and is not combined with the Fund's other portfolios. The Portfolio intends to
continue to qualify for the special tax treatment afforded regulated investment
companies as defined under Subchapter M of the Internal Revenue Code of 1986, as
amended. So long as the Portfolio qualifies for this special tax treatment, it
will be relieved of federal income tax on that part of its net investment income
and net capital gain (the excess of net long-term capital gain over net
short-term capital loss) that it distributes to shareholders.
TAX STATUS OF DISTRIBUTIONS
The Portfolio will distribute all of its net investment income (including, for
this purpose, net short-term capital gain) to shareholders. Dividends from net
investment income will be taxable to shareholders as ordinary income whether
received in cash or in additional shares. Although the Portfolio does not
expect to recognize any long-term capital gains, any dividends from net capital
gain (the excess of net long-term capital gain over net short-term capital loss)
will be treated as gain from the sale of a capital asset held for more than one
year, regardless of how long the shareholders have held their shares.
Generally, distributions from the Portfolio are taxable to shareholders when
they are paid. However, dividends declared by the Portfolio in October,
November or December of any year and payable to shareholders of record on a date
in one of those months will be deemed to have been paid by the Portfolio and
received by the shareholders on December 31 of that year, if paid by the
Portfolio at any time during the following January.
The Portfolio will inform shareholders annually of the federal income tax status
of all distributions. Corporate shareholders should note that Portfolio
distributions will not qualify for the dividends-received deduction that is
generally available to corporate taxpayers.
Income received on direct United States Government obligations is exempt from
income tax at the state level when received directly and may be exempt,
depending on the state, when received
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by a shareholder from the Portfolio provided certain state-specific
conditions are satisfied. Interest received on repurchase agreements
normally is not exempt from state taxation. The Portfolio will inform
shareholders annually of the percentage of income and distributions derived
from direct United States Government obligations. Shareholders should
consult their tax advisers to determine whether any portion of the income
dividends received from the Portfolio is considered tax exempt in their
particular state.
The Portfolio intends to make sufficient distributions prior to the end of each
calendar year to avoid liability for federal excise tax.
A sale, exchange or redemption of the Portfolio's shares is a taxable event to
the shareholder.
Income derived by the Portfolio from securities of foreign issuers may be
subject to foreign withholding taxes. The Portfolio will not be able to elect
to treat shareholders as having paid their proportionate share of such foreign
taxes.
Additional information concerning taxes is set forth in the Statement of
Additional Information.
GENERAL INFORMATION
THE FUND
The Fund, an open-end management investment company, was organized under
Massachusetts law as a business trust under a Declaration of Trust dated July
18, 1991. The Declaration of Trust permits the Fund to offer separate series
("portfolios") and classes of shares. All consideration received by the Fund
for shares of any portfolio and all assets of such portfolio belong to that
portfolio and are subject to liabilities related thereto. The Fund reserves the
right to create and issue shares of additional portfolios.
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 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.
Expenses not attributable to a specific portfolio are allocated across all of
the portfolios on the basis of relative net assets.
TRUSTEES 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.
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VOTING RIGHTS
Each share held entitles the shareholder of record to one vote. The
shareholders of each class of the Portfolio will vote separately on matters
relating solely to that class. The Portfolio will vote separately on matters
relating solely to it. As a Massachusetts business trust, the Fund is not
required, and does not intend, to hold annual meetings of shareholders.
Shareholder approval will be sought, however, for certain changes in the
operation of the Fund and for the election of Trustees under certain
circumstances.
In addition, a Trustee may be removed by the remaining Trustees or by
shareholders at a special meeting called upon written request of shareholders
owning at least 10% of the outstanding shares of the Fund. In the event that
such a meeting is requested, the Fund will provide appropriate assistance and
information to the shareholders requesting the meeting.
As of February 2, 1998, NUF/Machine Deductible owned a controlling interest in
the Class B Shares of the Portfolio as defined by the Investment Company Act of
1940.
REPORTING
The Fund issues unaudited financial information semiannually and audited
financial statements annually for the Portfolio. The Fund also furnishes
periodic reports and, as necessary, proxy statements to shareholders of record.
SHAREHOLDER INQUIRIES
Shareholder inquiries should be directed to AIG Money Market Fund, c/o The
Advisors' Inner Circle Fund, P.O. Box 419009, Kansas City, Missouri 64141-6009
or by calling 1-800-249-7445. Purchase and redemption transactions should be
made through the Transfer Agent by calling 1-800-845-3885.
DIVIDENDS AND DISTRIBUTIONS
The Portfolio declares dividends of substantially all of its net investment
income (exclusive of capital gains) daily and distributes such dividends
monthly. Shares purchased normally begin earning dividends on the Business Day
on which the purchase order relating to such share purchase is effective. If
any capital gain is realized, substantially all of it will be distributed at
least annually.
Shareholders automatically receive all income dividends and capital gain
distributions in additional shares, unless the shareholder has elected to take
such payment in cash. Shareholders may change their election by providing
written notice to the Transfer Agent at least 15 days prior to the distribution.
Shareholders may receive payments for cash distributions in the form of a check
or by Federal Reserve or ACH wire transfer.
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COUNSEL AND INDEPENDENT PUBLIC ACCOUNTANTS
Morgan, Lewis & Bockius LLP serves as counsel to the Fund. Arthur Andersen LLP
serves as the independent public accountants of the Fund.
CUSTODIAN
CoreStates Bank, N.A., Broad and Chestnut Streets, P.O. Box 7618, Philadelphia,
Pennsylvania 19101 acts as custodian (the "Custodian") of the Fund. The
Custodian holds cash, securities and other assets of the Fund as required by the
1940 Act.
DESCRIPTION OF PERMITTED INVESTMENTS AND RISK FACTORS
The following is a description of permitted investments for the Portfolio, and
the associated risk factors:
ASSET-BACKED SECURITIES -- Asset-backed securities are secured by non-mortgage
assets such as company receivables, truck and auto loans, leases and credit card
receivables. Such securities are generally issued as pass-through certificates,
which represent undivided fractional ownership interests in the underlying pools
of assets. Such securities also may be debt instruments, which are also known
as collateralized obligations and are generally issued as the debt of a special
purpose entity, such as a trust, organized solely for the purpose of owning such
assets and issuing such debt.
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.
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 Portfolio's books.
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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 the
Portfolio obtains a security and simultaneously commits to return the security
to the seller at an agreed upon price on an agreed upon date within a number of
days from the date of purchase. The Custodian will hold the security as
collateral for the repurchase agreement. The Portfolio bears a risk of loss in
the event the other party defaults on its obligations and the Portfolio is
delayed or prevented from exercising its right to dispose of the collateral or
if the Portfolio realizes a loss on the sale of the collateral. The Portfolio
will enter into repurchase agreements only with financial institutions deemed to
present minimal risk of bankruptcy during the term of the agreement based on
established guidelines. Repurchase agreements are considered loans under the
1940 Act.
RESTRICTED SECURITIES -- Restricted securities are securities that may not be
sold freely to the public absent registration under the Securities Act of 1933
or an exemption from registration.
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.
REVERSE REPURCHASE AGREEMENTS -- Reverse repurchase agreements are agreements by
which the Portfolio sells securities to financial institutions and
simultaneously agrees to repurchase those securities at a mutually agreed-upon
date and price. At the time a Portfolio enters into a reverse repurchase
agreement, the Portfolio will place liquid assets having a value equal to the
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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 Portfolio may decline
below the price at which the Portfolio is obligated to repurchase the
securities. Reverse repurchase agreements are considered to be borrowings by
the Portfolio under the 1940 Act.
STANDBY COMMITMENTS AND PUTS -- Securities subject to standby commitments or
puts permit the holder thereof to sell the securities at a fixed price prior to
maturity. Securities subject to a standby commitment or put may be sold at any
time at the current market price. However, unless the standby commitment or put
was an integral part of the security as originally issued, it may not be
marketable or assignable; therefore, the standby commitment or put would only
have value to the Portfolio owning the security to which it relates. In certain
cases, a premium may be paid for a standby commitment or put, which premium will
have the effect of reducing the yield otherwise payable on the underlying
security. The Portfolio will limit standby commitment or put transactions to
institutions believed to present minimal credit risk.
SECURITIES LENDING -- In order to generate additional income, the Portfolio may
lend securities which it owns pursuant to agreements requiring that the loan be
continuously secured by collateral consisting of cash or securities of the U.S.
Government or its agencies equal to at least 100% of the market value of the
securities lent. The Portfolio continues to receive interest on the securities
lent while simultaneously earning interest on the investment of cash collateral.
Collateral is marked to market daily. There may be risks of delay in recovery
of the securities or even loss of rights in the collateral should the borrower
of the securities fail financially or become insolvent.
SECURITIES OF FOREIGN ISSUERS -- There are certain risks connected with
investing in securities of foreign issuers. 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.
STRIPPED GOVERNMENT SECURITIES -- The Portfolio 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 Portfolio 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
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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 SECURITIES -- Obligations issued or guaranteed by
agencies of the U.S. Government include, 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
include, among others, the Federal Home Loan Mortgage Corporation, the Federal
Land Banks and the U.S. Postal Service. Some of these securities are supported
by the full faith and credit of the U.S. Treasury, others are supported by the
right of the issuer to borrow from the Treasury, while still others are
supported only by the credit of the instrumentality. Guarantees of principal by
agencies or instrumentalities of the U.S. Government may be a guarantee of
payment at the maturity of the obligation so that in the event of a default
prior to maturity there might not be a market and thus no means of realizing on
the obligation prior to maturity. Guarantees as to the timely payment of
principal and interest do not extend to the value or yield of these securities
nor to the value of the Portfolio's shares.
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 Portfolio 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 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.
19
<PAGE>
20
<PAGE>
TABLE OF CONTENTS
SUMMARY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
EXPENSE SUMMARY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4
FINANCIAL HIGHLIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
THE FUND AND THE PORTFOLIO . . . . . . . . . . . . . . . . . . . . . . . . . .6
INVESTMENT OBJECTIVE AND POLICIES. . . . . . . . . . . . . . . . . . . . . . .6
INVESTMENT LIMITATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
THE ADVISER. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
THE ADMINISTRATOR. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9
THE TRANSFER AGENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9
THE DISTRIBUTOR. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9
PURCHASE AND REDEMPTION OF SHARES. . . . . . . . . . . . . . . . . . . . . . 10
PERFORMANCE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
TAXES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
GENERAL INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
DESCRIPTION OF PERMITTED INVESTMENTS AND RISK FACTORS. . . . . . . . . . . . 16
21
<PAGE>
Fund:
THE ADVISORS' INNER CIRCLE FUND
Portfolio:
AIG MONEY MARKET FUND
Adviser:
AIG CAPITAL MANAGEMENT CORP.
Distributor:
SEI INVESTMENTS DISTRIBUTION CO.
Sub-Distributor:
AIG EQUITY SALES CORP.
Administrator:
SEI FUND RESOURCES
Legal Counsel:
MORGAN, LEWIS & BOCKIUS LLP
Independent Public Accountants:
ARTHUR ANDERSEN LLP
February 27, 1998
<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 "Portfolio").
It is intended to provide additional information regarding the activities and
operations of The Advisors' Inner Circle Fund (the "Fund") and the Portfolio.
This Statement of Additional Information should be read in conjunction with the
Portfolio's Prospectuses dated February 27, 1998, as amended or supplemented
from time to time. A copy of the Prospectuses for the Class A and Class B
shares of the Portfolio may be obtained by calling 1-800-249-7445.
<TABLE>
TABLE OF CONTENTS
<S> <C>
THE FUND . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-2
DESCRIPTION OF PERMITTED INVESTMENTS . . . . . . . . . . . . . . . . . . . S-2
INVESTMENT LIMITATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . S-3
THE ADVISER. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-4
THE ADMINISTRATOR. . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-5
THE DISTRIBUTOR. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-6
TRUSTEES AND OFFICERS OF THE FUND. . . . . . . . . . . . . . . . . . . . . S-7
PERFORMANCE INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . S-10
PURCHASE AND REDEMPTION OF SHARES. . . . . . . . . . . . . . . . . . . . . S-11
DETERMINATION OF NET ASSET VALUE . . . . . . . . . . . . . . . . . . . . . S-12
TAXES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-13
PORTFOLIO TRANSACTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . S-15
DESCRIPTION OF SHARES. . . . . . . . . . . . . . . . . . . . . . . . . . . S-17
SHAREHOLDER LIABILITY. . . . . . . . . . . . . . . . . . . . . . . . . . . S-18
LIMITATION OF TRUSTEES' LIABILITY. . . . . . . . . . . . . . . . . . . . . S-18
5% SHAREHOLDERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-18
EXPERTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-19
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . S-19
APPENDIX . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-1
</TABLE>
February 27, 1998
AIG-F-003-05
S-1
<PAGE>
THE FUND
This Statement of Additional Information relates only to the AIG Money Market
Fund (the "Portfolio"). The Portfolio is a separate series of The Advisors'
Inner Circle Fund (the "Fund"), an open-end management investment company,
established under Massachusetts law as a Massachusetts business trust under a
Declaration of Trust dated July 18, 1991. The Declaration of Trust permits the
Fund to offer separate series ("portfolios") of shares of beneficial interest
("shares"). Shares of the Portfolio may be purchased through two separate
classes (Class A and Class B) which provide for variations in distribution fees,
voting rights and dividends. Except for these differences, each share of the
Portfolio represents an equal proportionate interest in the Portfolio. See
"Description of Shares." No investment in shares of the Portfolio should be
made without first reading the applicable Prospectus of the Portfolio.
Capitalized terms not defined herein are defined in the Prospectuses.
DESCRIPTION OF PERMITTED INVESTMENTS
The following sets forth certain information as a supplement to the "Investment
Objective and Policies" and "Description of Permitted Investments and Risk
Factors" sections of the Prospectuses.
ASSET-BACKED SECURITIES - The Portfolio may invest in asset-backed securities
secured by assets including company receivables, truck and auto loans, leases
and credit card receivables. The Portfolio may invest in other asset-backed
securities that may be created in the future if the Adviser determines they are
suitable. These issues may be traded over-the-counter and typically have a
short-intermediate maturity structure depending on the paydown characteristics
of the underlying financial assets which are passed through to the security
holder.
Asset-backed securities are not issued or guaranteed by the U.S. Government, its
agencies or instrumentalities; however, the payment of principal and interest on
such obligations may be guaranteed up to certain amounts and for a certain
period by a letter of credit issued by a financial institution (such as a bank
or insurance company) unaffiliated with the issuers of such securities. The
purchase of asset-backed securities raises risk considerations peculiar to the
financing of the instruments underlying such securities. For example, there is
a risk that another party could acquire an interest in the obligations superior
to that of the holders of the asset-backed securities. There also is the
possibility that recoveries on repossessed collateral may not, in some cases, be
available to support payments on those securities. Asset-backed securities
entail prepayment risk, which may vary depending on the type of asset, but is
generally less than the prepayment risk associated with collateralized mortgage
obligations ("CMOs"). In addition, credit card receivables are unsecured
obligations of the card holder.
SECURITIES OF FOREIGN GOVERNMENTS - The Portfolio may invest in U.S. dollar
denominated obligations of foreign governments. These instruments may subject
the Portfolio to investment risks that differ in some respects from those
related to investments in obligations of U.S. domestic issuers.
S-2
<PAGE>
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.
Certain UNITED STATES GOVERNMENT AGENCIES have been established as
instrumentalities of the United States Government to supervise and finance
certain types of activities. Agencies of the United States Government which
issue such obligations consist of, among others, the Export Import Bank of
the United States, Farmers Home Administration, Federal Farm Credit Bank,
Federal Housing Administration, Government National Mortgage Association
("GNMA"), Maritime Administration, Small Business Administration, and the
Tennessee Valley Authority. Obligations of instrumentalities of the United
States Government include securities issued by, among others, Federal Home
Loan Banks, Federal Home Loan Mortgage Corporation, Federal Intermediate
Credit Banks, Federal Land Banks, Fannie Mae and the United States Postal
Service. Some of these securities are supported by the full faith and credit
of the United States Treasury. Others are supported by the right of the
issuer to borrow from the Treasury and still others are supported only by the
credit of the instrumentality. Guarantees of principal by agencies or
instrumentalities of the United States Government may be a guarantee of
payment at the maturity of the obligation so that in the event of a default
prior to maturity there might not be a market and thus no means of realizing
the value of the obligation prior to maturity.
INVESTMENT LIMITATIONS
In addition to the limitations listed in the "Investment Limitations" section in
the Prospectuses, the Portfolio may not:
1. Acquire more than 5% of the voting securities of any one issuer.
S-3
<PAGE>
2. Invest in companies for the purpose of exercising control.
3. Pledge, mortgage or hypothecate assets except to secure temporary
borrowings as disclosed in the fundamental policies described in the
Prospectuses in aggregate amounts not to exceed 10% of total assets taken
at current value at the time of the incurrence of such loan.
4. Purchase or sell real estate, real estate limited partnership interests,
futures contracts, commodities or commodities contracts and interests in a
pool of securities that are secured by interests in real estate. However,
subject to the permitted investments of the Portfolio, it may invest in
municipal securities or other marketable obligations secured by real estate
or interests therein.
5. Make short sales of securities, maintain a short position or purchase
securities on margin, except that the Portfolio may obtain short-term
credits as necessary for the clearance of security transactions.
6. Act as an underwriter of securities of other issuers except as it may be
deemed an underwriter in selling the Portfolio security.
7. Purchase securities of other investment companies except as permitted by
the 1940 Act and the rules and regulations thereunder.
8. Issue senior securities (as defined in the 1940 Act) except in connection
with permitted borrowings as described above or as permitted by rule,
regulation or order of the SEC.
9. Purchase or retain securities of an issuer if, to the knowledge of the
Portfolio, an officer, trustee, partner or director of the Fund or any
investment adviser of the Portfolio owns beneficially more than 0.5% of the
shares or securities of such issuer and all such officers, trustees,
partners and directors owning more than 0.5% of such shares or securities
together own more than 5% of such shares or securities.
10. Invest in interests in oil, gas or other mineral exploration or development
programs and oil, gas or mineral leases.
11. Write puts, calls, options or combinations thereof or invest in warrants.
The foregoing percentages will apply at the time of the purchase of a security.
THE ADVISER
The Fund and AIG Capital Management Corp. (the "Adviser") have entered into an
advisory agreement dated November 21, 1994 (the "Advisory Agreement"). The
Advisory Agreement provides that the Adviser shall not be protected against any
liability to the Fund or its shareholders
S-4
<PAGE>
by reason of willful misfeasance, bad faith or gross negligence on its part
in the performance of its duties or from reckless disregard of its
obligations or duties thereunder.
For the fiscal period ended October 31, 1995 and the fiscal years ended October
31, 1996 and October 31, 1997, the Adviser was paid advisory fees of $548,035,
$1,023,856 and $689,323, respectively, and waived advisory fees of $243,994,
$81,307, and $459,559, respectively, with respect to the Portfolio.
The continuance of the Advisory Agreement must be specifically approved at least
annually (i) by the vote of the Trustees or by a vote of the shareholders of the
Portfolio, and (ii) by the vote of a majority of the Trustees who are not
parties to the Agreement or "interested persons" of any party thereto, cast in
person at a meeting called for the purpose of voting on such approval. The
Advisory Agreement will terminate automatically in the event of its assignment,
and is terminable at any time without penalty by the Trustees of the Fund or,
with respect to the Portfolio, by a majority of the outstanding shares of the
Portfolio, on not less than 30 days' nor more than 60 days' written notice to
the Adviser, or by the Adviser on 90 days' written notice to the Fund.
THE ADMINISTRATOR
The Fund and SEI Fund Resources (the "Administrator") have entered into an
administration agreement (the "Administration Agreement"). The Administration
Agreement provides that the Administrator shall not be liable for any error of
judgment or mistake of law or for any loss suffered by the Fund in connection
with the matters to which the Administration Agreement relates, except a loss
resulting from willful misfeasance, bad faith or gross negligence on the part of
the Administrator in the performance of its duties or from reckless disregard by
it of its duties and obligations thereunder. For the fiscal period ended
October 31, 1995 and the fiscal years ended October 31, 1996 and October 31,
1997, the Administrator received a fee of $331,829, $411,405 and $326,095,
respectively, from the Portfolio. The Administrator waived $13,365 and $56,655,
respectively, of fees for the fiscal years ended October 31, 1996 and October
31, 1997.
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 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,
S-5
<PAGE>
Bishop Street Funds, Boston 1784 Funds-Registered Trademark-, CoreFunds,
Inc., CrestFunds, Inc., CUFUND, The Expedition Funds, FMB Funds, Inc., First
American Funds, Inc., First American Investment Funds, Inc., First American
Strategy Funds, Inc., HighMark Funds, Marquis Funds-Registered Trademark-,
Monitor Funds, Morgan Grenfell Investment Trust, The PBHG Funds, Inc., PBHG
Insurance Series Fund, Inc., The Pillar Funds, Rembrandt Funds-Registered
Trademark-, Santa Barbara Group of Mutual Funds, Inc., SEI Asset Allocation
Trust, SEI Daily Income Trust, SEI Index Funds, SEI Institutional Investments
Trust, SEI Institutional Managed Trust, SEI International Trust, SEI Liquid
Asset Trust, SEI Tax Exempt Trust, STI Classic Funds, STI Classic Variable
Trust, TIP Funds and TIP Institutional Funds.
THE DISTRIBUTOR
SEI Investments Distribution Co. (the "Distributor"), a wholly-owned subsidiary
of SEI Investments, and the Fund are parties to a distribution agreement dated
November 14, 1991 ("Distribution Agreement") which applies to both Class A and
Class B shares of the Portfolio.
The Distribution Agreement is renewable annually. The Distribution Agreement
may be terminated by the Distributor, by a majority vote of the Trustees who are
not interested persons and have no financial interest in the Distribution
Agreement or by a majority of the outstanding shares of the Fund upon not more
than 60 days' written notice by either party or upon assignment by the
Distributor. The Distributor does not receive compensation for distribution of
Class A shares of the Portfolio. Class B shares are subject to the terms of a
distribution plan dated August 8, 1994 (the "Class B Plan").
CLASS B PLAN
The Distribution Agreement and the Class B Plan adopted by the sole initial
shareholder of the Class B shares provide that the Class B shares of the
Portfolio will pay the Distributor a fee of .35% of the average daily net assets
of the Class B shares which the Distributor may use to compensate broker-dealers
and service providers, including the Adviser and its affiliates which provide
administrative and/or distribution services to the Class B Shareholders or their
customers who beneficially own Class B shares. The Distributor has appointed
AIG Equity Sales Corp. (the "Sub-Distributor"), a wholly-owned subsidiary of AIG
and an affiliate of the Adviser, as sub-distributor and servicing agent with
respect to the Class B shares of the Portfolio.
The Fund has adopted the Class B Plan in accordance with the provisions of
Rule 12b-1 under the 1940 Act, which regulates circumstances under which an
investment company may directly or indirectly bear expenses relating to the
distribution of its shares. Continuance of the Class B Plan must be approved
annually by a majority of the Trustees of the Fund and by a majority of the
Trustees who are not parties to the Distribution Agreement or interested
persons (as defined by the 1940 Act) of any party to the Distribution
Agreement ("Qualified Trustees"). The Class B Plan requires that quarterly
written reports of amounts spent under the Class B Plan and the purposes of
such expenditures be furnished to and reviewed by the Trustees. The Class B
Plan may not be amended to increase materially the amount which may be spent
thereunder without approval by a majority of
S-6
<PAGE>
the outstanding Class B shares of the Portfolio. All material amendments of
the Plan will require approval by a majority of the Trustees of the Fund and
of the Qualified Trustees.
For the fiscal years ended October 31, 1996 and October 31, 1997, the
Distributor received from the Portfolio, pursuant to the Class B Plan,
distribution fees in the amount of $397,438 and $419,962, 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.
TRUSTEES AND OFFICERS OF THE FUND
The management and affairs of the Fund are supervised by the Trustees under the
laws of the Commonwealth of Massachusetts. The Fund pays the fees for
unaffiliated Trustees.
The Trustees and Executive Officers of the Fund, their respective dates of
birth, and their principal occupations for the last five years are set forth
below. Each may have held other positions with 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,
Bishop Street Funds, Boston 1784 Funds-Registered Trademark-, CoreFunds,
Inc., CrestFunds, Inc., CUFUND, The Expedition Funds, FMB Funds, Inc., First
American Funds, Inc., First American Investment Funds, Inc., First American
Strategy Funds, Inc., HighMark Funds, Marquis Funds-Registered Trademark-,
Monitor Funds, Morgan Grenfell Investment Trust, The PBHG Funds, Inc., PBHG
Insurance Series Fund, Inc., The Pillar Funds, Santa Barbara Group of Mutual
Funds, Inc., SEI Asset Allocation Trust, SEI Daily Income Trust, SEI Index
Funds, SEI Institutional Investments Trust, SEI Institutional Managed Trust,
SEI International Trust, SEI Liquid Asset Trust, SEI Tax Exempt Trust, STI
Classic Funds, STI Classic Variable Trust, TIP Funds and TIP Institutional
Funds, open-end management investment companies which are managed by SEI Fund
Resources or its affiliates and, except for Santa Barbara Group of Mutual
Funds, Inc., are distributed by SEI Investments Distribution Co.
ROBERT A. NESHER (DOB 08/17/46) -- Chairman of the Board of Trustees*
- --Currently performs various services on behalf of SEI Investments for which
Mr. Nesher is compensated. Executive Vice President of SEI Investments,
1986-1994. Director and Executive Vice President of the Administrator and the
Distributor, 1981-1994. Trustee of The Advisors' Inner Circle Fund, The
Arbor Fund, Boston 1784 Funds-Registered Trademark-, The Expedition Funds,
Marquis Funds-Registered Trademark-, Pillar Funds, Rembrandt Funds-Registered
Trademark-, SEI Asset Allocation Trust, SEI Daily Income Trust, SEI Index
Funds, SEI Institutional Investments Trust, SEI Institutional Managed Trust,
SEI International Trust, SEI Liquid Asset Trust and SEI Tax Exempt Trust.
JOHN T. COONEY (DOB 01/20/27) -- Trustee** -- Retired since 1992. Formerly
Vice Chairman of Ameritrust Texas N.A., 1989-1992, and MTrust Corp.,
1985-1989. Trustee of The Advisors' Inner Circle Fund, The Arbor Fund, The
Expedition Funds and Marquis Funds-Registered Trademark-.
S-7
<PAGE>
WILLIAM M. DORAN (DOB 05/26/40) -- Trustee* -- 2000 One Logan Square,
Philadelphia, PA 19103. Partner, Morgan, Lewis & Bockius LLP (law firm),
counsel to the Trust, Administrator and Distributor, Director and Secretary
of SEI Investments. Trustee of The Advisors' Inner Circle Fund, The Arbor
Fund, The Expedition Funds, Marquis Funds-Registered Trademark-, SEI Asset
Allocation Trust, SEI Daily Income Trust, SEI Index Funds, SEI Institutional
Investments Trust, SEI Institutional Managed Trust, SEI International Trust,
SEI Liquid Asset Trust and SEI Tax Exempt Trust.
FRANK E. MORRIS (DOB 12/30/23) -- Trustee** -- Retired since 1990. Peter
Drucker Professor of Management, Boston College, 1989-1990. President,
Federal Reserve Bank of Boston, 1968-1988. Trustee of The Advisors' Inner
Circle Fund, The Arbor Fund, The Expedition Funds, Marquis Funds-Registered
Trademark-, SEI Asset Allocation Trust, SEI Daily Income Trust, SEI Index
Funds, SEI Institutional Investments Trust, SEI Institutional Managed Trust,
SEI International Trust, SEI Liquid Asset Trust and SEI Tax Exempt Trust.
ROBERT A. PATTERSON (DOB 11/05/27) -- Trustee** -- Pennsylvania State
University, Senior Vice President, Treasurer (Emeritus). Financial and
Investment Consultant, Professor of Transportation (1984-present). Vice
President-Investments, Treasurer, Senior Vice President (Emeritus)
(1982-1984). Director, Pennsylvania Research Corp.; Member and Treasurer,
Board of Trustees of Grove City College. Trustee of The Advisors' Inner
Circle Fund, The Arbor Fund, The Expedition Funds, and Marquis
Funds-Registered Trademark-.
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 Advisors' Inner Circle Fund, The Arbor Fund, The Expedition Funds and
Marquis Funds-Registered Trademark-.
JAMES M. STOREY (DOB 04/12/31) -- Trustee** -- Partner, Dechert Price &
Rhoads, from September 1987 - December 1993; Trustee of The Advisors' Inner
Circle Fund, The Arbor Fund, The Expedition Funds, Marquis Funds-Registered
Trademark-, SEI Asset Allocation Trust, SEI Daily Income Trust, SEI Index
Funds, SEI Institutional Investments Trust, SEI Institutional Managed Trust,
SEI International Trust, SEI Liquid Asset Trust and SEI Tax Exempt Trust.
DAVID G. LEE (DOB 04/16/52) -- President and Chief Executive Officer --
Senior Vice President of the Administrator and Distributor since 1993. Vice
President of the Administrator and Distributor, 1991-1993. President, GW
Sierra Trust Funds before 1991.
SANDRA K. ORLOW (DOB 10/18/53) -- Vice President and Assistant Secretary --
Vice President and Assistant Secretary of the Administrator and Distributor
since 1988.
S-8
<PAGE>
KEVIN P. ROBINS (DOB 04/15/61) -- Vice President and Assistant Secretary --
Senior Vice President, General Counsel and Assistant Secretary of SEI
Investments, Senior Vice President, General Counsel and Secretary of the
Administrator and Distributor since 1994. Vice President and Assistant
Secretary of SEI Investments, the Administrator and Distributor, 1992-1994.
Associate, Morgan, Lewis & Bockius LLP (law firm), 1988-1992.
RICHARD W. GRANT (DOB 10/25/45) -- Secretary -- 2000 One Logan Square,
Philadelphia, PA 19103, Partner, Morgan, Lewis & Bockius LLP (law firm), counsel
to the Trust, Administrator and Distributor.
KATHRYN L. STANTON (DOB 11/19/58) -- Vice President and Assistant Secretary--
Deputy General Counselof SEI Investments, Vice President and Assistant Secretary
of the Administrator and Distributor since 1994. Associate, Morgan, Lewis &
Bockius LLP (law firm), 1989-1994.
MARK E. NAGLE (DOB 10/20/59) -- Controller and Chief Financial Officer -- Vice
President of Fund Accounting and Administration of SEI Fund Resources since
November 1996. Vice President of Fund Accounting, BISYS Fund Services,
September 1995 to November 1996. Senior Vice President and Site Manager,
Fidelity Investments, 1981 to September 1995.
TODD B. CIPPERMAN (DOB 02/14/66) -- Vice President and Assistant Secretary --
Vice President and Assistant Secretary of SEI Investments, the Administrator and
the Distributor since 1995. Associate, Dewey Ballantine (law firm) (1994-1995).
Associate, Winston & Strawn (law firm) (1991-1994).
JOSEPH M. O'DONNELL (DOB 11/13/54) -- Vice President and Assistant Secretary
- --Vice President and Assistant Secretary of the Administrator and Distributor
since 1998. Vice President and General Counsel, FPS Services, Inc.,
1993-1997. Staff Counsel and Secretary, Provident Mutual Family of Funds,
1990-1993.
- -------------------
*Messrs. Nesher and Doran are Trustees who may be deemed to be "interested"
persons of the Fund as that term is defined in the 1940 Act.
**Messrs. Cooney, Morris, Patterson, Peters and Storey serve as members of the
Audit Committee of the Fund.
The Trustees and officers of the Fund collectively own less than 1% of the
outstanding shares of the Fund. The Fund pays the fees for unaffiliated
Trustees.
S-9
<PAGE>
The following table exhibits Trustee compensation for the fiscal year ended
October 31, 1997.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
Total Compensation
From Registrant and
Fund Complex* Paid to
Aggregate Compensation From Pension or Retirement Estimated Annual Trustees for the
Registrant for the Fiscal Benefits Accrued as Benefits Upon Fiscal Year Ended
Name of Person, Position Year Ended October 31, 1997 Part of Fund Expenses Retirement October 31, 1997
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
John T. Cooney $8,154 N/A N/A $8,154 for services
on 1 board
- ---------------------------------------------------------------------------------------------------------------------------------
Frank E. Morris $8,154 N/A N/A $8,154 for services
on 1 board
- ---------------------------------------------------------------------------------------------------------------------------------
Robert Patterson $8,154 N/A N/A $8,154 for services
on 1 board
- ---------------------------------------------------------------------------------------------------------------------------------
Eugene B. Peters $8,154 N/A N/A $8,154 for services
on 1 board
- ---------------------------------------------------------------------------------------------------------------------------------
James M. Storey, Esq. $8,154 N/A N/A $8,154 for services
on 1 board
- ---------------------------------------------------------------------------------------------------------------------------------
William 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 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. The yield of the Portfolio refers
to the annualized income generated by an investment in the Portfolio over a
specified 7-day period. The yield is calculated by assuming that the income
generated by the investment during that 7-day period is generated in each
period over one year and is shown as a percentage of the investment. The
"effective yield" is calculated similarly, but when annualized, the income
earned by an investment in the Portfolio is assumed to be reinvested. The
"effective yield" will be slightly higher than the "yield" because of the
compounding effect of this assumed investment. In particular, these yields
will be calculated as follows:
The current yield of the Portfolio will be calculated daily based upon the
seven days ending on the date of calculation ("base period"). The yield is
computed by determining the net change during the period (exclusive of
capital changes) in the value of a hypothetical pre-existing shareholder
account having a balance of one share at the beginning of the period,
subtracting a hypothetical charge reflecting deductions from shareholder
accounts, and dividing such net change by the value of the account at the
beginning of the same period to obtain the base period return and multiplying
the result by (365/7). Realized and unrealized gains and losses are not
included in the calculation of the yield. The effective yield of the
Portfolio is determined by computing the net change during the period,
S-10
<PAGE>
exclusive of capital changes, in the value of a hypothetical pre-existing
account having a balance of one share at the beginning of the period,
subtracting a hypothetical charge reflecting deductions from shareholder
accounts, and dividing the difference by the value of the account at the
beginning of the base period to obtain the base period return, and then
compounding the base period return, according to the following formula:
365/7
Effective Yield = [(Base Period Return + 1) ] - 1.
The current and the effective yields reflect the reinvestment of net income
earned daily on the Portfolio's assets.
For the 7-day period ended October 31, 1997, the end of the Portfolio's most
recent fiscal year, the current and effective yields for Class A shares of the
Portfolio were 5.37% and 5.52%, respectively, and for Class B shares were 5.01%
and 5.14%, respectively.
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 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. Total return is calculated
separately for each class of shares of the Fund.
The total return for Class A Shares of the Fund for the fiscal year ended
October 31, 1997 was 5.41%, and for the period from December 1, 1994
(commencement of operations) through October 31, 1997, the cumulative return
for Class A Shares of the Fund was 16.79%.
The total return for Class B Shares of the Fund for the fiscal year ended
October 31, 1997 was 5.04%, and for the period from February 16, 1995
(commencement of operations) through October 31, 1997, the cumulative return
for Class B Shares of the Fund was 14.36%.
PURCHASE AND REDEMPTION OF SHARES
Purchases and redemptions may be made through the Distributor on a day when the
New York Stock Exchange and Federal Reserve wire system are open for business.
Shares of the Portfolio are offered on a continuous basis. Currently, the
Portfolio is closed for business when the following holidays are observed: New
Year's Day, Martin Luther King Jr. Day, Presidents' Day, Good Friday, Memorial
Day, Independence Day, Labor Day, Columbus Day, Veterans' Day, Thanksgiving and
Christmas.
It is currently the Fund's policy to pay all redemptions in cash. The Fund
retains the right, however, to alter this policy to provide for redemptions in
whole or in part by a distribution in-kind of securities
S-11
<PAGE>
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.
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 net asset value per share of each class of the Portfolio is calculated by
adding the value of securities and other assets, subtracting liabilities and
dividing by the number of outstanding shares. Securities will be valued by the
amortized cost method which involves valuing a security at its cost on the date
of purchase and thereafter (absent unusual circumstances) assuming a constant
amortization to maturity of any discount or premium, regardless of the impact of
fluctuations in general market rates of interest on the value of the instrument.
While this method provides certainty in valuation, it may result in periods
during which a security's value, as determined by this method, is higher or
lower than the price the Portfolio would receive if it sold the instrument.
During periods of declining interest rates, the daily yield of the Portfolio may
tend to be higher than a like computation made by a company with identical
investments utilizing a method of valuation based upon market prices and
estimates of market prices for all of its portfolio securities. Thus, if the
use of amortized cost by the Portfolio resulted in a lower aggregate portfolio
value on a particular day, a prospective investor in the Portfolio would be able
to obtain a somewhat higher yield than would result from investment in a company
utilizing solely market values, and existing investors in the Portfolio would
experience a lower yield. The converse would apply in a period of rising
interest rates.
The use of amortized cost valuation by the Portfolio and the maintenance of the
Portfolio's net asset value at $1.00 are permitted by regulations promulgated by
Rule 2a-7 under the Investment Company Act of 1940 (the "1940 Act"), provided
that certain conditions are met. Under Rule 2a-7 as amended, a money market
portfolio must maintain a dollar-weighted average maturity in the Portfolio of
90 days or less and not purchase any instrument having a remaining maturity of
more than 397 days. In addition, money market funds may acquire only U.S.
dollar denominated obligations that present minimal credit risks and that are
"eligible securities" which means they are (i) rated, at the time of investment,
by at least two nationally recognized statistical rating organizations (one if
it is the only organization rating such obligation) in the highest short-term
rating category or, if unrated, determined to be of comparable quality (a "first
tier security"), or (ii) rated according to the foregoing
S-12
<PAGE>
criteria in the second highest short-term rating category or, if unrated,
determined to be of comparable quality ("second tier security"). The Adviser
will determine that an obligation presents minimal credit risks or that
unrated instruments are of comparable quality in accordance with guidelines
established by the Trustees. In addition, investments in second tier
securities are subject to the further constraints that (i) no more than 5% of
the Portfolio's assets may be invested in such securities in the aggregate,
and (ii) any investment in such securities of one issuer is limited to the
greater of 1% of the Portfolio's total assets or $1 million. The regulations
also require the Trustees to establish procedures which are reasonably
designed to stabilize the net asset value per share at $1.00 for the
Portfolio. However, there is no assurance that the Portfolio will be able to
meet this objective. The Fund's procedures include the determination of the
extent of deviation, if any, of the Portfolio's current net asset value per
unit calculated using available market quotations from the Portfolio's
amortized cost price per share at such intervals as the Trustees deem
appropriate and reasonable in light of market conditions and periodic reviews
of the amount of the deviation and the methods used to calculated such
deviation. In the event that such deviation exceeds 1/2 of 1%, the Trustees
are required to consider promptly what action, if any, should be initiated.
If the Trustees believe that the extent of any deviation may result in
material dilution or other unfair results to Shareholders, the Trustees are
required to take such corrective action as they deem appropriate to eliminate
or reduce such dilution or unfair results to the extent reasonably
practicable. In addition, if the Portfolio incurs a significant loss or
liability, the Trustees have the authority to reduce pro rata the number of
shares of the Portfolio in each Shareholder's account and to offset each
Shareholder's pro rata portion of such loss or lability from the
Shareholder's accrued but unpaid dividends or from future dividends.
The securities of the Portfolio are valued by the Administrator. The
Administrator will use an independent pricing service to obtain valuations of
securities. The pricing service relies primarily on prices of actual market
transactions as well as trader quotations. However, the service may also use a
matrix system to determine valuations, which system considers such factors as
security prices, yields, maturities, call features, ratings and developments
relating to specific securities in arriving at valuations. The procedures of
the pricing service and its valuations are reviewed by the officers of the Fund
under the general supervision of the Trustees.
TAXES
The following is only a summary of certain federal income tax considerations
generally affecting the Portfolio and its shareholders, and is not intended as a
substitute for careful tax planning. Shareholders are urged to consult their
tax advisors with specific reference to their own tax situations, including
their state and local tax liabilities.
S-13
<PAGE>
FEDERAL INCOME TAX
The following discussion of federal income tax consequences is based on the
Internal Revenue Code of 1986 (the "Code") and the regulations issued thereunder
as in effect on the date of this Statement of Additional Information. New
legislation, as well as administrative changes or court decisions, may
significantly change the conclusions expressed herein, and may have a
retroactive effect with respect to the transactions contemplated herein.
The Portfolio intends to qualify as a "regulated investment company" ("RIC")
as defined under Subchapter M of the Code. By following such a policy, the
Portfolio expects to eliminate or reduce to a nominal amount the federal
taxes to which it may be subject.
In order to qualify for treatment as a RIC under the Code, the Portfolio must
distribute annually to its shareholders at least the sum of 90% of its net
interest income excludable from gross income plus 90% of its investment
company taxable income (generally, net investment income plus net short-term
capital gain) ("Distribution Requirement") and also must meet several
additional requirements. Among these requirements are the following: (i) at
least 90% of 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 which
the Portfolio controls or which are engaged in the same, similar or related
trades or business.
Notwithstanding the Distribution Requirement described above, which requires
only that the Portfolio distribute at least 90% of its annual investment
company taxable income and does not require any minimum distribution of net
capital gain (the excess of net long-term capital gain over net short-term
capital loss), the Portfolio will be subject to a nondeductible 4% federal
excise tax to the extent it fails to distribute by the end of any calendar
year 98% of its ordinary income for that year and 98% of its capital gain net
income (the excess of short- and long-term capital gains over short- and
long-term capital losses) for the one-year period ending on October 31 of
that year, plus certain other amounts.
Any gain or loss recognized on a sale or redemption of shares of a Portfolio by
a non-exempt shareholder who is not a dealer in securities generally will be
treated as a long-term capital gain or loss if the shares have been held for
more than eighteen months, will be treated as a mid-term capital gain if the
shares have been held for more than twelve, but not more than eighteen,
S-14
<PAGE>
months and otherwise generally will be treated as a short-term capital gain
or loss. If shares of the Portfolio on which a net capital gain distribution
has been received are subsequently sold or redeemed and such shares have been
held for six months or less, any loss recognized will be treated as a
long-term capital loss to the extent of the long-term capital gain
distribution.
In certain cases, the Portfolio will be required to withhold, and remit to the
United States Treasury, 31% of any distributions paid to a shareholder who (1)
has failed to provide a correct taxpayer identification number, (2) is subject
to backup withholding by the Internal Revenue Service, or (3) has not certified
to the Portfolio that such shareholder is not subject to backup withholding.
If the Portfolio fails to qualify as a RIC for any taxable year, it will be
taxable at regular corporate rates. In such an event, all distributions
(including capital gains distributions) will be taxable as ordinary dividends
to the extent of the Portfolio's current and accumulated earnings and profits
and such distributions will generally be eligible for the corporate
dividends-received deduction.
STATE TAXES
The Portfolio is not liable for any income or franchise tax in Massachusetts if
it qualifies as a RIC for federal income tax purposes. 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
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<PAGE>
executing portfolio securities transactions of the Portfolio will primarily
consist of dealer spreads and underwriting commissions.
The Adviser may, consistent with the interests of the Portfolio, select brokers
on the basis of the research services they provide to the Adviser. Such
services may include analyses of the business or prospects of a company,
industry or economic sector, or statistical and pricing services. Information
so received by the Adviser will be in addition to and not in lieu of the
services required to be performed by the Adviser under the Advisory Agreement.
If, in the judgment of the Adviser, a 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, 1997, the
Portfolio directed no transactions to broker-dealers for research services.
It is expected that the Portfolio may execute brokerage or other agency
transactions through the Distributor, which is a registered broker-dealer, for a
commission in conformity with the 1940 Act, the Securities Exchange Act of 1934
and rules promulgated by the SEC. Under these provisions, the Distributor is
permitted to receive and retain compensation for effecting portfolio
transactions for the Portfolio on an exchange if a written contract is in effect
between the Distributor and the Fund expressly permitting the Distributor to
receive and retain such compensation. These rules further require that
commissions paid to the Distributor by the Portfolio for exchange transactions
not exceed "usual and customary" brokerage commissions. The rules define "usual
and customary" commissions to include amounts which are "reasonable and fair
compared to the commission, fee or other remuneration received or to be received
by other brokers in connection with comparable transactions involving similar
securities being purchased or sold on a securities exchange during a comparable
period of time." The Trustees, including those who are not "interested persons"
of the Fund, have adopted procedures for evaluating the reasonableness of
commissions paid to the Distributor and will review these procedures
periodically.
For the fiscal years ended October 31, 1995, 1996 and 1997, the Portfolio paid
the following brokerage commissions:
S-16
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
Total Brokerage Commissions Amount Paid to SEI Investments(1)
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1995 1996 1997 1995 1996 1997
- -------------------------------------------------------------------------------
$0 $0 $0 $0 $0 $2,260
- -------------------------------------------------------------------------------
</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.
For the fiscal years indicated, the portfolio paid the following brokerage
commissions:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
% of Total % of Total
Total $ Amount of Brokerage Total $ Amount of Brokerage Brokerage
Commissions Paid Brokerage Commissions Commissions Transactions
Paid to Affiliated Brokers Paid to the Effected Through
Affiliated Affiliated
Brokers Brokers
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1995 1996 1997 1995 1996 1997 1997 1997
- ------------------------------------------------------------------------------------------------------
$0 $0 $0 $0 $0 $0 0% 0%
- ------------------------------------------------------------------------------------------------------
</TABLE>
* An asterisk indicates that the portfolio had not commenced operations as of
the period indicated.
Since the Portfolio does not market its shares through intermediary brokers
or dealers, it is not the Fund's practice to allocate brokerage or principal
business on the basis of sales of its shares which may be made through such
firms. However, the Adviser may place portfolio orders with qualified
broker-dealers who recommend the Portfolio'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" (as such term is defined in the 1940 Act), which the
Portfolio has acquired during its most recent fiscal year. As of October 31,
1997, the Portfolio held $19,736,997 of debt securities issued by Merrill
Lynch, $14,995,258 of debt securities issued by UBS Securities, $19,840,533 of
debt securities issued by J.P. Morgan, and $19,970,972 of debt securities
issued by Goldman Sachs.
DESCRIPTION OF SHARES
The Declaration of Trust authorizes the issuance of an unlimited number of
portfolios and different classes of shares of each portfolio, each of which
represents an equal proportionate interest in the portfolio with each other
share. Shares are entitled upon liquidation to a pro rata share in the net
assets of the Portfolio. Shareholders have no preemptive rights. The
Declaration of Trust
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<PAGE>
provides that the Trustees of the Fund may create additional series of shares
divided into different classes. All consideration received by the Fund for
shares of any additional series and all assets in which such consideration is
invested would belong to that series and would be subject to the liabilities
related thereto. Share certificates representing shares will not be issued.
SHAREHOLDER LIABILITY
The Fund is an entity of the type commonly known as a "Massachusetts business
trust." Under Massachusetts law, shareholders of such a trust could, under
certain circumstances, be held personally liable as partners for the obligations
of the trust. Even if, however, the Fund were held to be a partnership, the
possibility of the shareholders incurring financial loss for that reason appears
remote because the Fund's Declaration of Trust contains an express disclaimer of
shareholder liability for obligations of the Fund and requires that notice of
such disclaimer be given in each agreement, obligation or instrument entered
into or executed by or on behalf of the Fund or the Trustees, and because the
Declaration of Trust provides for indemnification out of the Fund property for
any shareholder held personally liable for the obligations of the Fund.
LIMITATION OF TRUSTEES' LIABILITY
The Declaration of Trust provides that a Trustee shall be liable only for his or
her own willful defaults and, if reasonable care has been exercised in the
selection of officers, agents, employees or investment advisers, shall not be
liable for any neglect or wrongdoing of any such person. The Declaration of
Trust also provides that the Fund will indemnify its Trustees and officers
against liabilities and expenses incurred in connection with actual or
threatened litigation in which they may be involved because of their offices
with the Fund unless it is determined in the manner provided in the Declaration
of Trust that they have not acted in good faith in the reasonable belief that
their actions were in the best interests of the Fund. However, nothing in the
Declaration of Trust shall protect or indemnify a Trustee against any liability
for his or her willful misfeasance, bad faith, gross negligence or reckless
disregard of his or her duties.
5% SHAREHOLDERS
As of February 1, 1998, the following persons were the only persons who were
record owners (or to the knowledge of the Fund, beneficial owners) of 5% or more
of each class of the Portfolio's shares.
S-18
<PAGE>
<TABLE>
<CAPTION>
Shareholder Number of Shares %
- ----------- ---------------- -------
<S> <C> <C>
CLASS A:
- --------
AIG Life Insurance -- Investment 314,679,866.5400 48.34%
Transatlantic Reinsurance -- Investment 40,304,118.6400 6.19%
Ernest E. Stempel 37,235,994.6600 5.72%
CLASS B:
- --------
NUF/Machine Deductible 45,681,947.9000 39.30%
National Union Fire Insurance Co. of 7,098,890.7500 6.11%
Pittsburgh PA as Secured Party --
Leased Equipment Reinsurance Co.
Inc. as Pledgor
National Union Fire Insurance Co. 6,318,420.90000 5.44%
of Pittsburgh PA as a Secured Party
Montgomery Ward & Co.
Inc. as Pledgor
</TABLE>
The Fund believes that most of the shares referred to above were held by the
above persons in accounts for their fiduciary, agency or custodial customers.
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, 1997, 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 1997 Annual Report to Shareholders must
accompany the delivery of this Statement of Additional Information.
S-19
<PAGE>
APPENDIX
DESCRIPTION OF RATINGS
The following descriptions are summaries of published ratings.
A-1 - This is Standard & Poor's Corporation ("S&P") 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.
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
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.
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.
A-1
<PAGE>
Paper rated Duff-2 is regarded as having good certainty of timely payment,
good access to capital markets and sound liquidity factors and company
fundamentals. Risk factors are small. The designation A1 by IBCA, Inc.
("IBCA") indicates that the obligation is supported by a very strong capacity
for timely repayment. Those obligations rated A1+ are supported by the
highest capacity for timely repayment. Obligations rated A2 are supported by
a strong capacity for timely repayment, although such capacity may be
susceptible to adverse changes in business, economic or financial conditions.
A-2
<PAGE>
FMC SELECT FUND
Investment Adviser:
FIRST MANHATTAN CO.
This Prospectus offers shares of the FMC Select Fund (the "Fund"), which is a
separate series of The Advisors' Inner Circle Fund (the "Trust").
This Prospectus sets forth concisely the information about the Fund and the
Trust that a prospective investor should know before investing. Investors are
advised to read this Prospectus and retain it for future reference. A Statement
of Additional Information dated February 27, 1998 has been filed with the
Securities and Exchange Commission and is available without charge by calling
1-800-932-7781. The Statement of Additional Information is incorporated into
this Prospectus by reference. The Statement of Additional Information, material
incorporated by reference into this document, and other information regarding
the Trust is maintained electronically with the Securities and Exchange
Commission at its internet web site (http://www.sec.gov).
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
February 27, 1998
FMC-F-001-04
THE ADVISORS' INNER CIRCLE FUND
<PAGE>
SUMMARY
The following provides basic information about the FMC Select Fund (the
"Fund"), one of the mutual funds comprising The Advisors' Inner Circle Fund
(the "Trust"). This summary is qualified in its entirety by reference to the
more detailed information provided elsewhere in this Prospectus and in the
Statement of Additional Information.
WHAT IS THE FUND'S INVESTMENT OBJECTIVE AND POLICIES? The Fund seeks to
obtain a favorable rate of return principally through capital appreciation
and to a limited degree through current income by investing in a portfolio of
equity and fixed income securities, including money market instruments.
WHAT ARE THE RISKS INVOLVED WITH AN INVESTMENT IN THE FUND? An investment in
the Fund entails certain risks and considerations of which investors should
be aware. The Fund invests in equity and fixed income securities that
fluctuate in value, and investors should expect the Fund's net asset value
per share to fluctuate in value. The Fund also may invest in securities that
have speculative characteristics. See "Investment Objective," "General
Investment Policies," "Risk Factors" and "Description of Permitted
Investments and Risk Factors."
WHO IS THE ADVISER? First Manhattan Co. (the "Adviser") serves as the
investment adviser to the Fund. In addition to advising the Fund, the
Adviser provides advisory services to individuals, partnerships, trusts,
pension and other employee benefit plans, and eleemosynary and other
institutions. See "The Adviser."
WHO IS THE ADMINISTRATOR? SEI Fund Resources (the "Administrator") serves as
the administrator and shareholder servicing agent of the Fund. See "The
Administrator."
WHO IS THE TRANSFER AGENT? DST Systems, Inc. (the "Transfer Agent") serves
as the transfer agent and dividend disbursing agent for the Trust. See "The
Transfer Agent."
WHO IS THE DISTRIBUTOR? SEI Investments Distribution Co. (the "Distributor")
serves as the distributor of the Fund's shares. See "The Distributor."
IS THERE A SALES LOAD? No, shares of the Fund are offered on a no-load basis.
IS THERE A MINIMUM INVESTMENT? The Fund requires a minimum initial
investment of $10,000, and subsequent investments must total $1,000 or more.
These minimum purchase requirements may be reduced or waived by the
Distributor or for investors who purchase shares of the Fund through omnibus
accounts maintained by registered broker-dealers who have executed
sub-distribution agreements with the Distributor.
2
<PAGE>
HOW DO I PURCHASE AND REDEEM SHARES? Purchases and redemptions may be made
on any day when the New York Stock Exchange is open for business ("a Business
Day"). A purchase order will be effective as of the Business Day received
by the Fund's Transfer Agent if the Transfer Agent receives an order and
payment by check or with readily available funds prior to the time the Fund
calculates its net asset value (normally, 4:00 p.m., Eastern time). To open
an account using wired funds, you must first call 1-800-808-4921. Redemption
orders placed prior to the time the Fund calculates its net asset value
(normally, 4:00 p.m., Eastern time) on any business day will be effective
that day. The Trust has also authorized certain broker-dealers and other
financial intermediaries to accept purchase orders and redemption requests up
to the times mentioned above on behalf of the Fund. The Fund also offers
both a Systematic Investment Plan and a Systematic Withdrawal Plan. The
purchase and redemption price for shares is the net asset value per share
determined as of the end of the day the order is effective. See "Purchase
and Redemption of Shares."
HOW ARE DISTRIBUTIONS PAID? The Fund distributes substantially all of its
net investment income (exclusive of capital gains) in the form of quarterly
dividends. Any realized capital gain is distributed at least annually.
Distributions of net investment income and capital gains are paid in
additional shares unless the shareholder elects to take the payment in cash.
See "General Information -- Dividends and Distributions."
3
<PAGE>
EXPENSE SUMMARY
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES FMC SELECT FUND
- -------------------------------------------------------------------------------------
<S> <C>
Sales Load Imposed on Purchases. . . . . . . . . . . . . . . . . . . . . . . . . None
Sales Load Imposed on Reinvested Dividends . . . . . . . . . . . . . . . . . . . None
Deferred Sales Load. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . None
Redemption Fees (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . None
Exchange Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . None
- -------------------------------------------------------------------------------------
</TABLE>
(1) A wire redemption charge, currently $10.00, is deducted from the amount of
a Federal Reserve wire redemption payment made at the request of a
shareholder.
<TABLE>
<CAPTION>
ANNUAL OPERATING EXPENSES
(as a percentage of average net assets)
- -------------------------------------------------------------------------------------
<S> <C>
Advisory Fees (after waivers)(2) . . . . . . . . . . . . . . . . . . . . . . . .73%
12b-1 Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . None
Other Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .37%
- -------------------------------------------------------------------------------------
Total Operating Expenses (2) . . . . . . . . . . . . . . . . . . . . . . . . . 1.10%
- -------------------------------------------------------------------------------------
</TABLE>
(2) The Adviser has, on a voluntary basis, agreed to waive Fund expenses in
order to limit the Fund's total operating expenses to a maximum of 1.10% of
average daily net assets. The Adviser reserves the right to terminate
this arrangement at any time in its sole discretion. Absent such waivers,
advisory fees and total operating expenses for the Fund would be
.80% and 1.17% of average daily net assets, respectively. See
"The Adviser."
<TABLE>
<CAPTION>
EXAMPLE
- -------------------------------------------------------------------------------------------------------------------
1 year 3 years 5 years 10 years
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000 investment
in the fund assuming (1) 5% annual return and (2)
redemption at the end of each time period. $11 $35 $61 $134
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
THE EXAMPLE IS BASED UPON TOTAL OPERATING EXPENSES OF THE FUND AFTER FEE
WAIVERS AS SHOWN IN THE EXPENSE TABLE. THE EXAMPLE SHOULD NOT BE CONSIDERED
A REPRESENTATION OF PAST OR FUTURE EXPENSES, AND ACTUAL EXPENSES MAY BE
GREATER OR LESS THAN THOSE SHOWN. The purpose of the expense table and
example is to assist the investor in understanding the various costs and
expenses that may be directly or indirectly borne by shareholders of the
Fund. Additional information may be found under "The Adviser" and "The
Administrator."
4
<PAGE>
FINANCIAL HIGHLIGHTS THE ADVISORS' INNER CIRCLE FUND
The following information on the FMC Select Fund has been audited by Arthur
Andersen LLP, the Fund's independent public accountants, as indicated in
their report dated December 12, 1997 on the Fund's financial statements as of
October 31, 1997. This table should be read in conjunction with the Fund's
audited financial statements and notes thereto. The Fund's financial
statements and additional performance information are contained in the Annual
Report to Shareholders, which is available without charge by calling
1-800-932-7781.
For a Share of the Portfolio Outstanding Throughout the Period:
<TABLE>
<CAPTION>
FMC
SELECT
FUND
- -----------------------------------------------------------------------------------------------------
11/01/96 11/01/95 5/8/95(1)
TO TO TO
10/31/97 10/31/96 10/31/95
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD . . . . . . . . . . $13.42 $10.97 $10.00
- -----------------------------------------------------------------------------------------------------
Income From Investment Operations:
Net Investment Income . . . . . . . . . . . . . . . 0.16 0.14 0.10
Realized and Unrealized
Gains on Securities . . . . . . . . . . . . . . . 3.81 2.48 0.96
- -----------------------------------------------------------------------------------------------------
Total From Investment Operations . . . . . . . . . . . . 3.97 2.62 1.06
- -----------------------------------------------------------------------------------------------------
Less Distributions:
Distributions From Net Investment Income . . . . . . . . (0.16) (0.14) (0.09)
Distributions from Capital Gains . . . . . . . . . . . . (0.41) (0.03) --
Total Distributions . . . . . . . . . . . . . . . . (0.57) (0.17) (0.09)
- -----------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD . . . . . . . . . . . . . $16.82 $13.42 $10.97
- -----------------------------------------------------------------------------------------------------
TOTAL RETURN . . . . . . . . . . . . . . . . . . . . . . 30.51% 23.99% 10.60%**
- -----------------------------------------------------------------------------------------------------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End Of Period (000). . . . . . . . . . . . . $75,691 $47,909 $27,202
Ratio Of Expenses To Average Net Assets. . . . . . . . . 1.10% 1.10% 1.10%*
Ratio Of Expenses To Average Net Assets
(Excluding Waivers and Reimbursements). . . . . . . 1.17% 1.20% 1.57%*
Ratio Of Net Investment Income To Average
Net Assets. . . . . . . . . . . . . . . . . . . . . 1.08% 1.10% 1.96%*
Ratio Of Net Investment Income To Average
Net Assets (Excluding Waivers and Reimbursements) . 1.01% 1.00% 1.49%*
Portfolio Turnover Rate. . . . . . . . . . . . . . . . . 21.71% 24.39% 1.87%
Average Commission Rate (2). . . . . . . . . . . . . . . $0.0590 $0.0600 --
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
</TABLE>
* Annualized
** Total Return is for the period indicated and has not been
annualized.
5
<PAGE>
(1) The FMC Select Fund commenced operations on May 8, 1995.
(2) Average commission rate paid per share for the security purchases
and sales on which commissions were paid during the period.
Presentation of the rate is required for fiscal years beginning
after September 1, 1995.
THE TRUST AND THE FUND
The Advisors' Inner Circle Fund (the "Trust") is designed to provide a
convenient and economic means of investing in professionally managed portfolios
of securities by offering shares in a number of separately-managed mutual funds,
each of which is a separate series ("portfolio") of the Trust. Each share of
each portfolio represents an undivided, proportionate interest in that
portfolio. This Prospectus offers shares of the FMC Select Fund (the "Fund"), a
diversified portfolio.
INVESTMENT OBJECTIVE
The Fund seeks a favorable rate of return principally through capital
appreciation and to a limited degree through current income. There can be no
assurance that the Fund will be able to achieve its investment objective.
GENERAL INVESTMENT POLICIES
The Fund invests principally in equity securities, and to a limited degree in
fixed income securities, including money market instruments. The 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 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 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 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 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 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.
6
<PAGE>
FIXED INCOME SECURITIES. The fixed income securities that may be purchased
by the 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 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 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 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.
FOREIGN SECURITIES. The Fund may purchase securities denominated in foreign
currencies in amounts up to 10% of its net assets. The Fund does not have a
corresponding limitation with respect to foreign securities denominated in
U.S. dollars.
AUXILIARY POLICIES.
Although not primary strategies employed by the Adviser in managing the Fund,
the Fund may engage in a number of investment practices in order to meet its
investment objective. In this regard, the Fund may invest in variable and
floating rate obligations, enter into forward commitments, purchase securities
on a when-issued basis and sell securities short against the box. The Fund 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.
7
<PAGE>
The 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
Fund's assets in cash or money market instruments.
For a description of the permitted investments of the Fund and the associated
risk factors, see "Description of Permitted Investments and Risk Factors."
For a description of ratings, see the Appendix to the Statement of Additional
Information.
RISK FACTORS
EQUITY SECURITIES -- Investments in common stocks are subject to market risks
which may cause their prices to fluctuate over time. The value of
convertible securities is also affected by prevailing interest rates, the
credit quality of the issuer and any call provisions. Changes in the value
of portfolio securities will not necessarily affect cash income derived from
these securities but will affect the Fund's net asset value.
FIXED INCOME SECURITIES -- 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.
OPTIONS -- Risks associated with options transactions include the following:
(1) if hedging, the success of such a strategy may depend on an ability to
accurately predict movements in the prices of individual securities,
fluctuations in markets and movements in interest rates; (2) there may be an
imperfect correlation between the movement in prices of options and the
securities underlying them; (3) there may not be a liquid secondary market
for an option; and (4) while the Fund will receive a premium when it writes
covered call options, it may not participate fully in a rise in the market
value of the underlying security.
SECURITIES OF FOREIGN ISSUERS -- There are certain risks connected with
investing in foreign securities. These include risks of adverse political
and economic developments (including possible governmental seizure or
nationalization of assets), the possible imposition of exchange controls or
other government restrictions, less uniformity in accounting and reporting
requirements, the possibility that there will be less information on such
securities and their issuers available to the
8
<PAGE>
public, the difficulty of obtaining or enforcing court judgments abroad,
restrictions of foreign investments in other jurisdictions, difficulties in
effecting repatriation of capital invested abroad, and the difficulties in
transaction settlements and the effect of delay on shareholder equity.
Foreign securities may be subject to foreign taxes, and may be less
marketable than comparable U.S. securities.
INVESTMENT LIMITATIONS
The investment objective of the Fund and the investment limitations set forth
below and in the Statement of Additional Information are fundamental policies
of the Fund. Fundamental policies cannot be changed with respect to the Fund
without the consent of the holders of a majority of the Fund's outstanding
shares.
The Fund may not:
1. Purchase securities of any issuer (except securities issued or guaranteed
as to principal and interest by the United States, its agencies or
instrumentalities and repurchase agreements involving such securities) if as
a result more than 5% of the total assets of the Fund would be invested in
the securities of such issuer. This restriction applies to 75% of the Fund's
total assets.
2. Purchase any securities which would cause 25% or more of the total assets
of the Fund to be invested in the securities of one or more issuers
conducting their principal business activities in the same industry, provided
that this limitation does not apply to investments in U.S. Government
securities and repurchase agreements involving such securities. For purposes
of this limitation (i) utility companies will be classified according to
their services, for example, gas, gas transmission, electric and telephone
will each be considered a separate industry, (ii) financial service companies
will be classified according to the end users of their services, for example,
automobile finance, bank finance and diversified finance will each be
considered a separate industry, and (iii) supranational entities will be
considered to represent one industry.
3. Borrow money except for temporary or emergency purposes and then only in
an amount not exceeding 10% of the value of its total assets. The Fund will
not purchase additional securities while borrowings exceed 5% of its assets.
As relating to investment limitation numbers 1 and 2, the foregoing
percentages will apply at the time of the purchase of a security. Additional
investment limitations are set forth in the Statement of Additional
Information.
THE ADVISER
First Manhattan Co. is a professional investment management firm organized as a
limited partnership that was founded in 1964. Because of the amount of his
ownership of the firm's outstanding partnership interests, Mr. David S.
Gottesman is deemed to control the Adviser. As of December
9
<PAGE>
31, 1997, the Adviser had management authority with respect to approximately
$7 billion of assets. The principal business address of the Adviser is 437
Madison Avenue, New York, New York 10022.
The Adviser serves as the Fund's investment adviser pursuant to an investment
advisory agreement (the "Advisory Agreement"). Under the terms of the
Advisory Agreement, the Adviser makes the investment decisions for the assets
of the Fund and continuously reviews, supervises and administers the Fund's
investment program, subject to the supervision of, and policies established
by, the Trustees of the Trust. In addition to advising the Fund, the Adviser
provides advisory services to individuals, partnerships, trusts, pension and
other employee benefit plans, and eleemosynary and other institutions.
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 Fund
since the 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 Fund since the Fund commenced operations. Mr. McElroy
has been a portfolio manager with the Adviser since 1987.
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 Fund. The Adviser has voluntarily agreed to waive a portion of its
advisory fee in order to limit total operating expenses of the Fund to not
more than 1.10% of its 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, 1997, the Adviser received a fee (after
waiver) equal to .73% of the Fund's average daily net assets.
THE ADMINISTRATOR
SEI Fund Resources (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 .20% of the average daily net assets. The
Administrator's fee is subject to an annual minimum of $75,000.
The Administrator also serves as shareholder servicing agent for the Fund
under a shareholder servicing agreement with the Trust.
THE TRANSFER AGENT
10
<PAGE>
DST Systems, Inc., 1004 Baltimore Street, Kansas City, Missouri 64105 (the
"Transfer Agent") serves as the transfer agent and dividend disbursing agent
for the Trust under a transfer agency agreement with the Trust.
THE DISTRIBUTOR
SEI Investments Distribution Co. (the "Distributor"), Oaks, Pennsylvania
19456, a wholly-owned subsidiary of SEI Investments Company, serves as the
Trust's distributor pursuant to a distribution agreement (the "Distribution
Agreement"). No compensation is paid to the Distributor for distribution
services for the shares of the Fund.
FUND TRANSACTIONS
The Advisory Agreement authorizes the Adviser to select broker-dealers that
will execute the purchase or sale of securities for the Fund and directs the
Adviser to seek to obtain the best net results. The Fund expects to execute
all or a substantial portion of its brokerage or other agency transactions
through the Adviser, and may execute agency transactions through the
Distributor, for which each may receive usual and customary compensation.
PURCHASE AND REDEMPTION OF SHARES
Investors may purchase and redeem shares of the Fund directly through the
Transfer Agent at: The Advisors' Inner Circle Fund, P.O. Box 419009, Kansas
City, Missouri 64141-6009, or by contacting the Adviser. Shareholders may
place purchase and redemption orders by telephone; when market conditions are
extremely busy, it is possible that investors may experience difficulties
placing orders by telephone and may wish to place orders by mail. Purchases
and redemptions of shares of the Fund may be made on any day when the New
York Stock Exchange is open for business (a "Business Day"). Shares of the
Fund are offered only to residents of states in which such shares are
eligible for purchase. In addition, the Trust has authorized certain
broker-dealers and other financial intermediaries (collectively "Authorized
Broker-Dealers") to act as the Fund's agent for the purposes of accepting
purchase orders and redemption requests. The Fund will be deemed to have
received a purchase order or redemption request upon receipt of the order or
request by an Authorized Broker-Dealer.
The minimum initial investment in the Fund is $10,000, and subsequent
purchases must be at least $1,000. These minimum purchase requirements may
be reduced or waived by the Distributor or for investors who purchase shares
of the Fund through omnibus accounts maintained by registered broker-dealers
who have executed sub-distribution agreements with the Distributor. No
minimum applies to subsequent purchases effected by dividend reinvestment.
As described below, subsequent purchases through the Fund's Systematic
Investment Plan must be at least $100.
11
<PAGE>
PURCHASES BY MAIL
An account may be opened by mailing a check or other negotiable bank draft
(payable to the FMC Select Fund) for $10,000 or more, together with a
completed Account Application, to the Transfer Agent at: The Advisors' Inner
Circle, P.O. Box 419009, Kansas City, Missouri 64141-6009. Third-party
checks, credit cards, credit card checks and cash will not be accepted.
Subsequent investments may also be mailed directly to the Transfer Agent.
PURCHASES BY WIRE TRANSFER
Shareholders having an account with a commercial bank that is a member of the
Federal Reserve System may purchase shares of the Fund by requesting their
bank to transmit funds by wire to: United Missouri Bank, N.A.; ABA
#10-10-00695; for Account Number 9870601087; Further Credit: FMC Select Fund.
The shareholder's name and account number must be specified in the wire.
INITIAL PURCHASES: Before making an initial investment by wire, an investor
must first telephone 1-800-808-4921 to be assigned an account number. The
investor's name, account number, taxpayer identification number or Social
Security number, and address must be specified in the wire. In addition, an
Account Application should be promptly forwarded to the Transfer Agent at:
The Advisors' Inner Circle Fund, P.O. Box 419009, Kansas City, Missouri
64141-6009.
SUBSEQUENT PURCHASES: Additional investments may be made at any time through
the wire procedures described above, which must include a shareholder's name
and account number. The investor's bank may impose a fee for investments by
wire.
GENERAL INFORMATION REGARDING PURCHASES
A purchase order will be effective as of the day received by the Transfer
Agent if the Transfer Agent receives the order and payment before the Fund
calculates its net asset value, normally, 4:00 p.m., Eastern time. Payment
may be made by check or readily available funds. The purchase price of
shares of the Fund is the net asset value per share next determined after a
purchase order is effective. Purchases will be made in full and fractional
shares of the Fund calculated to three decimal places. The Trust will not
issue certificates representing shares of the Fund.
If a check received for the purchase of shares does not clear, the purchase
will be canceled, and the investor could be liable for any losses or fees
incurred. The Trust reserves the right to reject a purchase order when the
Trust determines that it is not in the best interest of the Trust or its
shareholders to accept such order.
SYSTEMATIC INVESTMENT PLAN
A shareholder may also arrange for periodic additional investments in the
Fund through automatic deductions by Automated Clearing House ("ACH")
transactions from a checking
12
<PAGE>
or savings account by completing the appropriate section of the Account
Application form. This Systematic Investment Plan is subject to account
minimum initial purchase amounts and a minimum pre-authorized investment
amount of $25 per month. An Account Application form may be obtained by
calling 1-800-932-7781.
REDEMPTIONS
Redemption orders received by the Transfer Agent prior to the time the Fund
calculates its net asset value (normally, 4:00 p.m., Eastern time) on any
Business Day will be effective that day. The redemption price of shares is
the net asset value of the Fund next determined after the redemption order is
effective. Payment on redemption will be made as promptly as possible and,
in any event, within seven days after the redemption order is received,
provided, however, that the investment being redeemed has been in the
shareholder's account for a minimum of 15 days. Shareholders may not close
their accounts by telephone.
Shareholders may receive redemption payments in the form of a check or by
Federal Reserve wire transfer or Automated Clearing House ("ACH") wire
transfer. There is no charge for having a check for redemption proceeds
mailed. The custodian will deduct a wire charge, currently $10.00, from the
amount of a Federal Reserve wire redemption payment made at the request of a
shareholder. Shareholders cannot redeem shares of the Fund by Federal Reserve
wire on Federal holidays restricting wire transfers. The Trust does not
charge for ACH wire transfers; however, such transactions will not be posted
to a shareholder's bank account until the second Business Day following the
transaction.
SYSTEMATIC WITHDRAWAL PLAN -- The Fund offers a Systematic Withdrawal Plan
("SWP") for shareholders who wish to receive regular distributions from their
account. Upon commencement of the SWP, the account must have a current value
of $25,000 or more. Shareholders may elect to receive automatic payments via
ACH wire transfers of $100 or more on a monthly, quarterly, semi-annual or
annual basis. An application form for SWP may be obtained by calling
1-800-932-7781.
Shareholders should realize that if withdrawals exceed income dividends,
their invested principal in the account will be depleted. Thus, depending on
the frequency and amounts of the withdrawal payments and/or any fluctuations
in the net asset value per share, their original investment could be
exhausted entirely. To participate in the SWP, shareholders must have their
dividends automatically reinvested. Shareholders may change or cancel the
SWP at any time, upon written notice to the Transfer Agent.
ADDITIONAL REDEMPTION INFORMATION -- Neither the Trust nor the Transfer
Agent will be responsible for the authenticity of the redemption instructions
received by telephone if it reasonably believes those instructions to be
genuine. The Trust and the Transfer Agent will each employ reasonable
procedures to confirm that telephone instructions are genuine. Such
procedures may include taping of telephone conversations.
13
<PAGE>
The right of redemption may be suspended, or the date of payment of redemption
proceeds postponed, during certain periods as set forth more fully in the
Statement of Additional Information.
CALCULATION OF NET ASSET VALUE -- The net asset value per share of the Fund
is determined by dividing the total market value of the Fund's investments
and other assets, less any liabilities, by the total outstanding shares of
the Fund. Net asset value per share is determined daily as of the close of
regular trading on the New York Stock Exchange (normally 4:00 p.m., Eastern
time) on any Business Day. Purchase or redemption orders received by the
Fund after its net asset value has been calculated will be priced at the next
Business Day's net asset value. The Fund will use a pricing service to
provide market quotations. With respect to fixed income securities, the
pricing service may use a matrix system of valuation which considers factors
such as securities prices, yield features, call features, ratings and
developments related to a specific security.
PERFORMANCE
From time to time, the Fund may advertise its yield and total return. These
figures will be based on historical earnings and are not intended to indicate
future performance. No representation can be made regarding actual future
yields or returns. The yield of the Fund refers to the annualized income
generated by an investment in the Fund over a specified 30-day period. The
yield is calculated by assuming that the same amount of income generated by
the investment during that period is generated in each 30-day period over one
year and is shown as a percentage of the investment.
The total return of the Fund refers to the average compounded rate of return
on a hypothetical investment, for designated time periods (including but not
limited to the period from which the Fund commenced operations through the
specified date), assuming that the entire investment is redeemed at the end
of each period and assuming the reinvestment of all dividend and capital gain
distributions.
The Fund may periodically compare its performance to that of other mutual
funds tracked by mutual fund rating services (such as Lipper Analytical
Services, Inc.), or by financial and business publications and periodicals,
broad groups of comparable mutual funds and unmanaged indices. The
performance of unmanaged indices may assume investment of dividends but
generally do not reflect deductions for administrative and management costs,
or other investment alternatives. The Fund may quote Morningstar, Inc., a
service that ranks mutual funds on the basis of risk-adjusted performance.
The Fund may quote Ibbotson Associates of Chicago, Illinois, which provides
historical returns of the capital markets in the United States. The Fund may
use long-term performance of these capital markets to demonstrate general
long-term risk versus reward scenarios and could include the value of a
hypothetical investment in any of the capital markets. The Fund may also
quote financial and business publications and periodicals as they relate to
fund management, investment philosophy, and investment techniques.
14
<PAGE>
The Fund may quote various measures of volatility and benchmark correlation
in advertising and may compare these measures to those of other funds.
Measures of volatility attempt to compare historical share price fluctuations
or total returns to a benchmark while measures of benchmark correlation
indicate how valid a comparative benchmark might be.
TAXES
The following summary of certain federal income tax consequences is based on
current tax laws and regulations, which may be changed by legislative,
judicial or administrative action. No attempt has been made to present a
detailed explanation of the federal, state or local income tax treatment of
the Fund or its shareholders. Accordingly, shareholders are urged to consult
their tax advisers regarding specific questions as to federal, state and
local income taxes.
TAX STATUS OF THE FUND:
The Fund is treated as a separate entity for federal income tax purposes and
is not combined with the Trust's other funds. The Fund intends to continue
to qualify for the special tax treatment afforded regulated investment
companies under Subchapter M of the Internal Revenue Code of 1986, as
amended. So long as the Fund qualifies for this special tax treatment, it
will be relieved of federal income tax on that part of its net investment
income and net capital gain (the excess of net long-term capital gain over
net short-term capital loss) which it distributes to shareholders.
TAX STATUS OF DISTRIBUTIONS:
The Fund will distribute all of its net investment income (including, for
this purpose, net short-term capital gain) to shareholders. Dividends from
net investment income will be taxable to shareholders as ordinary income
whether received in cash or in additional shares. Distributions from net
investment income will qualify for the dividends-received deduction for
corporate shareholders only to the extent such distributions are derived from
dividends paid by domestic corporations. It can be expected that only
certain dividends of the Fund will qualify for that deduction. Any net
capital gains will be distributed annually and will be taxed to shareholders
as gain from the sale of a capital asset held for more than one year,
regardless of how long the shareholder has held shares. The Fund will make
annual reports to shareholders of the federal income tax status of all
distributions, including the amount of dividends eligible for the
dividends-received deduction.
Certain securities purchased by the Fund are sold with original issue
discount and thus generally do not make periodic cash interest payments. The
Fund will be required to include as part of its current income a portion of
the accrued discount on such obligations even though the Fund has not
received any interest payments on such obligations during that period.
Because the Fund distributes all of its net investment income to its
shareholders, the Fund may have to sell fund securities to distribute such
accreted income, which may occur at a time when the Adviser would not have
chosen to sell such securities and which may result in a taxable gain or loss.
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<PAGE>
Income received on direct U.S. government obligations is exempt from income
tax at the state level when received directly and may be exempt, depending on
the state, when received by a shareholder from the Fund provided certain
state-specific conditions are satisfied. The Fund will inform shareholders
annually of the percentage of income and distributions derived from direct
U.S. government obligations. Shareholders should consult their tax advisers
to determine whether any portion of the income dividends received from the
Fund is considered tax exempt in their particular state.
Dividends declared by the Fund in October, November or December of any year
and payable to shareholders of record on a date in one of those months will
be deemed to have been paid by the Fund and received by the shareholders on
December 31 of that year, if paid by the Fund at any time during the
following January.
The Fund intends to make sufficient distributions prior to the end of each
calendar year to avoid liability for federal excise tax. Such distributions
will be invested in additional shares of the fund unless the investor has
chosen to receive distributions in cash.
A sale, exchange or redemption of the Fund's shares is a taxable event to the
shareholder.
GENERAL INFORMATION
THE TRUST
The Trust, an open-end investment management company, was organized under
Massachusetts law as a business trust under a Declaration of Trust dated July
18, 1991. The Declaration of Trust permits the Trust to offer separate
series of shares. All consideration received by the Trust for shares of any
fund and all assets of such fund belong to that fund and would be subject to
liabilities related thereto. The Trust reserves the right to create and
issue shares of additional funds. Information regarding the other funds of
the Trust is contained in separate prospectuses that may be obtained by
calling 1-800-932-7781.
The Fund pays its (i) operating expenses, including fees of its service
providers, expenses of preparing prospectuses, proxy solicitation material
and reports to shareholders, costs of custodial services and registering
shares under federal and state securities laws, pricing and insurance
expenses, brokerage costs, interest charges, taxes and organization expenses
and (ii) pro rata share of the Trust's other expenses, including audit and
legal expenses. Expenses not attributable to a specific fund are allocated
across all of the funds on the basis of relative net assets.
TRUSTEES OF THE TRUST
The management and affairs of the Trust are supervised by the Trustees under
the laws of the Commonwealth of Massachusetts. The Trustees have approved
contracts under which, as described above, certain companies provide
essential management services to the Trust.
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VOTING RIGHTS
Each share held entitles the shareholder of record to one vote. The Fund
will vote separately on matters relating solely to it. As a Massachusetts
business trust, the Trust is not required, and does not intend, to hold
annual meetings of shareholders. Shareholder approval will be sought, however,
for certain changes in the operation of the Trust and for the election of
Trustees under certain circumstances.
In addition, a Trustee may be removed by the remaining Trustees or by
shareholders at a special meeting called upon written request of shareholders
owning at least 10% of the outstanding shares of the Trust. In the event
that such a meeting is requested, the Trust will provide appropriate
assistance and information to the shareholders requesting the meeting.
As of February 1, 1998, the First Manhattan Co. Omnibus Account for the
Exclusive Benefit of Customers (New York, NY) owned a controlling interest
in the Fund as defined by the Investment Company Act of 1940, as amended.
REPORTING
The Trust issues unaudited financial information semiannually and audited
financial statements annually to shareholders of record for the Fund. The
Trust also furnishes periodic reports and, as necessary, proxy statements to
shareholders of record.
SHAREHOLDER INQUIRIES
Shareholder inquiries not involving orders to purchase or redeem shares may
be directed to the FMC Select Fund, c/o The Advisors' Inner Circle Fund, P.O.
Box 419009, Kansas City, Missouri 64141-6009 or by calling 1-800-932-7781.
Purchases and redemptions of shares may be made through the Transfer Agent by
calling 1-800-808-4921.
DIVIDENDS AND DISTRIBUTIONS
Substantially all of the net investment income (excluding capital gain) of
the Fund is distributed in the form of quarterly dividends. Shareholders of
record on the last Business Day of each quarter will be entitled to receive
the quarterly dividend distribution. If any capital gain is realized,
substantially all of it is distributed at least annually.
Shareholders automatically receive all income dividends and capital gain
distributions in additional shares at the net asset value next determined
following the record date, unless the shareholder has elected to take such
payment in cash. Shareholders may change their election by providing written
notice to the Transfer Agent at least 15 days prior to the distribution.
Shareholders may receive payments for cash distributions in the form of a
check or by Federal Reserve wire transfer or ACH wire transfer.
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Dividends and other distributions of the Fund are paid on a per share basis.
The value of each share will be reduced by the amount of the payment. If
shares are purchased shortly before the record date for a dividend or the
distribution of ordinary income or capital gains, a shareholder will pay the
full price for the shares and receive some portion of the price back as a
taxable dividend or distribution.
COUNSEL AND INDEPENDENT PUBLIC ACCOUNTANTS
Morgan, Lewis & Bockius LLP serves as counsel to the Trust. Arthur Andersen
LLP serves as the independent public accountants of the Trust.
CUSTODIAN
CoreStates Bank, N.A., Broad and Chestnut Streets, P.O. Box 7618,
Philadelphia, Pennsylvania 19101 serves as the custodian (the "Custodian") of
the Fund. The Custodian holds cash, securities and other assets of the Trust
as required by the Investment Company Act of 1940, as amended.
DESCRIPTION OF PERMITTED INVESTMENTS AND RISK FACTORS
The following is a description of certain permitted investments and
associated risk factors for the Fund:
ASSET-BACKED SECURITIES -- Asset-backed securities are secured by
non-mortgage assets such as company receivables, truck and auto loans, leases
and credit card receivables. Such securities are generally issued as
pass-through certificates, which represent undivided fractional ownership
interests in the underlying pools of assets. Such securities also may be
debt instruments which are also known as collateralized obligations and are
generally issued as the debt of a special purpose entity, such as a trust,
organized solely for the purpose of owning such assets and issuing such debt.
BANK OBLIGATIONS -- Debt obligations issued by U.S. and foreign banks,
including bankers' acceptances (bills of exchange or time drafts drawn on and
accepted by commercial banks and used by corporations to finance the shipment
and storage of goods and to furnish dollar exchange), certificates of deposit
(negotiable interest bearing instruments with specific maturities issued by
banks and savings and loan institutions in exchange for the deposit of
funds), and time deposits (non-negotiable receipts issued by banks in
exchange for the deposit of funds that earn a specified rate of interest over
a definite period of time).
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.
CONVERTIBLE SECURITIES -- Convertible securities have characteristics of both
fixed income and equity securities. Because of the conversion feature (which
may be mandatory or optional), the market value of convertible securities
tends to move together with the market value of the underlying stock. As a
result, the Fund's selection of convertible securities is based, to a great
extent, on the
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<PAGE>
potential for capital appreciation that may exist in the underlying stock.
The value of convertible securities is also affected by prevailing interest
rates, the credit quality of the issuer, and any call provisions.
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.
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.
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 contract gives the purchaser the
right, in exchange for a premium, to assume a position in a futures contract
at a specified exercise price during the term of the option. The Fund may
use futures contracts and related options for BONA FIDE hedging purposes, to
offset changes in the value of securities held or expected to be acquired,
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<PAGE>
to minimize fluctuations in foreign currencies, or to gain exposure to a
particular market or instrument. The Fund will minimize the risk that it
will be unable to close out a futures contract by only entering into futures
contracts which are traded on national futures exchanges.
Stock index futures are futures contracts for various stock indices that are
traded on registered securities exchanges. A stock index futures contract
obligates the seller to deliver (and the purchaser to accept) an amount of
cash equal to a specific dollar amount times the difference between the value
of a specific stock index at the close of the last trading day of the
contract and the price at which the agreement is made.
There are risks associated with these activities, including the following:
(1) the success of a hedging strategy may depend on an ability to accurately
predict movements in the prices of individual securities, fluctuations in
markets and movements in interest rates, (2) there may be an imperfect or no
correlation between the changes in market value of the securities held by the
Fund and the prices of futures and options on futures, (3) there may not be a
liquid secondary market for a futures contract or option, (4) trading
restrictions or limitations may be imposed by an exchange, and (5) government
regulations may restrict trading in futures contracts and futures options.
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 -- The Fund may acquire securities representing an
interest in a pool of mortgage loans that are issued or guaranteed by a U.S.
Government agency. The primary issuers or guarantors of these
mortgage-backed securities are the Government National Mortgage Association
("GNMA"), Fannie Mae and Federal Home Loan Mortgage Corporation ("FHLMC").
The Fund may also purchase collateralized mortgage obligations and real
estate mortgage investment conduits issued by governmental and
non-governmental entities. The mortgages backing these securities include
conventional 30 year fixed rate mortgages, graduated payment mortgages, and
adjustable rate mortgages. These mortgages may be supported by various types
of insurance, may be backed by GNMA certificates or other mortgage
pass-throughs issued or guaranteed by the U.S. Government, its agencies or
instrumentalities. However, the guarantees do not extend to the mortgage
backed securities' market value, which is
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likely to vary inversely with fluctuations in interest rates. These
certificates are in most cases "pass-through" instruments, through which the
holder receives a share of all interest and principal payments from the
mortgages underlying the certificate. Because the prepayment rates of the
underlying mortgages fluctuate, it is not possible to predict accurately the
average life or anticipated yield of a particular issue of pass-through
certificates. During periods of declining interest rates, prepayment of
mortgages underlying mortgage backed securities can be expected to
accelerate. When the mortgage obligations are prepaid, the Fund reinvests the
prepaid amounts in securities, the yield of which reflects interest rates
prevailing at the time. Moreover, prepayments of mortgages which underlie
securities purchased at a premium could result in capital losses.
OPTIONS -- A put option gives the purchaser of the option the right to sell,
and the writer of the option the obligation to buy, the underlying security
at any time during the option period. A call option gives the purchaser of
the option the right to buy, and the writer of the option the obligation to
sell, the underlying security at any time during the option period. The
premium paid to the writer is the consideration for undertaking the
obligations under the option contract. The initial purchase (sale) of an
option contract is an "opening transaction." In order to close out an option
position, the Fund may enter into a "closing transaction," which is simply
the sale (purchase) of an option contract on the same security with the same
exercise price and expiration date as the option contract originally opened.
The Fund may purchase put and call options to protect against a decline in
the market value of the securities in its fund or to protect against an
increase in the cost of securities that the Fund may seek to purchase in the
future. When purchasing put and call options, the Fund pays a premium
therefor. If price movements in the underlying securities are such that
exercise of the options would not be profitable for the Fund, loss of the
premium paid may be offset by an increase in the value of the Fund's
securities or by a decrease in the cost of acquisition of securities by the
Fund.
The Fund may write covered call options as a means of increasing the yield on
its fund and as a means of providing limited protection against decreases in
its market value. When the Fund sells an option, if the underlying
securities do not increase or decrease to a price level that would make the
exercise of the option profitable to the holder thereof, the option generally
will expire without being exercised and the Fund will realize as profit the
premium received for such option. When a call option of which the Fund is
the writer is exercised, the Fund will be required to sell the underlying
securities to the option holder at the strike price, and will not participate
in any increase in the price of such securities above the strike price. The
Fund may purchase and write options only on an exchange.
RISK FACTORS. Risks associated with options transactions include: (1) the
success of a hedging strategy may depend on an ability to accurately predict
movements in the prices of individual securities, fluctuations in markets and
movements in interest rates; (2) there may be an imperfect correlation
between the movement in prices of options and the securities underlying them;
(3) there may not be a liquid secondary market for options; and (4) while the
Fund will receive a premium
21
<PAGE>
when it writes covered call options, it may not participate fully in a rise
in the market value of the underlying security.
REPURCHASE AGREEMENTS -- Repurchase Agreements are agreements by which a
person obtains a security and simultaneously commits to return the security
to the seller at an agreed upon price (including principal and interest) on
an agreed upon date within a number of days from the date of purchase. The
Custodian or its agent will hold the security as collateral for the
repurchase agreement. Collateral must be maintained at a value at least equal
to 102% of the purchase price. The Fund bears a risk of loss in the event
the other party defaults on its obligations and the Fund is delayed or
prevented from its right to dispose of the collateral securities or if the
Fund realizes a loss on the sale of the collateral securities. The Adviser
will enter into repurchase agreements on behalf of the Fund only with
financial institutions deemed to present minimal risk of bankruptcy during
the term of the agreement based on guidelines established and periodically
reviewed by the Trustees. Repurchase agreements are considered to be loans
by the Fund.
SECURITIES OF FOREIGN ISSUERS -- The Fund will purchase only those securities
of foreign issuers (including American Depositary Receipts or "ADRs") that
are traded on registered exchanges or the over-the-counter market in the
United States. ADRs are typically issued by a U.S. financial institution and
evidence ownership of underlying securities issued by a foreign issuer.
Investments in securities of foreign issuers are subject to special risks
such as future adverse political and economic developments, possible seizure,
nationalization or expropriation of foreign investments, less stringent
disclosure requirements, the possible establishment of exchange controls or
taxation at the source, greater fluctuation in value due to changes in
exchange rates, or the adoption of other foreign governmental restrictions.
Foreign securities issuers are often subject to accounting treatment and
engage in business practices different from those respecting domestic
securities issuers.
SECURITIES LENDING -- In order to generate additional income, the Fund may
lend securities which it owns pursuant to agreements requiring that the loan
be continuously secured by collateral consisting of cash, securities of the
U.S. Government or its agencies equal to at least 100% of the market value of
the securities lent. The Fund continues to receive interest on the
securities lent while simultaneously earning interest on the investment of
cash collateral. Collateral is marked to market daily. There may be risks of
delay in recovery of the securities or even loss of rights in the collateral
should the borrower of the securities fail financially or become insolvent.
U.S. GOVERNMENT SECURITIES -- Certain federal agencies have been established
as instrumentalities of the U.S. Government to supervise and finance certain
types of activities. Issues of these agencies, while not direct obligations
of the U.S. Government, are either backed by the full faith and credit of the
United States or are guaranteed by the Treasury. Issues of other agencies or
instrumentalities are supported only by the issuing agency's right to borrow
from the Treasury or by the credit of the agency or instrumentality. Any
guaranty by the U.S. Government, its agencies or instrumentalities of the
securities in which the Fund invests guarantees only the payment of principal
22
<PAGE>
and interest on the guaranteed security and does not guarantee the yield or
value of that security or the yield or value of shares of the Fund.
U.S. TREASURY SECURITIES -- U.S. Treasury securities consist of bills, notes
and bonds issued by the U.S. Treasury and separately traded interest and
principal component parts of such obligations that are transferable through
the federal book-entry system known as Separately Traded Registered Interest
and Principal Securities ("STRIPS").
VARIABLE AND FLOATING RATE SECURITIES -- Certain of the obligations purchased
by the Fund may carry variable or floating rates of interest, may involve a
conditional or unconditional demand feature and may include variable amount
master demand notes. Such instruments bear interest at rates that are not
fixed, but vary with changes in specified market rates or indices, such as a
Federal Reserve composite index.
WHEN-ISSUED TRANSACTIONS -- The Fund may enter into forward commitments or
purchase securities on a when-issued basis, in which case delivery and
payment normally take place at a future date. The interest rate on these
securities is fixed as of the purchase date although no interest accrues
until the settlement date. These securities are subject to market
fluctuation due to changes in market interest rates during the period between
the purchase date and the delivery date.
ZERO COUPON SECURITIES -- Zero coupon obligations are debt securities that do
not bear any interest, but instead are issued at a deep discount from par.
The value of a zero coupon obligation increases over time to reflect the
interest accreted. 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 par and pay interest periodically.
Please see the Statement of Additional Information for more information about
the permitted investments of the Fund.
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<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
SUMMARY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
EXPENSE SUMMARY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4
FINANCIAL HIGHLIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
THE TRUST AND THE FUND . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
INVESTMENT OBJECTIVE . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
GENERAL INVESTMENT POLICIES. . . . . . . . . . . . . . . . . . . . . . . . . .6
RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
INVESTMENT LIMITATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . .9
THE ADVISER. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9
THE ADMINISTRATOR. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
THE TRANSFER AGENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
THE DISTRIBUTOR. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
FUND TRANSACTIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
PURCHASE AND REDEMPTION OF SHARES. . . . . . . . . . . . . . . . . . . . . . 11
PERFORMANCE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
TAXES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
GENERAL INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
DESCRIPTION OF PERMITTED INVESTMENTS AND RISK FACTORS. . . . . . . . . . . . 18
</TABLE>
<PAGE>
Fund:
FMC SELECT FUND
Adviser:
FIRST MANHATTAN CO.
Trust:
THE ADVISORS' INNER CIRCLE FUND
Distributor:
SEI INVESTMENTS DISTRIBUTION CO.
Administrator:
SEI FUND RESOURCES
Legal Counsel:
MORGAN, LEWIS & BOCKIUS LLP
Independent Public Accountants:
ARTHUR ANDERSEN LLP
February 27, 1998
<PAGE>
FMC SELECT FUND
A FUND OF:
THE ADVISORS' INNER CIRCLE FUND
INVESTMENT ADVISER:
FIRST MANHATTAN CO.
This STATEMENT OF ADDITIONAL INFORMATION is not a prospectus and relates only to
the FMC Select 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 February 27, 1998. The Prospectus for the Fund may
be obtained by calling 1-800-932-7781.
TABLE OF CONTENTS
THE TRUST AND THE FUND . . . . . . . . . . . . . . . . . . . . . . . . . . S-2
DESCRIPTION OF PERMITTED INVESTMENTS . . . . . . . . . . . . . . . . . . . S-2
INVESTMENT LIMITATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . S-5
THE ADVISER. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-7
THE ADMINISTRATOR. . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-7
THE DISTRIBUTOR. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-8
TRUSTEES AND OFFICERS OF THE TRUST . . . . . . . . . . . . . . . . . . . . S-9
COMPUTATION OF YIELD AND TOTAL RETURN. . . . . . . . . . . . . . . . . . S-12
PURCHASE AND REDEMPTION OF SHARES. . . . . . . . . . . . . . . . . . . . .S-13
DETERMINATION OF NET ASSET VALUE . . . . . . . . . . . . . . . . . . . . .S-13
TAXES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .S-14
FUND TRANSACTIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . .S-16
DESCRIPTION OF SHARES. . . . . . . . . . . . . . . . . . . . . . . . . . .S-18
SHAREHOLDER LIABILITY. . . . . . . . . . . . . . . . . . . . . . . . . . .S-18
LIMITATION OF TRUSTEES' LIABILITY. . . . . . . . . . . . . . . . . . . . .S-18
5% SHAREHOLDERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .S-19
EXPERTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .S-19
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . .S-19
APPENDIX . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-1
February 27, 1998
FMC-F-002-05
<PAGE>
THE TRUST AND THE FUND
This Statement of Additional Information ("Statement") relates only to the
FMC Select 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 ("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 fund should be made
without first reading that fund's prospectus. Capitalized terms not defined
herein are defined in the Prospectus offering shares of the Fund.
DESCRIPTION OF PERMITTED INVESTMENTS
MORTGAGE BACKED SECURITIES
The Fund may invest in securities issued or guaranteed by the Government
National Mortgage Association ("GNMA"), a wholly-owned U.S. Government
corporation which guarantees the timely payment of principal and interest. The
market value and interest yield of these instruments can vary due to market
interest rate fluctuations and early prepayments of underlying mortgages. These
securities represent ownership in a pool of federally insured mortgage loans.
GNMA certificates consist of underlying mortgages with a maximum maturity of 30
years. However, due to scheduled and unscheduled principal payments, GNMA
certificates have a shorter average maturity and, therefore, less principal
volatility than a comparable 30-year bond. Since prepayment rates vary widely,
it is not possible to accurately predict the average maturity of a particular
GNMA pool. The scheduled monthly interest and principal payments relating to
mortgages in the pool will be "passed through" to investors. GNMA securities
differ from conventional bonds in that principal is paid back to the certificate
holders over the life of the loan rather than at maturity. As a result, there
will be monthly scheduled payments of principal and interest. In addition,
there may be unscheduled principal payments representing prepayments on the
underlying mortgages. Although GNMA certificates may offer yields higher than
those available from other types of U.S. Government securities, GNMA
certificates may be less effective than other types of securities as a means of
"locking in" attractive long-term rates because of the prepayment feature. For
instance, when interest rates decline, the value of a GNMA certificate likely
will not rise as much as comparable debt securities due to the prepayment
feature. In addition, these prepayments can cause the price of a GNMA
certificate originally purchased at a premium to decline in price to its par
value, which may result in a loss.
S-2
<PAGE>
The Fund may invest in MORTGAGE BACKED SECURITIES consisting of
collateralized mortgage obligations ("CMOs") and real estate mortgage
investment conduits ("REMICS"). CMOs are securities collateralized by
mortgages, mortgage pass-throughs, mortgage pay-through bonds (bonds
representing an interest in a pool of mortgages where the cash flow generated
from the mortgage collateral pool is dedicated to bond repayment) and
mortgage backed bonds (general obligations of the issuers payable out of the
issuers' general funds and additionally secured by a first lien on a pool of
single family detached properties). CMOs typically are issued with a number
of classes or series which have different maturities and which are retired
using cash flow from underlying collateral according to a specified plan.
Investors purchasing such CMOs in the shortest maturities receive or are
credited with their pro rata portion of the scheduled payments of interest and
principal on the underlying mortgages plus all unscheduled prepayments of
principal up to a predetermined portion of the total CMO obligation. Until that
portion of such CMO obligation is repaid, investors in the longer maturities
receive interest only. Accordingly, the CMOs in the longer maturity series are
less likely than other mortgage pass-throughs to be prepaid prior to their
stated maturity. Although some of the mortgages underlying CMOs may be
supported by various types of insurance, and some CMOs may be backed by GNMA
certificates or other mortgage pass-throughs issued or guaranteed by U.S.
Government agencies or instrumentalities, the CMOs themselves are not generally
guaranteed.
REMICs, which were authorized under the Tax Reform Act of 1986, are private
entities formed for the purpose of holding a fixed pool of mortgages secured by
an interest in real property. REMICs are similar to CMOs in that they issue
multiple classes of securities.
REPURCHASE AGREEMENTS are agreements by which a person (e.g., the Fund) 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 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 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
S-3
<PAGE>
that the proceeds of sale including accrued interest are less than the resale
price provided in the agreement including interest. In addition, even though
the Bankruptcy Code provides protection for most repurchase agreements, if
the seller should be involved in bankruptcy or insolvency proceedings, 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 is required to return the underlying security to the
seller's estate.
The Fund only invests in investment grade fixed income securities; however, it
may hold up to 5% of its total assets in convertible debt securities which are
rated as low as Caa by Moody's or CCC by S&P. Such below investment grade
instruments are high risk, high yield securities (known as "JUNK BONDS") that
involve greater risk of default or price declines than investment grade
securities due to changes in the issuers' creditworthiness and the outlook for
economic growth. The market for these securities may be thinner and less active
causing market price volatility and limited liquidity in the secondary market.
This may limit the ability of the Fund to sell such securities at their market
value. In addition, the market for these securities may also be adversely
affected by legislative and regulatory developments. Credit quality in the junk
bond market can change suddenly and unexpectedly, and even recently issued
credit ratings may not fully reflect the actual risks imposed by a particular
security. For these reasons, it is the Fund's policy to use such ratings in
conjunction with the Adviser's own independent, ongoing review of credit
quality.
The Fund may invest in VARIABLE AMOUNT MASTER DEMAND NOTES which may or may not
be backed by bank letters of credit. These notes permit the investment of
fluctuating amounts at varying market rates of interest pursuant to direct
arrangements between the Fund, as lender, and the borrower. Such notes provide
that the interest rate on the amount outstanding varies on a daily, weekly or
monthly basis depending upon a stated short-term interest rate index. Both the
lender and the borrower have the right to reduce the amount of outstanding
indebtedness at any time. There is no secondary market for the notes. It is
not generally contemplated that such instruments will be traded.
The Fund may invest in WHEN-ISSUED SECURITIES. These securities involve the
purchase of debt obligations on a when-issued basis, in which case delivery and
payment normally take place at a future date. The Fund will only make
commitments to purchase obligations on a when-issued basis with the intention of
actually acquiring the securities, but may sell them before the settlement date.
The when-issued securities are subject to market fluctuation, and no interest
accrues on the security to the purchaser during this period. The payment
obligation and the interest rate that will be received on the securities are
each fixed at the time the purchaser enters into the commitment. Purchasing
obligations on a when-issued basis is a form of leveraging and can involve a
risk that the yields available in the market when the delivery takes place may
actually be higher than those obtained in the transaction itself. In that case
there could be an unrealized loss at the time of delivery.
S-4
<PAGE>
Segregated accounts will be established with the custodian, and the Fund will
maintain liquid assets (cash, U.S. Government obligations, or liquid, high
quality debt obligations) 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.
The Fund may invest in WARRANTS in an amount not exceeding 5% of the Fund's net
assets as valued at the lower of cost or market value. Included in that amount,
but not to exceed 2% of the Fund's net assets, may be warrants not listed on the
New York Stock Exchange or American Stock Exchange.
INVESTMENT COMPANY SHARES
The Fund may invest in shares of other investment companies, to the extent
permitted by applicable law and subject to certain restrictions. These
investment companies typically incur fees that are separate from those fees
incurred directly by the Fund. The Fund's purchase of such investment company
securities results in the layering of expenses, such that shareholders would
indirectly bear a proportionate share of the operating expenses of such
investment companies, including advisory fees, in addition to paying the Fund's
usual expenses. See also "Investment Limitations."
INVESTMENT LIMITATIONS
The following policies are, except for policies 3, 6, 8 and 10, non-fundamental
policies of the Fund. Non-fundamental polices may be changed or eliminated by
the Trust's Board of Trustees without a vote of the Fund's shareholders. The
term "majority of the outstanding shares" of the Fund or the Trust,
respectively, means the vote of (i) 67% or more of the Fund's or the Trust's
shares present at a meeting, if more than 50% of the outstanding shares of the
Fund or the Trust are present or represented by proxy, or (ii) more than 50% of
the Fund's or the Trust's outstanding shares, whichever is less.
The Fund may not:
1. Acquire more than 10% of the voting securities of any one issuer.
2. Invest in companies for the purpose of exercising control.
3. 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%, the Fund shall, within three
days thereafter or such longer period as the Securities and Exchange
Commission (the "SEC") may
S-5
<PAGE>
prescribe by rules and regulations, reduce the amount of its borrowings
to such an extent that the asset coverage of such borrowings shall be at
least 300%. All borrowings in excess of 5% of total assets will be repaid
before making additional investments and any interest paid on such
borrowings will reduce income.
4. Make loans, except that the Fund may purchase or hold debt instruments in
accordance with its investment objective and policies, may lend its
portfolio securities, and may enter into repurchase agreements, as
described in the Prospectus and in this Statement of Additional
Information.
5. Pledge, mortgage or hypothecate assets except to secure borrowings
permitted by (3) above in aggregate amounts not to exceed 10% of total
assets taken at current value at the time of the incurrence of such loan.
6. Purchase or sell real estate, real estate limited partnership interests or
commodities provided that this shall not prevent the 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 the Fund from investing in commodities
contracts relating to financial instruments.
7. Make short sales of securities, maintain a short position or purchase
securities on margin, except that the Fund may obtain short-term credits as
necessary for the clearance of security transactions and may sell
securities short "against the box."
8. Act as an underwriter of securities of other issuers except as it may be
deemed an underwriter in selling a portfolio security.
9. Invest its assets in securities of any investment company, except as
permitted by the Investment Company Act of 1940 or pursuant to an order of
exemption therefrom.
10. Issue senior securities (as defined in the Investment Company Act of 1940)
except as permitted by rule, regulation or order of the SEC.
11. Invest in interests in oil, gas or other mineral exploration or development
programs and oil, gas or mineral leases.
12. Invest 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 the Fund has valued the instrument.
Illiquid securities include repurchase agreements maturing in excess of
seven days, time deposits with a
S-6
<PAGE>
withdrawal penalty, non-negotiable instruments and instruments for which
no market exists.
The foregoing percentages will apply at the time of the purchase of a security
and shall not be considered violated unless an excess occurs or exists
immediately after and as a result of a purchase of such security as to each
limitation except number 3.
THE ADVISER
The Trust and First Manhattan Co. (the "Adviser") have entered into an advisory
agreement (the "Advisory Agreement"). The Advisory Agreement provides that the
Adviser shall not be protected against any liability to the Trust or its
shareholders by reason of willful misfeasance, bad faith or gross negligence on
its part in the performance of its duties or from reckless disregard of its
obligations or duties thereunder.
For the fiscal period ended October 31, 1995 and the fiscal years ended October
31, 1996 and October 31, 1997, the Adviser was paid $90,353, $268,433, and
$458,786, respectively, and for the fiscal period ended October 31, 1995
reimbursed fees of $53,582 and for the fiscal years ended October 31, 1996 and
October 31, 1997 waived fees of $38,766 and $46,194, respectively.
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 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 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
The Trust and SEI Fund Resources (the "Administrator") have entered into an
administration agreement (the "Administration Agreement"). The Administration
Agreement provides that the Administrator shall not be liable for any error of
judgment or mistake of law or for any loss suffered by the 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.
S-7
<PAGE>
For the fiscal period ended October 31, 1995 and the fiscal
years ended October 31, 1996 and October 31, 1997, the Administrator received
fees of $36,370, $81,018, and $126,246, respectively, for the Fund.
The Trust and the Administrator have also entered into a shareholder servicing
agreement pursuant to which the Administrator provides certain shareholder
services in addition to those set forth in the Administration Agreement.
The Administrator, a Delaware business trust, has its principal business
offices at Oaks, Pennsylvania 19456. SEI Investments Management Corporation
("SIMC"), a wholly-owned subsidiary of SEI Investments Company, is the owner
of all beneficial interest in the Administrator. SEI Investments and its
subsidiaries and affiliates, including the Administrator, are leading
providers of funds evaluation services, trust accounting systems, and
brokerage and information services to financial institutions, institutional
investors, and money managers. The Administrator and its affiliates also
serve as administrator or sub-administrator to the following other mutual
funds: The Achievement Funds Trust, The Arbor Fund, ARK Funds, Bishop Street
Funds, Boston 1784 Funds-Registered Trademark-, CoreFunds, Inc., CrestFunds,
Inc., CUFUND, The Expedition Funds, FMB Funds, Inc., First American Funds,
Inc., First American Investment Funds, Inc., First American Strategy Funds,
Inc., HighMark Funds, Marquis Funds-Registered Trademark-, Monitor Funds,
Morgan Grenfell Investment Trust, The PBHG Funds, Inc., PBHG Insurance Series
Fund, Inc., The Pillar Funds, Rembrandt Funds-Registered Trademark-, Santa
Barbara Group of Mutual Funds, Inc., SEI Asset Allocation Trust, SEI Daily
Income Trust, SEI Index Funds, SEI Institutional Investments Trust, SEI
Institutional Managed Trust, SEI International Trust, SEI Liquid Asset Trust,
SEI Tax Exempt Trust, STI Classic Funds, STI Classic Variable Trust, TIP
Funds and TIP Institutional Funds.
THE DISTRIBUTOR
SEI Investments Distribution Co. (the "Distributor"), a wholly owned subsidiary
of SEI Investments, and the Trust are parties to a distribution agreement (the
"Distribution Agreement"). The Distributor will not receive compensation for
the distribution of shares of the Fund.
The Distribution Agreement is renewable annually. The Distribution Agreement
may be terminated by the Distributor, by a majority vote of the Trustees who are
not interested persons and have no financial interest in the Distribution
Agreement or by a majority vote of the outstanding securities of the Trust upon
not more than 60 days' written notice by either party or upon assignment by the
Distributor.
S-8
<PAGE>
TRUSTEES AND OFFICERS OF THE TRUST
The management and affairs of the Fund 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 Fund 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, Bishop Street Funds,
Boston 1784 Funds-Registered Trademark-, CoreFunds, Inc., CrestFunds, Inc.,
CUFUND, The Expedition Funds, FMB Funds, Inc., First American Funds, Inc., First
American Investment Funds, Inc., First American Strategy Funds, Inc., HighMark
Funds, Marquis Funds-Registered Trademark-, Monitor Funds, Morgan Grenfell
Investment Trust, The PBHG Funds, Inc., PBHG Insurance Series Fund, Inc., The
Pillar Funds, Santa Barbara Group of Mutual Funds, Inc., SEI Asset Allocation
Trust, SEI Daily Income Trust, SEI Index Funds, SEI Institutional Investments
Trust, SEI Institutional Managed Trust, SEI International Trust, SEI Liquid
Asset Trust, SEI Tax Exempt Trust, STI Classic Funds, STI Classic Variable
Trust, TIP Funds and TIP Institutional Funds, open-end management investment
companies which are managed by SEI Fund Resources or its affiliates and, except
for Santa Barbara Group of Mutual Funds, Inc., are distributed by SEI
Investments Distribution Co.
ROBERT A. NESHER (DOB 08/17/46) -- Chairman of the Board of Trustees* --
Currently performs various services on behalf of SEI Investments for which Mr.
Nesher is compensated. Executive Vice President of SEI Investments, 1986-1994.
Director and Executive Vice President of the Administrator and the Distributor,
1981-1994. Trustee of The Advisors' Inner Circle Fund, The Arbor Fund, Boston
1784 Funds-Registered Trademark-, The Expedition Funds, Marquis Funds-Registered
Trademark-, Pillar Funds, Rembrandt Funds-Registered Trademark-, SEI Asset
Allocation Trust, SEI Daily Income Trust, SEI Index Funds, SEI Institutional
Investments Trust, SEI Institutional Managed Trust, SEI International Trust, SEI
Liquid Asset Trustand SEI Tax Exempt Trust.
JOHN T. COONEY (DOB 01/20/27) -- Trustee** -- Retired since 1992. Formerly Vice
Chairman of Ameritrust Texas N.A., 1989-1992, and MTrust Corp., 1985-1989.
Trustee of The Advisors' Inner Circle Fund, The Arbor Fund, The Expedition
Funds and Marquis Funds-Registered Trademark-.
WILLIAM M. DORAN (DOB 05/26/40) -- Trustee* -- 2000 One Logan Square,
Philadelphia, PA 19103. Partner, Morgan, Lewis & Bockius LLP (law firm),
counsel to the
S-9
<PAGE>
Trust, Administrator and Distributor, Director and Secretary of SEI
Investments. Trustee of The Advisors' Inner Circle Fund, The Arbor Fund, The
Expedition Funds, Marquis Funds-Registered Trademark-, SEI Asset Allocation
Trust, SEI Daily Income Trust, SEI Index Funds, SEI Institutional Investments
Trust, SEI Institutional Managed Trust, SEI International Trust, SEI Liquid
Asset Trust and SEI Tax Exempt Trust.
FRANK E. MORRIS (DOB 12/30/23) -- Trustee** -- Retired since 1990. Peter
Drucker Professor of Management, Boston College, 1989-1990. President, Federal
Reserve Bank of Boston, 1968-1988. Trustee of The Advisors' Inner Circle Fund,
The Arbor Fund, The Expedition Funds, Marquis Funds-Registered Trademark-, SEI
Asset Allocation Trust, SEI Daily Income Trust, SEI Index Funds, SEI
Institutional Investments Trust, SEI Institutional Managed Trust, SEI
International Trust, SEI Liquid Asset Trust and SEI Tax Exempt Trust.
ROBERT A. PATTERSON (DOB 11/05/27) -- Trustee** -- Pennsylvania State
University, Senior Vice President, Treasurer (Emeritus). Financial and
Investment Consultant, Professor of Transportation (1984-present). Vice
President-Investments, Treasurer, Senior Vice President (Emeritus) (1982-1984).
Director, Pennsylvania Research Corp.; Member and Treasurer, Board of Trustees
of Grove City College. Trustee of The Advisors' Inner Circle Fund, The Arbor
Fund, The Expedition Funds, and Marquis Funds-Registered Trademark-.
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 Advisors' Inner
Circle Fund, The Arbor Fund, The Expedition Funds and Marquis Funds-Registered
Trademark-.
JAMES M. STOREY (DOB 04/12/31) -- Trustee** -- Partner, Dechert Price & Rhoads,
from September 1987 - December 1993; Trustee of The Advisors' Inner Circle Fund,
The Arbor Fund, The Expedition Funds, Marquis Funds-Registered Trademark-, SEI
Asset Allocation Trust, SEI Daily Income Trust, SEI Index Funds, SEI
Institutional Investments Trust, SEI Institutional Managed Trust, SEI
International Trust, SEI Liquid Asset Trust and SEI Tax Exempt Trust.
DAVID G. LEE (DOB 04/16/52) -- President and Chief Executive Officer -- Senior
Vice President of the Administrator and Distributor since 1993. Vice President
of the Administrator and Distributor, 1991-1993. President, GW Sierra Trust
Funds before 1991.
SANDRA K. ORLOW (DOB 10/18/53) -- Vice President and Assistant Secretary --
Vice President and Assistant Secretary of the Administrator and Distributor
since 1988.
S-10
<PAGE>
KEVIN P. ROBINS (DOB 04/15/61) -- Vice President and Assistant Secretary --
Senior Vice President, General Counsel and Assistant Secretary of SEI
Investments, Senior Vice President, General Counsel and Secretary of the
Administrator and Distributor since 1994. Vice President and Assistant
Secretary of SEI Investments, the Administrator and Distributor, 1992-1994.
Associate, Morgan, Lewis & Bockius LLP (law firm), 1988-1992.
RICHARD W. GRANT (DOB 10/25/45) -- Secretary -- 2000 One Logan Square,
Philadelphia, PA 19103, Partner, Morgan, Lewis & Bockius LLP (law firm), counsel
to the Trust, Administrator and Distributor.
KATHRYN L. STANTON (DOB 11/19/58) -- Vice President and Assistant Secretary --
Deputy General Counsel of SEI Investments, Vice President and Assistant
Secretary of the Administrator and Distributor since 1994. Associate, Morgan,
Lewis & Bockius LLP (law firm), 1989-1994.
MARK E. NAGLE (DOB 10/20/59) -- Controller and Chief Financial Officer -- Vice
President of Fund Accounting and Administration of SEI Fund Resources since
November 1996. Vice President of Fund Accounting, BISYS Fund Services,
September 1995 to November 1996. Senior Vice President and Site Manager,
Fidelity Investments, 1981 to September 1995.
TODD B. CIPPERMAN (DOB 02/14/66) -- Vice President and Assistant Secretary
- -- Vice President and Assistant Secretary of SEI Investments, the
Administrator and the Distributor since 1995. Associate, Dewey Ballantine
(law firm) (1994-1995). Associate, Winston & Strawn (law firm) (1991-1994).
JOSEPH M. O'DONNELL (DOB 11/13/54) -- Vice President and Assistant Secretary --
Vice President and Assistant Secretary of the Administrator and Distributor
since 1998. Vice President and General Counsel, FPS Services, Inc., 1993-1997.
Staff Counsel and Secretary, Provident Mutual Family of Funds, 1990-1993.
- -----------------------
*Messrs. Nesher and Doran are Trustees who may be deemed to be "interested"
persons of the Fund as that term is defined in the 1940 Act.
**Messrs. Cooney, Morris, Patterson, Peters and Storey serve as members of the
Audit Committee of the Fund.
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-11
<PAGE>
The following table exhibits Trustee compensation for the fiscal year ended
October 31, 1997.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
Total Compensation From
Registrant and Trust
Complex* Paid to
Aggregate Compensation From Pension or Retirement Estimated Annual Trustees for the Fiscal
Registrant for the Fiscal Benefits Accrued as Benefits Upon Year Ended October 31,
Name of Person, Position Year Ended October 31, 1997 Part of Trust Expenses Retirement 1997
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
John T. Cooney $8,154 N/A N/A $8,154 for services on 1
board
- ---------------------------------------------------------------------------------------------------------------------------------
Frank E. Morris $8,154 N/A N/A $8,154 for services on 1
board
- ---------------------------------------------------------------------------------------------------------------------------------
Robert Patterson $8,154 N/A N/A $8,154 for services on 1
board
- ---------------------------------------------------------------------------------------------------------------------------------
Eugene B. Peters $8,154 N/A N/A $8,154 for services on 1
board
- ---------------------------------------------------------------------------------------------------------------------------------
James M. Storey, Esq. $8,154 N/A N/A $8,154 for services on 1
board
- ---------------------------------------------------------------------------------------------------------------------------------
William M. Doran, Esq. $0 N/A N/A $0 for services on 1
board
- ---------------------------------------------------------------------------------------------------------------------------------
Robert A. Nesher $0 N/A N/A $0 for services on 1
board
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
*For the purpose of this table, the Trust is the only investment company in the
"Trust Complex."
COMPUTATION OF YIELD AND TOTAL RETURN
From time to time the Trust may advertise its yield and total return of the
Fund. These figures will be based on historical earnings and are not
intended to indicate future performance. No representation can be made
concerning actual future yields or returns. The yield of the Fund refers to
the annualized income generated by an investment in the Fund over a specified
30-day period. The yield is calculated by assuming that the income generated
by the investment during that 30-day period is generated in each period over
one year and is shown as a percentage of the investment. In particular,
yield will be calculated according to the following formula:
Yield = 2 [((a-b)/cd + 1) to the 6th power - 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 October 31, 1997, the yield for the Fund was 1.06%.
S-12
<PAGE>
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 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, 1997 and for the period from May 8, 1995
(commencement of operations) through October 31, 1997, the total return for the
Fund was 30.51% and 26.43% (annualized) respectively. The cumulative total
return for the Fund from May 8, 1995 through October 31, 1997 was 78.97%.
PURCHASE AND REDEMPTION OF SHARES
Purchases and redemptions may be made through the Transfer Agent on any Business
Day. 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, President's Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving and Christmas.
It is currently the Trust's policy to pay all redemptions in cash. The
Trust retains the right, however, to alter this policy to provide for
redemptions in whole or in part by a distribution in-kind, readily marketable
securities held by 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.
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 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 the 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.
S-13
<PAGE>
DETERMINATION OF NET ASSET VALUE
The securities of the Fund are valued by the Administrator. The Administrator
uses an independent pricing service to obtain valuations of securities. The
pricing service relies primarily on prices of actual market transactions as well
as trader quotations. However, the service may also use a matrix system to
determine valuations of fixed income securities, which system considers such
factors as security prices, yields, maturities, call features, ratings and
developments relating to specific securities in arriving at valuations. The
procedures of the pricing service and its valuations are reviewed by the
officers of the Trust under the general supervision of the Trustees.
TAXES
The following is only a summary of certain federal income tax considerations
generally affecting the Fund and its shareholders, and 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
The following discussion of federal income tax consequences is based on the
Internal Revenue Code of 1986 (the "Code") and the regulations issued thereunder
as in effect on the date of this Statement of Additional Information. New
legislation, as well as administrative changes or court decisions, may
significantly change the conclusions expressed herein, and may have a
retroactive effect with respect to the transactions contemplated herein.
The Fund intends to qualify as a "regulated investment company" ("RIC") as
defined under Subchapter M of the Code. By following such a policy, the Fund
expects to eliminate or reduce to a nominal amount the federal taxes to which it
may be subject.
In order to qualify for treatment as a RIC under the Code, the Fund must
distribute annually to its shareholders at least the sum of 90% of its net
interest income excludable from gross income plus 90% of its investment company
taxable income (generally, net investment income plus net short-term capital
gain) ("Distribution Requirement") and also must meet several additional
requirements. Among these requirements are the following: (i) at least 90% of
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
S-14
<PAGE>
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 or which are engaged in the same,
similar or related trades or business.
Notwithstanding the Distribution Requirement described above, which
requires only that the Fund distribute at least 90% of its annual investment
company taxable income and does not require any minimum distribution of net
capital gain (the excess of net long-term capital gain over net short-term
capital loss), the Fund will be subject to a nondeductible 4% federal excise
tax to the extent it fails to distribute by the end of any calendar year 98%
of its ordinary income for that year and 98% of its capital gain net income
(the excess of short- and long-term capital gains over short- and long-term
capital losses) for the one-year period ending on October 31 of that year,
plus certain other amounts.
Any gain or loss recognized on a sale or redemption of shares of a Fund by a
non-exempt shareholder who is not a dealer in securities generally will be
treated as a long-term capital gain or loss if the shares have been held for
more than eighteen months, will be treated as a mid-term capital gain if the
shares have been held for more than twelve, but not more than eighteen, months
and otherwise generally will be treated as a short-term capital gain or loss.
If shares of the Fund on which a net capital gain distribution has been received
are subsequently sold or redeemed and such shares have been held for six months
or less, any loss recognized will be treated as a long-term capital loss to the
extent of the long-term capital gain distribution.
In certain cases, the Fund will be required to withhold, and remit to the United
States Treasury, 31% of any distributions paid to a shareholder who (1) has
failed to provide a correct taxpayer identification number, (2) is subject to
backup withholding by the Internal Revenue Service, or (3) has not certified to
the Fund that such shareholder is not subject to backup withholding.
If the Fund fails to qualify as a RIC for any taxable year, it will be
taxable at regular corporate rates. In such an event, all distributions
(including capital gains distributions) will be taxable as ordinary dividends
to the extent of the Fund's current and accumulated earnings and profits and
such distributions will generally be eligible for the corporate
dividends-received deduction.
S-15
<PAGE>
STATE TAXES
The Fund is not liable for any income or franchise tax in Massachusetts if it
qualifies as a RIC for federal income tax purposes. 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 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 Fund will not necessarily
be paying the lowest spread or commission available.
The money market instruments in which the 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 Fund will primarily consist of dealer spreads and
underwriting commissions.
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
S-16
<PAGE>
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 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, 1997, the
Fund directed all of its brokerage to the Adviser.
It is expected that the Fund will execute all or substantially all of the Fund's
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 the Fund on an exchange. These rules further require
that commissions paid to the Adviser or 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 Fund, have adopted
procedures for evaluating the reasonableness of commissions paid to the Adviser
and the Distributor and will review these procedures periodically.
For the fiscal year ended October 31, 1997, the Fund paid no brokerage
commissions to the Distributor. For the fiscal years ended October 31, 1996 and
October 31, 1997, all securities transactions for the Fund were directed to the
Adviser. For the fiscal period ended October 31, 1995, and the fiscal years
ended October 31, 1996 and October 31, 1997, the Fund paid $48,428, $56,991 and
$60,672, respectively, in commissions to the Adviser.
For the fiscal years ended October 31, 1996 and October 31, 1997, the portfolio
turnover rate for the Fund was 24.39% and 21.71%, respectively.
For the fiscal year ended October 31, 1997, no commissions were paid on
brokerage transactions, pursuant to an agreement or understanding, to brokers in
return for research services provided by the brokers.
For the period ended October 31, 1995 and for the fiscal years ended October 31,
1996 and 1997, the Fund paid the following brokerage commissions:
S-17
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------
TOTAL BROKERAGE COMMISSIONS AMOUNT PAID TO SEI INVESTMENTS(1)
- ------------------------------------------------------------------------
1995 1996 1997 1995 1996 1997
- ------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$51,140 $56,991 $60,672 $0 $0 $0
- ------------------------------------------------------------------------
</TABLE>
* An asterisk indicates that the Fund
had not commenced operations for the period indicated.
For the fiscal period and years indicated, the Fund paid the following brokerage
commissions:
<TABLE>
<CAPTION>
% OF TOTAL % OF TOTAL
TOTAL $ AMOUNT OF TOTAL $ AMOUNT OF BROKERAGE BROKERAGE
BROKERAGE COMMISSIONS BROKERAGE COMMISSIONS COMMISSIONS TRANSACTIONS
PAID PAID TO AFFILIATED BROKERS PAID TO THE EFFECTED THROUGH
AFFILIATED AFFILIATED BROKERS
BROKERS
- -------------------------------------------------------------------------------------------------
1995 1996 1997 1995 1996 1997 1997 1997
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$48,428 $56,991 $60,672 $48,428 $56,991 $60,672 100% %100
- -------------------------------------------------------------------------------------------------
</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
S-18
<PAGE>
express disclaimer of shareholder liability for obligations of the Trust and
requires that notice of such disclaimer be given in each agreement,
obligation or instrument entered into or executed by or on behalf of the
Trust or the Trustees, and because the Declaration of Trust provides for
indemnification out of the Trust property for any shareholder held
personally liable for the obligations of the Trust.
LIMITATION OF TRUSTEES' LIABILITY
The Declaration of Trust provides that a Trustee shall be liable only for his or
her own willful defaults and, if reasonable care has been exercised in the
selection of officers, agents, employees or investment advisers, shall not be
liable for any neglect or wrongdoing of any such person. The Declaration of
Trust also provides that the Trust will indemnify its Trustees and officers
against liabilities and expenses incurred in connection with actual or
threatened litigation in which they may be involved because of their offices
with the Trust unless it is determined in the manner provided in the Declaration
of Trust that they have not acted in good faith in the reasonable belief that
their actions were in the best interests of the Trust. However, nothing in the
Declaration of Trust shall protect or indemnify a Trustee against any liability
for his or her willful misfeasance, bad faith, gross negligence or reckless
disregard of his or her duties.
5% SHAREHOLDERS
As of February 1, 1998, the following persons were the only persons who were
record owners (or to the knowledge of the Trust, beneficial owners) of 5% or
more of each class of the Fund's shares.
<TABLE>
<CAPTION>
Shareholder Number of Shares %
- ----------- ---------------- -
<S> <C> <C>
First Manhattan Co. 4,926,781.8700 96.44%
Omnibus Account for the
Exclusive Benefit of Customers
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
S-19
<PAGE>
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, 1997, including
notes thereto and the report of Arthur Andersen LLP thereon, are herein
incorporated by reference. A copy of the 1997 Annual Report to Shareholders
must accompany the delivery of this Statement of Additional Information.
S-20
<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.
A-1
<PAGE>
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.
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.
A-2
<PAGE>
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-3
<PAGE>
CRA REALTY SHARES PORTFOLIO
Investment Adviser:
CRA REAL ESTATE SECURITIES, L.P.
The Advisors' Inner Circle Fund (the "Fund") provides a convenient and
economical means of investing in professionally managed portfolios of
securities. This Prospectus offers shares of the following mutual fund (the
"Portfolio"), which is a separate series of the Fund.
CRA REALTY SHARES PORTFOLIO
Class A Shares
and
Institutional Shares
This Prospectus sets forth concisely the information about the Fund and the
Portfolio that a prospective investor should know before investing. Investors
are advised to read this Prospectus and retain it for future reference. A
Statement of Additional Information relating to the Portfolio dated the same
date as this Prospectus has been filed with the Securities and Exchange
Commission and is available without charge by calling 1-888-712-1103. The
Statement of Additional Information is incorporated into this Prospectus by
reference. The Statement of Additional Information, material incorporated by
reference into this document, and other information regarding the Fund is
maintained electronically with the Securities and Exchange Commission at its
internet web site (http://www.sec.gov).
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
February 27, 1998
CRA-F-001-0 THE ADVISORS' INNER CIRCLE FUND
<PAGE>
SUMMARY
The following summary provides basic information about Class A shares and
Institutional shares of the CRA Realty Shares Portfolio (the "Portfolio"). The
Portfolio is one of the mutual funds comprising The Advisors' Inner Circle Fund
(the "Fund"). This summary is qualified in its entirety by reference to the
more detailed information provided elsewhere in this Prospectus and in the
Statement of Additional Information.
WHAT IS THE INVESTMENT OBJECTIVE AND POLICIES? The Portfolio seeks total return
through an investment in real estate securities. The Portfolio seeks to achieve
its objective through a combination of above-average income and long-term growth
of capital by investing primarily in income-producing equity securities of
publicly traded companies primarily engaged in the U.S. real estate industry
("real estate companies"), including Real Estate Investment Trusts ("REITs").
Under normal circumstances, at least 65% of the Portfolio's total assets will be
invested in income producing equity securities of real estate companies. The
Portfolio seeks to invest in equity securities of 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.
WHAT ARE THE RISKS INVOLVED WITH AN INVESTMENT IN THE PORTFOLIO? The investment
policies of the Portfolio entail certain risks and considerations of which an
investor should be aware. The Portfolio invests in securities that fluctuate in
value, and investors should expect the Portfolio's net asset value per share to
fluctuate. Because the Portfolio invests primarily in the securities of
companies principally engaged in the real estate industry, its investments will
be subject to certain risks associated with the direct ownership of real estate.
Further, because it is expected that the Portfolio will invest a substantial
portion of its assets in REITs, the Portfolio will also be subject to certain
risks associated with REITs. Finally, because the Portfolio concentrates its
investments in companies primarily engaged in the real estate industry and is a
non-diversified portfolio, the Portfolio may invest a greater proportion of its
assets in the securities of a smaller number of issuers and, as a result, will
be subject to a greater risk than would a more diversified portfolio with
respect to its portfolio securities.
For more information about the Portfolio, see "Investment Objective and
Policies," and "Description of Permitted Investments and Risk Factors."
WHO IS THE ADVISER? CRA Real Estate Securities, L.P. serves as the investment
adviser of the Portfolio (the "Adviser" or "CRA"). In addition to advising the
Portfolio, the Adviser, through its predecessors, has managed investments in
real estate equity securities in a manner consistent with that used by the
Portfolio on behalf of pension funds, insurance companies and wealthy
individuals since 1984. See "Expense Summary" and "The Adviser."
2
<PAGE>
WHO IS THE ADMINISTRATOR? SEI Fund Resources serves as the administrator and
shareholder servicing agent of the Portfolio. See "The Administrator."
WHO IS THE TRANSFER AGENT? DST Systems, Inc. serves as the transfer agent and
dividend disbursing agent for the Portfolio. See "The Transfer Agent."
WHO IS THE DISTRIBUTOR? SEI Investments Distribution Co. acts as the
distributor of the Portfolio's shares. See "The Distributor."
IS THERE A SALES LOAD? No, shares of each class of the Portfolio are offered on
a no-load basis.
IS THERE A MINIMUM INVESTMENT? The minimum initial investment is $100,000 for
Institutional shares and $5,000 for Class A shares of the Portfolio. Subsequent
investments may be made in any amount. The Portfolio reserves the right to
waive the investment minimums in its sole discretion.
HOW DO I PURCHASE AND REDEEM SHARES? Purchases and redemptions may be made
through the Transfer Agent on any day when the New York Stock Exchange is open
for business (a "Business Day"). A purchase order will be effective as of the
Business Day received by the Transfer Agent if the Transfer Agent receives an
order and payment by check or with readily available funds prior to the time the
Portfolio calculates its net asset value (normally, 4:00 p.m., Eastern time).
Redemption orders placed with the Transfer Agent prior to the time the Portfolio
calculates its net asset value (normally, 4:00 p.m., Eastern time) on any
Business Day will be effective that day. The Fund has also authorized certain
broker-dealers and other financial intermediaries to accept purchase orders and
redemption requests up to the times mentioned above on behalf of the Portfolio.
The Portfolio also offers both a Systematic Investment Plan and a Systematic
Withdrawal Plan. The purchase and redemption price for shares is the net asset
value per share determined as of the end of the day the order is effective. See
"Purchase and Redemption of Shares."
HOW ARE DISTRIBUTIONS PAID? Substantially all of the net investment income
(exclusive of capital gains) of the Portfolio is distributed in the form of
quarterly dividends. Any capital gain is distributed at least annually.
Distributions are paid in additional shares unless the shareholder elects to
take the payment in cash. See "Dividends and Distributions."
3
<PAGE>
EXPENSE SUMMARY
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES CLASS A INSTITUTIONAL
- -------------------------------------------------------------------------------
<S> <C> <C>
Sales Load Imposed on Purchases None None
Sales Load Imposed on Reinvested Dividends None None
Deferred Sales Load None None
Redemption Fees (1) 0.75%(2) 0.75%(2)
Exchange Fees None None
- -------------------------------------------------------------------------------
</TABLE>
(1) A wire redemption charge, currently $10.00, is deducted from the amount of
wire redemption payments.
(2) The Portfolio charges a 0.75% transaction fee on redemptions of shares that
have been held less than six months to discourage short-term trading.
<TABLE>
<CAPTION>
ANNUAL OPERATING EXPENSES (as a percentage of average net assets)
- -------------------------------------------------------------------------------
Class A Institutional
- --------------------------------------------------------------------------------
<S> <C> <C>
Advisory Fees (after fee waiver)(1) 0.47% 0.47%
Other Expenses (after
reimbursements)(1) 0.53% 0.53%
Shareholder Service Fees 0.25% None
- --------------------------------------------------------------------------------
Total Operating Expenses (after 1.25% 1.00%
fee waiver and expense
reimbursements)(1)
- --------------------------------------------------------------------------------
</TABLE>
(1) The Adviser has agreed, on a voluntary basis, to waive "Advisory Fees" and
reimburse "Other Expenses" for the Portfolio to the extent necessary to keep the
Portfolio's "Total Operating Expenses" during the current fiscal year from
exceeding 1.25% and 1.00% for Class A shares and Institutional shares,
respectively. The Adviser reserves the right to terminate such waivers and
reimbursements at any time in its sole discretion. Absent such waivers and
reimbursements, Advisory Fees, Other Expenses and Total Operating Expenses for
the Class A shares of the Portfolio would be .70%, .53% and 1.48%, respectively,
and such fees and expenses for Institutional Shares of the Portfolio would be
.70%, .53% and 1.23%, respectively.
<TABLE>
<CAPTION>
EXAMPLE
- --------------------------------------------------------------------------------
1 3 5 10
year years years years
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
An investor in the Portfolio would pay the
following expenses on a $1,000 investment
assuming (1) a 5% annual return and (2)
redemption at the end of each time period:
Class A shares . . . . . . . . . . . $13 $40 $69 $151
Institutional shares . . . . . . . . $10 $32 $55 $122
- --------------------------------------------------------------------------------
</TABLE>
THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
The purpose of the expense table and example is to assist the investor in
understanding the various costs and expenses that may be directly or indirectly
borne by investors in each class of the Portfolio. A person who purchases
shares through a financial institution may be charged separate fees by that
institution. Additional information may be found under "The Adviser," "The
Administrator" and "Shareholder Services."
4
<PAGE>
FINANCIAL HIGHLIGHTS THE ADVISORS' INNER CIRCLE FUND
The following information on the CRA Realty Shares Portfolio has been audited by
Arthur Andersen LLP, the Fund's independent public accountants, as indicated in
their report dated December 12, 1997 on the Fund's financial statements as of
October 31, 1997. This table should be read in conjunction with the Fund's
audited financial statements and notes thereto. Class A Shares were not offered
to the public during the fiscal year ended October 31, 1997, and therefore no
financial information is presented for Class A Shares below. The Portfolio's
financial statements and additional performance information are contained in the
Annual Report to Shareholders, which is available without charge by calling
1-888-712-1103.
For a Share of the Portfolio Outstanding Throughout the Period:
<TABLE>
<CAPTION>
CRA Realty
Shares
INSTITUTIONAL SHARES Portfolio
------------------------------------------------------------------------------
1/1/97 (1)
to
10/31/97
------------------------------------------------------------------------------
<S> <C>
Net Asset Value, Beginning of Period . . . . . . . . . . . . $10.00
------------------------------------------------------------------------------
Income From Investment Operations:
Net Investment Income . . . . . . . . . . . . . . . . . 0.26
Realized and Unrealized
Gains (or Losses) on Securities.. . . . . . . . . . 1.53
------------------------------------------------------------------------------
Total From Investment Operations . . . . . . . . . . . . . . 1.79
------------------------------------------------------------------------------
Less Distributions:
Distributions From Net Investment Income . . . . . . . . . . (0.30)
Distributions From Capital Gains . . . . . . . . . . . . . . --
Total Distributions . . . . . . . . . . . . . . . . (0.30)
NET ASSET VALUE, END OF PERIOD . . . . . . . . . . . . . . . $11.49
------------------------------------------------------------------------------
TOTAL RETURN . . . . . . . . . . . . . . . . . . . . . . . . 18.17%**
------------------------------------------------------------------------------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End Of Period (000) . . . . . . . . . . . . . . . $34,797
Ratio Of Expenses To Average Net Assets . . . . . . . . . . . 1.00%*
Ratio Of Expenses To Average Net Assets
(Excluding Waivers and Reimbursements) . . . . . . . . 1.63%*
Ratio Of Net Investment Income To Average
Net Assets . . . . . . . . . . . . . . . . . . . . . . . 2.91%*
Ratio Of Net Investment Income to Average Net Assets
(Excluding Waivers and Reimbursements) . . . . . . . . . 2.28%*
Portfolio Turnover Rate . . . . . . . . . . . . . . . . . . . 102.74%
------------------------------------------------------------------------------
Average Commission Rate (2) . . . . . . . . . . . . . . . . . $0.0588
------------------------------------------------------------------------------
</TABLE>
* Annualized
** Total return is for the period indicated and has not been annualized.
(1) The CRA Realty Shares Portfolio commenced operations on January 1,
1997.
(2) Average commission rate paid per share for security purchases and
sales during the period.
5
<PAGE>
THE FUND AND THE PORTFOLIO
The Advisors' Inner Circle Fund (the "Fund") offers shares of a number of
diversified and non-diversified mutual funds, each of which is a separate series
("portfolio") of the Fund. Each share of each portfolio represents an
undivided, proportionate interest in that portfolio. This Prospectus offers
Class A shares and Institutional shares of the Fund's CRA Realty Shares
Portfolio (the "Portfolio"). Information regarding the other portfolios in the
Fund is contained in separate prospectuses that may be obtained by calling
1-800-932-7781.
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 equity securities of companies principally engaged
in the U.S. real estate industry, including Real Estate Investment Trusts
("REITs"). 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. 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.
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
6
<PAGE>
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 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.
7
<PAGE>
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.
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.
8
<PAGE>
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.
For additional information regarding the Portfolio's permitted investments, see
"Description of Permitted Investments and Risk Factors" in this Prospectus and
"Description of Permitted Investments" in the Statement of Additional
Information.
INVESTMENT LIMITATIONS
- ------------------------------------------------------------------------------
The investment objective and investment limitations are fundamental policies of
the Portfolio. Fundamental policies cannot be changed with respect to the Fund
or the Portfolio without the consent of the holders of a majority of the Fund's
or the Portfolio's outstanding shares. 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."
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.
Additional investment limitations are set forth in the Statement of Additional
Information.
9
<PAGE>
THE ADVISER
The Adviser, CRA Real Estate Securities, L.P., is a registered investment
advisor 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. is owned by its principals Messrs. Kenneth D. Campbell,
T. Ritson Ferguson and Jarrett B. Kling and the principals of Clarion Partners,
an affiliate of the Adviser and a registered investment adviser. As of December
31, 1997, the Adviser had approximately $1.4 billion in assets under management.
The principal business address of the Adviser is Suite 205, 259 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 $5.3 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 an
investment advisory agreement (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.
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
10
<PAGE>
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 following graph presents the composite compounded annual rates of total
return attained by all of the accounts managed by CRA Real Estate Securities,
L.P. and its predecessors with investment objectives and policies substantially
similar to those of the Portfolio for the time periods indicated, compared to
the NAREIT - All REITs Index and the Wilshire Real Estate Securities Index.
11
<PAGE>
<TABLE>
<CAPTION>
PAST PERFORMANCE OF CRA AND ITS PREDECESSORS
PERIODS ENDING DECEMBER 31, 1997
[GRAPH]
1 YEAR 3 YEARS 5 YEARS 10 YEARS SINCE INCEPTION
(ANNUALIZED) (ANNUALIZED) (ANNUALIZED) (OCTOBER, 1984)
<S> <C> <C> <C> <C> <C>
CRA 19.1 25.1 20.3 14.7 12.8
NAREIT - ALL REITS INDEX 18.9 24.1 17.9 12.1 10.5
WILSHIRE REAL ESTATE SECURITIES 19.8 23.1 16.9 9.1 9.5
</TABLE>
* The performance results described above are based on a composite of all
discretionary real estate securities portfolios that were advised by CRA and its
predecessors with investment objectives and policies substantially similar to
those of the Portfolio through December 31, 1997. Audit Investments, Inc.
("Audit") was formed on January 29, 1969 and began managing accounts with
investment objectives and policies substantially similar to those of the
Portfolio in October, 1984. Audit was reorganized into Campbell Radnor Advisors
on January 1, 1994. Campbell Radnor Advisors was subsequently reorganized into
CRA Real Estate Securities, L.P. on March 31, 1995. The same advisory personnel
who have previously managed the discretionary portfolio accounts at each of the
predecessors serve as portfolio managers for the Portfolio. These accounts
were managed by Mr. Campbell through November, 1992; Mr. Ferguson became a
co-portfolio manager with Mr. Campbell in December, 1992; and Messrs. Campbell
and Ferguson co-managed the accounts for all subsequent periods shown. The
results are net of the private account advisory fees and assume the reinvestment
of dividends. As of December 31, 1997, CRA had $1.4 billion in assets under
management, all of which is represented in the foregoing results.
The Wilshire and NAREIT indices are unmanaged indices without transaction costs
and are widely recognized as indicators of the performance of the real estate
securities market. The Wilshire Real Estate Securities Index is a
market-weighted index comprised of equity REITs and Real Estate Operating
Companies. The NAREIT index is a market-weighted index comprised of all of the
tax-qualified REITs listed on the New York Stock Exchange, American Stock
Exchange and the NASDAQ National Market System.
12
<PAGE>
Registered investment companies managed by the Adviser, including the Portfolio,
are subject to certain regulatory and tax restrictions on investment that are
not applicable to the Adviser's private accounts. Additionally, the operating
expenses of the Portfolio will be different from, and may be higher than, the
operating expenses of the individual accounts. The performance of CRA and its
predecessors is provided merely to indicate their proficiency in managing
similar investment portfolios. Investors should note that past performance is
no guarantee of future results.
THE ADMINISTRATOR
SEI Fund Resources (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 Administrator also serves as the shareholder servicing agent for the
Portfolio under a shareholder servicing agreement with the Fund.
THE TRANSFER AGENT
DST Systems, Inc., 1004 Baltimore St., Second Floor, Kansas City, Missouri
64105 (the "Transfer Agent") serves as the transfer agent and dividend
disbursing agent for the Fund under a transfer agency agreement with the Fund.
THE DISTRIBUTOR
SEI Investments Distribution Co. (the "Distributor"), a wholly-owned subsidiary
of SEI, serves as the Fund's distributor pursuant to a distribution agreement
(the "Distribution Agreement"). No compensation is paid to the Distributor for
distribution services for the shares of the Portfolio.
SHAREHOLDER SERVICES
The Fund has adopted a shareholder servicing plan for Class A shares (the
"Service Plan") under which a shareholder servicing fee of up to .25% of average
daily net assets attributable to Class A 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:
sub-accounting; providing information on share positions to clients; forwarding
shareholder communications to clients; processing purchase, redemption orders;
and processing dividend
13
<PAGE>
payments. Under the Service Plan, the Distributor may retain as a profit any
difference between the fee it receives and the amount it pays to third parties.
PORTFOLIO TRANSACTIONS
The Advisory Agreement authorizes the Adviser to select broker-dealers that will
execute the purchase or sale of investment securities for the Portfolio and
directs the Adviser to seek to obtain the best net results.
The Portfolio may execute brokerage or other agency transactions through the
Distributor for which the Distributor may receive usual and customary
compensation. Because shares of the Portfolio are not marketed through
intermediary broker-dealers, it is not the Portfolio's practice to allocate
brokerage or effect principal transactions with broker-dealers on the basis of
sales of shares that may be made through such firms. However, the Adviser may
place orders for the Portfolio with qualified broker-dealers who refer clients
to the Portfolio.
PURCHASE AND REDEMPTION OF SHARES
Investors may purchase and redeem shares of the Portfolio directly through the
Transfer Agent, P.O. Box 419009, Kansas City, Missouri 64141-6009 by mail or
wire transfer. All shareholders may place wire transfer orders and redemption
orders by telephoning 1-800-808-4921; when market conditions are extremely busy,
it is possible that investors may experience difficulties placing orders by
telephone and may wish to place orders by mail. Purchases and redemptions of
shares of the Portfolio may be made on any Business Day. Shares of the
Portfolio are offered only to residents of states in which such shares are
eligible for purchase. Certain broker-dealers assist their clients in the
purchase or redemptions of shares from the Distributor and charge a fee for this
service in addition to the Portfolio's public offering price. In addition, the
Fund has authorized certain broker-dealers and other financial intermediaries
(collectively, "Authorized Broker-Dealers") to act as the Portfolio's agent for
the purposes of accepting purchase orders and redemption requests. The
Portfolio will be deemed to have received a purchase order or redemption request
upon receipt of the order or request by an Authorized Broker-Dealer.
The Portfolio is eligible for investment by tax-deferred retirement programs
such as 401(k) plans, Simplified Employee Pension Plans ("SEP accounts") and
IRAs. All accounts established in the Portfolio under such programs must elect
to have all dividends reinvested in the Portfolio.
MINIMUM INVESTMENT AND ACCOUNT SIZES AND INVOLUNTARY REDEMPTION OF SHARES
For a Portfolio account, the minimum initial investment and minimum account size
are $5,000 for Class A shares and $100,000 for Institutional shares. If the
value of a Portfolio account falls below $5,000 for Class A shares or below
$100,000 for Institutional shares, because of shareholder redemption(s), the
Fund will notify the shareholder, and if the account value remains
14
<PAGE>
below $5,000 or $100,000, respectively, for a continuous 60-day period, the
shares in such account are subject to redemption by the Fund and, if redeemed,
the net asset value of such shares will be promptly paid to the shareholder.
The Fund, however, will not redeem shares based solely upon changes in the
market that reduce the net asset value of shares.
The Fund reserves the right to modify or terminate the involuntary redemption
features of the shares as stated above at any time upon 60 days' notice to
shareholders.
Investors may also invest in the Fund by purchasing shares through a trust
department, broker, dealer, agent, financial planner, financial services firm or
investment adviser. An investor may be charged an additional service or
transaction fee by that institution.
The Fund reserves the right to waive the minimum initial investment in its sole
discretion. In addition, the initial minimum investment levels and account
sizes will be waived for the officers and employees, and the family members of
the officers and employees, of the Adviser and its affiliates. The minimum
investment levels and account sizes may also be waived at the discretion of the
Adviser for (i) certain trust departments, brokers, dealers, agents, affinity
groups, financial planners, financial services firms, or investment advisers
that have entered into an agreement with the Administrator or its affiliates;
and (ii) retirement and deferred compensation plans and trusts used to fund such
plans, including, but not limited to, those defined in Section 401(a), 403(b) or
457 of the Code, and "rabbi trusts." Further information regarding rabbi trusts
is set forth in the Statement of Additional Information.
INITIAL PURCHASES DIRECTLY FROM THE FUND
The Fund's determination of an investor's eligibility to purchase shares of a
given class will take precedence over the investor's selection of a class.
Assuming the investor is eligible for the class, the Fund will select the most
favorable class for the investor, if the investor has not done so.
PURCHASES BY MAIL
An account may be opened by mailing a check or other negotiable bank draft
(payable to the name of the Portfolio) for $5,000 or more for Class A shares and
$100,000 or more for Institutional shares, together with a completed Account
Application to the Transfer Agent, P.O. Box 419009, Kansas City, Missouri
64141-6009. Subsequent investments may also be mailed directly to the Transfer
Agent. All purchases made by check should be in U.S. dollars and made payable
to CRA Realty Shares Portfolio. Third party checks, credit cards, credit card
checks and cash will not be accepted. When purchases are made by check,
redemption proceeds will not be forwarded until the investment being redeemed
has been in the account for up to 15 business days.
15
<PAGE>
PURCHASES BY WIRE TRANSFER
Shareholders having an account with a commercial bank that is a member of the
Federal Reserve System may purchase shares of the Portfolio by requesting their
bank to transmit funds by wire to: United Missouri Bank, N.A.; ABA
#10-10-00695; for Account Number 98-7052-396-5; Further Credit: CRA Realty
Shares Portfolio. The shareholder's name and account number must be specified
in the wire.
INITIAL PURCHASES: Before making an initial investment by wire, an investor
must first telephone 1-800-808-4921 to be assigned an account number. The
investor's name, account number, taxpayer identification number or Social
Security number, and address must be specified in the wire. In addition, an
Account Application should be promptly forwarded to: DST Systems, Inc., P.O.
Box 419009, Kansas City, Missouri 64141-6009.
SUBSEQUENT PURCHASES: Additional investments may be made at any time through
the wire procedures described above, which must include a shareholder's name and
account number. The investor's bank may impose a fee for investments by wire.
GENERAL INFORMATION REGARDING PURCHASES
A purchase order will be effective as of the day received by the Transfer Agent
(or an Authorized Broker-Dealer) if the Transfer Agent (or an Authorized
Broker-Dealer) receives the order and payment before the Portfolio calculates
its net asset value (normally, 4:00 p.m., Eastern time). Payment may be made by
check or readily available funds. The purchase price of shares of the Portfolio
is the net asset value per share next determined after a purchase order is
effective. Purchases will be made in full and fractional shares of a Portfolio
calculated to three decimal places. The Fund will not issue certificates
representing shares of the Portfolio.
If a check received for the purchase of shares does not clear, the purchase will
be canceled, and the investor could be liable for any losses or fees incurred.
The Fund reserves the right to reject a purchase order when the Fund determines
that it is not in the best interest of the Fund or its shareholders to accept
such order.
SYSTEMATIC INVESTMENT PLAN -- A shareholder may also arrange for periodic
additional investments in the Portfolio through automatic deductions by
Automated Clearing House ("ACH") transfers from a checking or savings account by
completing the appropriate section of the Account Application form. This
Systematic Investment Plan is subject to the account minimum initial purchase
amounts and a minimum pre-authorized investment amount of $50 per month. An
Account Application form may be obtained by calling 1-888-712-1103.
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REDEMPTIONS
Redemption orders received by the Transfer Agent (or an Authorized
Broker-Dealer) prior to the time the portfolio calculates its net asset value
(normally, 4:00 P.M., Eastern time) on any Business Day will be effective
that day. The redemption price of shares is the net asset value per share of
the Portfolio next determined after the redemption order is effective.
Payment on redemption will be made as promptly as possible and, in any event,
within seven days after the redemption order is received, provided, however,
that redemption proceeds for shares purchased by check (including certified
or cashier's checks) will be forwarded only upon collection of payment for
such shares; collection of payment may take up to 15 days. Shareholders may
not close their accounts by telephone.
The Portfolio charges a redemption fee of 0.75% on redemptions of shares that
have been held less than six months. The fee is deducted before your redemption
proceeds are mailed or wired to you; you cannot pay the fee separately. If some
of the shares that you are redeeming have been held for six months or more, the
fee will apply only to those shares held less than six months. The fee does not
apply to reinvested dividends. The redemption fee is designed to discourage
short-term trading and any proceeds of such fee will be credited to the net
assets of the Portfolio.
Shareholders may receive redemption payments in the form of a check or by
Federal Reserve wire transfer or ACH wire transfer. There is no charge for
having a check for redemption proceeds mailed. The custodian will deduct a wire
charge, currently $10.00, from the amount of a wire redemption. Shareholders
cannot redeem shares of a Portfolio by Federal Reserve wire on federal holidays
restricting wire transfers. The Fund does not charge for ACH wire transfers;
however, such transactions will not be posted to a shareholder's bank account
until the second Business Day following the transaction.
SYSTEMATIC WITHDRAWAL PLAN -- The Portfolio offers a Systematic Withdrawal Plan
(the "SWP") for shareholders who wish to receive regular distributions from
their account. Upon commencement of the SWP, the account must have a current
value of $25,000 or more. Shareholders may elect to receive automatic payments
via ACH wire transfers of $100 or more on a monthly, quarterly, semi-annual or
annual basis. An application form for SWP may be obtained by calling
1-888-712-1103.
Shareholders should realize that if withdrawals exceed income dividends, their
invested principal in the account will be depleted. Thus, depending on the
frequency and amounts of the withdrawal payments and/or any fluctuations in the
net asset value per share, their original investment could be exhausted
entirely. To participate in the SWP, shareholders must have their dividends
automatically reinvested. Shareholders may change or cancel the SWP at any
time, upon written notice to the Transfer Agent.
Neither the Fund nor the Transfer Agent will be responsible for the authenticity
of instructions received by telephone if they reasonably believe those
instructions to be genuine. The Fund and
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<PAGE>
the Transfer Agent will each employ reasonable procedures to confirm that
telephone instructions are genuine. Such procedures may include taping of
telephone conversations.
The right of redemption may be suspended or the date of payment of redemption
proceeds postponed during certain periods as set forth more fully in the
Statement of Additional Information.
NET ASSET VALUE
The net asset value per share of a class of the Portfolio is determined by
dividing the total market value of the Portfolio's investments and other assets
attributable to the class, less any liabilities attributable to the class, by
the total number of shares of that class in the Portfolio that are outstanding.
Net asset value per share is determined daily as of the close of regular trading
on the New York Stock Exchange (normally 4:00 p.m., Eastern time) on any
Business Day. Purchase or redemption orders received by the Portfolio after its
net asset value has been calculated will be priced at the next Business Day's
net asset value.
PERFORMANCE
From time to time, the Portfolio may advertise its total return. These figures
will be based on historical earnings and are not intended to indicate future
performance. No representation can be made regarding actual future returns.
The total return of the Portfolio refers to the average compounded rate of
return on a hypothetical investment, for designated time periods (including but
not limited to the period from which the Portfolio commenced operations through
the specified date), assuming that the entire investment is redeemed at the end
of each period and assuming the reinvestment of all dividend and capital gain
distributions.
The 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.
The Portfolio may periodically compare its performance to that of other mutual
funds tracked by mutual fund rating services (such as Lipper Analytical
Services, Inc.), or by financial and business publications and periodicals, of
broad groups of comparable mutual funds, unmanaged indices, which may assume
investment of dividends but generally do not reflect deductions for
administrative and management costs, or other investment alternatives. The
Portfolio may quote Morningstar, Inc., a service that ranks mutual funds on the
basis of risk-adjusted performance. The Portfolio may quote Ibbotson Associates
of Chicago, Illinois, which provides historical returns of the capital markets
in the United States. The Portfolio may use long term performance of these
capital markets to demonstrate general long-term risk versus reward scenarios
and could include the value of a hypothetical investment in any of the
capital markets. The Portfolio may also quote financial and business
publications and periodicals as they relate to fund management, investment
philosophy, and investment techniques. The Portfolio may also quote indices
relating to real
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estate securities published by the National Association of Real Estate
Investment Trusts (NAREIT) and Wilshire Associates Incorporated ("Wilshire").
The Portfolio may quote various measures of volatility and benchmark correlation
in advertising and may compare these measures to those of other funds. Measures
of volatility attempt to compare historical share price fluctuations or total
returns to a benchmark while measures of benchmark correlation indicate how
valid a comparative benchmark might be. Measures of volatility and correlation
are calculated using averages of historical data and cannot be calculated
precisely.
Additional performance information regarding the Portfolio is set forth in
the Fund's Annual Report to Shareholders, which may be obtained on request
and without charge by calling 1-888-712-1103.
TAXES
The following summary of certain federal income tax consequences is based on
current tax laws and regulations, which may be changed by legislative, judicial
or administrative action.
No attempt has been made to present a detailed explanation of the federal,
state, or local income tax treatment of the Portfolio or its shareholders.
Accordingly, shareholders are urged to consult their tax advisors regarding
specific questions as to federal, state and local income taxes.
TAX STATUS OF THE PORTFOLIO:
The Portfolio is treated as a separate entity for federal income tax purposes
and is not combined with the Fund's other portfolios. The Portfolio intends to
continue to qualify for the special tax treatment afforded regulated investment
companies as defined under Subchapter M of the Code. So long as the Portfolio
qualifies for this special tax treatment, it will be relieved of federal income
tax on that part of its net investment income and net capital gain (the excess
of net long-term capital gain over net short-term capital loss) which it
distributes to shareholders.
TAX STATUS OF DISTRIBUTIONS:
The Portfolio will distribute all of its net investment income (including, for
this purpose, net short-term capital gain) to shareholders. Dividends from net
investment income will be taxable to shareholders as ordinary income whether
received in cash or in additional shares. It can be expected that only certain
dividends of the Portfolio will qualify for that deduction. Any net capital
gains will be distributed annually and will be taxed to shareholders as gain
from the sale of a capital asset held for more than one year, regardless of how
long the shareholder has held shares. The Portfolio will make annual reports to
shareholders of the federal income tax status of all distributions, including
the amount of dividends eligible for the dividends-received deduction.
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Certain securities purchased by the Portfolio (such as STRIPS) are sold with
original issue discount and thus do not make periodic cash interest payments.
For a further description of such securities, see "Description of Permitted
Investments and Risk Factors" below. The Portfolio will be required to include
as part of its current income the accrued discount on such obligations even
though the Portfolio has not received any interest payments on such obligations
during that period. Because the Portfolio distributes all of its net investment
income to its shareholders, the Portfolio may have to sell portfolio securities
to distribute such accrued income, which may occur at a time when the Adviser
would not have chosen to sell such securities and which may result in a taxable
gain or loss.
Dividends declared by the Portfolio in October, November or December of any year
and payable to shareholders of record on a date in one of those months will be
deemed to have been paid by the Portfolio and received by the shareholders on
December 31 of that year, if paid by the Portfolio at any time during the
following January.
The Portfolio intends to make sufficient distributions prior to the end of each
calendar year to avoid liability for federal excise tax.
Sale or redemption of the Portfolio's shares is a taxable event to the
shareholder.
GENERAL INFORMATION
THE FUND
The Fund, an open-end investment management company that offers shares of
diversified and non-diversified portfolios, was organized under Massachusetts
law as a 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. All consideration received by the Fund for shares of any portfolio and
all assets of such portfolio belong to that portfolio and would be subject to
liabilities related thereto. The Fund reserves the right to create and issue
shares of additional portfolios.
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 "Financial Highlights."
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TRUSTEES 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.
VOTING RIGHTS
Shareholders of record are entitled to one vote (or fraction thereof) for each
share (or fractional share) held. Each of the Fund's portfolios (or classes of
such portfolios) will vote separately on matters relating solely to the
particular portfolio or class thereof. As a Massachusetts business trust, the
Fund is not required, and does not intend, to hold annual meetings of
shareholders. Shareholder approval will be sought, however, for certain
changes in the operation of the Fund and for the election of Trustees under
certain circumstances. In addition, a Trustee may be removed by the remaining
Trustees or by shareholders at a special meeting called upon written request of
shareholders owning at least 10% of the outstanding shares of the Fund. In the
event that such a meeting is requested, the Fund will provide appropriate
assistance and information to the shareholders requesting the meeting.
REPORTING
The Fund issues unaudited financial information semi-annually and audited
financial statements annually for the Portfolio. The Fund also furnishes
periodic reports and, as necessary, proxy statements to shareholders of record.
SHAREHOLDER INQUIRIES
Shareholder inquiries should be directed to CRA Realty Shares Portfolio, P.O.
Box 419009, Kansas City, Missouri 64141-6009 or by calling 1-888-712-1103.
Purchases and redemptions of shares should be made through the Transfer Agent by
calling 1-800-808-4921.
DIVIDENDS AND DISTRIBUTIONS
Substantially all of the net investment income (exclusive of capital gains) of
the Portfolio is distributed in the form of quarterly dividends. Shareholders
of record on the next to last Business Day of each quarter will be entitled to
receive the quarterly dividend distribution, which is generally paid within 10
Business Days after the end of the quarter. If any capital gains are realized,
substantially all of it will be distributed at least annually.
Shareholders automatically receive all income dividends and capital gains
distributions in additional shares, unless the shareholder has elected to take
such payment in cash. Shareholders may change their election by providing
written notice to the Transfer Agent at least 15 days prior
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to the distribution. Shareholders may receive payments for cash distributions
in the form of a check or by Federal Reserve wire transfer or ACH wire
transfers.
Dividends and other distributions of the Portfolio are paid on a per share
basis. The value of each share will be reduced by the amount of the payment.
If shares are purchased shortly before the record date for a distribution of
ordinary income or capital gains, a shareholder will pay the full price for the
shares and receive some portion of the price back as a taxable dividend or
distribution.
COUNSEL AND INDEPENDENT PUBLIC ACCOUNTANTS
Morgan, Lewis & Bockius LLP serves as counsel to the Fund. Arthur Andersen LLP
serves as the independent public accountants of the Fund.
CUSTODIAN
CoreStates Bank, N.A., Broad and Chestnut Streets, P.O. Box 7618, Philadelphia,
Pennsylvania 19101 acts as the custodian (the "Custodian") of the Fund. The
Custodian holds cash, securities and other assets of the Fund as required by the
1940 Act.
DESCRIPTION OF PERMITTED INVESTMENTS AND RISK FACTORS
- -------------------------------------------------------------------------------
The following is a description of the permitted investment practices for the
Portfolio, and the associated risk factors:
CONVERTIBLE SECURITIES -- Convertible securities are corporate securities that
are exchangeable for a set number of another security at a prestated price.
Convertible securities typically have characteristics similar to both
fixed-income and equity securities. Because of the conversion feature, 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
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
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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.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS -- Futures contracts provide
for the future sale by one party and purchase by another party of a specified
amount of a specific security at a specified future time and at a specified
price. An option on a futures contract gives the purchaser the right, in
exchange for a premium, to assume a position in a futures contract at a
specified exercise price during the term of the option. The 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 or be
disposed of, 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. In addition, the Portfolio will sell only covered futures
contracts and options on futures contracts. In order to avoid leveraging and
related risks, when the Portfolio purchases futures contracts, it will
collateralize its position by depositing an amount of cash or liquid securities,
equal to the market value of the futures positions held, less margin deposits,
in a segregated account with a third party custodian. Collateral equal to the
current market value of the futures position will be marked to market on a daily
basis.
There are risks associated with these activities, including the following: (1)
the success of a hedging strategy may depend on an ability to accurately predict
movements in the prices of individual securities, fluctuations in markets and
movements in interest rates, (2) there may be an imperfect or no correlation
between the changes in market value of the securities held by the Portfolio and
the prices of futures and options on futures, (3) there may not be a liquid
secondary market for a futures contract or option, (4) trading restrictions or
limitations may be imposed by an exchange, and (5) government regulations may
restrict trading in futures contracts and futures options.
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.
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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.
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 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 -- A put option gives the purchaser of the option the right to sell,
and the writer of the option the obligation to buy, the underlying commodity
or index at any time during the option period. A call option gives the
purchaser of the option the right to buy, and the writer of the option the
obligation to sell, the underlying security at any time during the option
period. The initial purchase (sale) of an option contract is an "opening
transaction." In order to close out an option position, the Portfolio may
enter into a "closing transaction," which is simply the sale (purchase) of an
option contract on the same security with the same exercise price and
expiration date as the option contract originally opened. If the Portfolio
is unable to effect a closing purchase transaction with respect to an option
it has written, it will not be able to sell the underlying security until the
option expires or the Portfolio delivers the security upon exercise.
RISK FACTORS. Risks associated with options transactions include: (1) the
success of a hedging strategy may depend on an ability to accurately predict
movements in the prices of individual
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securities, fluctuations in markets and movements in interest rates; (2)
there may be an imperfect correlation between the movement in prices of
options and the securities underlying them; (3) there may not be a liquid
secondary market for options; and (4) while the Portfolio will receive a
premium when it writes covered call options, it may not participate fully in
a rise in the market value of the underlying security.
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 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.
U.S. GOVERNMENT AGENCIES -- 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, the Federal Home Loan Mortgage Corporation, the
Federal Land Banks and the U.S. Postal Service. Some of these securities are
supported by the full faith and credit of the U.S. Treasury, others are
supported by the right of the issuer to borrow from the Treasury, while
still others are supported only by the credit of the instrumentality.
Guarantees of principal by agencies or instrumentalities of the U.S.
Government may be a guarantee of payment at the maturity of the obligation so
that in the event of a default prior to maturity there might not be a market
and thus no means of realizing on
25
<PAGE>
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 Portfolio's shares.
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 Principal Securities ("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, and may have a floor or ceiling on
interest rate changes. There is a risk that the current interest rate on
such obligations may not accurately reflect existing market interest rates.
A demand instrument with a demand notice exceeding seven days may be
considered illiquid if there is no secondary market for such security.
Additional information on permitted investments and risk factors can be found
in the Statement of Additional Information.
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TABLE OF CONTENTS
SUMMARY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
EXPENSE SUMMARY. . . . . . . . . . . . . . . . . . . . . . . . . . . . .4
FINANCIAL HIGHLIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . .5
THE FUND AND THE PORTFOLIO . . . . . . . . . . . . . . . . . . . . . . .6
INVESTMENT OBJECTIVE AND POLICIES. . . . . . . . . . . . . . . . . . . .6
GENERAL INVESTMENT POLICIES. . . . . . . . . . . . . . . . . . . . . . .7
INVESTMENT LIMITATIONS . . . . . . . . . . . . . . . . . . . . . . . . .9
THE ADVISER. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
THE ADMINISTRATOR. . . . . . . . . . . . . . . . . . . . . . . . . . . 13
THE TRANSFER AGENT . . . . . . . . . . . . . . . . . . . . . . . . . . 13
THE DISTRIBUTOR. . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
SHAREHOLDER SERVICES . . . . . . . . . . . . . . . . . . . . . . . . . 13
PORTFOLIO TRANSACTIONS . . . . . . . . . . . . . . . . . . . . . . . . 14
PURCHASE AND REDEMPTION OF SHARES. . . . . . . . . . . . . . . . . . . 14
NET ASSET VALUE. . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
PERFORMANCE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
TAXES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
GENERAL INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . 20
DESCRIPTION OF PERMITTED INVESTMENTS AND RISK FACTORS. . . . . . . . . 22
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FUND:
THE ADVISORS' INNER CIRCLE FUND
PORTFOLIO:
CRA REALTY SHARES PORTFOLIO
ADVISER:
CRA REAL ESTATE SECURITIES, L.P.
DISTRIBUTOR:
SEI INVESTMENTS DISTRIBUTION CO.
ADMINISTRATOR:
SEI FUND RESOURCES
LEGAL COUNSEL:
MORGAN, LEWIS & BOCKIUS LLP
INDEPENDENT PUBLIC ACCOUNTANTS:
ARTHUR ANDERSEN LLP
FEBRUARY 27, 1998
<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 February 27, 1998. The
Prospectus for the Portfolio may be obtained by calling 1-888-712-1103.
TABLE OF CONTENTS
THE FUND . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .S - 2
DESCRIPTION OF PERMITTED INVESTMENTS . . . . . . . . . . . . . . . .S - 2
INVESTMENT LIMITATIONS . . . . . . . . . . . . . . . . . . . . . . .S - 8
THE ADVISER. . . . . . . . . . . . . . . . . . . . . . . . . . . . .S - 9
THE ADMINISTRATOR. . . . . . . . . . . . . . . . . . . . . . . . . S - 10
THE DISTRIBUTOR. . . . . . . . . . . . . . . . . . . . . . . . . . S - 11
TRUSTEES AND OFFICERS OF THE FUND. . . . . . . . . . . . . . . . . S - 11
COMPUTATION OF TOTAL RETURN. . . . . . . . . . . . . . . . . . . . S - 15
PURCHASE AND REDEMPTION OF SHARES. . . . . . . . . . . . . . . . . S - 15
DETERMINATION OF NET ASSET VALUE . . . . . . . . . . . . . . . . . S - 16
TAXES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S - 16
PORTFOLIO TRANSACTIONS . . . . . . . . . . . . . . . . . . . . . . S - 18
DESCRIPTION OF SHARES. . . . . . . . . . . . . . . . . . . . . . . S - 20
SHAREHOLDER LIABILITY. . . . . . . . . . . . . . . . . . . . . . . S - 20
LIMITATION OF TRUSTEES' LIABILITY. . . . . . . . . . . . . . . . . S - 20
5% SHAREHOLDERS. . . . . . . . . . . . . . . . . . . . . . . . . . S - 21
EXPERTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S - 22
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . S - 22
APPENDIX . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .A - 1
FEBRUARY 27, 1998
CRA-F-002-02
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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.
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 have characteristics similar to
both fixed income and equity securities. Because of the conversion feature, the
market value of convertible securities tends to move together with the market
value of the underlying stock. As a result, the Portfolio's selection of
convertible securities is based, to a great extent, on the potential for capital
appreciation that may exist in the underlying stock. The value of convertible
securities is also affected by prevailing interest rates, the credit quality of
the issuer and any call provisions.
LOWER RATED SECURITIES -- The Portfolio will invest in lower-rated bonds
commonly referred to as "junk bonds" or high-yield/high-risk securities. 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.
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In addition, the Portfolio may invest in unrated securities subject to the
restrictions stated in the Prospectus.
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 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.
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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.
OPTIONS -- Options are contracts that give one of the parties to the contract
the right to buy or sell the security that is subject to the option at a stated
price during the option period, and obligates the other party to the contract to
buy or sell such security at the stated price during the option period.
The Portfolio may trade put and call options on securities and securities
indices, as the Adviser determines is appropriate in seeking the Portfolio's
investment objective, and except as restricted by the Portfolio's investment
limitations as set forth below. See "Investment Limitations."
A put option gives the purchaser (the Portfolio) the right to sell, and imposes
on the writer an obligation to buy, the underlying security at the exercise
price during the option period. The advantage to the Portfolio of buying the
protective put is that if the price of the security falls during the option
period, the Portfolio may exercise the put and receive the higher price for the
security. However, if the security rises in value, the Portfolio will have paid
a premium for the put, which will expire unexercised.
A call option gives the purchaser the right to buy and imposes on the writer
(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 call options is that the Portfolio receives 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. The
Portfolio's obligation as the writer of a covered call is terminated upon the
expiration of the option period or at such earlier time in which the writer
effects a closing purchase transaction. As noted above, 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.
The market value of an option generally reflects the market price of an
underlying security. Other principal factors affecting market value include
supply and demand, interest rates, the pricing volatility of the underlying
security and the time remaining until the expiration date.
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
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from taxable income the dividends paid, thereby effectively eliminating
corporate level federal income tax and making 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.
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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 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
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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.
VARIABLE OR FLOATING RATE INSTRUMENTS -- Variable or floating rate instruments
may involve a demand feature and may include variable amount master demand notes
available through the Custodian. Variable or floating rate instruments bear
interest at a rate which varies with changes in market rates. The holder of an
instrument with a demand feature may tender the instrument back to the issuer at
par prior to maturity. A variable amount master demand note is issued pursuant
to a written agreement between the issuer and the holder, its amount may be
increased by the holder or decreased by the holder or issuer, it is payable on
demand, and the rate of interest varies based upon an agreed formula. The
quality of the underlying credit must, in the opinion of the Portfolio's
Adviser, be equivalent to the long-term bond or commercial paper ratings
applicable to permitted investments for the Portfolio.
In case of obligations which include a put feature at the option of the debt
holder, the date of the put may be used as an effective maturity date for the
purpose of determining weighted average portfolio maturity.
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.
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<PAGE>
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."
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 may not:
1. Acquire more than 10% of the voting securities of any one issuer.
2. Invest in companies for the purpose of exercising control.
3. Issue any class of senior security or sell any senior security of which it
is the issuer, except that the 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
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senior securities. This investment limitation shall not preclude the
Portfolio from issuing multiple classes of shares in reliance on SEC rules
or orders.
4. Make loans if, as a result, more than 33 1/3% of its total assets would be
lent to other parties, except that the 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.
5. 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.
6. Act as an underwriter of securities of other issuers except as it may be
deemed an underwriter in selling a portfolio security.
7. Purchase securities of other investment companies except as permitted by
the 1940 Act and the rules and regulations thereunder.
The foregoing percentages, except with respect to fundamental limitation No.3,
will apply at the time of the purchase of a security.
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.
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<PAGE>
For the fiscal period ended October 31, 1997, the Adviser was paid $35,870 and
waived fees of $84,679 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 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.
THE ADMINISTRATOR
The Administration Agreement provides that SEI Fund Resources (the
"Administrator") shall not be liable for any error of judgment or mistake of law
or for any loss suffered by the 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, the Administrator received a fee
of $38,014 from the Portfolio and voluntarily waived fees of $24,486.
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, is the owner of all beneficial
interest in the Administrator. SEI Investments and its subsidiaries and
affiliates, including the Administrator, are leading providers of funds
evaluation services, trust accounting systems, and brokerage and information
services to financial institutions, institutional investors, and money managers.
The Administrator and its affiliates also serve as administrator or
sub-administrator to the following other mutual funds: The Achievement Funds
Trust, The Arbor Fund, ARK Funds, Bishop Street Funds, Boston
1784 Funds-Registered Trademark-,CoreFunds, Inc., CrestFunds, Inc., CUFUND, The
Expedition Funds, FMB Funds,
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Inc., First American Funds, Inc., First American Investment Funds, Inc., First
American Strategy Funds, Inc., HighMark Funds, Marquis Funds-Registered
Trademark-, Monitor Funds, Morgan Grenfell Investment Trust, The PBHG Funds,
Inc., PBHG Insurance Series Fund, Inc., The Pillar Funds, Rembrandt
Funds-Registered Trademark-, Santa Barbara Group of Mutual Funds, Inc., SEI
Asset Allocation Trust, SEI Daily Income Trust, SEI Index Funds, SEI
Institutional Investments Trust, SEI Institutional Managed Trust, SEI
International Trust, SEI Liquid Asset Trust, SEI Tax Exempt Trust, STI Classic
Funds, STI Classic Variable Trust, TIP Funds and TIP Institutional Funds.
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.
TRUSTEES AND OFFICERS OF THE FUND
The management and affairs of the Fund are supervised by the Trustees under
the laws of the commonwealth of Massachusetts. The Fund pays the fees for
unaffiliated Trustees.
The Trustees and Executive Officers of the Fund, their respective dates of
birth, and their principal occupations for the last five years are set forth
below. Each may have held other positions with 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, Bishop Street Funds,
Boston 1784 Funds-Registered Trademark-, CoreFunds, Inc., CrestFunds, Inc.,
CUFUND, The Expedition Funds, FMB Funds, Inc., First American Funds, Inc., First
American Investment Funds, Inc., First American Strategy Funds, Inc., HighMark
Funds, Marquis Funds-Registered Trademark-, Monitor Funds, Morgan Grenfell
Investment Trust, The PBHG Funds, Inc., PBHG Insurance Series Fund, Inc., The
Pillar Funds, Santa Barbara Group of Mutual Funds, Inc., SEI Asset Allocation
Trust, SEI Daily Income Trust, SEI Index Funds, SEI Institutional Investments
Trust, SEI Institutional Managed Trust, SEI International Trust, SEI Liquid
Asset Trust, SEI Tax Exempt Trust, STI Classic Funds, STI Classic Variable
Trust, TIP Funds and TIP Institutional Funds, open-end management investment
companies which are managed by SEI Fund Resources or its affiliates and, except
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for Santa Barbara Group of Mutual Funds, Inc., are distributed by SEI
Investments Distribution Co.
ROBERT A. NESHER (DOB 08/17/46) -- Chairman of the Board of Trustees* --
Currently performs various services on behalf of SEI Investments for which Mr.
Nesher is compensated. Executive Vice President of SEI Investments, 1986-1994.
Director and Executive Vice President of the Administrator and the Distributor,
1981-1994. Trustee of The Advisors' Inner Circle Fund, The Arbor Fund, Boston
1784 Funds-Registered Trademark-, The Expedition Funds, Marquis Funds-Registered
Trademark-, Pillar Funds, Rembrandt Funds -Registered Trademark-, SEI Asset
Allocation Trust, SEI Daily Income Trust, SEI Index Funds, SEI Institutional
Investments Trust, SEI Institutional Managed Trust, SEI International Trust, SEI
Liquid Asset Trust and SEI Tax Exempt Trust.
JOHN T. COONEY (DOB 01/20/27) -- Trustee** -- Retired since 1992. Formerly Vice
Chairman of Ameritrust Texas N.A., 1989-1992, and MTrust Corp., 1985-1989.
Trustee of The Advisors' Inner Circle Fund, The Arbor Fund, The Expedition
Funds and Marquis Funds-Registered Trademark-.
WILLIAM M. DORAN (DOB 05/26/40) -- Trustee* -- 2000 One Logan Square,
Philadelphia, PA 19103. Partner, Morgan, Lewis & Bockius LLP (law firm),
counsel to the Trust, Administrator and Distributor, Director and Secretary of
SEI Investments. Trustee of The Advisors' Inner Circle Fund, The Arbor Fund,
The Expedition Funds, Marquis Funds-Registered Trademark-, SEI Asset Allocation
Trust, SEI Daily Income Trust, SEI Index Funds, SEI Institutional Investments
Trust, SEI Institutional Managed Trust, SEI International Trust, SEI Liquid
Asset Trust and SEI Tax Exempt Trust.
FRANK E. MORRIS (DOB 12/30/23) -- Trustee** -- Retired since 1990. Peter
Drucker Professor of Management, Boston College, 1989-1990. President, Federal
Reserve Bank of Boston, 1968-1988. Trustee of The Advisors' Inner Circle Fund,
The Arbor Fund, The Expedition Funds, Marquis Funds-Registered Trademark-, SEI
Asset Allocation Trust, SEI Daily Income Trust, SEI Index Funds, SEI
Institutional Investments Trust, SEI Institutional Managed Trust, SEI
International Trust, SEI Liquid Asset Trust and SEI Tax Exempt Trust.
ROBERT A. PATTERSON (DOB 11/05/27) -- Trustee** -- Pennsylvania State
University, Senior Vice President, Treasurer (Emeritus). Financial and
Investment Consultant, Professor of Transportation (1984-present). Vice
President-Investments, Treasurer, Senior Vice President (Emeritus) (1982-1984).
Director, Pennsylvania Research Corp.; Member and Treasurer, Board of Trustees
of Grove City College. Trustee of The Advisors' Inner Circle Fund, The Arbor
Fund, The Expedition Funds, and Marquis Funds-Registered Trademark-.
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
S-12
<PAGE>
before 1978. Trustee of The Advisors' Inner Circle Fund, The Arbor Fund, The
Expedition Funds and Marquis Funds-Registered Trademark-.
JAMES M. STOREY (DOB 04/12/31) -- Trustee** -- Partner, Dechert Price & Rhoads,
from September 1987 - December 1993; Trustee of The Advisors' Inner Circle Fund,
The Arbor Fund, The Expedition Funds, Marquis Funds-Registered Trademark-, SEI
Asset Allocation Trust, SEI Daily Income Trust, SEI Index Funds, SEI
Institutional Investments Trust, SEI Institutional Managed Trust, SEI
International Trust, SEI Liquid Asset Trust and SEI Tax Exempt Trust.
DAVID G. LEE (DOB 04/16/52) -- President and Chief Executive Officer -- Senior
Vice President of the Administrator and Distributor since 1993. Vice President
of the Administrator and Distributor, 1991-1993. President, GW Sierra Trust
Funds before 1991.
SANDRA K. ORLOW (DOB 10/18/53) -- Vice President and Assistant Secretary -- Vice
President and Assistant Secretary of the Administrator and Distributor since
1988.
KEVIN P. ROBINS (DOB 04/15/61) -- Vice President and Assistant Secretary --
Senior Vice President, General Counsel and Assistant Secretary of SEI
Investments, Senior Vice President, General Counsel and Secretary of the
Administrator and Distributor since 1994. Vice President and Assistant
Secretary of SEI Investments, the Administrator and Distributor, 1992-1994.
Associate, Morgan, Lewis & Bockius LLP (law firm), 1988-1992.
RICHARD W. GRANT (DOB 10/25/45) -- Secretary -- 2000 One Logan Square,
Philadelphia, PA 19103, Partner, Morgan, Lewis & Bockius LLP (law firm), counsel
to the Trust, ADMINISTRATOR AND DISTRIBUTOR.
KATHRYN L. STANTON (DOB 11/19/58) -- Vice President and Assistant Secretary --
Deputy General Counsel of SEI Investments, Vice President and Assistant
Secretary of the Administrator and Distributor since 1994. Associate, Morgan,
Lewis & Bockius LLP (law firm), 1989-1994.
MARK E. NAGLE (DOB 10/20/59) -- Controller and Chief Financial Officer -- Vice
President of Fund Accounting and Administration of SEI Fund Resources since
November 1996. Vice President of Fund Accounting, BISYS Fund Services,
September 1995 to November 1996. Senior Vice President and Site Manager,
Fidelity Investments, 1981 to September 1995.
TODD B. CIPPERMAN (DOB 02/14/66) -- Vice President and Assistant Secretary --
Vice President and Assistant Secretary of SEI Investments, the Administrator and
the Distributor since 1995. Associate, Dewey Ballantine (law firm) (1994-1995).
Associate, Winston & Strawn (law firm) (1991-1994).
S-13
<PAGE>
JOSEPH M. O'DONNELL (DOB 11/13/54) -- Vice President and Assistant Secretary --
Vice President and Assistant Secretary of the Administrator and Distributor
since 1998. Vice President and General Counsel, FPS Services, Inc., 1993-1997.
Staff Counsel and Secretary, Provident Mutual Family of Funds, 1990-1993 .
- ------------------------------
*MESSRS. NESHER and Doran are Trustees who may be deemed to be "interested"
persons of the Fund as that term is defined in the 1940 Act.
**Messrs. Cooney, Morris, Patterson, Peters and Storey serve as members of the
Audit Committee of the Fund.
The Trustees and officers of the Fund own less than 1% of the outstanding shares
of the Fund. The Fund pays the fees for unaffiliated Trustees.
The following table exhibits Trustee compensation for the fiscal year ended
October 31, 1997.
<TABLE>
<CAPTION>
Total Compensation
From Registrant and
Aggregate Compensation Fund Complex* Paid
From Registrant for Pension or Retirement Estimated Annual to Trustees for the
the Fiscal Year Ended Benefits Accrued as Benefits Upon Fiscal Year Ended
Name of Person, Position October 31, 1997 Part of Fund Expenses Retirement October 31, 1997
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
John T. Cooney $8,154 N/A N/A $8,154 for
services on 1 board
- -----------------------------------------------------------------------------------------------------------------------
Frank E. Morris $8,154 N/A N/A 8,154 for
services on 1 board
- -----------------------------------------------------------------------------------------------------------------------
Robert Patterson $8,154 N/A N/A $8,154 for
services on 1 board
- -----------------------------------------------------------------------------------------------------------------------
Eugene B. Peters $8,154 N/A N/A $8,154 for
services on 1 board
- -----------------------------------------------------------------------------------------------------------------------
James M. Storey, Esq. $8,154 N/A N/A $8,154 for
services on 1 board
- -----------------------------------------------------------------------------------------------------------------------
William M. Doran, Esq. $0 N/A N/A $0 for services on
1 board
- -----------------------------------------------------------------------------------------------------------------------
Robert A. Nesher $0 N/A N/A $0 for services on
1 board
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
*For purposes of this table, the Fund is the only investment company in the
"Fund Complex."
S-14
<PAGE>
COMPUTATION OF TOTAL RETURN
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.
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)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, 1997, the total return for the Institutional Shares of the Portfolio
was 18.17% (cumulative) and 22.19% (annualized).
PURCHASE AND REDEMPTION OF 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.
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 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.
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)
S-15
<PAGE>
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 federal income tax considerations
generally affecting the Portfolio and its shareholders, and is not intended as a
substitute for careful tax planning. Shareholders are urged to consult their
tax advisors with specific reference to their own tax situations, including
their state and local tax liabilities.
FEDERAL INCOME TAX
The following discussion of federal income tax consequences is based on the
Internal Revenue Code of 1986 (the "Code") and the regulations issued thereunder
as in effect on the date of this Statement of Additional Information. New
legislation, as well as administrative changes or court decisions, may
significantly change the conclusions expressed herein, and may have a
retroactive effect with respect to the transactions contemplated herein.
The Portfolio intends to qualify as a "regulated investment company" ("RIC") as
defined under Subchapter M of the Code. By following such a policy, the
Portfolio expects to eliminate or reduce to a nominal amount the federal taxes
to which it may be subject.
In order to qualify for treatment as a RIC under the Code, the Portfolio must
distribute annually to its shareholders at least the sum of 90% of its net
interest income excludable from gross income plus 90% of its investment company
taxable income (generally, net investment income plus net short-term capital
gain) ("Distribution Requirement") and also must meet several additional
requirements. Among these requirements are the following: (i) at least 90% of
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
S-16
<PAGE>
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 which the Portfolio
controls or which are engaged in the same, similar or related trades or
business.
Notwithstanding the Distribution Requirement described above, which requires
only that the Portfolio distribute at least 90% of its annual investment company
taxable income and does not require any minimum distribution of net capital gain
(the excess of net long-term capital gain over net short-term capital loss), the
Portfolio will be subject to a nondeductible 4% federal excise tax to the extent
it fails to distribute by the end of any calendar year 98% of its ordinary
income for that year and 98% of its capital gain net income (the excess of
short- and long-term capital gains over short- and long-term capital losses) for
the one-year period ending on October 31 of that year, plus certain other
amounts.
Any gain or loss recognized on a sale or redemption of shares of a Portfolio by
a non-exempt shareholder who is not a dealer in securities generally will be
treated as a long-term capital gain or loss if the shares have been held for
more than eighteen months, will be treated as a mid-term capital gain if the
shares have been held for more than twelve, but not more than eighteen, months
and otherwise generally will be treated as a short-term capital gain or loss.
If shares of the Portfolio on which a net capital gain distribution has been
received are subsequently sold or redeemed and such shares have been held for
six months or less, any loss recognized will be treated as a long-term capital
loss to the extent of the long-term capital gain distribution.
In certain cases, the Portfolio will be required to withhold, and remit to the
United States Treasury, 31% of any distributions paid to a shareholder who (1)
has failed to provide a correct taxpayer identification number, (2) is subject
to backup withholding by the Internal Revenue Service, or (3) has not certified
to the Portfolio that such shareholder is not subject to backup withholding.
If the Portfolio fails to qualify as a RIC for any taxable year, it will be
taxable at regular corporate rates. In such an event, all distributions
(including capital gains distributions) will be taxable as ordinary dividends to
the extent of the Portfolio's current and accumulated earnings and profits and
such distributions will generally be eligible for the corporate
dividends-received deduction.
STATE TAXES
The Portfolio is not liable for any income or franchise tax in Massachusetts if
it qualifies as a RIC for federal income tax purposes. Distributions by the
Portfolio to shareholders and the ownership of shares may be subject to state
and local taxes.
S-17
<PAGE>
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.
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.
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
S-18
<PAGE>
"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, 1997, the following commissions were paid
on brokerage transactions, pursuant to an agreement or understanding, to brokers
because of research services provided by the brokers:
- -----------------------------------------------------------------------
Total Dollar Amount of Total Dollar Amount of
Brokerage Commissions for Transactions Involving Directed
Research Services Brokerage Commissions for
Research Services
- -----------------------------------------------------------------------
$5,248 $2,251,332
- -----------------------------------------------------------------------
For the fiscal years ended October 31, 1995, 1996 and 1997, the Portfolio paid
the following brokerage commissions:
<TABLE>
<CAPTION>
<S><C>
- -----------------------------------------------------------------------
Total Brokerage Commissions Amount Paid to SEI
Investments(1)
- -----------------------------------------------------------------------
1995 1996 1997 1995 1996 1997
- -----------------------------------------------------------------------
* * $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.
For the fiscal years indicated, the Portfolio paid the following brokerage
commissions:
<TABLE>
<CAPTION>
<S><C>
- --------------------------------------------------------------------------------------------------
% of Total % of Total
Total $ Amount of Total $ Amount of Brokerage Brokerage
Brokerage Commissions Brokerage Commissions Transactions
Paid Commissions Paid to Paid to the Effected Through
Affiliated Brokers Affiliated Brokers Affiliated Brokers
- --------------------------------------------------------------------------------------------------
1995 1996 1997 1995 1996 1997 1997 1997
- --------------------------------------------------------------------------------------------------
* * $110,005 * * 0 0 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
S-19
<PAGE>
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, 1997, the Portfolio held
repurchase agreements valued at $910,237 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-20
<PAGE>
5% SHAREHOLDERS
As of February 1, 1998, the following persons were the only persons who were
record owners (or to the knowledge of the Fund, beneficial owners) of 5% or more
of each class of the Portfolio's shares.
<TABLE>
<CAPTION>
Shareholder Number of Shares %
- ----------- ---------------- --
<S> <C> <C>
Dorrance H. Hamilton & 537,796.8860 15.47%
Barbara Cobb Tr.
U/A March 15, 1996
Dorrance H. Hamilton Trust
200 Eagle Rd. Ste 316
Wayne, PA 19087-3115
Hep & Co. 320,683.0720 9.23%
P.O. Box 9800
Calabasas, CA 91372-0800
First Trust Na. Tr. 298,154.7000 8.58%
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 262,429.4280 7.55%
175 Forest St.
Waltham, MA 02154-4705
Robert Mintz & 245,058.1090 7.05%
Barnard Gottstein Tr. U/A 07/16/1993
Barnard Jacob Gottstein
Revocable Living Trust
550 W. 7th Ave. Ste 1540
Anchorage, AK 99501-3567
Miami University Foundation 238,714.3600 6.87%
c/o Edward J. Demske
202 Roudebush Hall
Oxford, OH 45056
Cynvestors Limited Partnership 195,694.3620 5.63%
</TABLE>
S-21
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
2620 N. Helen St. Apt. 103
Appleton, WI 54911-2306
Trenton Fire & Police Pension Board 193,010.3580 5.55%
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, 1997, 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 1997 Annual Report to Shareholders must
accompany the delivery of this Statement of Additional Information.
S-22
<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
A-1
<PAGE>
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.
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.
A-2
<PAGE>
- 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-3
<PAGE>
PART C: OTHER INFORMATION
Item 24. Financial Statements and Exhibits:
(a) Financial Statements
Part A. Financial Highlights
Part B.
The following financial statements for the HGK Fixed Income Fund
for the fiscal year ended October 31, 1997, are incorporated by
reference into the Statement of Additional Information from
Form N-30D filed on December 29, 1997 with Accession Number
000935069-97-000219:
Report of Independent Public Accountants
Statement of Net Assets
Statement of Operations
Statement of Changes in Net Assets
Financial Highlights
Notes to Financial Statements
The following financial statements for the AIG Money Market Fund
for the fiscal year ended October 31, 1997, are incorporated by
reference into the Statement of Additional Information from
Form N-30D filed on December 29, 1997 with Accession Number
000935069-97-000216:
Report of Independent Public Accountants
Statement of Net Assets
Statement of Operations
Statement of Changes in Net Assets
Financial Highlights
Notes to Financial Statements
The following financial statements for the FMC Select Fund
for the fiscal year ended October 31, 1997, are incorporated by
reference into the Statement of Additional Information from
Form N-30D filed on December 29, 1997 with Accession Number
000935069-97-000218:
Report of Independent Public Accountants
Statement of Net Assets
Statement of Operations
Statement of Changes in Net Assets
Financial Highlights
Notes to Financial Statements
The following financial statements for the CRA Realty Shares
Portfolio for the fiscal year ended October 31, 1997, are
incorporated by reference into the Statement of Additional
Information from Form N-30D filed on December 29, 1997 with
Accession Number 000935069-97-000217:
Schedule of Investments
Statement of Assets and Liabilities
Statement of Operations
Statement of Changes in Net Assets
Financial Highlights
Notes to Financial Statements
Report of Independent Auditors
(b) Additional Exhibits
(1)(a) Registrant's Agreement and Declaration of Trust dated July 18, 1991,
as originally filed with the SEC on August 29, 1991, is filed
herewith.
(1)(b) 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.
(1)(c) 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.
(2)(a) 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.
(2)(b) 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.
(3) Not Applicable.
(4) Not Applicable.
(5)(a) 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.
(5)(b) Investment Advisory Agreement between Registrant and AIG Capital
Management Corp. with respect to AIG Money Market Fund originally
filed with Post-Effective
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<PAGE>
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.
(5)(c) 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.
(5)(d) 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.
(5)(e) 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 filed
herewith.
(5)(f) Investment Advisory Agreement between Registrant and SAGE Global
Funds, LLC with respect to the SAGE Corporate Bond Fund is filed
herewith.
(5)(i) Investment Sub-Advisory Agreement between SAGE Global Funds, LLC and
Standard Asset Group, Inc. with respect to the SAGE Corporate Bond
Fund is filed herewith.
(6)(a) 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.
(6)(b) 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.
(6)(c) Amended and Restated Sub-Distribution and Servicing Agreement
between SEI Investments Company and AIG Equity Sales Corporation is
filed herewith.
(7) Not Applicable.
(8) 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.
(9)(a) 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
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<PAGE>
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.
(9)(b) 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.
(9)(c) 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.
(9)(d) 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.
(9)(e) 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.
(9)(f) 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 filed herewith.
(9)(g) Schedule to the Amended and Restated Administration Agreement adding
the SAGE Corporate Fixed Bond Fund is filed herewith.
(9)(h) 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
filed herewith.
(9)(i) Schedule to Administration Agreement relating to the CRA Realty
Portfolios is filed herewith.
(9)(j) [Form of] Shareholder Servicing Agreement for AIG Money Market Fund
is filed herewith.
(9)(k) Transfer Agency Agreement dated November 30, 1994 is filed herewith.
C-3
<PAGE>
(10) Opinion and Consent of Counsel dated October 24, 1991, as originally
filed October 28, 1991, is filed herewith.
(11) Consent of Independent Public Accountants is filed herewith.
(12) Not Applicable.
(13) Not Applicable.
(14) Not Applicable.
(15) 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.
(16) Performance Quotation Computation is filed herewith.
(17) Financial data Schedules are filed herewith.
(18) Rule 18f-3 Plan dated May 15, 1995, as originally filed June 1,
1995, is filed herewith.
(24) Powers of Attorney for John T. Cooney, William M. Doran,
Frank E. Morris, Robert A. Nesher, Gene Peters, Robert A.
Patterson and James M. Storey are filed herewith.
Item 25. Persons Controlled by or under Common Control with Registrant
See the Prospectuses and the 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 Fund Resources
("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 26. Number of Holders of Securities as of February 1, 1998:
<TABLE>
<CAPTION>
Number of
Title of Class Record Holders
-------------- --------------
<S> <C>
Units of beneficial interest, without par value-
HGK Fixed Income Fund 137
AIG Money Market Fund Class A 205
AIG Money Market Fund Class B 79
FMC Select Fund 16
CRA Realty Shares Portfolio - Institutional Shares 70
CRA Realty Shares Portfolio - Class A Shares N/A
</TABLE>
C-4
<PAGE>
<TABLE>
<S> <C>
MDL Broad Market Fixed Income Portfolio 13
MDL Large Cap Growth Portfolio 24
SAGE Corporate Bond Fund 7
</TABLE>
Item 27. Indemnification:
Article VIII of the Agreement and Declaration of Trust filed as Exhibit 1
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.
Item 28. Business and Other Connections of Investment Advisor:
Other business, profession, vocation, or employment of a substantial nature
in which each director or principal officer of the Advisor 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.
C-5
<PAGE>
The list required by this Item 28 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 28 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 28 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 Radnor-Chester Road, Radnor, PA 19087.
The list required by this Item 28 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 650 Smithfield Street,
Suite 730, Pittsburgh, PA 15222.
The list required by this Item 28 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
C-6
<PAGE>
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 28 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 28 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).
Item 29. 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.
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 International Trust August 30, 1988
The Pillar Funds February 28, 1992
CUFUND May 1, 1992
STI Classic Funds May 29, 1992
CoreFunds, Inc. October 30, 1992
First American Funds, Inc. November 1, 1992
C-7
<PAGE>
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
Marquis Funds-Registered Trademark- August 17, 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
FMB Funds, Inc. March 1, 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
Tip Institutional Funds January 1, 1998
Oak Associates Funds February 27, 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 & Chief Executive Officer --
Henry H. Greer Director, President & Chief Operating Officer --
Carmen V. Romeo Director, Executive Vice President & President --
</TABLE>
C-8
<PAGE>
<TABLE>
<CAPTION>
Position and Office Positions and Offices
Name with Underwriter with Registrant
- ---- ------------------- ---------------------
<S> <C> <C>
-Investment Advisory Group
Gilbert L. Beebower Executive Vice President --
Richard B. Lieb Executive Vice President, President --
-Investment Services Division
Dennis J. McGonigle Executive Vice President --
Leo J. Dolan, Jr. Senior Vice President --
Carl A. Guarino Senior Vice President --
Larry Hutchison Senior Vice President --
David G. Lee Senior Vice President President & Chief Executive
Officer
Jack May Senior Vice President --
A. Keith McDowell 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 Secretary
Robert Wagner Senior Vice President --
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
Robert Crudup Vice President & Managing Director --
Barbara Doyne Vice President --
Jeff Drennen Vice President --
Vic Galef Vice President & Managing Director --
Kathy Heilig Vice President & Treasurer --
Michael Kantor 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 --
Sandra K. Orlow Vice President & Assistant Secretary Vice President, Assistant
Secretary
</TABLE>
C-9
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Cynthia M. Parrish Vice President & Assistant Secretary --
Donald Pepin Vice President & Managing Director --
Kim Rainey Vice President --
Bob 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
Wayne M. Withrow Vice President & Managing Director --
James Dougherty Director of Brokerage Services --
</TABLE>
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<PAGE>
Item 30. 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:
CoreStates Bank, N.A.
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 Fund Resources
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 Advisors:
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
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<PAGE>
First Manhattan Co.
437 Madison Avenue
New York, NY 10022-7022
CRA Real Estate Securities L.P.
Suite 205
259 Radnor-Chester Road
Radnor, PA 19087
MDL Capital Management, Inc.
650 Smithfield Street, Suite 730
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
Item 31. Management Services: None.
Item 32. Undertakings:
Registrant hereby undertakes to file a post-effective amendment, using
financial statements with respect to the MDL Broad Market Fixed Income Fund and
MDL Large Cap Growth Equity Fund which need not be certified, within four to six
months from the effective date of Post-Effective Amendment No. 29.
Registrant hereby undertakes to file a post-effective amendment, using
financial statements with respect to the SAGE Corporate Bond Fund which need not
be certified, within four to six months from the effective date of
Post-Effective Amendment No. 31.
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
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<PAGE>
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.
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<PAGE>
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, as amended, the Registrant certifies that it meets all of
the requirements for the effectiveness of thiS Post-Effective Amendment to the
Registrant's Registration Statement pursuant to Rule 485(b) under the Securities
Act of 1933 and has duly caused this Post-Effective Amendment No. 32 to be
signed on its behalf by the undersigned, thereto duly authorized, in the City of
Oaks, Commonwealth of Pennsylvania on the 27th day of February, 1998.
THE ADVISORS' INNER CIRCLE FUND
By: /s/ David G. Lee
---------------------------
David G. Lee, 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 February 27, 1998
- ----------------------------------
John T. Cooney
* Trustee February 27, 1998
- ----------------------------------
William M. Doran
* Trustee February 27, 1998
- ----------------------------------
Frank E. Morris
* Trustee February 27, 1998
- ----------------------------------
Robert A. Nesher
* Trustee February 27, 1998
- ----------------------------------
Robert A. Patterson
* Trustee February 27, 1998
- ----------------------------------
Eugene Peters
* Trustee February 27, 1998
- ----------------------------------
James M. Storey
/s/ David G. Lee President & February 27, 1998
- ---------------------------------- Chief Executive
David G. Lee Officer
/s/ Mark E. Nagle Controller & February 27, 1998
- ---------------------------------- Chief Financial
Mark E. Nagle Officer
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<PAGE>
*By: /s/ David G. Lee
-----------------------------
David G. Lee
Attorney-in-Fact
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<PAGE>
EXHIBIT INDEX
Exhibit No. and Description
- ---------------------------
EX-99.B1(a) Registrant's Agreement and Declaration of Trust dated July 18,
1991, as originally filed with the SEC on August 29, 1991, is
filed herewith.
EX-99.B1(b) 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.B1(c) 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.B2(a) 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(b) 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.B3 Not Applicable.
EX-99.B4 Not Applicable.
EX-99.B5(a) 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.
C-17
<PAGE>
Exhibit No. and Description
- ---------------------------
EX-99.B5(b) 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.B5(c) 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.B5(d) 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.B5(e) 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
filed herewith.
EX-99.B5(f) Investment Advisory Agreement between Registrant and SAGE Global
Funds, LLC with respect to the SAGE Corporate Bond Fund is filed
herewith.
EX-99.B5(g) Investment Sub-Advisory Agreement between SAGE Global Funds, LLC
and Standard Asset Group, Inc. with respect to the SAGE Corporate
Bond Fund is filed herewith.
EX-99.B6(a) 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
C-18
<PAGE>
Exhibit No. and Description
- ---------------------------
reference to Post-Effective Amendment No. 24 filed on February
28, 1996.
EX-99.B6(b) 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.B6(c) Amended and Restated Sub-Distribution and Servicing Agreement
between SEI Investments Company and AIG Equity Sales Corporation
is filed herewith.
EX-99.B7 Not Applicable.
EX-99.B8 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.B9(a) 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.B9(b) 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
C-19
<PAGE>
Exhibit No. and Description
- ---------------------------
Form N-1A (File No. 33-42484), filed with the Securities and
Exchange Commission on May 22, 1997.
EX-99.B9(c) 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.B9(d) 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.B9(e) 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.B9(f) 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 filed herewith.
EX-99.B9(g) Schedule to the Amended and Restated Administration Agreement
adding the SAGE Corporate Fixed Bond Fund is filed herewith.
EX-99.B9(h) 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 filed herewith.
EX-99.B9(i) Schedule to Administration Agreement relating to the CRA Realty
Portfolios is filed herewith.
EX-99.B9(j) [Form of] Shareholder Servicing Agreement for AIG Money Market
Fund is filed herewith.
C-20
<PAGE>
Exhibit No. and Description
- ---------------------------
EX-99.B9(k) Transfer Agency Agreement dated November 30, 1994 is filed
herewith.
EX-99.B10 Opinion and Consent of Counsel dated October 24, 1991, as
originally filed October 28, 1991, is filed herewith.
EX-99.B11 Consent of Independent Public Accountants is filed herewith.
EX-99.B12 Not Applicable.
EX-99.B13 Not Applicable.
EX-99.B14 Not Applicable.
EX-99.B15 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.B16 Performance Quotation Computation is filed herewith.
EX-99.B18 Rule 18f-3 Plan dated May 15, 1995, as originally filed June 1,
1995, is filed herewith.
EX-99.B24 Powers of Attorney for John T. Cooney, William M. Doran,
Frank E. Morris, Robert A. Nesher, Gene Peters, Robert A.
Patterson and James M. Storey are filed herewith.
EX-99.B27 Financial Data Schedules are filed herewith.
C-21
<PAGE>
THE ADVISORS' INNER CIRCLE FUND
AGREEMENT AND DECLARATION OF TRUST
AGREEMENT AND DECLARATION OF TRUST dated the 18th day of July, 1991, by the
Trustees hereunder, and by the holders of Shares of beneficial interest to be
issued hereunder as hereinafter provided.
WITNESSETH that
WHEREAS, this Trust has been formed to carry on the business of an
investment company; and
WHEREAS, the Trustees have agreed to manage all property coming into their
hands as trustees of a Massachusetts voluntary association with transferable
Shares in accordance with the provisions hereinafter set forth.
NOW, THEREFORE, the Trustees hereby declare that they will hold all cash,
securities and other assets, which they may from time to time acquire in any
manner as Trustees hereunder IN TRUST to manage and dispose of the same upon the
following terms and conditions for the pro rata benefit of the holders from time
to time of Shares in this Trust as hereinafter set forth.
ARTICLE I
NAME AND DEFINITIONS
NAME
Section 1. This Trust shall be known as The Advisors' inner Circle
Fund, and the Trustees shall conduct the business of the Trust under that name
or any other name as they may from time to time determine.
DEFINITIONS
Section 2. Whenever used herein, unless otherwise required by the
context or specifically provided:
<PAGE>
(a) The "Trust" refers to the Massachusetts voluntary association
established by this Agreement and Declaration of Trust, as amended
from time to time;
(b) "Trustees" refers to the Trustees of the Trust named herein or
elected in accordance with Article IV and then in office;
(c) The term "Shares" refers to units of beneficial interest in the
assets, or in specified assets, of the Trust;
(d) "Shareholder" means a record owner of Shares;
(e) The terms "Affiliated Person," "Assignment," "Commission," "Interested
Person," "Principal Underwriter" and "Majority Shareholder Vote" (the
67% or 50% requirement of the third sentence of Section 2(a) (42) of
the Investment Company Act of 1940 (the "1940 Act") and the Rules and
Regulations thereunder, all as amended from time to time, whichever
may be applicable) shall have the meanings given them in the 1940 Act;
(f) "Declaration of Trust" shall mean this Agreement and Declaration
of Trust as amended or restated from time to time; and
(g) "By-Laws" shall mean the By-Laws of the Trust as amended from
time to time;
(h) The "1940 Act" refers to the Investment Company Act of 1940 and the
Rules and Regulations thereunder, all as amended from time to time.
ARTICLE II
PURPOSE
The purpose of the Trust is to provide investors with one or more
investment portfolio(s) consisting primarily of securities, including debt
instruments or obligations.
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<PAGE>
ARTICLE III
SHARES
DIVISION OF BENEFICIAL INTEREST
Section 1. The Trustees may divide the beneficial interest in the Trust
into an unlimited number of Shares and authorize the issuance of Shares without
prior Shareholder approval. Shares may be issued in series and, if so, Shares
of any series will constitute units of beneficial interest in assets of the
Trust specifically allocated to such series. Shares of the Trust, or any series
thereof, shall have no par value; shall represent equal and proportionate
interests in the Trust, or such series, with none having priority or preference
over any other except as specifically set forth in this Article III: and shall
be transferable. Shares of the Trust or of any series may be divided into
classes with Shares of any class being identical to those of any other class of
the Trust or such series except insofar as the Trustees may, consistent with the
1940 Act and other applicable law, allocate certain expenses to particular
classes of the Trust or a series thereof, and may provide for separate voting by
holders of securities of a class on matters affecting solely that class as
prescribed in Article V hereof.
OWNERSHIP OF SHARES
Section 2. The ownership of Shares shall be recorded on the books of
the Trust or its transfer or similar agent. No certificates certifying the
ownership of Shares shall be issued except as the Trustees may otherwise
determine from time to time. The Trustees may make such rules as they consider
appropriate for the issuance of Share certificates, the transfer of Shares and
similar matters. The record books of the Trust as kept by the Trust or any
transfer or similar agent of the Trust, as the case may be, shall be conclusive
as to who are the Shareholders of each series and as to the number of Shares of
each series held from time to time by each Shareholder.
INVESTMENTS IN THE TRUST: ASSETS OF THE SERIES
Section 3. The Trustees may accept investments in the Trust from such
persons and on such terms and, subject to any requirements of law, for such
consideration, which may consist of cash or tangible or intangible property or a
combination thereof, as they may from time to time authorize.
3
<PAGE>
All consideration received by the Trust for the issue or sale of Shares of
each series, together with all income, earnings, profits, and proceeds thereof,
including any proceeds derived from the sale, exchange or liquidation thereof,
and any funds or payments derived from any reinvestment of such proceeds in
whatever form the same may be, shall irrevocably belong to the series of Shares
with respect to which the same were received by the Trust for all purposes,
subject only to the rights of creditors, and shall be so recorded upon the books
of account of the Trust and are herein referred to as "assets of" such series.
In addition, any assets, income, earnings, profits, and proceeds thereof, funds,
or payments which are not readily identifiable as belonging to any particular
series shall be allocated by the Trustees between and among one or more of the
series in such manner as they, in their sole discretion, deem fair and
equitable. Each such allocation shall be conclusive and binding upon the
Shareholders of all series for all purposes, and shall be referred to as assets
belonging to that series.
NO PREEMPTIVE RIGHTS
Section 4. Shareholders shall have no preemptive or other right to
receive, purchase or subscribe for any additional Shares or other securities
issued by the Trust.
STATUS OF SHARES AND LIMITATION OF PERSONAL LIABILITY
Section 5. Shares shall be deemed to be personal property giving only
the rights provided in this instrument. Every Shareholder by virtue of having
become a Shareholder shall be held to have expressly assented and agreed to the
terms of this Declaration of Trust and to have become a party thereto. The
death of a Shareholder during the continuance of the Trust shall not operate to
terminate the same nor entitle the representative of any deceased Shareholder to
an accounting or to take any action in court or elsewhere against the Trust or
the Trustees, but only to the rights of said descendent under this Trust.
Ownership of Shares shall not entitle the Shareholder to any title in or to the
whole or any part of the Trust property or right to call for a partition or
division of the same or for an accounting, nor shall the ownership of Shares
constitute the Shareholders partners. Neither the Trust nor the Trustees, nor
any officer, employee or agent of the Trust shall have any power to bind
personally any Shareholder, nor, except as specifically provided herein, to call
upon any Shareholder for the payment of any sum of money or assessment
whatsoever other than such as the Shareholder -may at any time personally agree
to pay.
4
<PAGE>
TRUSTEES AND OFFICERS AS SHAREHOLDERS
Section 6. Any Trustee, officer or other agent of the Trust may
acquire, own and dispose of Shares of the Trust to the same extent as if he were
not a Trustee, officer or agent; and the Trustees may issue and sell or cause to
be issued and sold Shares to and buy such Shares from any such person of any
firm or company in which he is interested, subject only to the general
limitations herein contained as to the sale and purchase of such Shares; and all
subject to any restrictions which may be contained in the By-Laws.
ARTICLE IV
THE TRUSTEES
ELECTION
Section 1. A Trustee may be elected either by the Trustees or the
Shareholders subject to the limitations of the 1940 Act. The number of Trustees
shall be fixed by the Trustees, except that, commencing with the first
shareholders meeting at which Trustees are elected, there shall be not less than
three nor more than fifteen Trustees, each of whom shall hold office during the
lifetime of this Trust or until the election and qualification of his or her
successor, or until he or she sooner dies, resigns or is removed. The number of
Trustees so fixed may be increased either by the Shareholders or by the Trustees
by a vote of a majority of the Trustees then in office. The number of Trustees
so fixed may be decreased either by the Shareholders or by the Trustees by vote
of a majority of the Trustees then in office, but only to eliminate vacancies
existing by reason of the death, resignation or removal of one or more Trustees.
The initial Trustees, each of whom shall serve until the first meeting of
Shareholders at which Trustees are elected and until his or her successor is
elected and qualified, or until he or she sooner dies, resigns or is removed,
shall be Carl A. Guarino and such other persons as the Trustee or Trustees then
in office shall, prior to any sale of Shares pursuant to public offering,
appoint. By vote of the Shareholders holding a majority of the shares entitled
to vote, the Shareholders may remove a Trustee with or without cause. By vote
of a majority of the Trustees then in office, the Trustees may remove a Trustee.
Any Trustee may resign at any time by written instrument signed by him and
delivered to any officer of the Trust, to each other Trustee or to a meeting of
the Trustees. Such resignation shall be effective upon receipt unless specified
to be effective at some other time. Except to the extent expressly
5
<PAGE>
provided in a written agreement with the Trust, no Trustee resigning and no
Trustee removed shall have any right to any compensation for any period
following his resignation or removal, or any right to damages on account of such
removal. Any Trustee may, but need not, be a Shareholder.
In case of the declination, death, resignation, retirement, removal,
incapacity, or inability of any of the Trustees, or in case a vacancy shall
exist by reason of an increase in number, or for any other reason, the remaining
Trustees shall fill such vacancy by appointing such other person as they in
their discretion shall see fit consistent with the limitations under the 1940
Act. Such appointment shall be evidenced by a written instrument signed by a
majority of the Trustees in office or by recording in the records of the Trust,
whereupon the appointment shall take effect. An appointment of a Trustee may be
made by the Trustees then in office in anticipation of a vacancy to occur by
reason of retirement, resignation or increase in number of Trustees effective at
a later date, provided that said appointment shall become effective only at or
after the effective date of said retirement, resignation or increase in number
of Trustees. As soon as any Trustee so appointed shall have accepted this
trust, the trust estate shall vest in the new Trustee or Trustees, together with
the continuing Trustees, without any further act or conveyance, and he shall be
deemed a Trustee hereunder. The power of appointment is subject to the
provisions of Section 16(a) of the 1940 Act. In the event that at any time
after the commencement of public sales of Trust Shares less than a majority of
the Trustees then holding office were elected to such office by the
Shareholders, the Trustees or the Trust's President promptly shall call a
meeting of Shareholders for the purpose of electing Trustees. Each Trustee
elected by the Shareholders or by the Trustees shall serve until the election or
qualification of his or her successor, or until he or she sooner dies, resigns
or is removed.
EFFECT OF DEATH, RESIGNATION, ETC. OF A TRUSTEE
Section 2. The death, declination, resignation, retirement, removal, or
incapacity of the Trustees, or any one of them, shall not operate to annul the
Trust or to revoke any existing agency created pursuant to the terms of this
Declaration of Trust.
POWERS
Section 3. Subject to the provisions of this Declaration of Trust, the
business of the Trust shall be managed by the Trustees, and they shall have all
powers necessary or convenient to carry out that responsibility. Without
limiting the foregoing, the Trustees may
6
<PAGE>
adopt By-Laws not inconsistent with this Declaration of Trust providing for the
conduct of the business of the Trust and may amend and repeal them to the extent
that such By-Laws do not reserve that right to the Shareholders; they may fill
vacancies in their number, including vacancies resulting from increases in their
number, and may elect and remove such officers and appoint and terminate such
agents as they consider appropriate; they may appoint from their own number, and
terminate, any one or more committees consisting of two or more Trustees,
including an executive committee which may, when the Trustees are not in
session, exercise some or all of the powers and authority of the Trustees as the
Trustees may determine; they may appoint an advisory board, the members of which
shall not be Trustees and need not be Shareholders; they may employ one or more
investment advisers or administrators as provided in Section 7 of this Article
IV; they may employ one or more custodians of the assets of the trust and may
authorize such custodians to employ subcustodians and to deposit all or any part
of such assets in a system or systems for the central handling of securities,
retain a transfer agent or a Shareholder servicing agent, or both, provide for
the distribution of Shares by the Trust, through one or more principal
underwriters or otherwise, set record dates for the determination of
Shareholders with respect to various matters, and in general delegate such
authority as they consider desirable to any officer of the Trust, to any
committee of the Trustees and to any agent or employee of the Trust or to any
such custodian or underwriter; and they may elect and remove such officers and
appoint and terminate such agents as they consider appropriate.
Without limiting the foregoing, the Trustees shall have power and
authority:
(a) To invest and reinvest cash, and to hold cash uninvested;
(b) To sell, exchange, lend, pledge, mortgage, hypothecate, write
options on and lease any or all of the assets of the Trust;
(c) To vote or give assent, or exercise any rights of ownership, with
respect to stock or other securities or property, and to execute
and deliver proxies or powers of attorney to such person or
persons as the Trustees shall deem proper, granting to such
person or persons such power and discretion with relation to
securities or property as the Trustees shall deem proper;
(d) To exercise powers and rights of subscription or otherwise which
in any manner arise out of ownership of securities;
7
<PAGE>
(e) To hold any security or property in a form not indicating any
trust, whether in bearer, unregistered or other negotiable form,
or in the name of the Trustees or of the Trust or in the name of
a custodian, subcustodian or other depositary or a nominee or
nominees or otherwise;
(f) To establish separate and distinct series of shares with
separately defined investment objectives, policies and purposes,
and to allocate assets, liabilities and expenses of the Trust
to a particular series of Shares or to apportion the same among
two or more series, provided that any liability or expense
incurred by a particular series of Shares shall be payable solely
out of the assets of that series and to establish separate
classes of shares of each series, all in accordance with Article
III hereof;
(g) To consent to or participate in any plan for the reorganization,
consolidation or merger of any corporation or issuer, any
security or property of which is or was held in the Trust; to
consent to any contract, lease, mortgage, purchase or sale of
property by such corporation or issuer, and to pay calls or
subscriptions with respect to any security held in the Trust;
(h) To join with other security holders in acting through a
committee, depositary, voting trustee or otherwise, and in that
connection to deposit any security with, or transfer any security
to, any such committee, depositary or trustee, and to delegate
to them such power and authority with relation to any security
(whether or not so deposited or transferred) as the Trustees
shall deem proper, and to agree to pay, and to pay, such portion
of the expenses and compensation of such committee, depositary
or trustee as the Trustees shall deem proper;
(i) To compromise, arbitrate or otherwise adjust claims in favor of
or against the Trust or any matter in controversy, including but
not limited to claims for taxes;
8
<PAGE>
(j) To enter into joint ventures, general or limited partnerships
and any other combinations or associations;
(k) To borrow funds;
(l) To endorse or guarantee the payment of any notes or other
obligations of any person; to make contracts of guaranty or
suretyship, or otherwise assume liability for payment thereof;
and to mortgage and pledge the Trust property or any part thereof
to secure any or all of such obligations;
(m) To purchase and pay for entirely out of Trust property such
insurance as they may deem necessary or appropriate for the
conduct of the business, including, without limitation, insurance
policies insuring the assets of the Trust and payment of
distributions and principal on its portfolio investments, and
insurance policies insuring the Shareholders, Trustees,
officers, employees, agents, investment advisers or
administrators, principal underwriters, or independent
contractors of the Trust individually against all claims and
liabilities of every nature arising by reason of holding, being
or having held any such office or position, or by reason of any
action alleged to have been taken or omitted by any such person
as Shareholder, Trustee, officer, employee, agent, investment
adviser or administrator, principal underwriter, or independent
contractor, including any action taken or omitted that may be
determined to constitute negligence, whether or not the Trust
would have the power to indemnify such person against such
liability;
(n) To pay pensions for faithful service, as deemed appropriate by
the Trustees, and to adopt, establish and carry out pension,
profit-sharing, share bonus, share purchase, savings, thrift and
other retirement, incentive and benefit plans, trusts and
provisions, including the purchasing of life insurance and
annuity contracts as a means of providing such retirement and
other benefits, for any or all of the Trustees, officers,
employees and agents of the Trust;
9
<PAGE>
(o) To establish, from time to time, a minimum total investment
for Shareholders, and to require the redemption of the Shares
of any Shareholders whose investment is less than such minimum
upon giving notice to such Shareholder;
(p) To enter into contracts of any kind and description;
(q) To name, or to change the name or designation of the Trust or any
series or class of the Trust;
(r) To take whatever action may be necessary to enable the Trust to
comply with any applicable Federal, state or local statute, rule
or regulation; and
(s) To engage in any other lawful act or activity in which
corporations organized under the Massachusetts Business
Corporation Law may engage.
The Trustees shall not in any way be bound or limited by any present or
future law or custom in regard to investments by Trustees. Except as
otherwise provided herein or from time to time in the By-Laws, any action to
be taken by the Trustees may be taken by a majority of the Trustees present at a
meeting of Trustees (if a quorum be present), within or without Massachusetts,
including any meeting held by means of a conference telephone or other
communications equipment by which all persons participating in the meeting can
communicate with each other simultaneously and participation by such means shall
constitute presence in person at a meeting, or by written consent of a majority
of the Trustees then in office.
PAYMENT OF EXPENSES BY THE TRUST
Section 4. The Trustees are authorized to pay or to cause to be paid
out of the principal or income of the Trust, or partly out of principal and
partly out of income, as they deem fair, all expenses, fees, charges, taxes and
liabilities incurred or arising in connection with the Trust, or in connection
with the management thereof, including, but not limited to, the Trustees'
compensation and such expenses and charges for the services of the Trust's
officers, employees, investment adviser or administrator, principal underwriter,
auditor, counsel, custodian, transfer agent, Shareholder servicing agent, and
such other agents or
10
<PAGE>
independent contractors and such other expenses and charges as the Trustees may
deem necessary or proper to incur, provided, however, that all expenses, fees,
charges, taxes and liabilities incurred or arising in connection with a
particular series of Shares or class as determined by the Trustees consistent
with applicable law, shall be payable solely out of the assets of that series or
class. Any general liabilities, expenses, costs, charges or reserves of the
Trust which are not readily identifiable as belonging to any particular series
shall be allocated and charged by the Trustees between or among any one or more
of the series in such manner as the Trustees in their sole discretion deem fair
and equitable. Each such allocation shall be conclusive and binding upon the
Shareholders of all series for all purposes. Any creditor of any series may
look only to the assets of that series to satisfy such creditor's debt.
Section 5. The Trustees shall have the power, as frequently as they may
determine, to cause each Shareholder to pay directly, in advance or arrears, for
any and all expenses of the Trust, an amount fixed from time to time by the
Trustees, by setting off such charges due from such Shareholder from declared
but unpaid dividends owed such Shareholder and/or by reducing the number of
Shares in the account of such Shareholder by that number of full and/or
fractional Shares which represents the outstanding amount of such charges due
from such Shareholder.
OWNERSHIP OF ASSETS OF THE TRUST
Section 6. Title to all of the assets of each series of Shares and the
Trust shall at all times be considered as vested in the Trustees.
ADVISORY, ADMINISTRATION AND DISTRIBUTION
Section 7. The Trustees may, at any time and from time to time,
contract with respect to the Trust or any series thereof for exclusive or
nonexclusive advisory and/or administration services with SEI Financial
Management Corporation, a Delaware corporation, and/or any other corporation,
trust, association or other organization, every such contract to comply with
such requirements and restrictions as may be set forth in the By-Laws; and any
such contract may contain such other terms interpretive of or in addition to
said requirements and restrictions as the Trustees may determine, including,
without limitation, in the case of a contract for advisory or sub-advisory
services, authority to determine from time to time what investments shall be
purchased, held, sold or exchanged and what portion, if any, of the assets of
the Trust shall be held uninvested and to make
11
<PAGE>
changes in the Trust's investments. Any contract for advisory services shall be
subject to such Shareholder approval as is required by the 1940 Act. The
Trustees may also, at any time and from time to time, contract with SEI
Financial Services Company, a Pennsylvania corporation, and/or any other
corporation, trust, association or other organization, appointing it exclusive
or nonexclusive distributor or principal underwriter for the Shares, every such
contract to comply with such requirements and restrictions as may be set forth
in the By-Laws, and any such contract may contain such other terms interpretive
of or in addition to said requirements and restrictions as the Trustees may
determine.
The fact that:
(i) any of the Shareholders, Trustees or officers of the Trust
is a shareholder, director, officer, partner, trustee,
employee, , adviser, principal underwriter, or distributor
or agent of or for any corporation, trust, association, or
other organization, or of or for any parent or affiliate
of any organization, with which an advisory or
administration or principal underwriter's or distributor's
contract, or transfer, Shareholder servicing or other
agency contract may have been or may hereafter be made, or
that any such organization, or any parent or affiliate
thereof, is a Shareholder or has an interest in the Trust,
or that
(ii) any corporation, trust, association or other organization
with which an advisory or administration or principal
underwriter's or distributor's contract, or transfer,
Shareholder servicing or other agency contract may have
been or may hereafter be made also has an advisory or
administration contract, or principal underwriter's or
distributor's contract, or transfer, Shareholder servicing
or other agency contract with one or more other
corporations, trusts, associations, or other
organizations, or has other businesses or interests,
shall not affect the validity of any such contract or
disqualify any Shareholder, Trustee or officer of the
Trust from voting upon or executing the same or create any
liability or accountability to the Trust or its
Shareholders.
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ARTICLE V
SHAREHOLDERS' VOTING POWERS AND MEETINGS
VOTING POWERS
Section 1. The Shareholders shall have power to vote only (i) for the
election or removal of Trustees as provided in Article IV, Section 1, (ii) with
respect to any investment adviser as provided in Article IV, Section 7, (iii)
with respect to any termination of the Trust or any series to the extent and as
provided in Article IX, Section 4, (iv) with respect to any amendment of this
Declaration of Trust to the extent and as provided in Article IX, Section 7, (v)
to the same extent as the stockholders of a Massachusetts business corporation
as to whether or not a court action, proceeding or claim should or should not be
brought or maintained derivatively or as a class action on behalf of the Trust
or the Shareholders, and (vi) with respect to such additional matters relating
to the Trust as may be required by law, by this Declaration of Trust, by the
By-Laws or by any registration of the Trust with the Securities and Exchange
Commission or any state, or as the Trustees may consider necessary or desirable.
Each whole Share shall be entitled to one vote as to any matter on which it
is entitled to vote and each fractional Share shall be entitled to a
proportionate fractional vote. Notwithstanding any other provisions of this
Declaration of Trust, or any matter submitted to a vote of Shareholders, all
Shares of the Trust then entitled to vote shall be voted by individual series or
class, except (1) when required by the 1940 Act, Shares shall be voted in the
aggregate and not by individual series or class, and (2) when the Trustees have
determined that the matter affects only the interests of one or more series or
class, then only Shareholders of such series or class shall be entitled to vote
thereon. There shall be no cumulative voting in the election of Trustees.
Shares may be voted in person or by proxy.
A proxy with respect to Shares held in the name of two or more persons
shall be valid if executed by any one of them unless at or prior to the exercise
of the proxy the Trust receives a specific written notice to the contrary from
any one of them. A proxy purporting to be executed by or on behalf of a
Shareholder shall be deemed valid unless challenged at or prior to its exercise
and the burden of proving invalidity shall rest on the challenger. Until Shares
are issued, the Trustees may exercise all rights of Shareholders and may take
any action required by law, this Declaration of Trust or the By-Laws to be taken
by Shareholders.
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VOTING POWER AND MEETINGS
Section 2. Meetings of Shareholders of the Trust or of any series or
class may be called by the Trustees, or such other person or persons as may be
specified in the Bylaws, and held from time to time for the purpose of taking
action upon any matter requiring the vote or the authority of the Shareholders
of the Trust or any series or class as herein provided or upon any other matter
deemed by the Trustees to be necessary or desirable. Written notice of any
meeting of Shareholders shall be given or caused to be given by the Trustees by
mailing such notice at least seven days before such meeting, postage prepaid,
stating the time, place and purpose of the meeting, to each Shareholder at the
Shareholder's address as it appears on the records of the Trust. If the
Trustees shall fail to call or give notice of any meeting of Shareholders for a
period of thirty days after written application by Shareholders holding at least
10% of the Shares then outstanding requesting a meeting to be called for a
purpose requiring action by the Shareholders as provided herein or in the
By-Laws, then Shareholders holding at least 10% of the Shares then outstanding
may call and give notice of such meeting, and thereupon the meeting shall be
held in the manner provided for herein in case of call thereof by the Trustees.
Notice of a meeting need not be given to any Shareholder if a written waiver of
notice, executed by him or her before or after the meeting, is filed with the
records of the meeting, or to any Shareholder who attends the meeting without
protesting prior thereto or at its commencement the lack of notice to him or
her.
QUORUM AND REQUIRED VOTE
Section 3. A majority of the Shares entitled to vote shall be a quorum
for the transaction of business at a Shareholders' meeting, except that where
any provision of law or of this Declaration of Trust permits or requires that
holders of any series [or class] shall vote as a series or class, then a
majority of the aggregate number of Shares of that series or class entitled to
vote shall be necessary to constitute a quorum for the transaction of business
by that series or class. Any lesser number, however, shall be sufficient for
adjournments. Any adjourned session or sessions may be held within a reasonable
time after the date set for the original meeting without the necessity of
further notice.
Except when a larger vote is required by any provisions of this Declaration
of Trust or the By-Laws, a majority of the Shares voted on any matter shall
decide such matter and a plurality shall elect a Trustee, provided that where
any provision of law or of this Declaration of Trust permits or requires that
the holders of any series or class shall vote as
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a series or class, then a majority of the Shares of that series or class voted
on the matter shall decide that matter insofar as that series or class is
concerned.
ACTION BY WRITTEN CONSENT
Section 4. Any action taken by Shareholders may be taken without a
meeting ff a majority of Shareholders entitled to vote on the matter (or such
larger vote as shall be required by any provision of this Declaration of Trust
or the By-Laws) consent to the action in writing and such written consents are
filed with the records of the meetings of Shareholders. Such consent shall be
treated for all purposes as a vote taken at a meeting of Shareholders.
ADDITIONAL PROVISIONS
Section 5. The By-Laws may include further provisions for Shareholders'
votes and meetings and related matters.
ARTICLE VI
DISTRIBUTIONS, REDEMPTIONS, REPURCHASES
AND DETERMINATION OF NET ASSET VALUE
DISTRIBUTIONS
Section 1. The Trustees may, but need not, distribute each year to the
Shareholders of each series such income and gains, accrued or realized, as the
Trustees may determine, after providing for actual and accrued expenses and
liabilities (including such reserves as the Trustees may establish) determined
in accordance with good accounting practices. The Trustees shall have full
discretion to determine which items shall be treated as income and which items
as capital and their determination shall be binding upon the Shareholders.
Distributions of each year's income of each series, ff any be made, may be made
in one or more payments, which shall be in Shares, in cash or otherwise and on a
date or dates determined by the Trustees. At any time and from time to time in
their discretion, the Trustees may distribute to the Shareholders of any one or
more series as of a record date or dates determined by the Trustees, in shares,
in cash or otherwise, all or part of any gains realized on the sale or
disposition of property of the series or otherwise, or all or part of any
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other principal of the Trust attributable to the series. Each distribution
pursuant to this Section 1 shall be made ratably according to the number of
Shares of the series or class held by the several Shareholders on the applicable
record date thereof, provided that no distributions need be made on Shares
purchased pursuant to orders received, or for which payment is made, after such
time or times as the Trustees may determine. Any such distribution paid in
Shares will be paid at the net asset value thereof as determined in accordance
with this Declaration of Trust.
REDEMPTIONS AND REPURCHASES
Section 2. Any holder of Shares of the Trust may, by presentation of a
written request, together with his certificates, if any, for such Shares, in
proper form for transfer, at the office of the Trust, the adviser, the
underwriter or the distributors, or at a principal office of a transfer or
Shareholder services agent appointed by the Trust (as the Trustees may
determine), redeem his Shares for the net asset value thereof determined and
computed in accordance with the provisions of this Section 2, less any
redemption charge which the Trustees may establish. Upon receipt of such
written request for redemption of Shares by the Trust, the adviser, the
underwriter or the distributor, or the Trust's transfer or Shareholder services
agent, such Shares shall be redeemed at the net asset value per share of the
particular series next determined after such Shares are tendered in proper form
for transfer to the Trust or determined as of such other time fixed by the
Trustees, as may be permitted or required by the 1940 Act, provided that no such
tender shall be required in the case of Shares for which a certificate or
certificates have not been issued, and in such case such Shares shall be
redeemed at the net asset value per share of the particular series next
determined after such demand has been received or determined at such other time
fixed by the Trustees, as may be determined or required by the 1940 Act.
The obligation of the Trust to redeem its Shares of each series as set
forth above in this Section 2 shall be subject to the condition that, during any
time of emergency, as hereinafter defined, such obligation may be suspended by
the Trust by or under authority of the Trustees for such period or periods
during such time of emergency as shall be determined by or under authority of
the Trustees. If there is such a suspension, any Shareholder may withdraw any
demand for redemption and any tender of Shares which has been received by the
Trust during any such period and any tender of Shares the applicable net asset
value of which would but for such suspension be calculated as of a time during
such period. Upon such withdrawal, the Trust shall return to the Shareholder
the certificates therefor, if any. For
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the purposes of any such suspension "time of emergency" shall mean, either with
respect to all Shares or any series of Shares, any period during which:
(a) the New York Stock Exchange is closed other than for customary
weekend and holiday closings; or
(b) the Trustees or authorized officers of the Trust shall have
determined, in compliance with any applicable rules and
regulations or orders of the Commission, either that trading on
the New York Stock Exchange is restricted, or that an emergency
exists as a result of which (i) disposal by the Trust of
securities owned by it is not reasonably practicable or (ii) it
is not reasonably practicable for the Trust fairly to determine
the current value of its net assets; or
(c) the suspension or postponement of such obligations is permitted
by order of the Commission.
The Trust may also purchase, repurchase or redeem Shares in accordance with
such other methods, upon such other terms and subject to such other conditions
as the Trustees may from time to time authorize at a price not exceeding the net
asset value of such Shares in effect when the purchase or repurchase or any
contract to purchase or repurchase is made.
PAYMENT IN KIND
Section 3. Subject to any generally applicable limitation imposed by
the Trustees, any payment on redemption, purchase or repurchase by the Trust of
Shares may, ff authorized by the Trustees, be made wholly or partly in kind,
instead of in cash. Such payment in kind shall be made by distributing
securities or other property, constituting, in the opinion of the Trustees, a
fair representation of the various types of securities and other property then
held by the series of Shares being redeemed, purchased or repurchased (but not
necessarily involving a portion of each of the series' holdings) and taken at
their value used in determining the net asset value of the Shares in respect of
which payment is made.
ADDITIONAL PROVISIONS RELATING TO REDEMPTIONS AND REPURCHASES
Section 4. The completion of redemption, purchase or repurchase of
Shares shall constitute a full discharge of the Trust and the Trustees with
respect to such Shares and the
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Trustees may require that any certificate or certificates issued by the Trust to
evidence the ownership of such Shares shall be surrendered to the Trustees for
cancellation or notation.
DIVIDENDS, DISTRIBUTIONS, REDEMPTIONS AND REPURCHASES
Section 5. No dividend or distribution (including, without limitation,
any distribution paid upon termination of the Trust or of any series) with
respect to, nor any redemption or repurchase of, the Shares of any series shall
be effected by the Trust other than from the assets of such series.
ARTICLE VII
COMPENSATION AND LIMITATION
OF LIABILITY OF TRUSTEES
COMPENSATION
Section 1. The Trustees as such shall be entitled to reasonable
compensation from the Trust; they may fix the amount of their compensation.
Nothing herein shall in any way prevent the employment of any Trustee for
advisory, administration, legal, accounting, investment banking or other
services and payment for the same by the Trust.
LIMITATION OF LIABILITY
Section 2. The Trustees shall not be responsible or liable in any event
for any neglect or wrongdoing of any officer, agent, employee, investment
adviser or administrator, principal underwriter or custodian, nor shall any
Trustee be responsible for the act or omission of any other Trustee, but nothing
herein contained shall protect any Trustee against any liability to which he or
she would otherwise be subject by reason of willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in the conduct of
his or her office.
Every note, bond, contract, instrument, certificate, Share or undertaking
and every other act or thing whatsoever executed or done by or on behalf of the
Trust or the Trustees or any of them in connection with the Trust shall be
conclusively deemed to have been executed or done only in or with respect to
their or his or her capacity as Trustees or Trustee, and such Trustees or
Trustee shall not be personally liable thereon.
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ARTICLE VIII
INDEMNIFICATION
Subject to the exceptions and limitations contained in this Article, every
person who is, or has been, a Trustee or officer of the Trust shall be
indemnified by the Trust to the fullest extent permitted by law against
liability and against all expenses reasonably incurred or paid by him in
connection with any claim, action, suit or proceeding in which he becomes
involved as a party or otherwise by virtue of his being or having been a Trustee
or officer and against amounts paid or incurred by him in settlement thereof.
No indemnification shall be provided hereunder to a Trustee or officer:
(a) against any liability to the Trust or its Shareholders by reason
of a final adjudication by the court or other body before which
the proceeding was brought that he engaged in willful
misfeasance, bad faith, gross negligence or reckless disregard of
the duties involved in the conduct of his office;
(b) with respect to any matter as to which he shall have been finally
adjudicated not to have acted in good faith in the reasonable
belief that his action was in the best interests of the Trust;
(c) in the event of a settlement or other disposition not involving a
final adjudication (as provided in paragraph (a) or (b)) and
resulting in a payment by a Trustee or officer, unless
there has been either a determination that such Trustee or
officer did not engage in willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in
the conduct of his office by the court or other body approving
the settlement or other disposition or a reasonable
determination, based on a review of readily available facts (as
opposed to a full trial-type inquiry) that he did not engage in
such conduct:
(i) by a vote of a majority of the Disinterested Trustees acting
on the matter (provided that a majority of the Disinterested
Trustees then in office act on the matter); or
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(ii) by written opinion of independent legal counsel.
The rights of indemnification hereinafter provided may be insured against
by policies maintained by the Trust, shall be severable, shall not affect any
other rights to which any Trustee or officer may now or hereafter be entitled,
shall continue as to a person who has ceased to be such Trustee or officer and
shall inure to the benefit of the heirs, executors and administrators of such a
person. Nothing contained herein shall affect any rights to indemnification to
which Trust personnel other than Trustees and officers may be entitled by
contract or otherwise under law.
Expenses of preparation and presentation of a defense to any claim, action,
suit or proceeding of the character described in the next to the last paragraph
of this Article shall be advanced by the Trust prior to final disposition
thereof upon receipt of an undertaking by or on behalf of the recipient to repay
such amount if it is ultimately determined that he is not entitled to
indemnification under this Article, provided that either:
(a) such undertaking is secured by a surety bond or some
other appropriate security or the Trust shall be
insured against losses arising out of any such
advances; or
(b) a majority of the Disinterested Trustees acting on the
matter (provided that a majority of the Disinterested
Trustees then in office act on the matter) or
independent legal counsel in a written opinion shall
determine, based upon a review of the readily available
facts (as opposed to a full trial-type inquiry), that
there is reason to believe that the recipient
ultimately will be found entitled to indemnification.
As used in this Article, a "Disinterested Trustee" is one (i) who is not an
"interested person of the Trust (as defined by the 1940 Act) (including anyone
who has been exempted from being an "interested person:" by any rule, regulation
or order of the Securities and Exchange Commission), and (ii) against whom none
of such actions, suits or other proceedings or another action, suit or other
proceeding on the same or similar grounds is then or has been pending.
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As used in this Article, the words "claim," "action," "suit" or
"proceeding" shall apply to all claims, actions, suits or proceedings (civil,
criminal or other, including appeals), actual or threatened; and the words
"liability" and "expenses" shall include without limitation, attorney's fees,
costs, judgments, amounts paid in settlement, fines, penalties and other
liabilities.
In case any Shareholder or former Shareholder shall be held to be
personally liable solely by reason of his or her being or having been a
shareholder and not because of his or her acts or omissions or for some other
reason, the shareholder or former Shareholder (or his or her heirs, executors,
administrators or other legal representatives or in the case of a corporation or
other entity, its corporate or other general successor) shall be entitled to be
held harmless from and indemnified against all loss and expenses arising from
such liability, but only out of the assets of the particular series of Shares of
which he or she is or was a Shareholder.
ARTICLE IX
MISCELLANEOUS
TRUSTEES, SHAREHOLDERS, ETC. NOT PERSONALLY LIABLE; NOTICE
Section 1. All persons extending credit to, contracting with or having
any claim against the Trust or a particular series of Shares shall look only to
the assets of the Trust or the assets of that particular series of Shares for
payment under such credit, contract or claim; and neither the Shareholders nor
the Trustees, nor any of the Trust's officers, employees or agents, whether
past, present or future, shall be personally liable therefor. Nothing in this
Declaration of Trust shall protect any Trustee against any liability to which
such Trustee would otherwise be subject by reason of willful misfeasance, bad
faith, gross negligence or reckless disregard of the duties involved in the
conduct of the office of Trustee.
Every note, bond, contract, instrument, certificate or undertaking made or
issued by the Trustees or by any officers or officer shall give notice that this
Declaration of Trust is on file with the Secretary of the Commonwealth of
Massachusetts and shall recite that the same was executed or made by or on
behalf of the Trust or by them as Trustees or Trustee or as officers or officer
and not individually and that the obligations of such instrument are not binding
upon any of them or the Shareholders individually but are binding only upon the
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assets and property of the Trust, and may contain such further recital as he or
she or they may deem appropriate, but the omission thereof shall not operate to
bind any Trustees or Trustee or officers or officer or Shareholders or
Shareholder individually.
TRUSTEES' GOOD FAITH ACTION, EXPERT ADVICE; NO BOND OR SURETY
Section 2. The exercise by the Trustees of their powers and discretion
hereunder shall be binding upon everyone interested. A Trustee shall be liable
for his or her own willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of the office of Trustee, and
for nothing else, and shall not be liable for errors of judgment or mistakes of
fact or law. The Trustees may take advice of counsel or other experts with
respect to the meaning and operation of this Declaration of Trust, and shall be
under no liability for any act or omission in accordance with such advice or for
failing to follow such advice. The Trustees shall not be required to give any
bond as such, nor any surety if a bond is required.
LIABILITY OF THIRD PERSONS DEALING WITH TRUSTEES
Section 3. No person dealing with the Trustees shall be bound to make
any inquiry concerning the validity of any transaction made or to be made by the
Trustees or to see to the application of any payments made or property
transferred to the Trust or upon its order.
DURATION AND TERMINATION OF TRUST
Section 4. Unless terminated as provided herein, the Trust shall
continue without limitation of time. The Trust may be terminated at any time by
vote of Shareholders holding at least a majority of the Shares entitled to vote
or by the Trustees by written notice to the Shareholders. Any series of Shares
may be terminated at any time by vote of Shareholders holding at least a
majority of the Shares of such series entitled to vote or by the Trustees by
written notice to the Shareholders of such series.
Upon termination of the Trust or of any one or more series of Shares, after
paying or otherwise providing for all charges, taxes, expenses and liabilities,
whether due or accrued or anticipated, of the Trust or of the particular series
as may be determined by the Trustees, the Trust shall, in accordance with such
procedures as the Trustees consider appropriate, reduce the remaining assets to
distributable form in cash or Shares or other securities, or any combination
thereof, and distribute the proceeds to the Shareholders of the series involved,
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ratably according to the number of Shares of such series held by the several
Shareholders of such series on the date of termination.
Section 5. The original or a copy of this instrument and of each
amendment hereto shall be kept at the office of the Trust where it may be
inspected by any Shareholder. A copy of this instrument and of each amendment
hereto shall be filed by the Trust with the Secretary of the Commonwealth of
Massachusetts and with the Boston City Clerk, as well as any other governmental
office where such filing may from time to time be required. Anyone dealing with
the Trust may rely on certificate by an officer of the Trust as to whether or
not any such amendments have been made and as to any matters in connection with
the Trust hereunder; and, with the same effect as if it were the original, may
rely on a copy certified by an officer of the Trust to be a copy of this
instrument or of any such amendments. In this instrument and in such amendment,
references to this instrument, and the expression "herein," "hereof," and
"hereunder" shall be deemed to refer to this instrument as amended from time to
time. Headings are placed herein for convenience of reference only and shall
not be taken as part hereof or control or affect the meaning, construction or
effect of this instrument. This instrument may be executed in any number of
counterparts each of which shall be deemed an original.
APPLICABLE LAW
Section 6. The Trust shall be of the type commonly called a
Massachusetts business trust, and without limiting the provisions hereof, the
Trust may exercise all powers which are ordinarily exercised by such a trust.
This Declaration of Trust is to be governed by and construed and administered
according to the laws of said Commonwealth.
AMENDMENTS
Section 7. This Declaration of Trust may be amended at any time by an
instrument in writing signed by a majority of the then Trustees when authorized
to do so by a vote of Shareholders holding a majority of the Shares entitled to
vote, except that an amendment which shall affect the holders of one or more
series or classes of Shares but not the holders of all outstanding series as
classes shall be authorized by vote of the Shareholders holding a majority of
the Shares entitled to vote of each series or classes affected and no vote of
Shareholders of a series or classes not affected shall be required. Amendments
having the purpose of changing the name of the Trust or of supplying any
omission, curing any
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ambiguity or curing, correcting or supplementing any defective or inconsistent
provision contained herein shall not require authorization by Shareholder vote.
IN WITNESS WHEREOF, the undersigned being the sole initial Trustee of the Trust
has executed this document this 18th day of July, 1991.
/s/ Carl A. Guarino
-------------------------------------
Carl A. Guarino
c/o SEI Financial Services Company
680 E. Swedesford Road
Wayne, PA 19087
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COMMONWEALTH OF PENNSYLVANIA
COUNTY OF CHESTER
I, the undersigned authority, hereby certify that the foregoing is a true and
correct copy of the instrument presented to me by Carl A. Guarino as the
original of such instrument.
WITNESS my hand and official seal, this 18th day of July, 1991.
/s/ Christine M. McCann
--------------------------
Notary Public
My commission expires: May 6, 1995
Resident Agent: CT Corporation, 2 Oliver Street, Boston, MA 02109.
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INVESTMENT ADVISORY AGREEMENT
AGREEMENT made as of this 31st day of October, 1997, by and between The
Advisors' Inner Circle Fund, a Massachusetts business trust (the "Trust"), and
MDL Capital Management, Inc. (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 the MDL Broad Market Fixed Income Fund and
MDL Large Cap Growth Equity Fund and such other funds as the Trust and the
Adviser may agree upon (individually, a "Fund" and collectively, the "Funds"),
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 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 Funds, 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 Fund set forth in the Funds' 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 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 Funds' 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.
<PAGE>
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 Fund 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 Fund are qualified for offer and sale, the Adviser shall bear such
excess cost.
However, the Adviser will not bear expenses of any Fund which would
result in the Fund'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 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
<PAGE>
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 Investment Company Act of 1940 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 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).
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 ADVISER'S NAME. The Adviser hereby agrees to grant a
license to the Trust for use of its name in the names of the Funds 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
Investment Company Act of 1940 and rules and regulations thereunder.
The foregoing requirement that continuance of this Agreement be
"specifically approved
<PAGE>
at least annually" shall be construed in a manner consistent with the
Investment Company Act of 1940 and the rules and regulations
thereunder.
This Agreement may be terminated as to any Fund 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 respective meanings set forth in the
Investment Company Act of 1940 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 One Freedom Valley Road,
Oaks, PA 19456 and if to the Adviser at MDL Capital Management, Inc.,
730 Centre City Tower, 650 Smithfield Street, Pittsburgh, PA 15222.
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 construed in accordance with
the 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 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
are 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 Funds for payment of fees for
services rendered to the Funds.
<PAGE>
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:/s/Barbara A. Nugent
--------------------------------
Attest:/s/C Arnold
-----------------------------
MDL CAPITAL MANAGEMENT, INC.
By:/s/Mark D. Fay Chairman
--------------------------------
Attest:/s/Tracey Gist
--------------------------------
<PAGE>
SCHEDULE
TO THE
INVESTMENT ADVISORY AGREEMENT
BETWEEN
THE ADVISORS' INNER CIRCLE FUND
AND
MDL CAPITAL MANAGEMENT, INC.
Pursuant to Article 3, the Trust shall pay the Adviser compensation at an annual
rate as follows:
Fund Fee (in basis points)
- ---- ---
MDL Broad Market Fixed Income Fund 45
MDL Large Cap Growth Equity Fund 74
<PAGE>
THE ADVISORS' INNER CIRCLE FUND
INVESTMENT SUB-ADVISORY AGREEMENT
AGREEMENT made this 15th day of December, 1997, between SAGE Global Funds,
LLC, (the "Adviser") and Standard Asset Group, Inc. (the "Sub-Adviser").
WHEREAS, The Advisors' Inner Circle Fund, a Massachusetts business trust
(the "Trust"), is registered as an open-end management investment company under
the Investment Company Act of 1940, as amended (the "1940 Act"); and
WHEREAS, the Adviser has entered into an Investment Advisory Agreement
dated December 15, 1997 (the "Advisory Agreement") with the Trust, pursuant to
which the Adviser will act as investment adviser to the SAGE Corporate Bond Fund
(the "Portfolio"), which is a series of the Trust; and
WHEREAS, the Adviser, with the approval of the Trust, desires to retain the
Sub-Adviser to provide investment advisory services to the Adviser in connection
with the management of the Portfolio, and the Sub-Adviser is willing to render
such investment advisory services.
NOW, THEREFORE, the parties hereto agree as follows:
1. DUTIES OF THE SUB-ADVISER. Subject to supervision by the Adviser and the
Trust's Board of Trustees, the Sub-Adviser shall manage all of the
securities and other assets of the Portfolio entrusted to it hereunder (the
"Assets"), including the purchase, retention and disposition of the Assets,
in accordance with the Portfolio's investment objective, policies and
restrictions as stated in the Portfolio's prospectus and statement of
additional information, as currently in effect and as amended or
supplemented from time to time (referred to collectively as the
"Prospectus"), and subject to the following:
(a) The Sub-Adviser shall, in consultation with and subject to the direction of
the Adviser, determine from time to time what Assets will be purchased,
retained or sold by the Portfolio, and what portion of the Assets will be
invested or held uninvested in cash.
(b) In the performance of its duties and obligations under this Agreement, the
Sub-Adviser shall act in conformity with the Trust's Declaration of Trust
(as defined herein) and the Prospectus and with the instructions and
directions of the Adviser and of the Board of Trustees of the Trust and
will conform to and comply with the requirements of the 1940 Act, the
Internal Revenue Code of 1986, and all other applicable federal and state
laws and regulations, as each is amended from time to time.
(c) The Sub-Adviser shall determine the Assets to be purchased or sold by the
Portfolio as provided in subparagraph (a) and will place orders with or
through such persons, brokers or dealers to carry out the policy with
respect to brokerage set forth in the Portfolio's
<PAGE>
Registration Statement (as defined herein) and Prospectus or as the Board
of Trustees or the Adviser may direct from time to time, in conformity with
federal securities laws. In executing Portfolio transactions and selecting
brokers or dealers, the Sub-Adviser will use its best efforts to seek on
behalf of the Portfolio the best overall terms available. In assessing the
best overall terms available for any transaction, the Sub-Adviser shall
consider all factors that it deems relevant, including the breadth of the
market in the security, the price of the security, the financial condition
and execution capability of the broker or dealer, and the reasonableness of
the commission, if any, both for the specific transaction and on a
continuing basis. In evaluating the best overall terms available, and in
selecting the broker-dealer to execute a particular transaction, the
Sub-Adviser may also consider the brokerage and research services provided
(as those terms are defined in Section 28(e) of the Securities Exchange Act
of 1934). Consistent with any guidelines established by the Board of
Trustees of the Trust, the Sub-Adviser is authorized to pay to a broker or
dealer who provides such brokerage and research services a commission for
executing a Portfolio transaction for the Portfolio which is in excess of
the amount of commission another broker or dealer would have charged for
effecting that transaction if, but only if, the Sub-Adviser determines in
good faith that such commission was reasonable in relation to the value of
the brokerage and research services provided by such broker or dealer - -
viewed in terms of that particular transaction or terms of the overall
responsibilities of the Sub-Adviser to the Portfolio. In addition, the
Sub-Adviser is authorized to allocate purchase and sale orders for
securities to brokers or dealers (including brokers and dealers that are
affiliated with the Adviser, Sub-Adviser or the Trust's principal
underwriter) to take into account the sale of shares of the Trust if the
Sub-Adviser believes that the quality of the transaction and the commission
are comparable to what they would be with other qualified firms. In no
instance, however, will the Portfolio's Assets be purchased from or sold to
the Adviser, Sub-Adviser, the Trust's principal underwriter, or any
affiliated person of either the Trust, Adviser, the Sub-Adviser or the
principal underwriter, acting as principal in the transaction, except to
the extent permitted by the Securities and Exchange Commission ("SEC") and
the 1940 Act.
(d) The Sub-Adviser shall maintain all books and records with respect to
transactions involving the Assets required by subparagraphs (b)(5), (6),
(7), (9), (10) and (11) and paragraph (f) of Rule 31a-1 under the 1940 Act.
The Sub-Adviser shall provide to the Adviser or the Board of Trustees such
periodic and special reports, balance sheets or financial information, and
such other information with regard to its affairs as the Adviser or Board
of Trustees may reasonably request.
The Sub-Adviser shall keep the books and records relating to the Assets
required to be maintained by the Sub-Adviser under this Agreement and shall
timely furnish to the Adviser all information relating to the Sub-Adviser's
services under this Agreement needed by the Adviser to keep the other books
and records of the Portfolio required by Rule 31a-1 under the 1940 Act.
The Sub-Adviser shall also furnish to the Adviser any other information
relating to the Assets that is required to be filed by the Adviser or the
Trust with the SEC or sent to shareholders under the 1940 Act (including
the rules adopted thereunder) or any exemptive or other relief that the
Adviser or the Trust obtains from the SEC. The Sub-
<PAGE>
Adviser agrees that all records that it maintains on behalf of the
Portfolio are property of the Portfolio and the Sub-Adviser will surrender
promptly to the Portfolio any of such records upon the Portfolio's request;
provided, however, that the Sub-Adviser may retain a copy of such records.
In addition, for the duration of this Agreement, the Sub-Adviser shall
preserve for the periods prescribed by Rule 31a-2 under the 1940 Act any
such records as are required to be maintained by it pursuant to this
Agreement, and shall transfer said records to any successor sub-adviser
upon the termination of this Agreement (or, if there is no successor
sub-adviser, to the Adviser).
(e) The Sub-Adviser shall provide the Portfolio's custodian on each business
day with information relating to all transactions concerning the
Portfolio's Assets and shall provide the Adviser with such information upon
request of the Adviser.
(f) The investment management services provided by the Sub-Adviser under this
Agreement are not to be deemed exclusive and the Sub-Adviser shall be free
to render similar services to others, as long as such services do not
impair the services rendered to the Adviser or the Trust.
(g) The Sub-Adviser shall promptly notify the Adviser of any financial
condition that is likely to impair the Sub-Adviser's ability to fulfill its
commitment under this Agreement.
(h) The Sub-Adviser shall review all proxy solicitation materials and be
responsible for voting and handling all proxies in relation to the
securities held in the Portfolio. The Adviser shall instruct the custodian
and other parties providing services to the Portfolio to promptly forward
misdirected proxies to the Sub-Adviser.
Services to be furnished by the Sub-Adviser under this Agreement may be
furnished through the medium of any of the Sub-Adviser's partners, officers
or employees.
2. DUTIES OF THE ADVISER. The Adviser shall continue to have responsibility
for all services to be provided to the Portfolio pursuant to the Advisory
Agreement and shall oversee and review the Sub-Adviser's performance of its
duties under this Agreement; provided, however, that in connection with its
management of the Assets, nothing herein shall be construed to relieve the
Sub-Adviser of responsibility for compliance with the Trust's Declaration
of Trust (as defined herein), the Prospectus, the instructions and
directions of the Board of Trustees of the Trust, the requirements of the
1940 Act, the Internal Revenue Code of 1986, and all other applicable
federal and state laws and regulations, as each is amended from time to
time.
3. DELIVERY OF DOCUMENTS. The Adviser has furnished the Sub-Adviser with
copies properly certified or authenticated of each of the following
documents:
(a) The Trust's Agreement and Declaration of Trust, as filed with the
Secretary of State of the Commonwealth of Massachusetts (such Agreement and
Declaration of Trust, as in effect on the date of this Agreement and as
amended from time to time, herein called the
<PAGE>
"Declaration of Trust");
(b) By-Laws of the Trust (such By-Laws, as in effect on the date of this
Agreement and as amended from time to time, are herein called the
"By-Laws");
(c) Prospectus(es) of the Portfolio.
4. COMPENSATION TO THE SUB-ADVISER. For the services to be provided by the
Sub-Adviser pursuant to this Agreement, the Adviser will pay the
Sub-Adviser, and the Sub-Adviser agrees to accept as full compensation
therefor, a sub-advisory fee at the rate specified in the Schedule(s) which
is attached hereto and made part of this Agreement. The fee will be
calculated based on the average monthly market value of the Assets under
the Sub-Adviser s management and will be paid to the Sub-Adviser monthly.
Notwithstanding the foregoing, the Sub-Adviser hereby agrees to waive its
sub-advisory fees in the same proportion as the Adviser waives its advisory
fees with respect to the Portfolio. In addition, except as may otherwise
be prohibited by law or regulation (including any then current SEC staff
interpretation), the Sub-Adviser may, in its discretion and from time to
time, waive a portion of its fee.
5. INDEMNIFICATION. The Sub-Adviser shall indemnify and hold harmless the
Adviser from and against any and all claims, losses, liabilities or damages
(including reasonable attorney's fees and other related expenses) howsoever
arising from or in connection with the performance of the Sub-Adviser s
obligations under this Agreement; provided, however, that the Sub-Adviser s
obligation under this Section 5 shall be reduced to the extent that the
claim against, or the loss, liability or damage experienced by the Adviser,
is caused by or is otherwise directly related to the Adviser's own willful
misfeasance, bad faith or negligence, or to the reckless disregard of its
duties under this Agreement.
6. DURATION AND TERMINATION. This Agreement shall become effective upon its
approval by the Trust's Board of Trustees and by the vote of a majority of
the outstanding voting securities of the Portfolio. This Agreement shall
continue in effect for a period of more than two years from the date hereof
only so long as continuance is specifically approved at least annually in
conformance with the 1940 Act; provided, however, that this Agreement may
be terminated with respect to the Portfolio (a) by the Portfolio at any
time, without the payment of any penalty, by the vote of a majority of
Trustees of the Trust or by the vote of a majority of the outstanding
voting securities of the Portfolio, (b) by the Adviser at any time, without
the payment of any penalty, on not more than 60 days' nor less than 30
days' written notice to the Sub-Adviser, or (c) by the Sub-Adviser at any
time, without the payment of any penalty, on 90 days' written notice to the
Adviser. This Agreement shall terminate automatically and immediately in
the event of its assignment, or in the event of a termination of the
Adviser's agreement with the Trust. As used in this Section 6, the terms
"assignment" and "vote of a majority of the outstanding voting securities"
shall have the respective meanings set forth in the 1940 Act and the rules
and regulations thereunder, subject to such exceptions as may be granted by
the SEC under the 1940 Act.
<PAGE>
7. 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.
8. SEVERABILITY. Should any part of this Agreement be held invalid by a court
decision, statute, rule or otherwise, the remainder of this Agreement shall
not be affected thereby. This Agreement shall be binding upon and shall
inure to the benefit of the parties hereto and their respective successors.
9. NOTICE: Any notice, advice or report to be given pursuant to this
Agreement shall be deemed sufficient if delivered or mailed by registered,
certified or overnight mail, postage prepaid addressed by the party giving
notice to the other party at the last address furnished by the other party:
To the Adviser at: SAGE Global Funds, LLC, 55 William Street, Suite
G-40, Wellesley Hills, MA 02181.
To the Sub-Adviser at: Standard Asset Group, Inc., 55 William Street,
Suite G-40, Wellesley Hills, MA 02181.
10. ENTIRE AGREEMENT. This Agreement embodies the entire agreement and
understanding between the parties hereto, and supersedes all prior
agreements and understandings relating to this Agreement's subject matter.
This Agreement may be executed in any number of counterparts, each of which
shall be deemed to be an original, but such counterparts shall, together,
constitute only one instrument.
A copy of the Declaration of Trust is on file with the Secretary of State
of the Commonwealth of Massachusetts, and notice is hereby given that the
obligations of this instrument are not binding upon any of the Trustees,
officers or shareholders of the Portfolio or the Trust.
Where the effect of a requirement of the 1940 Act reflected in any
provision of this Agreement is altered by a rule, regulation or order of the
SEC, whether of special or general
<PAGE>
application, such provision shall be deemed to incorporate the effect of such
rule, regulation or order.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers designated below as of the day and year first written
above.
SAGE GLOBAL FUNDS, LLC STANDARD ASSET GROUP, INC.
By: Management Committee By: /s/G.J. Rollert
-------------------------------------- -----------------------
Name: /s/G.J. Rollert, /s/Robert J. Spiller, Name: G. J. Rollert
-------------------------------------- -----------------------
/s/Courtney A. Crandall, /s/Bruce W.
---------------------------------------
Everitt
-------
Title: Title: President
-------------------------- ---------------------
<PAGE>
SCHEDULE A
TO THE
SUB-ADVISORY AGREEMENT
BETWEEN
SAGE GLOBAL FUNDS, LLC
AND
STANDARD ASSET GROUP, INC.
Pursuant to Article 4, and subject to the contractual fee waivers described
therein, the Adviser shall pay the Sub-Adviser compensation at an annual rate as
follows:
Standard Asset Group, Inc. .20%
<PAGE>
THE ADVISORS' INNER CIRCLE FUND
INVESTMENT SUB-ADVISORY AGREEMENT
AGREEMENT made this 15th day of December, 1997, between SAGE Global Funds,
LLC, (the "Adviser") and Standard Asset Group, Inc. (the "Sub-Adviser").
WHEREAS, The Advisors' Inner Circle Fund, a Massachusetts business trust
(the "Trust"), is registered as an open-end management investment company under
the Investment Company Act of 1940, as amended (the "1940 Act"); and
WHEREAS, the Adviser has entered into an Investment Advisory Agreement
dated December 15, 1997 (the "Advisory Agreement") with the Trust, pursuant to
which the Adviser will act as investment adviser to the SAGE Corporate Bond Fund
(the "Portfolio"), which is a series of the Trust; and
WHEREAS, the Adviser, with the approval of the Trust, desires to retain the
Sub-Adviser to provide investment advisory services to the Adviser in connection
with the management of the Portfolio, and the Sub-Adviser is willing to render
such investment advisory services.
NOW, THEREFORE, the parties hereto agree as follows:
1. DUTIES OF THE SUB-ADVISER. Subject to supervision by the Adviser and the
Trust's Board of Trustees, the Sub-Adviser shall manage all of the
securities and other assets of the Portfolio entrusted to it hereunder (the
"Assets"), including the purchase, retention and disposition of the Assets,
in accordance with the Portfolio's investment objective, policies and
restrictions as stated in the Portfolio's prospectus and statement of
additional information, as currently in effect and as amended or
supplemented from time to time (referred to collectively as the
"Prospectus"), and subject to the following:
(a) The Sub-Adviser shall, in consultation with and subject to the direction of
the Adviser, determine from time to time what Assets will be purchased,
retained or sold by the Portfolio, and what portion of the Assets will be
invested or held uninvested in cash.
(b) In the performance of its duties and obligations under this Agreement, the
Sub-Adviser shall act in conformity with the Trust's Declaration of Trust
(as defined herein) and the Prospectus and with the instructions and
directions of the Adviser and of the Board of Trustees of the Trust and
will conform to and comply with the requirements of the 1940 Act, the
Internal Revenue Code of 1986, and all other applicable federal and state
laws and regulations, as each is amended from time to time.
(c) The Sub-Adviser shall determine the Assets to be purchased or sold by the
Portfolio as provided in subparagraph (a) and will place orders with or
through such persons, brokers or dealers to carry out the policy with
respect to brokerage set forth in the Portfolio's
<PAGE>
Registration Statement (as defined herein) and Prospectus or as the Board
of Trustees or the Adviser may direct from time to time, in conformity with
federal securities laws. In executing Portfolio transactions and selecting
brokers or dealers, the Sub-Adviser will use its best efforts to seek on
behalf of the Portfolio the best overall terms available. In assessing the
best overall terms available for any transaction, the Sub-Adviser shall
consider all factors that it deems relevant, including the breadth of the
market in the security, the price of the security, the financial condition
and execution capability of the broker or dealer, and the reasonableness of
the commission, if any, both for the specific transaction and on a
continuing basis. In evaluating the best overall terms available, and in
selecting the broker-dealer to execute a particular transaction, the
Sub-Adviser may also consider the brokerage and research services provided
(as those terms are defined in Section 28(e) of the Securities Exchange Act
of 1934). Consistent with any guidelines established by the Board of
Trustees of the Trust, the Sub-Adviser is authorized to pay to a broker or
dealer who provides such brokerage and research services a commission for
executing a Portfolio transaction for the Portfolio which is in excess of
the amount of commission another broker or dealer would have charged for
effecting that transaction if, but only if, the Sub-Adviser determines in
good faith that such commission was reasonable in relation to the value of
the brokerage and research services provided by such broker or dealer --
viewed in terms of that particular transaction or terms of the overall
responsibilities of the Sub-Adviser to the Portfolio. In addition, the
Sub-Adviser is authorized to allocate purchase and sale orders for
securities to brokers or dealers (including brokers and dealers that are
affiliated with the Adviser, Sub-Adviser or the Trust's principal
underwriter) to take into account the sale of shares of the Trust if the
Sub-Adviser believes that the quality of the transaction and the commission
are comparable to what they would be with other qualified firms. In no
instance, however, will the Portfolio's Assets be purchased from or sold to
the Adviser, Sub-Adviser, the Trust's principal underwriter, or any
affiliated person of either the Trust, Adviser, the Sub-Adviser or the
principal underwriter, acting as principal in the transaction, except to
the extent permitted by the Securities and Exchange Commission ("SEC") and
the 1940 Act.
(d) The Sub-Adviser shall maintain all books and records with respect to
transactions involving the Assets required by subparagraphs (b)(5), (6),
(7), (9), (10) and (11) and paragraph (f) of Rule 31a-1 under the 1940 Act.
The Sub-Adviser shall provide to the Adviser or the Board of Trustees such
periodic and special reports, balance sheets or financial information, and
such other information with regard to its affairs as the Adviser or Board
of Trustees may reasonably request.
The Sub-Adviser shall keep the books and records relating to the Assets
required to be maintained by the Sub-Adviser under this Agreement and shall
timely furnish to the Adviser all information relating to the Sub-Adviser's
services under this Agreement needed by the Adviser to keep the other books
and records of the Portfolio required by Rule 31a-1 under the 1940 Act.
The Sub-Adviser shall also furnish to the Adviser any other information
relating to the Assets that is required to be filed by the Adviser or the
Trust with the SEC or sent to shareholders under the 1940 Act (including
the rules adopted thereunder) or any exemptive or other relief that the
Adviser or the Trust obtains from the SEC. The Sub-
<PAGE>
Adviser agrees that all records that it maintains on behalf of the
Portfolio are property of the Portfolio and the Sub-Adviser will surrender
promptly to the Portfolio any of such records upon the Portfolio's request;
provided, however, that the Sub-Adviser may retain a copy of such records.
In addition, for the duration of this Agreement, the Sub-Adviser shall
preserve for the periods prescribed by Rule 31a-2 under the 1940 Act any
such records as are required to be maintained by it pursuant to this
Agreement, and shall transfer said records to any successor sub-adviser
upon the termination of this Agreement (or, if there is no successor
sub-adviser, to the Adviser).
(e) The Sub-Adviser shall provide the Portfolio's custodian on each business
day with information relating to all transactions concerning the
Portfolio's Assets and shall provide the Adviser with such information upon
request of the Adviser.
(f) The investment management services provided by the Sub-Adviser under this
Agreement are not to be deemed exclusive and the Sub-Adviser shall be free
to render similar services to others, as long as such services do not
impair the services rendered to the Adviser or the Trust.
(g) The Sub-Adviser shall promptly notify the Adviser of any financial
condition that is likely to impair the Sub-Adviser's ability to fulfill its
commitment under this Agreement.
(h) The Sub-Adviser shall review all proxy solicitation materials and be
responsible for voting and handling all proxies in relation to the
securities held in the Portfolio. The Adviser shall instruct the custodian
and other parties providing services to the Portfolio to promptly forward
misdirected proxies to the Sub-Adviser.
Services to be furnished by the Sub-Adviser under this Agreement may be
furnished through the medium of any of the Sub-Adviser's partners, officers
or employees.
2. DUTIES OF THE ADVISER. The Adviser shall continue to have responsibility
for all services to be provided to the Portfolio pursuant to the Advisory
Agreement and shall oversee and review the Sub-Adviser's performance of its
duties under this Agreement; provided, however, that in connection with its
management of the Assets, nothing herein shall be construed to relieve the
Sub-Adviser of responsibility for compliance with the Trust's Declaration
of Trust (as defined herein), the Prospectus, the instructions and
directions of the Board of Trustees of the Trust, the requirements of the
1940 Act, the Internal Revenue Code of 1986, and all other applicable
federal and state laws and regulations, as each is amended from time to
time.
3. DELIVERY OF DOCUMENTS. The Adviser has furnished the Sub-Adviser with
copies properly certified or authenticated of each of the following
documents:
(a) The Trust's Agreement and Declaration of Trust, as filed with the
Secretary of State of the Commonwealth of Massachusetts (such Agreement and
Declaration of Trust, as in effect on the date of this Agreement and as
amended from time to time, herein called the
<PAGE>
"Declaration of Trust");
(b) By-Laws of the Trust (such By-Laws, as in effect on the date of this
Agreement and as amended from time to time, are herein called the
"By-Laws");
(c) Prospectus(es) of the Portfolio.
4. COMPENSATION TO THE SUB-ADVISER. For the services to be provided by the
Sub-Adviser pursuant to this Agreement, the Adviser will pay the
Sub-Adviser, and the Sub-Adviser agrees to accept as full compensation
therefor, a sub-advisory fee at the rate specified in the Schedule(s) which
is attached hereto and made part of this Agreement. The fee will be
calculated based on the average monthly market value of the Assets under
the Sub-Adviser's management and will be paid to the Sub-Adviser monthly.
Notwithstanding the foregoing, the Sub-Adviser hereby agrees to waive its
sub-advisory fees in the same proportion as the Adviser waives its advisory
fees with respect to the Portfolio. In addition, except as may otherwise
be prohibited by law or regulation (including any then current SEC staff
interpretation), the Sub-Adviser may, in its discretion and from time to
time, waive a portion of its fee.
5. INDEMNIFICATION. The Sub-Adviser shall indemnify and hold harmless the
Adviser from and against any and all claims, losses, liabilities or damages
(including reasonable attorney's fees and other related expenses) howsoever
arising from or in connection with the performance of the Sub-Adviser's
obligations under this Agreement; provided, however, that the
Sub-Adviser's obligation under this Section 5 shall be reduced to the
extent that the claim against, or the loss, liability or damage
experienced by the Adviser, is caused by or is otherwise directly related
to the Adviser's own willful misfeasance, bad faith or negligence, or to
the reckless disregard of its duties under this Agreement.
6. DURATION AND TERMINATION. This Agreement shall become effective upon its
approval by the Trust's Board of Trustees and by the vote of a majority of
the outstanding voting securities of the Portfolio. This Agreement shall
continue in effect for a period of more than two years from the date hereof
only so long as continuance is specifically approved at least annually in
conformance with the 1940 Act; provided, however, that this Agreement may
be terminated with respect to the Portfolio (a) by the Portfolio at any
time, without the payment of any penalty, by the vote of a majority of
Trustees of the Trust or by the vote of a majority of the outstanding
voting securities of the Portfolio, (b) by the Adviser at any time, without
the payment of any penalty, on not more than 60 days' nor less than 30
days' written notice to the Sub-Adviser, or (c) by the Sub-Adviser at any
time, without the payment of any penalty, on 90 days' written notice to the
Adviser. This Agreement shall terminate automatically and immediately in
the event of its assignment, or in the event of a termination of the
Adviser's agreement with the Trust. As used in this Section 6, the terms
"assignment" and "vote of a majority of the outstanding voting securities"
shall have the respective meanings set forth in the 1940 Act and the rules
and regulations thereunder, subject to such exceptions as may be granted by
the SEC under the 1940 Act.
<PAGE>
7. 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.
8. SEVERABILITY. Should any part of this Agreement be held invalid by a court
decision, statute, rule or otherwise, the remainder of this Agreement shall
not be affected thereby. This Agreement shall be binding upon and shall
inure to the benefit of the parties hereto and their respective successors.
9. NOTICE: Any notice, advice or report to be given pursuant to this
Agreement shall be deemed sufficient if delivered or mailed by registered,
certified or overnight mail, postage prepaid addressed by the party giving
notice to the other party at the last address furnished by the other party:
To the Adviser at: SAGE Global Funds, LLC, 55 William Street, Suite
G-40, Wellesley Hills, MA 02181.
To the Sub-Adviser at: Standard Asset Group, Inc., 55 William Street,
Suite G-40, Wellesley Hills, MA 02181.
10. ENTIRE AGREEMENT. This Agreement embodies the entire agreement and
understanding between the parties hereto, and supersedes all prior
agreements and understandings relating to this Agreement's subject matter.
This Agreement may be executed in any number of counterparts, each of which
shall be deemed to be an original, but such counterparts shall, together,
constitute only one instrument.
A copy of the Declaration of Trust is on file with the Secretary of State
of the Commonwealth of Massachusetts, and notice is hereby given that the
obligations of this instrument are not binding upon any of the Trustees,
officers or shareholders of the Portfolio or the Trust.
Where the effect of a requirement of the 1940 Act reflected in any
provision of this Agreement is altered by a rule, regulation or order of the
SEC, whether of special or general
<PAGE>
application, such provision shall be deemed to incorporate the effect of such
rule, regulation or order.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers designated below as of the day and year first written
above.
SAGE GLOBAL FUNDS, LLC STANDARD ASSET GROUP, INC.
By: Management Committee By: /s/G.J. Rollert
-------------------------------------- -----------------------
Name: /s/G.J. Rollert, /s/Robert J. Spiller, Name: G. J. Rollert
-------------------------------------- -----------------------
/s/Courtney A. Crandall, /s/Bruce W.
---------------------------------------
Everitt
-------
Title: Title: President
-------------------------- ---------------------
<PAGE>
SCHEDULE A
TO THE
SUB-ADVISORY AGREEMENT
BETWEEN
SAGE GLOBAL FUNDS, LLC
AND
STANDARD ASSET GROUP, INC.
Pursuant to Article 4, and subject to the contractual fee waivers described
therein, the Adviser shall pay the Sub-Adviser compensation at an annual rate as
follows:
Standard Asset Group, Inc. .20%
<PAGE>
THE ADVISORS' INNER CIRCLE FUND
AMENDED AND RESTATED
SUB-DISTRIBUTION AND SERVICING AGREEMENT
BETWEEN
SEI INVESTMENTS DISTRIBUTION CO.
AND
AIG EQUITY SALES CORP.
Amended and Restated Sub-Distribution and Servicing Agreement dated as of
November 10, 1997, by and between AIG Equity Sales Corp. ("AIGES") and SEI
Investments Distribution Co. (the "Distributor").
BACKGROUND
The Distributor, a Pennsylvania corporation, serves as distributor of The
Advisors' Inner Circle Fund (the "Trust"), an open-end investment company
registered under the Investment Company Act of 1940, as amended (the "1940
Act"). The Trust offers several series, one of which, the AIG Money Market
Fund, is currently advised by AIG Capital Management Corp. (the "Adviser"). The
AIG Money Market Fund and each of the Trust's investment portfolios advised by
the Adviser and listed on Schedule A to this Agreement, as may be amended from
time to time by mutual consent of the parties, are referred to herein
collectively as the "Funds." The Distributor offers the Funds' Class B shares
("Shares") to the public in accordance with the terms and conditions contained
in the Fund(s)' Prospectus. The term "Prospectus" used herein refers to the
then-current prospectus(es) relating to the Shares of the appropriate Fund(s) on
file with the Securities and Exchange Commission (the "SEC") under the
Securities Act of 1933 (the "1933 Act") and the 1940 Act.
NOW THEREFORE, the parties hereto, in consideration of the premises and the
mutual covenants contained herein, hereby agree that AIGES may serve as a
participating dealer and servicing agent on the following terms and conditions:
1. APPOINTMENT. AIGES is hereby designated as the sub-distributor and
servicing agent with respect to the Shares (the "Sub-Distributor") and as such
is authorized to: (i) receive orders for the purchase of Shares and to transmit
to the Trust's transfer agent such orders and the payment made therefor, (ii)
assist shareholders with the foregoing and other matters relating to their
investments in the Funds and to the distribution of Shares, in each case subject
to the terms and conditions set forth in the Prospectus, and (iii) enter into
sub-shareholder servicing and sub-distribution agreements with other financial
institutions ("Financial Institutions") to perform certain shareholder-related
and distribution services with respect to Shares. AIGES is to review each Share
purchase order submitted through AIGES, any Financial Institution, or with the
assistance of AIGES or any Financial Institution for completeness and accuracy.
In addition, AIGES further agrees to perform one or more of the following as may
be requested from time to time by the Distributor: (i) establishing and
maintaining (but not carrying) accounts and records relating to persons that
invest
<PAGE>
in Shares ("Customers"), including taxpayer identification number
certifications; (ii) arranging for bank wires; and (iii) assisting in processing
purchase requests and placing such orders with the Trust's transfer agent. In
performing the services described in this Agreement, AIGES will provide such
office space and equipment, telephone facilities and personnel (which may be any
part of the space, equipment and facilities currently used in its business or
any personnel employed by AIGES) as may be reasonably necessary or beneficial to
provide such services. Nothing herein shall limit or be in derogation of the
right of the Distributor directly to distribute and/or sell Shares, as provided
in the Distribution Agreement with the Trust.
2. EXECUTION OF ORDERS FOR PURCHASES OF SHARES. All orders for the
purchase of Shares shall be executed at the then current public offering price
per Share (i.e., the net asset value per Share), as described in the Prospectus.
The Distributor reserves the right to recommend that a Fund reject a purchase
request. If required by law, each transaction shall be confirmed in writing on
a fully disclosed basis. The procedures relating to all orders and the handling
of them will be subject to the terms of the Prospectus and the Distributor's
written instructions to AIGES from time to time. Payment for Shares shall be
made as specified in the Prospectus. If payment for any purchase order is not
received in accordance with the terms of the Prospectus or if an order for
purchase is changed or altered, the Distributor reserves the right, without
notice, to cancel the sale and to hold AIGES responsible for any loss sustained
as a result thereof.
3. LIMITATION OF AUTHORITY. No person is authorized to make any
representations concerning the Trust, the Fund, or the Shares except those
contained in the Prospectus and in such printed information as the Distributor
may subsequently prepare. No person is authorized to distribute any sales
material relating to the Shares without the prior written approval of the
Distributor, it being understood that the Security Agreement (a copy of the form
of which has been provided to the Fund and the Distributor) is not intended to
be sales material and will not be filed with the National Association of
Securities Dealers, Inc. ("NASD").
4. COMPENSATION. As compensation for the provision of the services
described herein, AIGES will be entitled to receive from the Distributor all
distribution and service fees payable in respect of the Shares at the rate(s)
(currently 0.35% of the average daily net asset value of the Shares) and under
the terms and conditions set forth in the Distribution Plan adopted by the Class
B shareholders of the Fund(s), as such Plan may be amended from time to time,
and subject to any further limitations on such fees as the Board of Trustees of
the Trust may impose. AIGES acknowledges and agrees that this Agreement has
been entered into pursuant to Rule 12b-1 under the 1940 Act, and is subject to
the provisions of said Rule, as well as any other applicable rules or
regulations promulgated by the SEC.
5. PROSPECTUS AND REPORTS. AIGES agrees to comply with the provisions
contained in the 1933 Act governing the distribution of prospectuses to persons
to whom AIGES offers Shares. AIGES agrees to require each Financial Institution
that enters into a sub-distribution agreement relating to Shares to also agree
to comply with the provisions contained in the 1933 Act governing the
distribution of prospectuses to persons to whom such Financial Institution
offers Shares.
-2-
<PAGE>
6. QUALIFICATION TO ACT. AIGES represents that it is a member in good
standing of the NASD, and has been duly authorized by proper corporate action to
enter into this Agreement and to perform its obligations hereunder, evidence of
which corporate action shall be properly maintained and made part of its
corporate records. AIGES' expulsion or suspension from the NASD will
automatically terminate this Agreement on the effective date of such expulsion
or suspension. AIGES agrees that it will not offer Shares to persons in any
jurisdiction in which it may not lawfully make such offer due to the fact that
it has not registered under, or is not exempt from, the applicable registration
or licensing requirements of such jurisdiction. AIGES agrees that in performing
the services under this Agreement, it will at all times will comply with the
Conduct Rules of the NASD, including, without limitation, the provisions of
Section 26 of such Rules and any other regulations or guidelines issued by the
NASD. AIGES also agrees that it will forward orders to the Trust's transfer
agent promptly upon their receipt and will not withhold any order so as to
profit therefrom. AIGES shall require each Financial Institution that enters
into a sub-distribution agreement relating to Shares and that is not a bank to
make substantively similar representations as AIGES has made in this Section 6.
AIGES shall require each Financial Institution that enters into a
sub-distribution agreement relating to Shares and that is a bank, to make
similar representations as AIGES has made in this Section 6 to the extent
appropriate for banks. In determining the amount payable to AIGES hereunder,
the Distributor reserves the right to exclude any sales which the Distributor
reasonably determines are not made in accordance with the terms of the
appropriate Prospectus and provisions of this Agreement.
7. BLUE SKY. The Fund has registered an indefinite number of Shares
under the 1933 Act. The Funds intend to make appropriate filings in states where
such filings are required. The Distributor will inform AIGES as to the states
or other jurisdictions in which the Shares have met the respective securities
law qualifications. The Distributor will inform AIGES as soon as possible of
any change in the status of the Shares in any state or other jurisdiction.
AIGES agrees that it will offer Shares to prospective Customers only in those
states where AIGES has been informed that the Shares have been registered,
qualified, or an exemption is available. AIGES shall require each Financial
Institution that enters into a sub-distribution agreement relating to Shares to
represent that it will offer Shares to prospective Customers only in those
states where AIGES has been informed that the Shares have been registered,
qualified, or an exemption is available. The Distributor assumes no other
responsibility or obligation as to AIGES' right or the right of any Financial
Institution to sell Shares in any jurisdiction.
8. AUTHORITY OF FUND AND SUB-DISTRIBUTOR. Each Fund shall have full
authority to take such action as it deems advisable in respect of all matters
pertaining to the offering of its Shares. For all purposes hereunder, AIGES
and each Financial Institution shall be deemed an independent contractor, and
not an agent of the Funds or the Trust, and AIGES and the Financial Institutions
shall have no authority to act for or represent the Funds or the Trust. AIGES
and each Financial Institution will not act as an "underwriter" of Shares, as
that term is used in the 1940 Act, the 1933 Act, and rules and regulations
promulgated thereunder.
-3-
<PAGE>
9. RECORDKEEPING. AIGES and its agents will (i) maintain all records
required by law to be kept by them relating to transactions in Shares and, upon
request by the Funds, promptly make such of these records available to the Funds
as the Funds may reasonably request in connection with its operations and (ii)
promptly notify the Funds if AIGES experiences any difficulty in maintaining the
records described in the foregoing clauses in an accurate and complete manner.
10. LIABILITY.
(a) The Distributor shall be under no liability to AIGES except for
lack of good faith or negligence in connection with obligations expressly
assumed by Distributor hereunder. In carrying out its obligations, AIGES agrees
to act in good faith and without negligence. By AIGES' acceptance of this
Agreement, AIGES agrees to and does release, indemnify and hold the Distributor
and the Trust harmless from and against any and all liabilities, losses and
costs (including, without limitation, reasonable attorneys' fees and expenses)
arising from any direct or indirect actions or inactions of or by AIGES, or any
Financial Institution, or any of AIGES' or such Financial Institutions'
officers, employees or agents, regarding AIGES' responsibilities hereunder;
PROVIDED, HOWEVER, that, notwithstanding the foregoing, AIGES shall not be
liable for any actions or inactions performed by AIGES or by its officers,
employees or agents, in good faith and without negligence.
(b) The Distributor agrees to and does indemnify and hold harmless
the Sub-Distributor from and against any and all liabilities, losses and costs
(including, without limitation, reasonable attorneys' fees and expenses) arising
out of or by reason of the offering of the Shares based upon any untrue
statement of a material fact contained in the appropriate Prospectus or
statement of additional information relating to the Shares (or any amendment
thereof or any supplement thereto), or any omission to state any material fact
necessary, in light of the circumstances under which it was made, in order to
make the statements contained in any of such documents not misleading; PROVIDED,
HOWEVER, that, notwithstanding the foregoing, AIGES shall not be entitled to any
indemnification hereunder to the extent that any such fact (or omission) is
provided (or withheld) by American International Group, Inc. or any of its
affiliates.
(c) Nothing contained in this Agreement is intended to operate as a
waiver by the Distributor or AIGES of compliance with any provision of the 1940
Act, the 1933 Act, the Securities Exchange Act, the Investment Advisers Act of
1940, or the rules and regulations promulgated by the SEC thereunder.
11. AMENDMENT. This Agreement may be amended by written consent of both
parties.
12. TERM; TERMINATION.
(a) This Agreement shall be effective upon its execution, and unless
terminated as provided, shall continue in force for one year from its execution
and thereafter from year to year.
-4-
<PAGE>
(b) This Agreement may be terminated by either party, without
penalty, upon ten days' notice to the other party and shall automatically
terminate in the event of its assignment (as defined in the 1940 Act) or upon
termination of the Distribution Agreement between the Trust and the Distributor.
This Agreement may also be terminated at any time, without penalty, by the vote
of a majority of the members of the Board of Trustees of the Trust who are not
"interested persons" (as defined in the 1940 Act) and who have no direct or
indirect financial interest in the operation of the Trust's Distribution Plan
with respect to the Shares or in any agreements related to such plan, or by the
vote of a majority of the Shares. Notwithstanding anything to the contrary, the
obligations of the parties set forth in Section 11 hereof shall survive the
termination of this Agreement.
13. COMMUNICATIONS. All communications to the Distributor should be sent
to SEI Investment Distribution Co., One Freedom Valley Road, Oaks, Pennsylvania
19456, Attention: President. Any notice to AIGES shall be duly given if mailed
or telegraphed to AIGES at the following address: 80 Pine Street, New York, NY
10005.
14. SEVERABILITY AND GOVERNING LAW. If any provision of this Agreement
shall be held or made invalid by a decision in a judicial or administrative
proceeding, statute, rule or otherwise, the enforceability of the remainder of
this Agreement will not be impaired thereby. This Agreement shall be governed
by the laws of the Commonwealth of Pennsylvania; PROVIDED, HOWEVER, that nothing
contained in this Agreement shall be construed in any manner inconsistent with
the 1933 Act or the 1940 Act, or any rule, regulation or order of the SEC
promulgated thereunder.
15. COUNTERPARTS. This Agreement may be executed in counterparts, when so
executed, such counterparts shall together constitute one and the same
instrument.
IN WITNESS WHEREOF, AIGES and the Distributor have caused this Agreement to
be signed by duly authorized officers of their respective entities as of the day
and year first above written.
SEI INVESTMENTS DISTRIBUTION CO.
One Freedom Valley Road
Oaks, PA 19456
By:/s/ Barbara A. Nugent
------------------------------------
Title: Vice President & Asst. Secretary
---------------------------------
AIG EQUITY SALES CORP.
80 Pine Street
New York, NY 10005
By:/s/ Illegible Signature
------------------------------------
Title:Vice President
---------------------------------
-5-
<PAGE>
SCHEDULE A
AMENDED AND RESTATED
SUB-DISTRIBUTION AND SERVICING AGREEMENT
BETWEEN
SEI INVESTMENTS DISTRIBUTION CO.
AND
AIG EQUITY SALES CORP.
- - AIG Money Market Fund
Dated: November 10, 1997
-7-
<PAGE>
MDL CAPITAL MANAGEMENT, INC.
MDL BROAD MARKET FIXED INCOME FUND
MDL LARGE CAP GROWTH EQUITY FUND
SCHEDULE DATED NOVEMBER 3, 1997
TO THE ADMINISTRATION AGREEMENT
DATED NOVEMBER 14, 1991
AS AMENDED AND RESTATED MAY 17, 1994
BETWEEN
THE ADVISORS' INNER CIRCLE FUND
AND
SEI FUND RESOURCES
Fees: Pursuant to Article 4, Section A, the Trust shall pay the
Administrator compensation for services rendered to the MDL Broad
Market Fixed Income Fund and MDL Large Cap Growth Equity Fund (the
"Funds") at an annual rate equal to 15.0 basis points on the first $50
million of assets; 12.5 basis points on the next $50 million of assets
and 10.0 basis points on all assets over $100 million of assets.
There is a minimum annual administration fee of $80,000 per fund and
$15,000 per additional class.
Term: Pursuant to Article 7, the term of this Agreement shall commence on
November 3, 1997 and shall remain in effect with respect to the Funds
for 4 years ("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 non-breaching party may immediately terminate this Agreement.
<PAGE>
SAGE GLOBAL FUNDS, LLC
SAGE CORPORATE BOND FUND
SCHEDULE DATED DECEMBER 15, 1997
TO THE ADMINISTRATION AGREEMENT
DATED NOVEMBER 14, 1991
AS AMENDED AND RESTATED MAY 17, 1994
BETWEEN
THE ADVISORS' INNER CIRCLE FUND
AND
SEI FUND RESOURCES
Fees: Pursuant to Article 4, Section A, the Trust shall pay the
Administrator compensation for services rendered to the SAGE Corporate
Fixed Bond Fund (the "Fund") at an annual rate equal to 15.0 basis
points on the first $100 million of assets; 12.5 basis points on the
next $100 million of assets and 10.0 basis points on all assets over
$200 million. There is a minimum annual administration fee of $75,000
per fund and $15,000 per additional class.
Term: Pursuant to Article 7, the term of this Agreement shall commence on
December 15, 1997 and shall remain in effect with respect to the Fund
for 3 years ("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 non-breaching party may immediately terminate this Agreement.
<PAGE>
AIG MONEY MARKET FUND
SCHEDULE DATED MAY 19, 1997
TO THE ADMINISTRATION AGREEMENT
DATED NOVEMBER 14, 1991
BETWEEN
THE ADVISORS' INNER CIRCLE FUND
AND
SEI FUND RESOURCES
Fees: Pursuant to Article 4, Section A, the Trust shall pay the
Administrator compensation for services rendered to the AIG Money
Market Fund (the "Portfolio") 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; (iii)
.06% of average daily net assets from $250 million up to $450 million;
and (iv) .05% of average daily net assets in excess of $450 million
for the first year of the contract (commencing with the commencement
date shown under "Term" below). In the second and third years of the
Agreement compensation shall be paid 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.
Term: Pursuant to Article 7, the term of this Agreement shall commence on
May 19, 1997 and shall remain in effect with respect for the portfolio
for 3 years (the "Initial Term"). This Agreement shall continue in
effect 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 non-breaching party may
immediately terminate this Agreement.
Agreed to and accepted by :
SEI Fund Resources Advisors' Inner Circle Fund
/s/Marc H. Cahn /s/Barbara A. Nugent
----------------- --------------------
Name Name
VP/Asst Sec. VP/Asst Sec.
---------------- --------------------
Title Title
<PAGE>
CRA REAL ESTATE SECURITIES L.P.
CRA REALTY SHARES PORTFOLIO
SCHEDULE DATED NOVEMBER 11, 1996
TO THE ADMINISTRATION AGREEMENT
DATED NOVEMBER 14, 1991
AS AMENDED AND RESTATED MAY 17, 1994
BETWEEN
THE ADVISORS' INNER CIRCLE FUND
AND
SEI FUND RESOURCES
Fees: Pursuant to Article 4, Section A, the Trust shall pay the
Administrator compensation for services rendered to the CRA Realty
Shares Portfolio (the "Portfolio") at an annual rate equal to 15.0
basis points on the first $100 million of assets;12.5 basis points on
the next $100 million of assets;10.0 basis points on the next $100
million of assets and 8.0 basis points on all assets over $300
million. There is a minimum annual administration fee of $75,000 per
portfolio.
Term: Pursuant to Article 7, the term of this Agreement shall commence
on November 11, 1996 and shall remain in effect with respect to the
Portfolio for 3 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 non-breaching party may immediately terminate this
Agreement.
This Agreement shall terminate with respect to the Portfolio
immediately upon its assignment except upon the express written
consent by the Portfolio to the assignment.
<PAGE>
FORM OF SHAREHOLDER SERVICING AGREEMENT
Shareholder Servicing Agreement (the "Agreement"), dated as of ___________,
19__, by and between AIG Equity Sales Corp. ("AIGES") and ____________________
(the "Agent").
W I T N E S S E T H :
WHEREAS, SEI Investments Distribution Co. (the "Distributor") serves as the
principal underwriter for the shares of beneficial interest of the AIG Money
Market Fund (the "Fund"), a separate series of The Advisors' Inner Circle Fund,
an open-end management investment company consisting of separate series and
organized as a business trust under the laws of the State of Massachusetts (the
"Trust"), pursuant to a Distribution Agreement, dated as of November 14, 1991,
as amended on August 8, 1994, between the Trust and the Distributor; and
WHEREAS, AIGES serves as the sub-distributor and servicing agent of the
Fund's Class B shares of beneficial interest (the "Shares") pursuant to a
Sub-Distribution and Servicing Agreement, dated as of July 28, 1995, as amended
by Amendment No. 1 thereto dated as of ___________, 1997, between the
Distributor and AIGES (the "Sub-Distribution Agreement"); and
WHEREAS, the Shares are subject to a plan of distribution (the "Plan")
adopted by the Trust pursuant to Rule 12b-1 under the Investment Company Act of
1940, as amended (the "1940 Act"), and pay certain fees to the Distributor
thereunder; and
WHEREAS, the Distributor pays sub-distribution fees to AIGES pursuant to
the Sub-Distribution Agreement; and
WHEREAS, the Shares and the Plan are more fully described in the prospectus
of the Fund relating to the Shares (the term "Prospectus" refers to the
then-current prospectus relating to the Shares and statement of additional
information relating to the Fund on file with the Securities and Exchange
Commission under the Securities Act of 1933, as amended, and the 1940 Act); and
WHEREAS, the Trust has authorized AIGES to enter into shareholder servicing
agreements with other financial institutions to perform certain
shareholder-related services with respect to the Shares.
NOW, THEREFORE, AIGES and the Agent hereby agree as follows:
1. APPOINTMENT, SERVICES. AIGES hereby appoints the Agent as a shareholder
servicing agent for the Shares and retains the Agent to perform certain
shareholder account, administrative and servicing functions for the Agent's
customers ("Customers"). The services to be performed by the Agent and
shall be in accordance with the terms and
<PAGE>
conditions set forth in the Prospectus and shall include, without
limitations, the following:
a. aggregating and processing purchase and redemption requests from
Customers and placing net purchase and redemption orders with
AIGES;
b. answering inquiries from Customers regarding account status and
history, the manner in which purchases and redemptions of the
Shares may be effected, the services provided by the Agent and
certain other matters pertaining to the Fund;
c. processing Customer dividends, and assisting Customers in
designating and changing dividend options, account designations
and addresses and in enrolling into any pre-authorized automatic
investment program or tax sheltered retirement plans that may
from time to time be offered in connection with the purchase of
the Shares;
d. arranging for bank wires;
e. forwarding Fund shareholder communications to Customers, if
required by law;
f. providing Customers periodically with information showing their
positions in Shares and confirming all purchases and redemptions
of Shares in Customer accounts; and
g. providing such other related services as AGES or a Customer may
reasonably request.
The Agent shall be responsible for providing all such office space and
equipment, telephone facilities and personnel (which may be any part of the
space, equipment and facilities currently used in its business or any
personnel employed by it) as may be reasonably necessary or beneficial to
perform the functions described in this Section.
2. STANDARD OF PERFORMANCE. All services to be rendered by the Agent
hereunder shall be performed in a professional, competent and timely
manner. The details of the operating standards and procedures to be
followed by the Agent in its performance of the services required to be
performed by it hereunder shall be determined from time to time by
agreement between AGES and the Agent.
3. LIMITATION OF AUTHORITY. No person is authorized to make any
representations concerning the Trust, the Fund, or the Shares except those
contained in the Prospectus and in such printed information as the
Distributor of AGES may prepare. No person is authorized to
<PAGE>
distribute any sales materials relating to the Shares without the prior
written approval of AGES (it being understood that in such instance, AGES
will be required to obtain the written approval of the Distributor in order
to give its written approval). The Fund shall have full authority to take
such action as it deems advisable in respect to all matters pertaining to
the offering of its Shares, including the right not to accept any order for
the purchase of Shares. For all purposes hereunder, the Agent shall be
deemed an independent contractor, and not an agent of the Fund, and shall
have no authority to act for or represent the Fund. The Agent shall not
act as an "underwriter" or "distributor" of Shares, as those terms are used
in the 1940 Act, the Securities Act of 19933, as amended, and the rules and
regulations promulgated thereunder.
4. COMPENSATION. In consideration of the services to be performed by the
Agent pursuant to Section 1 of this Agreement, AGES agrees to pay or
arrange to be paid to the Agent a service fee, [computed daily and payable
monthly], equal to [. %] of the average daily net asset value of the
Shares for which the Agent from time to time performs services under this
Agreement on behalf of Customers, and under the terms and conditions set
forth in the Plan, as such plan may be amended from time to time, and
subject to such further limitations as the trustees of the Trust may
impose. For purposes of determining the fees payable to the Agent
hereunder, the value of the Fund's net assets shall be computed in the
manner specified in the Prospectus. The above fees constitute all fees to
be paid to the Agent by AGES with respect to the services contemplated
hereby, and the Agent will bear all of its own expenses for providing such
services.
5. RECORDKEEPING; COMPLIANCE WITH LAWS. The Agent agrees that it will
maintain and preserve all records required by applicable law, rule or
regulation to be maintained and preserved by it in connection with the
services to be provided by it hereunder, and that it will promptly make
such of these records available to AGES or the Trust as shall be reasonably
requested. The Agent further agrees to promptly notify AGES if it
experiences any difficulty in maintaining the records described above in an
accurate and complete manner. The Agent further agrees that it will at all
times act in compliance with all applicable laws, rules and regulations,
including without limitation federal and state securities laws and the
rules and regulations of self-regulating organizations, in connection with
the performance of its duties hereunder.
6. LIABILITY. AGES shall be under no liability to the Agent except for lack
of good faith or negligence in connection with obligations expressly
assumed by AGES hereunder.
In carrying out its obligations hereunder, the Agent agrees to act in good
faith, with negligence and in compliance with all applicable laws, rules
and regulations. By its acceptance of this Agreement, the Agent agrees to
and does release, indemnify and hold AGES, the Distributor and the Trust
harmless from and against any and all liabilities, losses and costs
(including, without limitation, reasonable attorneys' fees and expenses)
arising from any direct or indirect actions or omissions of or by the Agent
or its officers,
<PAGE>
employees or agents regarding its responsibilities hereunder; PROVIDED,
HOWEVER, that, notwithstanding the foregoing, the Agent shall not be
liable for any actions or omissions performed by it or by its officers,
employees or agents, in good faith, without negligence and in conformity
with all applicable laws, rules and regulations. AGES agrees to and does
indemnify and hold harmless the Agent from and against any and all
liabilities, losses and costs (including, without limitation, reasonable
attorneys' fees and expenses) arising out of or by reason of the offering
of the Shares based upon any untrue statement of a material fact contained
in the Prospectus (or any amendment thereof or any supplement thereto), or
any omission to state any material fact necessary, in light of the
circumstances under which it was made, in order to make the statements
contained therein not misleading. Nothing contained in this Agreement is
intended to operate as a waiver by AGES or the Agent of compliance with any
provision of the 1940 Act, the Securities Act of 1933, as amended (the
"1933 Act"), the Securities Exchange Act of 1934, as amended (the "1934
Act"), the Investment Advisers Act of 1940, as amended, or the rules and
regulations promulgated by the Securities and Exchange Commission
thereunder.
7. NON-EXCLUSIVE SERVICES. The Agent acknowledges and agrees that AGES may
enter into other similar shareholder servicing agreements with other
financial institutions without any notice to, or the consent of, the Agent.
8. AMENDMENT. This agreement may be amended only in a writing signed by both
parties hereto.
9. TERM: TERMINATION. This Agreement shall be effective upon its execution,
and unless terminated as provided, shall continue in force for one year
from its execution and thereafter from year to year. This Agreement may be
terminated by either party, without penalty, upon ten days' notice to the
other party and shall automatically terminate in the event of its
assignment (as defined in the 1940 Act) or upon termination of either or
both of the Distribution Agreement between the Trust and the Distributor
or the Sub-Distribution Agreement. This Agreement may also be terminated
at any time, without penalty, by the vote of a majority of the members of
the Board of Trustees of the Trust who are not "interested persons" (as
defined in the 1940 Act) and who have no direct or indirect financial
interest in the operation of the Plan or in any agreements related to such
plan, or by the vote of a majority of the Shares. Notwithstanding anything
to the contrary, the obligations of the parties set forth in Section 6
hereof shall survive the termination of this Agreement.
10. COMMUNICATIONS. All communications to AGES should be directed to it at 80
Pine Street, New York, New York 10005, Attention: [ ],
telephone: , facsimile: , with a copy
to David Hartman, American International Group, Inc., 70 Pine Street, 28th
Floor, New York, New York 10270, telephone: 212-770-5820, facsimile:
212-344-6271. All communications to the Agent should be directed to it at
<PAGE>
[address], Attention: [ ], telephone: ,
facsimile: . Any notice hereunder shall be duly given if sent
by registered mail or confirmed facsimile transmission.
11. SEVERABILITY AND GOVERNING LAW. If any provision of this Agreement shall
be held or made invalid by a decision in a judicial or administrative
proceeding, statute, rule or otherwise, the enforceability of the remainder
of this Agreement will not be impaired thereby. This Agreement shall be
governed by the laws of the State of New York; provided, however, that
nothing contained in this Agreement shall be construed in any manner
consistent with the 1940 Act, the 1934 Act or the 1933 Act or any rule,
regulation or order of the SEC promulgated thereunder.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the date first written above.
AIG EQUITY SALES CORP.
Date: By:
------------------------- ----------------------------
Authorized Signature
Print Name and Title
The undersigned agrees to abide by the foregoing terms and conditions.
Date: By:
------------------------- ----------------------------
Signature
Print Name and Title
Financial Institution's Name
Address
City State Zip
<PAGE>
TRANSFER AGENCY AGREEMENT
This Agreement made as of the 30th of November 1994 between The Advisors' Inner
Circle Fund ("Fund"), a Massachusetts business trust, having its principal
office and place of business at 680 East Swedesford Road, Wayne, PA and
Supervised Service Company Inc. ("SSC"), a Delaware corporation having its
principal office and place of business at 120 South LaSalle, Chicago, IL 60603
(hereinafter referred to as the "Transfer Agent").
WITNESSETH:
That for and in consideration of the mutual promises hereinafter set forth, the
parties hereto covenant and agree as follows:
ARTICLE I
DEFINITIONS
Whenever used in this Agreement, the following words and phrases shall have the
following meanings:
1. "APPROVED INSTITUTION" shall mean an entity so named in a Certificate.
From time to time the Fund may amend a previously delivered Certificate by
delivering to the Transfer Agent a Certificate naming an additional entity or
deleting any entity named in a previously delivered Certificate.
2. THE "BOARD OF TRUSTEES" shall mean the Board of Trustees of the Fund.
<PAGE>
3. "CERTIFICATE" shall mean any notice, instruction, or other instrument
in writing, authorized or required by this Agreement to be given to the Transfer
Agent by the Fund which is signed by any Officer, as hereinafter defined, and
actually received by the Transfer Agent.
4. "CUSTODIAN" shall mean the financial institution appointed as
custodian under the terms and conditions of the Custody Agreement between the
financial institution and the Fund, or its successor(s).
5. "FUND BUSINESS DAY" shall be deemed to be each day on which the New
York Stock Exchange, Inc. is open for trading.
6. "OFFICER" shall be deemed to be the Fund's President, any Vice
President of the Fund, the Fund's Secretary, the Fund's Treasurer, the Fund's
Controller, any Assistant Controller of the Fund, any Assistant Treasurer of the
Fund and any Assistant Secretary of the Fund, and any other person duly
authorized by the Board of Trustees of the Fund to execute any Certificate,
instruction, notice or other instrument on behalf of the Fund and named in the
Certificate annexed hereto as Appendix A, as such Certificate may be amended
from time to time, and any person reasonably believed by the Transfer Agent to
be such a person.
7. "OUT-OF-POCKET EXPENSES" means amounts reasonably necessary and
actually incurred by Transfer Agent in the provision of Transfer Agent services
or pursuant to this Agreement for the following purposes: postage (and first
class mail insurance in connection with mailing share certificates), envelopes,
check forms, continuous forms, forms for reports and statements, stationery, and
other similar items, telephone and telegraph charges incurred in answering
inquiries from dealers
2
<PAGE>
or shareholders, microfilm used to record transactions in shareholder accounts
and computer tapes used for permanent storage of records and cost of insertion
of materials in mailing envelopes by outside firms. Transfer Agent may, at its
option, arrange to have various service providers submit invoices directly to
the Fund for payment of out-of-pocket expenses reimbursable hereunder; and such
other expenses paid or incurred by Transfer Agent at the request of the Fund.
Any charges associated with special or exception processing shall also be
considered out-of-pocket Expenses.
8. "PROSPECTUS" shall mean the last Fund prospectus and any supplements
actually received by the Transfer Agent from the Fund with respect to which the
Fund has indicated a registration statement under the Federal Securities Act of
1933 has becomes effective, including the Statement of Additional Information,
incorporated by reference therein.
9. "SHARES" shall mean all or any part of each class or series of the
shares of beneficial interest of the Fund or Portfolio listed in the Certificate
as to which the Transfer Agent acts as transfer agent hereunder, as may be
amended from time to time, which are authorized and/or issued by the Fund.
10. "TRANSFER AGENT" shall mean Supervised Service Company, Inc., ("SSC"),
as transfer agent and dividend disbursing agent under the terms and conditions
of this Agreement, its successors or assign(s).
3
<PAGE>
ARTICLE II
APPOINTMENT OF TRANSFER AGENT
1. The Fund hereby constitutes and appoints the Transfer
Agent as transfer agent of all the Shares of the Fund and as dividend disbursing
agent during the period of this Agreement.
2. The Transfer Agent hereby accepts appointment as transfer agent and
dividend disbursing agent and agrees to perform duties thereof as hereinafter
set forth.
3. In connection with such appointment, the Fund upon the request of the
Transfer Agent, shall deliver the following documents to the Transfer Agent:
(i) A copy of the Declaration of Trust of the Fund and all
amendments thereto certified by the Secretary of the Fund;
(ii) A copy of the By-Laws of the Fund certified by the Secretary of
the Fund;
(iii) A copy of a resolution of the Board of Trustees of the Fund
certified by the Secretary of the Fund appointing the Transfer Agent and
authorizing the execution of this Transfer Agency Agreement;
(iv) A Certificate signed by the Secretary of the Fund specifying:
the number of authorized Shares, if any, the number of such authorized Shares
issued, the number of such authorized Shares issued and currently outstanding;
the names and specimen signatures of the Officers of the Fund; and the name and
address of the legal counsel for the Fund;
4
<PAGE>
(v) In the event the Fund issues shares, specimen share certificate
for each or series class of Shares in the form approved by the Board of Trustees
of the Fund (and in a format compatible with the Transfer Agent's system) ,
together with a Certificate signed by the Secretary of the Fund as to such
approval;
(vi) Copies of the Fund's Registration Statement, as amended to
date, and the most recently filed Post-Effective Amendment thereto, filed by the
Fund with the Securities and Exchange Commission under the Securities Act of
1933, as amended, and under the Investment Company Act of 1940, as amended,
together with any applications filed in connection therewith; and
(vii) Opinion of counsel for the Fund with respect to the validity of
the authorized and outstanding Shares, whether such Shares are fully paid and
non-assessable and the status of such Shares under the Securities Act of 1933,
as amended, and any other applicable federal law or regulation (i.e., if subject
to registration, that they have been registered and that the Registration
Statement has become effective or, if exempt, the specific grounds therefor.)
ARTICLE III
AUTHORIZATION AND ISSUANCE OF SHARES
1. The Fund shall deliver to the Transfer Agent the following documents
on or before the effective date of any increase or decrease in the total number
of Shares authorized to be issued:
(a) A certified copy of the amendment to the Declaration of
Trust giving effect to such increase or decrease;
5
<PAGE>
(b) In the case of an increase, an opinion of counsel for the
Fund with respect to the validity of the Shares of the Fund and the status of
such Shares under the Securities Act of 1933, as amended, and any other
applicable federal law or regulation (I.E., if subject to registration, that
they have been registered and that the Registration Statement has become
effective or, if exempt, the specific grounds therefor); and
(c) In the case of an increase, if the appointment of the
Transfer Agent was theretofore expressly limited, a certified copy of a
resolution of the Board of Trustees of the Fund increasing the authority of the
Transfer Agent.
2. Prior to the issuance of any additional Shares of the Fund pursuant to
stock dividends or stock splits, etc., and prior to any reduction in the number
of shares outstanding, the Fund shall deliver the following documents to the
Transfer Agent:
(a) A certified copy of the resolutions) adopted by the Board of
Trustees and/or the shareholders of the Fund authorizing such issuance of
additional Shares of the Fund or such reduction, as the case may be, and
(b) An opinion of counsel for the Fund with respect to the
validity of the Shares of the Fund and the status of such Shares under the
Securities Act of 1933, as amended, and any other applicable federal law or
regulation (i.e., if subject to registration, that they have been registered and
that the Registration Statement has become effective, or, if exempt, the
specific grounds therefor).
ARTICLE IV
6
<PAGE>
RECAPITALIZATION OR CAPITAL ADJUSTMENT
1. In the case of any negative stock split, recapitalization or other
capital adjustment requiring a change in the form of Share certificates, the
Transfer Agent will issue Share certificates in the new form in exchange for, or
upon transfer of, outstanding Share certificates in the old form, upon
receiving:
(a) A Certificate authorizing the issuance of the Share
certificates in the new form;
(b) A certified copy of any amendment to the Declaration of
Trust with respect to the change;
(c) Specimen Share certificates for each class of Shares in the
new form approved by the Board of Trustees of the Fund, with a Certificate
signed by the Secretary of the Fund as to such approval; and
(d) An opinion of counsel for the Fund with respect to the
validity of the Shares in the new form and the status of such Shares under the
Securities Act of 1933, as amended, and any other applicable federal law or
regulation (i.e., if subject to registration, that the Shares have been
registered and that the Registration Statement has become effective or, if
exempt, the specific grounds therefor.)
2. The Fund at its expense shall furnish the Transfer Agent with a
sufficient supply of blank share certificates in the new form and from time to
time will replenish such supply upon the request of the Transfer Agent. Such
blank Share certificates shall be compatible with the Transfer
7
<PAGE>
Agent's system and shall be properly signed by facsimile or otherwise by
Officers of the Fund authorized by law or by the By-Laws to sign Share
certificates and, if required shall bear the corporate Seal or facsimile
thereof. The Fund agrees to indemnify and exonerate, save and hold the Transfer
Agent harmless, from and against any and all claims or demands that may be
asserted against the Transfer Agent with respect to the genuineness of any Share
certificate supplied to the Transfer Agent pursuant to this section.
ARTICLE V
ISSUANCE,
REDEMPTION AND TRANSFER OF SHARES
1. (a) The Transfer Agent acknowledges that it has received a copy of
the Fund's prospectus and statement of additional information, which prospectus
and statement of additional information describe how sales and redemption of
shares of the Fund shall be made, and the Transfer Agent agrees to accept
purchase orders and redemption requests with respect to Fund shares on each Fund
Business Day in accordance with such prospectus and statement of additional
information; provided, however, that the Transfer Agent shall only accept
purchase orders from states in which the shares of the Fund are registered. The
Fund shall provide the Transfer Agent with a listing of the states in which the
shares of the Fund are registered on a periodic basis. The Fund agrees to
provide the Transfer Agent with sufficient advance notice to enable the Transfer
Agent to effect any changes in the procedures set forth in the prospectus and
statement of additional information
8
<PAGE>
regarding such purchase and redemption procedure; provided, however, that in no
event will such advance notice be less than 30 days.
(b) The Transfer Agent shall also accept with respect to each Fund
Business Day, at such times as are agreed upon from time to time by the Transfer
Agent and the Fund, a computer tape or electronic data transmission consistent
in all respects with the Transfer Agent's tape layout package, as amended from
time to time, which is believed by the Transfer Agent to be furnished by or on
behalf of any Approved Institution. The Transfer Agent shall not be liable for
any losses or damages to the Fund or its shareholders in the event that a
computer tape or electronic data transmission from an Approved Institution is
unable to be processed for any reason beyond the control of the Transfer Agent,
or if any of the information on such tape or transmission is found to be
incorrect.
2. On each Fund Business Day the Transfer Agent shall, as of the time at
which the Fund computes the net asset value of the Fund, issue to and redeem
from the accounts specified in a purchase order, redemption request, or computer
tape, which in accordance with the Prospectus is effective on such Fund Business
Day, the appropriate number of full and fractional Shares based on the net asset
value per Share of such Fund specified in an advice received on such Fund
Business Day from the Fund. Notwithstanding the foregoing, if a redemption
specified in a computer tape is for a dollar value of Shares in excess of the
dollar value of uncertificated Shares in the specified account, the Transfer
Agent shall not effect such redemption in whole or in part and shall within
9
<PAGE>
twenty-four hours orally advise the Approved Institution which supplied such
tape of the discrepancy.
3. In connection with a reinvestment of a dividend or distribution of
Shares of the Fund, the Transfer Agent shall as of each Fund Business Day, as
specified in a Certificate or resolution described in paragraph 1 of succeeding
Article VI, issue Shares of the Fund based on the net asset value per Share of
such Fund specified in an advice received from the Fund on such Fund Business
Day.
4. On each Fund Business Day the Transfer Agent shall supply the Fund
with a statement specifying with respect to the immediately preceding Fund
Business Day: the total number of Shares of the Fund (including fractional
Shares) issued and outstanding at the opening of business on such day; the total
number of Shares of the Fund sold on such day, pursuant to preceding paragraph 2
of this Article; the total number of Shares of the Fund redeemed from
Shareholders by the Transfer Agent on such day; the total number of Shares of
the Fund, if any, sold on such day pursuant to preceding paragraph 3 of this
Article, and the total number of Shares of the Fund issued and outstanding.
5. In connection with each purchase and each redemption of Shares, the
Transfer Agent shall send such statements as are prescribed by the Federal
Securities laws applicable to transfer agents and Section 8-408 of the Uniform
Commercial Code as enacted in the Commonwealth of Massachusetts or as described
in the Prospectus. If the Prospectus indicates that certificates for Shares are
available and if specifically requested in writing by any shareholder, or if
otherwise
10
<PAGE>
required hereunder, the Transfer Agent will countersign, issue and mail to such
shareholder at the address set forth in the records of the Transfer Agent a
Share certificate for any full Share requested.
6. As of each Fund Business Day the Transfer Agent shall furnish the Fund
with an advice setting forth the number and dollar amount of Shares to be
redeemed on such Fund Business Day in accordance with paragraph 2 of this
Article.
7. Upon receipt of a proper redemption request and moneys paid to it by
the Custodian in connection with a redemption of Shares, the Transfer Agent
shall cancel the redeemed Shares and after making appropriate deduction for any
withholding of taxes required of it by applicable law (a) in the case of a
redemption of Shares pursuant to a redemption described in preceding paragraph
l(a) of this Article, make payment in accordance with the Fund's redemption and
payment procedures described in the Prospectus, and (b) in the case of a
redemption of Shares pursuant to a computer tape described in preceding
paragraph l(b) of this Article, make payment by directing a federal funds wire
order to the account previously designated by the Approved Institution specified
in said computer tape.
8. The Transfer Agent shall not be required to issue any Shares after it
has received f rom an Officer of the Fund or f rom an appropriate federal or
state authority written notification that the sale of Shares has been suspended
or discontinued, and the Transfer Agent shall be entitled to rely upon such
written notification.
11
<PAGE>
9. Upon the issuance of any Shares in accordance with this Agreement the
Transfer Agent shall not be responsible for the payment of any original issue or
other taxes required to be paid by the Fund in connection with such issuance of
any Shares.
10. The Transfer Agent shall accept a computer tape consistent with the
Transfer Agent's tape layout package, as amended from time to time, which is
reasonably believed by the Transfer Agent to be furnished by or on behalf of any
Approved Institution and is represented to be instructions with respect to the
transfer of Shares from one account of such Approved Institution to another such
account, and shall effect the transfers specified in said computer tape. The
Transfer Agent shall not be liable for any losses to the Fund or its
shareholders in the event that a computer tape or electronic data transmission
from an Approved Institution is unable to be processed for any reason beyond the
control of the Transfer Agent, or if any of the information on such tape or
transmission is found to be incorrect.
11. (a) Except as otherwise provided in sub-paragraph (b) of and in
paragraph 13 of this Article, Shares will be redeemed upon presentation to
the Transfer Agent of Share certificates or instructions properly endorsed
for transfer or redemption, accompanied by such documents as the Transfer
Agent deems necessary to evidence the authority of the person making such
transfer or redemption, and bearing satisfactory evidence of the payment of
stock transfer taxes. In the case of small estates where no administration
is contemplated, the Transfer Agent may, when furnished with an appropriate
surety bond, and without further approval of the Fund, transfer or redeem
Shares registered in the name of a decedent where the current market value of
the Shares
12
<PAGE>
being transferred does not exceed such amount as may from time to time be
prescribed by various states. The Transfer Agent reserves the right to refuse
to transfer or redeem Shares until it is satisfied that the endorsement on the
stock certificate or instructions is valid and genuine, and for that purpose it
will require, unless otherwise instructed by an authorized officer of the Fund,
a guarantee of signature by an "Eligible Guarantor Institution" as that term is
defined by SEC Rule 17Ad-15. The Transfer Agent also reserves the right to
refuse to transfer or redeem Shares until it is satisfied that the requested
transfer or redemption is legally authorized, and it shall incur no liability
for the refusal, in good faith, to make transfers or redemptions which the
Transfer Agent, in its judgement, deems improper or unauthorized, or until it is
satisfied that there is no basis to any claims adverse to such transfer or
redemption. The Transfer Agent may, in effecting transfers and redemptions of
Shares, rely upon those provisions of the Uniform Act for the Simplification of
Fiduciary Security Transfers or the Uniform Commercial Code, as the same may be
amended from time to time, applicable to the transfer of securities, and the
Fund shall indemnify the Transfer Agent for any act done or omitted by it in
good faith in reliance upon such laws. In no event will the Fund indemnify the
Transfer Agent for any act done by it as a result of willful misfeasance, bad
faith, gross negligence or reckless disregard of its duties.
(b) Notwithstanding the foregoing or any other provision contained
in this Agreement to the contrary, the Transfer Agent shall be fully protected
by the Fund in not requiring any instruments, documents, assurances,
endorsements or guarantees, including, without limitation, any signature
guarantees, in connection with a redemption, or transfer, of Shares whenever the
13
<PAGE>
Transfer Agent reasonably believes that requiring the same would be inconsistent
with the transfer and redemption procedures as described in the Prospectus.
12. Notwithstanding any provision contained in this agreement to the
contrary, the Transfer Agent shall not be required or expected to require, as a
condition to any transfer of any Shares pursuant to paragraph 11 of this Article
or any redemption of any Shares pursuant to a computer tape described in this
Agreement, any documents, including, without limitation, any documents of the
kind described in sub-paragraph (a) of paragraph 12 of this Article, to evidence
the authority of the person requesting the transfer or redemption and/or the
payment of any stock transfer taxes, and shall be fully protected in acting in
accordance with the applicable provisions of this Article.
13. (a) As used in this Agreement, the terms "computer tape" and
"computer tape believed by the Transfer Agent to be furnished by an Approved
Institution", shall include any tapes generated by the Transfer Agent to reflect
information believed by the Transfer Agent to have been input by an Approved
Institution, via a remote terminal or other similar link, into a data
processing, storage, or collection system, or similar system (the "System") ,
located on the Transfer Agent's premises. For purposes of paragraph 1 of this
Article, such a computer tape shall be deemed to have been furnished at such
times as are agreed upon from time to time by the Transfer Agent and Fund only
if the information reflected thereon was input to the System at such times as
are agreed upon from time to time by the Transfer Agent and the Fund.
14
<PAGE>
(b) Nothing contained in this Agreement shall constitute any
agreement or representation by the Transfer Agent to permit, or to agree to
permit, any Approved Institution to input information into a System.
(c) The Transfer Agent reserves the right to approve, in advance,
any Approved Institution, such approval not to be unreasonably withheld. The
Transfer Agent also reserves the right to terminate any and all automated data
communications, at its discretion, upon a reasonable attempt to notify the Fund
when in the opinion of the Transfer Agent continuation of such communications
would jeopardize the accuracy and/or integrity of the Fund's records on the
System.
ARTICLE VI
DIVIDENDS AND DISTRIBUTIONS
1. The Fund shall furnish to the Transfer Agent a copy of a resolution of
its Board of Trustees, certified by the Secretary or any Assistant Secretary,
either (i) setting forth the date of the declaration of a dividend or
distribution, the date of accrual or payment, as the case may be, thereof, the
record date as of which Shareholders entitled to payment, or accrual, as the
case may be, shall be determined, the amount per Share of such dividend or
distribution, the payment date on which all previously accrued and unpaid
dividends are to be paid, and the total amount, if any, payable to the Transfer
Agent on such payment date, or (ii) authorizing the declaration of dividends and
distributions on a daily (or other periodic basis and authorizing the Transfer
Agent to rely on a Certificate setting forth the information described in
subsection (i) of this paragraph.
15
<PAGE>
2. Upon the mail date specified in such Certificate or resolution, as the
case may be, the Fund shall, in the case of a cash dividend or distribution,
cause the Custodian to deposit in an account in the name of the Transfer Agent
on behalf of the Fund an amount of cash, if any, sufficient for the Transfer
Agent to make the payment, as of the mail date, specified in such Certificate or
resolution, as the case may be, to the Shareholders who were of record on the
record date. The Transfer Agent will, upon receipt of any such cash, make
payment of such cash dividends or distributions to the shareholders of record as
of the record date by: (i) mailing a check, payable to the registered
shareholder, to the address of record or dividend mailing address, or (ii)
wiring such amounts to the accounts previously designated by an Approved
Institution, as the case may be. The Transfer Agent shall not be liable for any
improper payments made in good faith and without negligence, in accordance with
a Certificate or resolution described in the preceding paragraph. If the
Transfer Agent shall not receive from the Custodian sufficient cash to make
payments of any cash dividend or distribution to all shareholders of the Fund as
of the record date, the Transfer Agent shall, upon notifying the Fund, withhold
payment to all shareholders of record as of the record date until sufficient
cash is provided to the Transfer Agent.
3. It is understood that the Transfer Agent shall in no way be
responsible for the determination of the rate or form of dividends or capital
gain distributions due to the shareholders. It is expressly agreed and
understood that the Transfer Agent is not liable for any loss AS a result of
processing a distribution based on information provided in the Certificate that
is incorrect. The Fund
16
<PAGE>
agrees to pay the Transfer Agent for any and all costs, both direct and
out-of-pocket expenses, incurred in such corrective work as necessary to remedy
such error.
4. It is understood that the Transfer Agent shall file such appropriate
information returns concerning the payment of dividend and capital gain
distributions with the proper federal, state and local authorities as are
required by law to be filed by the Fund but shall in no way be responsible for
the collection or withholding of taxes due on such dividends or distributions
due to shareholders, except and only to the extent, required by applicable law.
ARTICLE VII
CONCERNING THE FUND
1. The Fund represents to the Transfer Agent that:
(a) It is a business trust duly organized, validly existing and
in good standing under the laws of the Commonwealth of Massachusetts.
(b) It is empowered under applicable laws and by its Declaration
of Trust and By-Laws to enter into and perform this Agreement.
(c) All requisite corporate proceedings have been taken to
authorize it to enter into and perform this Agreement.
(d) It is an investment company registered under the Investment
Company Act of 1940, as amended.
(e) A registration statement under the Securities Act of 1933,
as amended, with respect to the Shares is effective. The Fund shall notify the
Transfer Agent if such
17
<PAGE>
registration statement or any state securities registrations have been
terminated or a stop order has been entered with respect to the Shares.
2. Each copy of the Declaration of Trust of the Fund and copies of all
amendments thereto shall be certified by the Secretary of State (or other
appropriate official) of the state of organization, and if such Declaration of
Trust and/or amendments are required by law also to be filed with a county or
other officer or official body, a certificate of such filing shall be filed with
a certified copy submitted to the Transfer Agent. Each copy of the By-Laws and
copies of all amendments thereto, and copies of resolutions of the Board of
Trustees of the Fund, shall be certified by the Secretary of the Fund under
seal.
3. The Fund shall promptly deliver to the Transfer Agent written notice
of any change in the Officers authorized to sign Share Certificates,
notifications or requests, together with a specimen signature of each new
Officer. In the event any officer who shall have signed manually or whose
facsimile signature shall have been affixed to blank Share certificates shall
die, resign or be removed prior to issuance of such Share certificates, the
Transfer Agent may issue such Share certificates of the Fund notwithstanding
such death, resignation or removal, and the Fund shall promptly deliver to the
Transfer Agent such approval, adoption or ratification as may be required by
law.
4. It shall be the sole responsibility of the Fund to deliver to the
Transfer Agent the Fund's currently effective Prospectus and, for purposes of
this Agreement, the Transfer Agent shall
18
<PAGE>
not be deemed to have notice of any information contained in such Prospectus
until a reasonable time after it is actually received by the Transfer Agent.
ARTICLE VIII
CONCERNING THE TRANSFER AGENT
1. The Transfer Agent represents and warrants to the Fund that:
(a) It is a corporation duly organized and existing under the
laws of the State of Delaware.
(b) It is empowered under applicable law and by its charter and
By-laws to enter into and perform this Agreement.
(c) All requisite corporate proceedings have been taken to
authorize it to enter into and perform this Agreement.
(d) It is duly registered as a transfer agent under Section 17A
of the Securities Exchange Act of 1934, as amended.
2. The Transfer Agent shall not be liable and shall be indemnified in
acting upon any computer tape, writing or document reasonably believed by it to
be genuine and to have been signed or made by an officer of the Fund or person
designated by the Fund and shall not be held to have any notice of any change of
authority of any person until receipt of written notice thereof from the Fund or
such person. It shall also be protected in processing Share certificates which
bear the proper countersignature of the Transfer Agent and which it reasonably
believes to bear the proper manual or facsimile signature of the Officers of the
Fund.
19
<PAGE>
3. The Transfer Agent upon notice to the Fund may establish such
additional procedures, rules and regulations governing the transfer or
registration of Share certificates as it may deem advisable and consistent with
such rules and regulations generally adopted by mutual fund transfer agents.
4. The Transfer Agent shall keep such records as are specified in
Schedule II hereto in the form and manner, and for such period, as it may deem
advisable and is agreeable to the Fund but not inconsistent with the rules and
regulations of appropriate government authorities, in particular Rules 3la-2 and
3la-3 under the Investment Company Act of 1940, as amended. The Transfer Agent
acknowledges that such records are the property of the Fund. The Transfer Agent
may deliver to the Fund from time to time at its discretion, for safekeeping or
disposition by the Fund in accordance with law, such records, papers, documents
accumulated in the execution of its duties as such Transfer Agent, as the
Transfer Agent may deem expedient, other than those which the Transfer Agent is
itself required to maintain pursuant to applicable laws and regulations. The
Fund shall assume all responsibility for any failure thereafter to produce any
record, paper, canceled Share certificate, or other document so returned, if and
when required. The records specified in Schedule II hereto maintained by the
Transfer Agent pursuant to this paragraph 4, which have not been previously
delivered to the Fund pursuant to the foregoing provisions of this paragraph 4,
shall be considered to be the property of the Fund, shall be made available upon
request for inspection by the officers, employees, and auditors of the Fund, and
records shall be delivered to the Fund upon request and in any event upon the
date of termination of this Agreement, as specified in Article IX
20
<PAGE>
of this Agreement, in the form and manner kept by the Transfer Agent on such
date of termination or such earlier date as may be requested by the Fund.
5. The Transfer Agent shall not be liable for any loss or damage,
including counsel fees, resulting from its actions or omissions to act or
otherwise, except for any loss or damage arising out of its bad faith,
negligence, willful misfeasance, gross negligence or reckless disregard of its
duties under this agreement.
6a. The Fund shall indemnify and exonerate, save and hold harmless the
Transfer Agent from and against any and all claims (whether with or without
basis in fact or law), demands, expenses (including reasonable attorney's fees)
and liabilities of any and every nature which the Transfer Agent may sustain or
incur or which may be asserted against the Transfer Agent by any person by
reason of or as a result of any action taken or omitted to be taken by any prior
transfer agent of the Fund or as a result of any action taken or omitted to be
taken by the Transfer Agent in good faith and without negligence or willful
misconduct or in reliance upon (i) any provision of this Agreement; (ii) the
Prospectus; (iii) any instruction or order including, without limitation, any
computer tape reasonably believed by the Transfer Agent to have been received
from an Approved Institution; (iv) any instrument, order or Share certificate
reasonably believed by it to be genuine and to be signed, countersigned or
executed by any duly authorized Officer of the Fund; (v) any Certificate or
other instructions of an Officer; or (vi) any opinion of legal counsel for the
Fund or the Transfer Agent. The Fund shall indemnify and exonerate, save and
hold the Transfer Agent harmless from and against any and all claims (whether
with or without basis in fact or law),
21
<PAGE>
demands, expenses (including reasonable attorney's fees) and liabilities of any
and every nature which the Transfer Agent may sustain or incur or which may be
asserted against the Transfer Agent by any person by reason of or as a result of
any action taken or omitted to be taken by the Transfer Agent in good faith in
connection with its appointment or in reliance upon any law, act, regulation or
any interpretation of the same even though such law, act or regulation may
thereafter have been altered, changed, amended or repealed.
6b. The Transfer Agent shall not settle any claim, demand, expense or
liability to which it may seek indemnity pursuant to paragraph 6(a) above (each,
an "Indemnifiable Claim") without the express written consent of an Officer of
the Fund. The Transfer Agent shall notify the Fund within 15 days of receipt of
notification of an lndemnifiable Claim, provided that the failure by the
Transfer Agent to furnish such notification shall not impair its right to seek
indemnification from the Fund unless the Fund is unable to adequately defend the
Indemnifiable Claim as a result of such failure, and further provided, that if
as a result of the Transfer Agent's failure to provide the Fund with timely
notice of the institution of litigation a judgment by default is entered, prior
to seeking indemnification from the Fund the Transfer Agent, at its own cost and
expense, shall open such judgment. The Fund shall have the right to defend any
Indemnifiable Claim at its own expense, provided that such defense shall be
conducted by counsel selected by the Fund and reasonably acceptable to the
Transfer Agent. The Transfer Agent may join in such defense at its own expense,
but to the extent that it shall so desire the Fund shall direct such defense.
The Fund shall not settle any Indemnifiable Claim without the express written
consent of the Transfer Agent if the Transfer
22
<PAGE>
Agent determines that such settlement would have an adverse effect on the
Transfer Agent beyond the scope of this
23
<PAGE>
Agreement. In such event, each of the Fund and the Transfer Agent shall be
responsible for their own defense at their own cost and expense, and such claim
shall not be deemed an Indemnifiable Claim hereunder. If the Fund shall fail or
refuse to defend an Indemnifiable Claim, the Transfer Agent may provide its own
defense at the cost and expense of the Fund. Anything in this Agreement to the
contrary notwithstanding, the Fund shall not indemnify the Transfer Agent
against any liability or expense arising out of the Transfer Agent's willful
misfeasance, bad faith, gross negligence or reckless disregard of its duties and
obligations under this Agreement. The Transfer Agent shall indemnify and hold
the Fund harmless from and against any and all losses, damages, costs, charges ,
counsel fees, payments, expenses and liability arising out of or attributable to
any action or failure or omission to act by the Transfer Agent as a result of
the Transfer Agent's lack of good faith, negligence or willful misconduct.
7. The Transfer Agent shall not be liable to the Fund with respect to any
redemption draft on which the signature of the drawer is forged and which the
Fund's Custodian or Cash Management bank has advised the Transfer Agent to honor
the redemption; nor shall Transfer Agent be liable for any material alteration
or absence or forgery of any endorsement, it being understood that the Transfer
Agent's sole responsibility with respect to inspecting redemption drafts is to
use reasonable care to verify the drawer's signature against signatures on file.
8. There shall be excluded from the consideration of whether the Transfer
Agent has been negligent or has breached this Agreement, any period of time, and
only such period of time, during which the Transfer Agent's performance is
materially affected, by reason of circumstances
24
<PAGE>
beyond its control (collectively, "Causes") , including, without limitation
(except as provided below), (a) mechanical breakdowns of equipment (including
any alternative power supply and operating systems software), flood or
catastrophe, acts of God, failures of transportation, communication or power
supply, strikes, lockouts, work stoppages or other similar circumstances.
9. At any time the Transfer Agent may apply to an officer of the Fund for
written instructions with respect to any matter arising in connection with the
Transfer Agent's duties and obligations under this Agreement, and the Transfer
Agent shall not be liable for any action taken or permitted by it in good faith
in accordance with such written instructions. Such application by the Transfer
Agent for written instructions from an officer of the Fund may set forth in
writing any action proposed to be taken or omitted by the Transfer Agent with
respect to its duties or obligations under this Agreement and the date on and/or
after which such action shall be taken. The Transfer Agent shall not be liable
for any action taken or omitted in accordance with a proposal included in any
such application on or after the date specified therein unless, prior to taking
or omitting any such action, the Transfer Agent has received written
instructions in response to such application specifying the action to be taken
or omitted. The Transfer Agent may consult counsel of the Fund, or upon notice
to the Fund I its own counsel, at the expense of the Fund and shall be fully
protected with respect to anything done or omitted by it in good faith in
accordance with the advice or opinion of counsel to the Fund or its own counsel.
10. The Transfer Agent may issue new Share certificates in place of
certificates represented to have been lost, stolen, or destroyed upon receiving
written instructions from the
25
<PAGE>
shareholder accompanied by proof of an indemnity or surety bond issued by a
recognized insurance institution specified by the Fund or the Transfer Agent.
If the Transfer Agent receives written notification from the shareholder
or broker dealer that the certificate issued was never received, and such
notification is made within 30 days of the date of issuance, the Transfer Agent
may reissue the certificate without requiring a surety bond. The Transfer
Agent may also reissue certificates which are represented as lost, stolen, or
destroyed without requiring a surety bond provided that the notification is in
writing and accompanied by an indemnification signed on behalf of a member firm
of the New York Stock Exchange and signed by an officer of said firm with the
signature guaranteed. Notwithstanding the foregoing, the Transfer Agent will
reissue a certificate upon written authorization from an Officer of the Fund.
11. In case of any requests or demands for the inspection of the
shareholder records of the Fund, the Transfer Agent will endeavor to notify the
Fund promptly and to secure instructions from an officer as to such inspection.
The Transfer Agent reserves the right, however, to exhibit the shareholder
records to any person whenever it receives an opinion from its counsel that
there is a reasonable likelihood that the Transfer Agent will be held liable for
the failure to exhibit the shareholder records to such person; provided,
however, that in connection with any such disclosure the Transfer Agent shall
promptly notify the Fund that such disclosure has been made or is to be made.
12. At the request of an Officer of the Fund the Transfer Agent will
address and mail such appropriate notices to shareholders as the Fund may
direct.
26
<PAGE>
13. Notwithstanding any of the foregoing provisions of this Agreement,
the Transfer Agent shall be under no duty or obligation to inquire into, and
shall not be liable for:
(a) The legality of the issue or sale of any Shares, the
sufficiency of the amount to be received therefor, or the authority of the
Approved Institution or of the Fund, as the case may be, to request such sale or
issuance;
(b) The legality of a transfer of Shares, or of a redemption of any
Shares, the propriety of the amount to be paid therefor, or the authority of the
Approved Institution or of the Fund, as the case may be, to request such
transfer or redemption;
(c) The legality of the declaration of any dividend by the Fund, or
the legality of the issue of any Shares in payment of any stock dividend; or
(d) The legality of any recapitalization or readjustment of Shares.
14. The Transfer Agent shall be entitled to receive and the Fund hereby
agrees to pay to the Transfer Agent for its performance hereunder, including its
performance of the duties and functions set forth in Schedule I hereto, (i) its
reasonable out-of-pocket expenses (including reasonable legal expenses and
attorney's fees) incurred in connection with its performance hereunder and (ii)
such compensation as may be agreed upon in writing from time to time by the
Transfer Agent and the Fund.
15. The Transfer Agent shall have no duties or responsibilities whatsoever
except such duties and responsibilities as are specifically set forth in this
Agreement, and no covenant or obligation shall be implied in this Agreement
against the Transfer Agent.
27
<PAGE>
16. Purchase and Prices of Services.
(a) The Fund will compensate the Transfer Agent for, and Transfer
Agent will provide, beginning on the execution date of this Agreement and
continuing until the termination of this Agreement as provided hereinafter, the
Services set forth in Schedule I.
(b) The current unit prices for the Services are set forth in
Schedule III (the "Schedule III Fee Schedule"). Once in each calendar year, the
Transfer Agent may elect to raise the Schedule III Fees upon ninety (90) days
prior notice to the Fund. Notwithstanding the annual right to raise the
Schedule III Fees, the Transfer Agent may increase prices due to changes in
legal or regulatory requirements - Any increases in prices or one-time charges
due to changes in the legal or regulatory requirements will be subject to the
approval of the Fund, which approval shall not be unreasonably withheld.
17. Billing and Payment.
(a) The Transfer Agent shall bill the Fund as follows: (i)
monthly in arrears for Accounts maintained; and (ii) monthly in advance for
estimated Out-of-Pocket Expenses for the following month. Documentation to
support reconciliation of actual Out-of-Pocket Expenses will be provided to the
Fund monthly. The Transfer Agent may from time to time request the Fund to make
additional advances when appropriate.
(b) The Fund shall pay the Transfer Agent in immediately available funds
at United Missouri Bank in Kansas City, Missouri within thirty (30) days of the
date of the bill. Any amounts
28
<PAGE>
due under this Agreement which are not paid within said thirty (30) day period
shall bear interest at the rate of one and one-half percent (11/2%) per month
from such date until paid in full.
ARTICLE IX
TERMINATION
Either of the parties hereto may terminate this Agreement by giving to the
other party a notice in writing specifying the date of such termination, which
shall be not less than 60 days after the date of receipt of such notice. In the
event such notice is given by the Fund, it shall be accompanied by a copy of a
resolution of the Board of Trustees of the Fund, certified by the Secretary or
any Assistant Secretary, electing to terminate this Agreement and designating
the successor transfer agent or transfer agents. In the event such notice is
given by the Transfer Agent, the Fund shall on or before the termination date,
deliver to the Transfer Agent a copy of a resolution of its Board of Trustees
certified by the Secretary or any Assistant Secretary designating a successor
transfer agent or transfer agents. In the absence of such designation by the
Fund, the Fund shall upon the date specified in the notice of termination of
this Agreement and delivery of the records maintained hereunder, be deemed to be
its own transfer agent and the Transfer Agent shall thereby be relieved of all
duties and responsibilities pursuant to this Agreement.
In the event this Agreement is terminated as provided herein, the Transfer
Agent, upon the written request of the Fund, shall deliver the records of the
Fund on electromagnetic media to the Fund or its successor transfer agent. The
Fund shall be responsible to the Transfer Agent for the reasonable costs and
expenses associated with the preparation and delivery of such media.
29
<PAGE>
ARTICLE X
MISCELLANEOUS
1. The Fund agrees that prior to effecting any change in the Prospectus
which would increase or alter the duties and obligations of the Transfer Agent
hereunder, it shall advise the Transfer Agent of such proposed change at least
30 days prior to the intended date of the same, and shall proceed with such
change only if it shall have received the written consent of the Transfer Agent
thereto, which shall not be unreasonably withheld.
2. Any notice or other instrument in writing, authorized or required by
this Agreement to be given to the Fund shall be sufficiently given if addressed
to the Fund and mailed or delivered to it at its office at the address first
above written, or at such other place as the Fund may from time to time
designate in writing.
3. Any notice or other instrument in writing, authorized or required by
this Agreement to be given to the Transfer Agent shall be sufficiently given if
addressed to the Transfer Agent and mailed or delivered to the Secretary at 120
South LaSalle, Chicago, IL, with a copy to the President at 811 Main Street,
Kansas City, MO, or at such other place as the Transfer Agent may from time to
time designate in writing.
4. This Agreement may not be amended or modified in any manner except by
a written agreement executed by both parties with the formality of this
Agreement.
5. This Agreement shall extend to and shall be binding upon the parties
hereto, and their respective successors and assigns. This Agreement shall not
be assignable by either party without
30
<PAGE>
the written consent of the other party, except that the Transfer Agent may
assign this Agreement to a corporate affiliate with advance written notice to
the Fund.
6. This Agreement shall be governed by and construed in
accordance with the laws of the State of Illinois.
7. This Agreement may be executed in any number of counterparts each of
which shall be deemed to be an original; but such counterparts shall, together,
constitute only one instrument.
8. The provisions of this Agreement are intended to benefit only the
Transfer Agent and the Fund, and no rights shall be granted to any other person
by virtue of this Agreement.
9. (a) The Transfer Agent will endeavor to assist in resolving
shareholder inquiries and errors relating to the period during which prior
transfer agents acted as such for the Fund. Any such inquiries or errors which
cannot be expediently resolved by the Transfer Agent will be referred to the
Fund.
(b) The Transfer Agent shall only be responsible for the
safekeeping and maintenance of transfer agency records, canceled certificates
and correspondence of the Fund created or produced prior to the time of
conversion which are under its control and acknowledged in a writing to the Fund
to be in its possession. Any expenses or liabilities incurred by the Transfer
Agent as a result of shareholder inquiries, regulatory compliance or audits
related to such records and not caused as a result of Transfer Agent's bad
faith, willful malfeasance or negligence shall be the responsibility of the Fund
as provided in Article VIII herein.
31
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective corporate officer, thereunto duly authorized and
their respective corporate seals to be hereunto affixed, as the day and year
first above written.
SUPERVISED SERVICE COMPANY, INC. ADVISORS' INNER CIRCLE FUND, INC.
By: By:
--------------------------- --------------------------------
(Signature) (Signature)
--------------------------- --------------------------------
(Name) (Name)
--------------------------- --------------------------------
(Title) (Title)
--------------------------- --------------------------------
(Date Signed) (Date Signed)
32
<PAGE>
SCHEDULE I
DESCRIPTION OF SERVICES
In consideration of the fees to be paid in such manner and at such times as
Fund and Transfer Agent may agree, Transfer Agent will provide the services set
forth below:
Examine and Process New Accounts, Subsequent Payments, Liquidations,
Exchanges, Telephone Transactions, Check Redemptions, Automatic Withdrawals,
Certificate Issuance, Wire order Trades, Dividends, Dividend Statements, Dealer
Statements.
DAILY ACTIVITY
Maintain the following shareholder information in such a manner as the
Transfer Agent shall determine:
Name and Address, including Zip Code
Balance of Uncertificated Shares
Balance of Certificated Shares
Certificate number, number of shares, issuance date of each certificate
outstanding and cancellation date for each certificate date for each
certificate no longer outstanding, if issued
Balance of dollars available for redemption
Dividend code (daily accrual, monthly reinvest, monthly cash or quarterly
cash)
Type of account code
Establishment date indicating the date an account was opened, carrying
forward pre-conversion data as available
Original establishment date for accounts opened by exchange
W-9 withholding status and periodic reporting
State of residence code
33
<PAGE>
Social Security or taxpayer identification number, and indication of
certification
Historical transactions on the account for the most recent 18 months, or
other period as mutually agreed to from time-to-time
Indication as to whether phone transactions can be accepted for this
account. Beneficial owner code, i.e. male, female, joint tenant, etc.
An alternate or "secondary" account number issued by a dealer (or bank,
etc.) to a customer for use, inquiry and transaction input by "remote
accessors"
FUNCTIONS
Answer investor and dealer telephone and/or written inquiries, except those
concerning Fund policy, or requests for investment advice which will be
referred to the Fund, or those which the Fund chooses to answer
Deposit Fund share certificates into accounts upon receipt of instructions
from the investor or other authorized person, if issued
Examine and process transfers of shares insuring that all transfer
requirements and legal documents have been supplied
Process and confirm address changes
Process standard account record changes as required, i.e. Dividend Codes,
etc.
Microfilm source documents for transactions, such as account applications
and correspondence
Perform backup withholding for those accounts which federal government
regulations indicate is necessary
Perform withholdings on liquidations, if applicable, for employee benefit
plans. Prepare and mail 5498s and 1099R's
Solicit missing taxpayer identification numbers
34
<PAGE>
Provide remote access inquiry to Fund records via Fund supplied hardware
(Fund responsible for connection line and monthly fee)
REPORTS PROVIDED
Daily Journals Reflecting all shares and dollar activity for the
previous day Supply information monthly for Fund's
preparation of
Blue Sky Report Blue Sky Reporting
N-SAR Report Supply monthly correspondence, redemption and
liquidation information for use in fund's N-SAR Report
Additionally, monthly average daily balance reports will be provided at the
Fund's request to the Fund at no charge.
Prepare and mail copies of summary statements to dealers and investment advisers
Generate and mail confirmation statements for financial transactions
DIVIDEND ACTIVITY
Reinvest or pay in cash including reinvesting in other funds within the
fund group serviced by the Transfer Agent as described in each Fund
prospectus
Distribute capital gains simultaneously with income dividends
DEALER SERVICES
Prepare and mail confirmation statements to dealers daily
Prepare and mail copies of statements to dealers, same frequency as
investor statements
35
<PAGE>
ANNUAL MEETINGS
Assist Fund in obtaining a qualified service to: address and mail proxies
and related material, tabulate returned proxies and supply daily reports
when sufficient proxies have been received
Prepare certified list of stockholders, hard copy or microform
PERIODIC ACTIVITIES
Mail transaction confirmation statements daily to investors
Address and mail four (4) periodic financial reports (material must be
adaptable to Transfer Agent's mechanical equipment as reasonably specified
by the Transfer Agent)
Mail periodic statement to investors
Compute, prepare and furnish all necessary reports to Governmental
authorities: Forms 1099R, 1099DIV, 1099B, 1042 and 1042S
Enclose various marketing material as designated by the Fund in statement
mailings, i.e. monthly and quarterly statements (material must be adaptable
to mechanical equipment as reasonably specified by the Transfer Agent)
36
<PAGE>
SCHEDULE II
RECORDS MAINTAINED BY TRANSFER AGENT
- Account applications
- Canceled certificates plus stock powers and supporting documents
- Checks including check registers, reconciliation records, any
adjustment records and tax withholding documentation
- Indemnity bonds for replacement of lost or missing stock certificates
and checks
- Liquidation, redemption, withdrawal and transfer requests including
stock powers, signature guarantees and any supporting documentation
37
<PAGE>
[Letterhead of Morgan, Lewis & Bockius LLP]
October 24, 1991
The Advisors' Inner Circle Fund
2 Oliver Street
Boston, Massachusetts 02109
Gentlemen:
We are furnishing this opinion with respect to the proposed offer and sale
from time to time of units of beneficial interest, without par value (the
"Shares"), of The Advisors' Inner Circle Fund (the "Trust"), a Massachusetts
business trust, being registered under the Securities Act of 1933 and the
Investment Company Act of 1940 by a Registration Statement on Form N-1A
(File No. 33-42484) as amended from time to time (the "Registration Statement").
We have acted as counsel to the Trust since its inception, and we are
familiar with the actions taken by its trustees to authorize the issuance of the
Shares. We have reviewed the Agreement and Declaration of Trust, the By-Laws,
and the minute books of the Trust, and such other certificates, documents and
opinions of counsel as we deem necessary for the purpose of this opinion.
We have reviewed the Trust's Notification of Registration on Form N-8A
under the Investment Company Act of 1940. We have assisted in the preparation
of the Trust's Registration Statement, including all pre-effective amendments
thereto filed or to be filed with the Securities and Exchange Commission.
We assume the appropriate action will be taken to register or qualify the
sale of the Shares under any applicable state and federal laws regulating sales
and offerings of securities.
Based upon the foregoing, we are of the opinion that:
1. The Trust is a business trust validly existing under the laws of the
Commonwealth of Massachusetts. The Trust is authorized to issue an unlimited
number of Shares in three series representing interests in the Morgan Grenfell
Municipal Bond Fund, Clover Capital Equity Value Fund and Clover Capital Fixed
Income Fund of the Trust, and in such other series or classes as the Trustees
may hereafter duly authorize.
2. Upon the issuance of any Shares of any of the series or classes of the
Trust for payment therefor as described in the Prospectus and Statement of
Additional Information for
<PAGE>
The Advisors' Inner Circle Fund
October 24, 1991
Page 2
such series or class filed as part of the Registration Statement, the Shares so
issued will be validly issued, fully paid and non-assessable.
This opinion is intended only for your use in connection with the offering
of Shares and may not be relied upon by any other person.
We hereby consent to the inclusion of this opinion as Exhibit 10 to the
Trust's Registration Statement on Form N-1A to be filed with the Securities and
Exchange Commission and to the reference of our firm under the caption "Counsel
and Independent Accountants" in the Prospectus filed as part of such
Registration Statement.
Very truly yours,
/s/Morgan, Lewis & Bockius
<PAGE>
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
dated December 3, 1997 on the October 31, 1997 financial statements of the White
Oak Growth Stock Fund and Pin Oak Aggressive Stock Fund of the Advisors' Inner
Circle Fund, and our report dated December 12, 1997, on the October 31, 1997
financial statements of the HGK Fixed Income Fund, AIG Money Market Fund, FMC
Select Fund, and CRA Realty Shares Portfolio of the Advisors' Inner Circle Fund,
incorporated by reference in the Post-Effective Amendment No. 32 to the
Registration Statement on Form N-1A of the Advisors' Inner Circle Fund (File No.
33-42484), and to all references to our firm included in or made part of
Post-Effective Amendment No. 32 to the Registration Statement File No. 33-42484.
/s/ Arthur Andersen LLP
Philadelphia, Pa.
February 24, 1998
<PAGE>
This schedule is included to illustrate how yield and total return will be
calculated for the Clover Capital Equity Value, Clover Capital Fixed Income and
Morgan Grenfell Municipal Bond Portfolios. The examples presented utilize data
from the Trust which has a fiscal year ending 9/30.
6
YIELD = 2[(a-b/cd+1) -1]
<TABLE>
<CAPTION>
Clover Capital Clover Capital Morgan Grenfell
Equity Value Fixed Income Municipal Bond
------------ ------------ --------------
<S> <C> <C>
a= 44,099 a= 88,024 a= 90,494
b= 11,266 b= 9,257 b= 5,772
c= 1,379,852.387 c= 1,322,686.385 c= 1,281,133
d= 10.71 d= 10.26 d= 9.98
Yield= 2.76% Yield= 7.18% Yield= 8.11%
n
TOTAL RETURN P(1+T) = ERV
Clover Capital Clover Capital Morgan Grenfell
Equity Value Fixed Income Municipal Bond
------------ ------------ --------------
P= 1,000 P= 1,000 P= 1,000
n= 1 n= 1 n= 1
ERV= 1,100.50 ERV= 1,082.90 ERV= 1,088.20
T= 10.05% T= 8.29% T= 8.82%
</TABLE>
<PAGE>
THE ADVISORS' INNER CIRCLE FUND
RULE 18f-3
MULTIPLE CLASS PLAN
MAY 15, 1995
INTRODUCTION
The AIG Money Market Fund and the Japan Alpha Fund (each a "Portfolio"
and, collectively, the "Portfolios"), portfolios of The Advisors' Inner Circle
Fund (the "Fund"), have elected to rely on Rule 18f-3 under the Investment
Company Act of 1940, as amended (the "1940 Act") in offering multiple classes of
units of beneficial interest ("shares") in each Portfolio. The Plan sets forth
the differences among classes, including shareholder services, distribution
arrangements, expense allocations, and conversion or exchange options.
A. ATTRIBUTES OF SHARE CLASSES
The rights of each existing class of the Portfolios (I.E., Classes A
and B) shall be as set forth in the resolutions and related materials of the
Portfolios' Board adopted pursuant to the order dated September 9, 1993,
obtained by [SEI Liquid Asset Trust, ET AL. (Inv. Co. Act Release No.
IC-19698)], and attached hereto as Exhibits A - C.
With respect to any class of shares of a Portfolio created after the
date hereof, each share of a Portfolio will represent an equal PRO RATA interest
in the Portfolio and will have identical terms and conditions, except that: (i)
each new class will have a different class name (or other designation) that
identifies the class as separate from any other class; (ii) each class will
separately bear any distribution expenses ("distribution fees") in connection
with a plan adopted pursuant to Rule 12b-1 under the 1940 Act (a "Rule 12b-1
Plan"), and will separately bear any non-Rule 12b-1 Plan service payments
("service fees") that are made under any servicing agreement entered into with
respect to that class; (iii) each class may bear, consistent with rulings and
other published statements of position by the Internal Revenue Service, the
expenses of the Portfolio's operations which are directly attributable to such
class ("Class Expenses"); and (iv) shareholders of the class will
<PAGE>
have exclusive voting rights regarding the Rule 12b-1 Plan and the servicing
agreements relating to such class, and will have separate voting rights on any
matter submitted to shareholders in which the interests of that class differ
from the interests of any other class.
B. EXPENSE ALLOCATIONS
Expenses of each existing class and of each class created after the
date hereof shall be allocated as follows: (i) distribution and shareholder
servicing payments associated with any Rule 12b-1 Plan or servicing agreement
relating to each class of shares are (or will be) borne exclusively by that
class; (ii) any incremental transfer agency fees relating to a particular class
are (or will be) borne exclusively by that class; and (iii) Class Expenses
relating to a particular class are (or will be) borne exclusively by that class.
Until and unless changed by the Board, the methodology and procedures
for calculating the net asset value of the various classes of shares and the
proper allocation of income and expenses among the various classes of shares
shall be as set forth in the "Report" rendered by Arthur Andersen LLP.
C. AMENDMENT OF PLAN; PERIODIC REVIEW
This Plan must be amended to properly describe (through additional
exhibits hereto or otherwise) each new class of shares approved by the Board
after the date hereof.
The Board of the Portfolios, including a majority of the independent
Trustees, must periodically review this Plan for its continued appropriateness,
and must approve any material amendment of the Plan as it relates to any class
of any Portfolio covered by the Plan.
-2-
<PAGE>
DISTRIBUTION PLAN
THE ADVISORS' INNER CIRCLE FUND
WHEREAS, The Advisors' Inner Circle Fund (the "Trust") is engaged in
business as an open-end investment company registered under the investment
Company Act of 1940, as amended (the "1940 Act"); and
WHEREAS, the Trustees of the Trust have determined that there is a
reasonable likelihood that the following Distribution Plan will benefit the
Trust and the owners of units (the "shares") of beneficial interest (the
"Shareholders") in the Trust;
NOW, THEREFORE, the Trustees of the Trust hereby adopt this Distribution
Plan pursuant to Rule 12b-1 under the 1940 Act.
SECTION 1. The Trust has adopted this Distribution Plan (the "Plan") to
enable the Trust to directly or indirectly bear expenses relating to the
distribution of certain of the classes of shares of certain of the portfolios of
the Trust (each, a "Portfolio") as may, from time to time, be added to the Plan
and listed on Schedule A attached hereto.
SECTION 2. The Trust will pay the Distributor of each such class of
shares a fee at the annual rate specified on Schedule A hereto. The Distributor
may retain all or a part of this fee as compensation for distribution or
shareholder services it provides or it may use such fees for compensation of
broker-dealers and other financial institutions and intermediaries that provide
distribution or shareholder services as specified by the Distributor. The
actual fee to be paid by the Distributor to broker/dealers and financial
institutions and intermediaries will be negotiated based on the extent and
quality of services provided.
SECTION 3. This Plan shall not take effect as to a class of shares of a
Portfolio until it has been approved (a) by a vote of at least a majority of the
outstanding shares of such class and (b) together with any related agreements,
by votes of the majority of both (i) the Trustees of the Trust and (ii) the
Qualified Trustees (as defined herein), cast in person at a Board of Trustees
meeting called for the purpose of voting on this Plan or such agreement.
SECTION 4. This Plan shall continue in effect for a period of more than
one year after it takes effect only for so long as such continuance is
specifically approved at least annually in the manner provided in Part (b) of
Section 3 herein for the approval of this Plan.
SECTION 5. Any person authorized to direct the disposition of monies
paid or payable by the Trust pursuant to this Plan or any related agreement
shall provide to the Trustees of the
1
<PAGE>
Trust, at least quarterly, a written report of the amounts so expended and the
purposes for which such expenditures were made.
THE ADVISORS' INNER CIRCLE FUND
SCHEDULE A
DATED AUGUST 8,1994
TO DISTRIBUTION PLAN
Subject to any limitations imposed by Section 26(d) of the NASD's Rules of
Fair Practice, the Distributor shall receive Rule 12b-1 fees, which shall be
paid on a monthly basis. These tees will be calculated based on the annual rate
set forth below, as applied to the average daily net assets of the respective
Portfolios.
<TABLE>
<CAPTION>
PORTFOLIO CLASS OF SHARES FEE
- --------- --------------- ---
<S> <C> <C>
Japan Alpha Fund A 2.5%
AIG Money Market Fund B .35%
Clover Capital Equity Value Fund A .35%
Clover Capital Fixed Income Fund A .25%
Clover Capital Equity Value Fund B 1.00%
Clover Capital Fixed Income Fund B .80%
</TABLE>
* Consists of .75% distribution fee and .25% service fee.
Consists of .60% distribution fee and .20% service fee.
2
<PAGE>
(ii) Class C shares, to be offered primarily to non-trust,
middle market corporate investors without a distribution fee, but
which may be offered in connection with a Shareholder Service
Plan authorizing payment of a service fee not to exceed .20%(on
an annual basis)of the average daily net assets attributable
to Class C shares of the Fund.
VOTED: That SEI Financial Services Company be, and thereby is, appointed to
serve as Distributor of the units of beneficial interest of Class B
and Class C shares of the Fund under the terms and conditions set
forth in the Distribution Agreement dated October 18,1991, previously
approved by the Board of Trustees.
VOTED: That the officers of the Trust be, and they hereby are, authorized to
issue 10 units of beneficial interest in Class B units of the Fund and
10 units of beneficial interest in Class C units of the Fund to SEI
Financial Management Corporation ("SFM") upon the payment by SFM of
the sum of the appropriate net asset value for each unit into an
account for the Fund.
VOTED: That the form of Distribution Plan for Class B be, and it hereby is,
adopted by the Fund in accordance with Rule 12b-1 under the investment
Company Act of 1940, as amended.
VOTED: That the Distribution Plan for the Class B shares be submitted to SFM
as the sole initial holder of Class B shares of the Fund.
VOTED: That the officers of the Trust be, and they here by are, authorized to
take all further steps in accordance with the purpose and intent of
the fore going to effect the offering of the Class B and Class C
shares at such time as the Distributor may deem appropriate.
THE ADVISORS' INNER CIRCLE FUND
CREATION OF CLASSES
August 8, 1995
WHEREAS: The Board of Trustees has determined, based upon the information
presented, that the implementation of the Multi-Class Structure is in
the best interests of the Trust and its future shareholders because it
will (1) enable investors to choose the purchase option best suited to
their individual needs, thereby attracting investors and assets to the
Trust to the benefit of the Trust and its shareholders; (ii)
facilitate
3
<PAGE>
distribution of the Trust's shares; and (iii) place the Trust in a
competitive position in relation to other mutual funds that have
implemented or are seeking to implement similar distribution
arrangements.
NOW, THEREFORE, based upon approval by the Securities and Exchange Commission of
the exemptive application filed by the Administrator and Distributor authorizing
the creation of classes of shares sold subject to sales charge, be it
VOTED: That the form of Distribution Agreement presented to this meeting, as
amended and restated, between SEI Financial Services Company and the
Trust be, and it hereby is, approved, subject to such changes as may
be approved by the officers of the Trust in their discretion, and that
the proper officers of the Trust are here by authorized to execute
said Agreement on behalf of the Trust.
VOTED: That the form of Distribution Plan presented to this meeting for
various classes of the shares of the Trust be, and it hereby is,
adopted by the Trust in accordance with Rule 12b-i under the
Investment Company Act of 1940, as amended, subject to such changes as
may be approved by the officers of the Trust in their discretion.
Japan Alpha Fund
VOTED: That the shares of the Japan Alpha Fund may be divided into two
classes of shares:
(i) Class A Shares, to be offered (without a Rule 12b-1 Plan or
sales charge) primarily to advisory clients of Farrell Wako Global
Investment Management, Inc. and its affiliates; and
(ii) Class D Shares, to be offered primarily to individuals in
connection with the Fund's existing Distribution Plan that will be
approved by the sole initial share holder pursuant to Rule 12b-1 under
the Investment Company Act of 1940 authorizing payment of a
distribution fee not to exceed .25% (on an annual basis) of the
average daily net assets attributable to Class D Shares of the Japan
Alpha Fund and including an initial sales charge, not to exceed 4.50%
of the purchase price of such Class D Shares.
VOTED: That the Board of Trustees hereby establishes, effective upon
implementation of the Multi-Class System with respect to the Trust
(the "Effective Date"), an unlimited number of shares of beneficial
interest of the Japan Alpha Class A shares.
4
<PAGE>
VOTED: That the Board of Trustees hereby establishes, effective upon the
Effective Date, an unlimited number of shares of beneficial interest
of the Japan Alpha Fund Class shares.
AIG Money Market Fund
VOTED: That the shares of the AIG Money Market Fund may be divided into two
classes of shares:
(i) Class A Shares, to be offered (without a Rule 12b-1 Plan or
sales charge primarily to accounts related to domestic, wholly owned
subsidiaries of the AIG Capital Management Corp. and other AIG related
parties; and
(ii) Class B Shares, to be offered primarily to clients of the
affiliated insurance operations of AIG and other related AIG parties
in connection with the Fund's existing Distribution Plan that will be
approved by the sole initial shareholder pursuant to Rule 12b-1 under
the Investment Company Act of 1940 authorizing payment of a
distribution fee not to exceed .35%(on an annual basis) of the average
daily net assets attributable to Class B Shares of the AIG Money
Market Fund.
VOTED: That the Board of Trustees hereby establishes, effective upon
implementation of the Multi-Class System with respect to the Trust
(the "Effective Date"), an unlimited number of shares of beneficial
interest of the AIG Money Market Fund Class A shares.
VOTED: That the Board of Trustees hereby establishes, effective upon the
Effective Date, an unlimited number of shares of beneficial interest
of the AIG Money Market Fund Class B shares.
Clover Capital Equity Value
Clover Capital Fixed Income
VOTED: That the shares of the Clover Capital Equity Value Fund and the Clover
Capital Fixed Income Fund may be divided into three classes of shares:
(i) Class A Shares, to be offered primarily through broker dealers
to individual investors in connection with the Funds' existing
Distribution Plan that will be approved by the sole initial
shareholder pursuant to Rule 12b-1 under the Investment Company Act of
1940 authorizing payment of a distribution fee not to exceed .35% (on
an annual basis) of the average daily net assets attributable to
5
<PAGE>
Class A Shares of the Clover Capital Equity value Fund and not to
exceed .25% (on an annual basis) of the average daily net assets
attributable to Class A Shares of the Clover Capital Fixed Income
Fund, and including an initial sales charge not to exceed 5% of the
purchase price of such Class A shares; and
(ii) Class B shares to be offered in connection with the Fund's
existing Distribution Plan that will be approved by the sole initial
shareholder pursuant to Rule 12b-I under the Investment Company Act of
1940 authorizing payment of a distribution fee not to exceed 1.00% (on
an annual basis) of the average daily net assets attributable to Class
B Shares of the Clover Capital Equity value Fund and not to exceed
.80% (on an annual basis) of the average daily net assets attributable
to Class B Shares of the Clover Capital Fixed Income Fund; and
(iii) Class C Shares, to be offered (without a Rule 12b-1 Plan or
sales charge) primarily to advisory accounts of Clover Capital
Management.
VOTED: That the Board of Trustees hereby establishes, effective upon
implementation of the Multi-Class System with respect to the Trust
(the "Effective Date"), an unlimited number of shares of beneficial
interest of the each of the Class A, B and C shares of the Clover
Capital Equity Value Fund.
VOTED: That the Board of Trustees here by establishes, effective upon the
Effective Date, an unlimited number of shares of beneficial interest
of each of the Class A, B and C shares of the Clover Capital Fixed
Income Fund.
VOTED: That each class of each Fund shall vote separately with respect to the
adoption or amendment of any distribution plan as to such class. That
Class A, Class Band Class C shares of the Clover Capital Equity Value
Fund or the Clover Capital Fixed Income Fund (collectively,
the"Portfolios") shall have the same preferences, conversion and other
rights, voting powers, restrictions, limitations as to dividends,
qualifications and term sand conditions of redemption of shares,
except as provided in the Trust's Declaration of Trust and as set
forth below:
(1) The proceeds of the redemption of a Class B share of a
Portfolio (including a fractional share) shall be reduced by the
amount of any applicable contingent deferred sales charge payable on
such redemption to the Distributor pursuant to the terms of the
issuance of the Class B shares (to the extent consistent with the
Investment Company Act of 1940, as amended, or regulations or
exemptions thereunder) and the Trust shall promptly pay to the
Distributor the amount of such contingent deferred sales charge.
6
<PAGE>
(2)(a) Each Class B share of the Portfolios, other than a share
purchased through the reinvestment of a dividend or a distribution
with respect to the Class B share, shall be converted automatically,
and without any action or choice on the part of the holder thereof,
into Class A shares, based on the relative net asset value of each
such class at the time of the calculation of the net asset value of
such class of shares on the date that is the first Business Day (as
defined in each Portfolio's prospectus and/or statement of additional
information) of the month in which the sixth anniversary of the
issuance of such Class B shares occurs (which, for the purpose
calculating the holding period required for conversion, shall mean (i)
the date on which the issuance of such Class B shares occurred or (ii)
for Class B shares obtained through an exchange, the date of issuance
of the Class B shares of another Portfolio of the Trust that was sold
subject to a contingent deferred sales charge, if such shares were
exchanged directly, or through a series of exchanges for the Fund's
Class B shares (the "Conversion Date") .
(b) Each Class B share of the Portfolios purchased through the
reinvestment of a dividend or a distribution with respect to the Class
B shares and the dividends and distributions on such shares shall be
segregated in a separate sub-account on the stock records of the
Portfolio for each of the holders of record thereof. On any
Conversion Date, a number of the shares held in the sub-account of the
holder of record of the share or shares being converted, calculated in
accordance with the next following sentence, shall be converted
automatically, and without any action or choice on the part of the
holder thereof, into Class A shares. The number of shares in the
holder's sub-account so converted shall bear the same relation to the
total number of shares maintained in the sub-account on the Conversion
Date as the number of shares of the holder converted an the Conversion
Date pursuant to Paragraph 2(a) hereof bears to the total number of
Class B shares of the holder on the Conversion Date not purchased
through the automatic reinvestment of dividends or distributions with
respect to the Class B shares.
(c) The number of Class A shares of the Portfolios into which a
Class B share is converted pursuant to paragraphs (2)(a) and (2)(b)
hereof shall equal the number (including for this purpose fractions of
a share) obtained by dividing the net asset value per share of the
Class B shares for purposes of sales and redemptions thereof at the
time of the calculation of the net asset value on the Conversion Date
by the net asset value per share of the Class A shares for purposes of
sales and redemptions thereof at the time of the calculation of the
net asset value on the Conversion Date.
7
<PAGE>
(d) On the Conversion Date, the Class B shares converted into
Class A shares will cease to accrue dividends and will no longer be
outstanding and the rights of the holders thereof will cease (except
the right to receive declared but unpaid dividends to the Conversion
Date).
VOTED: That each class of each Portfolio shall vote separately with respect
to the adoption or amendment distribution plan as to such class. In
accordance with the exemptive application as approved by the
Securities and Exchange Commission, if a distribution plan or a
shareholder servicing plan is submitted for adoption or amendment to
the shareholders of Class A shares of any Portfolio then the Class B
shareholders of such Portfolio shall have the right to vote, as a
class, on the approval of such matter unless Class B shares are
converted into a new class of shares with terms identical to the prior
terms of the Class A shares.
THE ADVISOR'S INNER CIRCLE FUND
AIG MONEY MARKET FUND
VOTED: That there is hereby established the following portfolio of units of
beneficial interest of The Advisors, Inner Circle Fund (the "Trust"):
AIG Money Market Fund
VOTED: That AIG Capital Management Corp. be and it hereby is, appointed to
serve as Investment Adviser of the Trust's AIG Money Market Portfolio
(the"Portfolio") under the terms and conditions set forth in the
Investment Advisory Agreement presented at this meeting.
VOTED: That the form of Investment Advisory Agreement between the Trust and
AIG Capital Management Corp. presented at this meeting be, and it
hereby is, approved, subject to such changes as may be approved by the
officers of the Trust in their discretion; and that the proper
officers of the Trust hereby area authorized and directed to execute
and deliver said Investment Advisory Agreement on behalf of the Trust;
provided, however, that such approval shall not be effective unless
said Investment
8
<PAGE>
THE FUND AND THE PORTFOLIO
The Advisors' Inner Circle Fund (the "Fund") offers shares in a number of mutual
funds, each of which is a separate series ("portfolio") of the Fund. Each share
of each portfolio represents an undivided, proportionate interest in that
portfolio. This Prospectus offers Class B shares of the Fund's AIG Money Market
Fund (the "Portfolio").The Portfolio offers two classes of snares (Class A and
Class B) which provide for variations in distribution costs, voting rights and
dividends. Except for these differences, each share of the Portfolio represents
an undivided proportionate interest in the Portfolio. Information regarding the
other mutual funds in the Fund is contained in separate prospectuses that may be
obtained by calling 1-800-932-7781.
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the Portfolio is to preserve principal value and
maintain a high degree of liquidity while providing current income. It is also
a fundamental policy of the Portfolio to use its best efforts to maintain a
constant net asset value of $1.00 per share. There is no assurance that the
Portfolio 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.
The Portfolio intends to comply with regulations of the Securities and Exchange
Commission applicable to money market funds using the amortized cost method for
calculating net asset value. These regulations impose certain quality, maturity
and diversification restraints on Portfolio investments. Under these
regulations, the Portfolio will invest in only U.S. dollar denominated
securities, will maintain an average maturity on a dollar-weighted basis of 90
days or less, and will acquire only "eligible securities" that both present
minimal credit risks and have a maturity of 397 days or less. For a further
discussion of these rules, see
"Description of Permitted Investments and Risk Factors-Restraints on investments
by Money Market Funds."
In Seeking its investment objective, the Portfolio will invest exclusively in
(i) bills, notes and bonds issued by the United States Treasury ("United states
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 security rating organizations ("NRSROs"), or only one
NRSRO if only one NRSRO has rated the security, or, if not rated, as determined
by the
<PAGE>
Advisor to be of comparable quality. consisting of obligations of U.S.
and foreign corporations, domestic banks, foreign banks, U.S. and foreign
savings and loan institutional (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 Advisor 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 Advisor to be of comparable quality.
The Portfolio 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 Portfolio invests more than 25% of its assets in bank obligations, it will
be exposed to the risks associated with that industry as a whole. The Portfolio
may purchase asset-
The foregoing percentages will apply at the time of the purchase of a security,
except for the percentage limitations specified in paragraph 4 above, which will
apply at all times.
THE ADVISOR
AIG Capital Management Corp. (the "Advisor") is a wholly-owned subsidiary of
American International Group, Inc. The Advisor is a newly formed registered
investment advisor. Its officers and employees include individuals who have
investment management experience, including experience with short-term
investments. However, the Advisor has not previously managed a registered
investment company. The principal business address of the Advisor is 70 Pine
Street, 20th Floor, New York, New York 10270.
The Advisor serves as the Portfolio's investment advisor and 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.
The Advisor 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 Portfolio. The
Advisor has voluntarily agreed to waive all or a portion of its fees, and
reimburse expenses of the Portfolio to the extent necessary in order to limit
net operating expenses, to an annual rate of not more than .75% of the average
daily net assets of the Class B shares of the Portfolio.
<PAGE>
THE ADMINISTRATOR
SEI Financial Management Corporation (the "Administrator"), a wholly-owned
subsidiary of SEI Corporation ("SEI"), provides the Fund with administrative
services, including regulatory reporting and all necessary office space,
equipment, personnel and facilities.
For these services, the Administrator is entitled to a tee, which is calculated
daily and paid monthly, at an annual rate of .145% of the Portfolio's average
daily net assets up to $100 million; .1 125% of the Portfolio's average daily
net assets from $100 million up to and including $200 million; .07% of the
Portfolio's average daily net assets from $200 million up to and including $450
million; and .050/a of the Portfolio's average daily net assets over $450
million; provided that the Portfolio is obligated to pay the Administrator a
minimum annual fee of $100,000.
The Administrator also serves as shareholder servicing agent for the Portfolio.
THE TRANSFER AGENT
Supervised Service Company, 811 Main Street, Kansas City, Missouri 64105 (the
"Transfer Agent") serves as the transfer agent and dividend disbursing agent for
the Fund.
THE DISTRIBUTOR
SEI Financial Services Company (the "Distributor"), a wholly-owned subsidiary of
SEI, serves as the Fund's distributor pursuant to a distribution agreement (the
"Distribution Agreement") with the Fund which applies to Class A and Class B
shares of the Portfolio. The Class B shares of the Portfolio have a
distribution plan (the "Class B Plan") pursuant to Rule 12b-1 under the
Investment Company Act of 1 940, as amended (the " 1 940 Act" ). As provided in
the Distribution Agreement and the Class B Plan, the Fund will pay an annual fee
of .35% of the Class B Portfolio's average daily net assets to the Distributor
as compensation for its services. From this amount the Distributor may make
payments to financial institutions and intermediaries such as banks, savings and
loan associations, insurance companies including, without limit, subsidiaries
and affiliates of AIG, investment counselors, broker-dealers and the
Distributor's affiliates and subsidiaries
<PAGE>
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
financial institutions and intermediaries. The Fund intends to operate the
Class B Plan in accordance with its terms and with the NASD rules concerning
sales charges.
The Portfolio may also execute brokerage or other agency transactions through an
affiliate of the Advisor or through the Distributor for which the affiliate or
the Distributor may receive "usual and customary" compensation.
Certain financial institutions offering shares to their customers may be
required to register as dealers pursuant to federal and state laws.
PURCHASE AND REDEMPTION OF SHARES
Shares of the Portfolio may be purchased by qualified investors by contacting
the Transfer Agent or by calling 1-800-808-4920.Shares of the Portfolio are
offered only to residents of states and other jurisdictions in which the shares
are eligible for purchase.
Purchase of shares of the Portfolio may be made on days on which both the New
York Stock Exchange and the Federal Reserve wire system are open for business
("Business Day").The minimum investment in the Class B shares is $25,000;
however, the minimum investment may be waived at the Distributor's discretion.
There is no minimum for subsequent purchases.
PURCHASES BY WIRE TRANSFER
INITIAL PURCHASES: Before making an initial investment by wire, an investor
must first telephone 1-800-808-4920 to be assigned an account number. The
investor's name, account number, taxpayer identification number or Social
Security number, and address must be specified in the wire. In addition, an
Account Application should be promptly forwarded to: Supervised Service Company,
P.O. Box 419009, Kansas City, Missouri 64141-6009.
Shareholders having an account with a commercial bank that is a member of the
Federal Reserve System may purchase shares of the Portfolio by requesting their
bank to transmit funds by wire to: Missouri Bank of Kansas, N.A.; ABA
#10-10-00695; for Account Number 9870600404; Further Credit: AIG Money Market
Fund Portfolio. The shareholder's name and account number must be specified in
the wire.
<PAGE>
SUBSEQUENT PURCHASES: Additional investments may be made at any time through
the wire procedures described above, which must include the shareholder's name
and account number. The investor's bank may impose a fee for investments by
wire.
GENERAL INFORMATION REGARDING PURCHASES
A purchase order for Class B shares will be effective as of the Business Day
received by the Transfer Agent if the Transfer Agent receives an order prior to
12:00 p.m. (noon) Eastern time and receives federal funds before 3:00 p.m.
Eastern time. However, an order for Class B shares may be cancelled if federal
funds are not received before 3:00 p.m. on the same Business Day. Purchases may
not be made by check.
The Portfolio reserves the right to reject a purchase order when the Distributor
or Transfer Agent determines that it is not in the best interest of the Fund
and/or its shareholders to accept such order.
THE FUND AND THE PORTFOLIO
The Advisors' Inner Circle Fund (the "Fund") offers shares in a number of mutual
funds, each of which is a separate series ("portfolio") of the Fund. Each share
of each portfolio represents an undivided, proportionate interest in that
portfolio. This Prospectus offers Class A shares of the Fund's AIG Money Market
Fund (the "Portfolio"). The Portfolio offers two classes of shares (Class A and
Class B) which provide for variations in distribution costs, voting rights and
dividends. Except for these differences, each share of the Portfolio represents
an undivided proportionate interest in the Portfolio. Information regarding the
other mutual funds in the Fund is contained in separate prospectuses that may be
obtained by calling 1-800-932-7781.
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the Portfolio is to preserve principal value and
maintain a high degree of liquidity while providing current income. It is also
a fundamental policy of the Portfolio to use its best efforts to maintain a
constant net asset value of $1.00 per share. There is no assurance that the
Portfolio 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.
The Portfolio intends to comply with regulations of the Securities and Exchange
Commission applicable to money market funds using the amortized cost method for
calculating net asset value. These regulations impose certain quality, maturity
and diversification restraints on Portfolio investments. Under these
regulations, the Portfolio will invest in only U.S. dollar denominated
securities, will maintain an average maturity on a dollar-weighted basis of 90
days or less, and
<PAGE>
will acquire only "eligible securities" that present both minimal credit risks
and have a maturity of 397 days or less. For a further discussion of these
rules, see "Description of Permitted Investments and Risk Factors - Restraints
on Investments by Money Market Funds."
In seeking its investment objective, the Portfolio will invest exclusively in
(i) bills, notes and bonds issued by the United States Treasury ("United States
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 security rating organizations ("NRSROs"), or only one
NRSRO if only one NRSRO has rated the security, or, if not rated, as determined
by the Advisor to be of comparable quality, consisting of obligations of U.S.
and foreign corporations, domestic banks, foreign banks, 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 Advisor . . .
<PAGE>
PERFORMANCE
From time to time the Portfolio advertises its "current yield" and "effective
yield." Both yield figures are based on historical earnings and are not
intended to indicate future performance. No representation can be made
concerning actual future yields. The "current yield" of the Portfolio refers to
the income generated by an investment in a Portfolio over a stated seven-day
period (which period will be stated in the advertisement). This income is then
"annualized." That is, the amount of income generated by the investment during
that week is assumed to be generated each week over a 52-week period and is
shown as a percentage of the investment. The "effective yield" (also called
"effective compound yield") is calculated similarly but, when annualized, the
income earned by an investment in the Portfolio is assumed to be reinvested.
The "effective yield" will be slightly higher than the "current yield" because
of the compounding effect of this assumed reinvestment. 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.
The Portfolio may periodically compare its performance to the performance of
other mutual funds tracked by mutual fund rating services, broad groups of
comparable mutual funds or unmanaged indices which may assume investment of
dividends but generally do not reflect deductions for administrative and
management costs.
TAXES
The following summary of federal income tax consequences is based on current tax
laws and regulations, which may be changed by legislative, judicial or
administrative action.
No attempt has been made to present a detailed explanation of the federal, state
or local income tax treatment of the Portfolio or its shareholders.
Accordingly, shareholders are urged to consult their tax advisors regarding
specific questions as to federal, state and local income taxes.
TAX STATUS OF THE PORTFOLIO
The Portfolio is treated as a separate entity for federal income tax purposes
and is not combined with the Fund's other portfolios. The Portfolio intends to
quality for the special tax treatment afforded regulated investment companies as
defined under Subchapter M of the Internal Revenue Code of 1986, as amended. So
long as the Portfolio qualifies for this special tax treatment, it will be
relieved of federal income tax on that part of its net investment income and net
capital gain (the excess of net long-term capital gain over net short-term
capital loss) that it distributes to shareholders.
<PAGE>
THE FUND AND THE PORTFOLIO
The Advisors' Inner Circle Fund (the "Fund") offers shares in a number of mutual
funds, each of which is a separate series ("portfolio") of the Fund. Each share
of each portfolio represents an undivided, proportionate interest in that
portfolio. This Prospectus offers Class A shares of the Fund's Japan Alpha Fund
(the "Portfolio"). The Portfolio offers two classes of shares (Class A and
Class D) which provide for variations in sales charges, distribution costs,
voting rights and dividends. Except for these differences, each share of the
Portfolio represents an undivided proportionate interest in the Portfolio.
Information regarding the other portfolios in the Fund is contained in separate
prospectuses that may be obtained by calling 1-800-932-7781.
INVESTMENT OBJECTIVE AND POLICIES
The Portfolio seeks to achieve long-term capital appreciation. There can be no
assurance that the Portfolio will be able to achieve its investment objective.
The Portfolio intends to invest as fully as practicable in equity securities of
Japanese companies and under normal circumstances will be at least 80% invested
in such securities. Japanese companies are companies organized under the laws
of Japan, affiliates of Japanese companies (wherever organized or traded), and
issuers not organized under the laws of Japan but deriving 50% or more of their
revenues from Japan. Equity securities are comprised of common and preferred
stock, debt securities convertible into common stock (sometimes referred to as
"convertible debentures"), common stock purchase warrants, restricted
securities, and American Depository Receipts.
The Portfolio will seek to achieve its investment objective through the
Advisor's use of the Farrell Alpha Investment Strategy, which is based on the
philosophy of combining sound fundamental analysis with disciplined stock
selection and systematic portfolio construction. Using a large body of current
market and fundamental data, over 3,000 equity securities listed in the U.S. and
700 equity securities listed in Japan are systematically valued and rated by
applying the Advisor's proprietary series of up to 25 statistical and
quantitative techniques that have been developed and refined in the U.S. over
the past 20 years and applied to Japanese equity securities in recent years.
The equity securities evaluated by the Advisor are examined from a variety of
perspectives, such as long term fundamental, short term fundamental, trading
patterns, economic conditions and the judgement of outside analysts. The result
of this rigorous process is the Advisor's rating of the relative attractiveness
of each equity security, called the "alpha" rating. Equity securities with the
highest alpha ratings become candidates for investment by the Portfolio. The
converse is true for those with low alpha ratings.
<PAGE>
The Nikkei Stock Average and the Morgan Stanley Capital International Japan
Index (the "MSCI Japan Index") have been selected as the standards or benchmarks
against which the Portfolio's performance will be compared. The Nikkei Stock
Average is an index of 225 leading stocks traded on the Tokyo Stock Exchange.
It is composed of representative blue chip companies (termed first-section
companies in Japan) and is a price-weighted index. This means that the movement
of each stock, in yen or dollars respectively, is weighed equally regardless of
its
For these administrative services, the Administrator is entitled to a fee, which
is calculated daily and paid monthly, at an annual rate of .25% of the
Portfolio's average daily net assets. However, the Portfolio pays the
Administrator a minimum annual fee of $150,000, and consequently the annual
administration fee the Portfolio pays will exceed .25% of the Portfolio's
average daily net assets at low asset levels.
The Administrator also serves as shareholder servicing agent for the Portfolio.
THE TRANSFER AGENT
Supervised Service Company, 811 Main Street, Kansas City, Missouri 64105 (the
"Transfer Agent") serves as the transfer agent and dividend disbursing agent for
the Fund.
THE DISTRIBUTOR
SEI Financial Services Company (the "Distributor"), a wholly owned subsidiary of
SEI, serves as the Fund's distributor pursuant to a distribution agreement (the
"Distribution Agreement") with the Fund which applies to Class A and Class D
shares of the Portfolio. The Class A shares of the Portfolio have a
distribution plan (the "Distribution Plan") pursuant to Rule 12b-1 under the
Investment Company Act of 1940, as amended (the "1940 Act"). As provided in the
Distribution Agreement and the Distribution Plan, the Fund will pay an annual
fee of .25% of the Portfolio's average daily net assets attributable to the
Class A shares to the Distributor as compensation for its services. From as
amount the Distributor may make payments to financial institutions and
intermediaries such as banks, savings and loan associations, insurance
companies, investment counselors, broker dealers and the Distributor's
affiliates and subsidiaries as compensation for services, reimbursement of
expenses incurred in connection with distribution assistance or provision of
shareholder services. The Distribution 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 financial institutions and intermediaries. The
Fund intends to operate the Distribution Plan in accordance with its terms and
with NASD rules concerning sales charges.
<PAGE>
The Portfolio may also execute brokerage or other agency transactions through an
affiliate of the Advisor or through the Distributor for which the affiliate or
the Distributor may receive "usual and customary" compensation. The Advisor
will use its best efforts to obtain the best available price and most favorable
execution with respect to all transactions of the Portfolio.
PURCHASE AND REDEMPTION OF SHARES
Investors may purchase and redeem shares of the Portfolio directly through the
Transfer Agent, P.O. Box 419009, Kansas City, Missouri 64141-6009 by mail or
wire transfer. All shareholders may place orders by redemption in order to
realize the difference between the sales charge on the shares purchased at the
reduced rate and the sales charge otherwise applicable to the total shares
purchased.
The term "single purchaser" refers to (i) an individual, (ii) an individual and
spouse purchasing shares of the Portfolio for their own account or for trust or
custodial accounts of their minor children, or (iii) a fiduciary purchasing for
any one trust, estate or fiduciary account, including employee benefit plans
created under Sections 401 or 457 of the Internal Revenue Code of 1986, as
amended (the "Internal Revenue Code"), including related plans of the same
employer.
GENERAL INFORMATION REGARDING PURCHASES
A purchase order will be effective as of the day received by the Transfer Agent
if the Transfer Agent receives the order and payment before 4:00 p.m., Eastern
time. Payment may be made by check or readily available funds. The purchase
price of Class A shares of the Portfolio is the net asset value per share next
determined after a purchase order is effective plus a maximum sales charge of
4.75%. Purchases will be made in full and fractional shares of the Portfolio
calculated to three decimal places. The Fund will not issue certificates
representing shares of the Portfolio.
If a check received for the purchase of shares does not clear. the purchase will
be cancelled, and the investor could be liable for any losses or fees incurred.
The Fund reserves the right to reject a purchase order when the Fund determines
that it is not in the best interest of the Fund or its shareholders to accept
such order. For example the Portfolio may refuse purchases of shares of the
Portfolio by any person or group if, in the Advisor's judgment, the Portfolio
would be unable to invest effectively in accordance with its investment
objectives and policies, or would otherwise potentially be adversely affected.
The following table shows the regular sales charge on Class A shares of the
Portfolio together with the reallowance paid to dealers and the agency
commission paid to brokers, collectively the "commission":
<PAGE>
<TABLE>
<CAPTION>
Reallowance
Sales Charge and
as a Brokerage
Sales Charge Percentage Commission
as a of Net as Percentage
Percentage of Amount of Offering
Amounts of Purchase Offering Price Invested Price
- ------------------- -------------- -------- -----
<S> <C> <C> <C>
Less than 50,000 . . . . . . . . . . . . . . 4.75% 4.99% 4.00%
$ 50,000 or more but less than $ 100,000 4.00% 4.17% 3.50%
$ 100,000 or more but less than $ 125,000 3.50% 3.63% 3.00%
$ 250,000 or more but less than $ 500,000 2.50% 2.56% 2.00%
$ 500,000 or more but less than $1,000,000 1.75% 1.78% 1.50%
$1,000,000 and over . . . . . . . . . . . . . 0.00% 0.00% 0.00%
</TABLE>
The commissions shown in the table apply to sales through financial institutions
and intermediaries. Under certain circumstances. the Distributor or a
sub-distributor may use its own funds to compensate financial institutions and
intermediaries in amounts that are in addition to the commissions shown above.
The Distributor or a sub-distributor may, from time to time and at its own
expense, provide promotional incentives, in the form of cash or other
compensation, to certain financial institutions and intermediaries whose
registered representatives have sold or are expected to sell significant amounts
of the shares of the Portfolio. Such other compensation may take the form of
payments for travel expenses, including lodging, incurred in connection with
trips taken by qualifying registered representatives to places within or outside
of the United States. Under certain circumstances, commissions up to the amount
of the entire sales charge may be reallowed to certain financial institutions
and intermediaries, who might then be deemed to be "underwriters" under the
Securities Act of 1933, as amended. In addition, the Advisor will from its own
resources compensate certain broke-dealers at a maximum annual rate of .38% of
the net asset value of Class D shares purchased by certain investors.
REDEMPTIONS
Redemption orders received by the Transfer Agent prior to 4:00 p.m., Eastern
time on any Business Day will be effective that day. The redemption price of
shares is the net asset value per share of the Portfolio next determined after a
valid redemption order. in good form, is received. Payment on redemption will
be made as promptly as possible and, in any event within seven days after the
redemption order is received, provided, however, that redemption proceeds for
shares purchased by check (including certified or cashier's checks) will be
forwarded only upon
<PAGE>
collection of payment for such shares; collection of payment may take up to 15
days from the purchase date. Shareholders may not close their accounts by
telephone.
Shareholders may receive redemption payments in the form of a check or by
Federal Reserve or ACH wire transfer. There is no charge for having a check for
redemption proceeds mailed. The Custodian will deduct a wire charge, currently
$10.00, from the amount of a Federal Reserve wire redemption payment made at the
request of a shareholder. Shareholders cannot redeem shares of the Portfolio by
Federal Reserve wire on federal holidays restricting wire transfers. The
Portfolio does not charge for ACH wire transactions; however, such transactions
will not be posted to a shareholder's bank account until the second Business Day
following the transaction.
Neither the Fund nor the Transfer Agent will be responsible for the authenticity
of the redemption instructions received by telephone if it reasonably believes
those instructions are genuine. The Fund and the Transfer Agent will each
employ reasonable procedures to confirm that telephone instructions are genuine,
and may be liable for losses resulting from unauthorized or fraudulent telephone
transactions if it does not employ those procedures. Such procedures may
include taping of telephone conversations.
The right of redemption may be suspended or the date of payment of redemption
proceeds postponed during certain periods as set forth more fully in the
Statement of Additional Information.
The net asset value per share of the Portfolio is determined by dividing the
total market value of the Portfolio's investments and other assets, less any
liabilities, by the total outstanding shares of the Portfolio. Net asset value
per share is determined as of the close of regular trading on the Japanese stock
exchanges (3:00 p.m. Tokyo time) on the following day. The Japanese stock
exchanges are: Hiroshima, Osaka, Nagoya, Kyoto, Yamagata, Sapporo, Niigata,
Fukuoka and JASDAQ (the "Japanese Exchanges"). The Portfolio will in some cases
value its portfolio securities as of days on which the Japanese Exchanges are
closed for Japanese holidays or other
<PAGE>
THE FUND AND THE PORTFOLIO
The Advisors' Inner Circle Fund (the "Fund") offers shares in a number of mutual
funds, each of which is a separate series ("portfolio") of the Fund. Each share
of each portfolio represents an undivided, proportionate interest in that
portfolio. This Prospectus offers Class D shares of the Fund's Japan Alpha Fund
(the "Portfolio"). The Portfolio offers two classes of shares (Class A and
Class D) which provide for variations in sales charges, distribution costs,
voting rights and dividends. Except for these differences, each share of the
Portfolio represents an undivided proportionate interest in the Portfolio
Information regarding the other portfolios in the Fund is contained in separate
prospectuses that may be obtained by calling 1-800-932-7781.
INVESTMENT OBJECTIVE AND POLICIES
The Portfolio seeks to achieve long-term capital appreciation. There can be no
assurance that the Portfolio will be able to achieve its investment objective.
The Portfolio intends to invest as fully as practicable in equity securities of
Japanese companies and under normal circumstances will be at least 80% invested
in such securities. Japanese companies are companies organized under the laws
of Japan, affiliates of Japanese companies (wherever organized or traded), and
issuers not organized under the laws of Japan but deriving 50% or more of their
revenues from Japan. Equity securities are comprised of common and preferred
stock, debt securities convertible into common stock (sometimes referred to as
"convertible debentures"), common stock purchase warrants, restricted
securities, and American Depository Receipts.
The Portfolio will seek to achieve its investment objective through the Advisors
use of the Farrell Alpha Investment Strategy, which is based on the philosophy
of combining sound fundamental analysis with disciplined stock selection and
systematic portfolio construction. Using a large body of current market and
fundamental data, over 3,000 equity securities listed in the U.S. and 700 equity
securities listed in Japan are systematically valued and rated by applying the
Advisor's proprietary series of up to 25 statistical and quantitative techniques
that have been developed and refined in the U.S. over the past 20 years and
applied to Japanese equity securities in recent years. The equity securities
evaluated by the Advisor are examined from a variety of perspectives, such as
long term fundamental, short term fundamental, trading patterns, economic
conditions and the judgement of outside analysts. The result of this rigorous
process is the Advisor's rating of the relative attractiveness of each equity
security, called the "alpha" rating. Equity securities with the highest alpha
ratings become candidates for investment by the Portfolio. The converse is true
for those with low alpha ratings.
<PAGE>
SUBSEQUENT PURCHASES" Additional investments may be made at any time through
the wire procedures described above, which must include a shareholder's name and
account number. The investor's bank may impose a fee for investments by wire.
GENERAL INFORMATION REGARDING PURCHASES
A purchase order will be effective as of the day received by the Transfer Agent
if the Transfer Agent receives the order and payment before 4:00 p.m., Eastern
time. Payment may be made by check or readily available funds. The purchase
price of Class D shares of the Portfolio is the net asset value per share next
determined after a purchase order is effective. Purchases will be made in full
and fractional shares of the Portfolio calculated to three decimal places. The
Fund will not issue certificates representing shares of the Portfolio.
Class D shares, which are not subject to any service fee or distribution fee,
are available exclusively to (1) employees of the Advisor and their spouses and
minor children; (2) employee benefit plans for U.S. employees of Wako Securities
and its affiliates and securities dealers that participate in distribution of
the Portfolio's shares; (3) charitable organizations (as defined in Section
501(c)(3) of the Internal Revenue Code of 1986, as amended (the "Internal
Revenue Code") investing $100,000 or more; (4) any U.S. pension fund,
corporation, state or local government, Taft-Hartley plan, foundation and/or
endowment which is a client of a consulting firm, if that firm has made
appropriate arrangements with the Fund, Wako Securities or any subsidiary of
Wako Securities with respect to furnishing advice to the client or with respect
to the purchase of the securities of the Portfolio by such client; (5) U.S.
investors purchasing $2 million or more of shares of the Portfolio; (6) accounts
as to which a U.S. bank or broker-dealer charges an account management fee,
provided the bank or broker-dealer has an agreement with Farrell Wako relating
to investment in the Portfolio; (7) U.S. investors, and their spouses and minor
children, who are investment advisory clients of Farrell Wako or any of its
subsidiaries or who are affiliated persons or sponsoring companies of those
clients; (8) U.S. purchasers placing orders through a broker that maintains an
omnibus account with the Fund and such purchases are made (i) by U.S. investment
advisers or financial planners placing trades for their accounts or the accounts
of their clients, and who charge a fee for their services; (ii) U.S. clients of
such investment adviser or financial planner who place trades for their own
accounts if the accounts are linked to a master account of such investment
adviser or financial planner on the books and records of the broker or agent, or
(iii) for U.S. retirement and deferred compensation plans and trusts used to
fund those plans, including but limited to those defined in section 401 (a),
403(b) or 457 of the Internal Revenue Code or "rabbi trusts" and (9) U.S.
Corporations that are wholly-owned subsidiaries of Japanese companies and have
brokerage accounts with Wako Securities (America). Investors who purchase
pursuant to (8) may be charged a fee by the broker or agent utilized to effect
the transaction. The Advisor will from its own
<PAGE>
THE ARBOR FUND
THE ADVISORS' INNER CIRCLE FUND
OAK ASSOCIATES FUNDS
POWER OF ATTORNEY
KNOWN ALL PERSONS BY THESE PRESENTS, that the undersigned officer of The
Arbor Fund, The Advisors' Inner Circle Fund and Oak Associates Funds (the
"Trusts"), business trusts organized under the laws of The Commonwealth of
Massachusetts, hereby constitutes and appoints David G. Lee, Todd B. Cipperman
and Kevin P. Robins, and each of them singly, his true and lawful
attorney-in-fact and agent with full power of substitution and resubstitution,
to sign for him in his name, place and stead, and in the capacity indicated
below, to sign any or all amendments (including post-effective amendments) to
the Trusts' Registration Statements on Form N-1A under the provisions of the
Investment Company Act of 1940 and 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: 11/17/97
- ----------------------------------- -------------------------
Mark E. Nagle
Controller and Chief Financial Officer
<PAGE>
MARQUIS FUNDS
THE ARBOR FUND
THE ADVISORS' INNER CIRCLE FUND
EXPEDITION FUNDS
OAK ASSOCIATES FUNDS
POWER OF ATTORNEY
KNOWN ALL PERSONS BY THESE PRESENTS, that the undersigned trustee of the
Marquis Funds, The Arbor Fund, The Advisors' Inner Circle Fund, Expedition Funds
and Oak Associates Funds (the "Trusts"), business trusts organized under the
laws of The Commonwealth of Massachusetts, hereby constitutes and appoints David
G. Lee, Todd B. Cipperman and Kevin P. Robins, and each of them singly, his true
and lawful attorney-in-fact and agent with full power of substitution and
resubstitution, to sign for him in his name, place and stead, and in the
capacity indicated below, to sign any or all amendments (including
post-effective amendments) to the Trusts' Registration Statements on Form N-1A
under the provisions of the Investment Company Act of 1940 and 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: November 10, 1997
- ----------------------------------- -------------------------
John T. Cooney
Trustee
<PAGE>
MARQUIS FUNDS
THE ARBOR FUND
THE ADVISORS' INNER CIRCLE FUND
EXPEDITION FUNDS
OAK ASSOCIATES FUNDS
POWER OF ATTORNEY
KNOWN ALL PERSONS BY THESE PRESENTS, that the undersigned trustee of the
Marquis Funds, The Arbor Fund, The Advisors' Inner Circle Fund, Expedition Funds
and Oak Associates Funds (the "Trusts"), business trusts organized under the
laws of The Commonwealth of Massachusetts, hereby constitutes and appoints David
G. Lee, Todd B. Cipperman and Kevin P. Robins, and each of them singly, his true
and lawful attorney-in-fact and agent with full power of substitution and
resubstitution, to sign for him in his name, place and stead, and in the
capacity indicated below, to sign any or all amendments (including
post-effective amendments) to the Trusts' Registration Statements on Form N-1A
under the provisions of the Investment Company Act of 1940 and 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: Nov 10 1997
- ----------------------------------- -------------------------
William M. Doran
Trustee
<PAGE>
MARQUIS FUNDS
THE ARBOR FUND
THE ADVISORS' INNER CIRCLE FUND
EXPEDITION FUNDS
OAK ASSOCIATES FUNDS
POWER OF ATTORNEY
KNOWN ALL PERSONS BY THESE PRESENTS, that the undersigned trustee of the
Marquis Funds, The Arbor Fund, The Advisors' Inner Circle Fund, Expedition Funds
and Oak Associates Funds (the "Trusts"), business trusts organized under the
laws of The Commonwealth of Massachusetts, hereby constitutes and appoints David
G. Lee, Todd B. Cipperman and Kevin P. Robins, and each of them singly, his true
and lawful attorney-in-fact and agent with full power of substitution and
resubstitution, to sign for him in his name, place and stead, and in the
capacity indicated below, to sign any or all amendments (including
post-effective amendments) to the Trusts' Registration Statements on Form N-1A
under the provisions of the Investment Company Act of 1940 and 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: November 10, 1997
- ----------------------------------- -------------------------
Frank E. Morris
Trustee
<PAGE>
MARQUIS FUNDS
THE ARBOR FUND
THE ADVISORS' INNER CIRCLE FUND
EXPEDITION FUNDS
OAK ASSOCIATES FUNDS
POWER OF ATTORNEY
KNOWN ALL PERSONS BY THESE PRESENTS, that the undersigned trustee of the
Marquis Funds, The Arbor Fund, The Advisors' Inner Circle Fund, Expedition Funds
and Oak Associates Funds (the "Trusts"), business trusts organized under the
laws of The Commonwealth of Massachusetts, hereby constitutes and appoints David
G. Lee, Todd B. Cipperman and Kevin P. Robins, and each of them singly, his true
and lawful attorney-in-fact and agent with full power of substitution and
resubstitution, to sign for him in his name, place and stead, and in the
capacity indicated below, to sign any or all amendments (including
post-effective amendments) to the Trusts' Registration Statements on Form N-1A
under the provisions of the Investment Company Act of 1940 and 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: 11-10-97
- ----------------------------------- -------------------------
Robert A. Nesher
Trustee
<PAGE>
MARQUIS FUNDS
THE ARBOR FUND
THE ADVISORS' INNER CIRCLE FUND
EXPEDITION FUNDS
OAK ASSOCIATES FUNDS
POWER OF ATTORNEY
KNOWN ALL PERSONS BY THESE PRESENTS, that the undersigned trustee of the
Marquis Funds, The Arbor Fund, The Advisors' Inner Circle Fund, Expedition Funds
and Oak Associates Funds (the "Trusts"), business trusts organized under the
laws of The Commonwealth of Massachusetts, hereby constitutes and appoints David
G. Lee, Todd B. Cipperman and Kevin P. Robins, and each of them singly, his true
and lawful attorney-in-fact and agent with full power of substitution and
resubstitution, to sign for him in his name, place and stead, and in the
capacity indicated below, to sign any or all amendments (including
post-effective amendments) to the Trusts' Registration Statements on Form N-1A
under the provisions of the Investment Company Act of 1940 and 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: Nov 10, 1997
- ----------------------------------- -------------------------
Eugene B. Peters
Trustee
<PAGE>
MARQUIS FUNDS
THE ARBOR FUND
THE ADVISORS' INNER CIRCLE FUND
EXPEDITION FUNDS
OAK ASSOCIATES FUNDS
POWER OF ATTORNEY
KNOWN ALL PERSONS BY THESE PRESENTS, that the undersigned trustee of the
Marquis Funds, The Arbor Fund, The Advisors' Inner Circle Fund, Expedition Funds
and Oak Associates Funds (the "Trusts"), business trusts organized under the
laws of The Commonwealth of Massachusetts, hereby constitutes and appoints David
G. Lee, Todd B. Cipperman and Kevin P. Robins, and each of them singly, his true
and lawful attorney-in-fact and agent with full power of substitution and
resubstitution, to sign for him in his name, place and stead, and in the
capacity indicated below, to sign any or all amendments (including
post-effective amendments) to the Trusts' Registration Statements on Form N-1A
under the provisions of the Investment Company Act of 1940 and 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: 11-10-97
- ----------------------------------- -------------------------
Robert A. Patterson
Trustee
<PAGE>
MARQUIS FUNDS
THE ARBOR FUND
THE ADVISORS' INNER CIRCLE FUND
EXPEDITION FUNDS
OAK ASSOCIATES FUNDS
POWER OF ATTORNEY
KNOWN ALL PERSONS BY THESE PRESENTS, that the undersigned trustee of the
Marquis Funds, The Arbor Fund, The Advisors' Inner Circle Fund, Expedition Funds
and Oak Associates Funds (the "Trusts"), business trusts organized under the
laws of The Commonwealth of Massachusetts, hereby constitutes and appoints David
G. Lee, Todd B. Cipperman and Kevin P. Robins, and each of them singly, his true
and lawful attorney-in-fact and agent with full power of substitution and
resubstitution, to sign for him in his name, place and stead, and in the
capacity indicated below, to sign any or all amendments (including
post-effective amendments) to the Trusts' Registration Statements on Form N-1A
under the provisions of the Investment Company Act of 1940 and 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: November 10, 1997
- ----------------------------------- -------------------------
James M. Storey
Trustee
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