<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 13, 2000
File No. 33-42484
File No. 811-06400
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933
POST-EFFECTIVE AMENDMENT NO. 41 /X/
AND
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940
AMENDMENT NO. 42 /X/
THE ADVISORS' INNER CIRCLE FUND
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
101 FEDERAL STREET
BOSTON, MASSACHUSETTS 02110
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES, ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (800) 932-7781
JAMES R. FOGGO
C/O SEI CORPORATION
OAKS, PENNSYLVANIA 19456
(NAME AND ADDRESS OF AGENT FOR SERVICE)
Copies to:
THOMAS P. LEMKE, ESQUIRE
MORGAN, LEWIS & BOCKIUS LLP
1800 M STREET N.W.
WASHINGTON, D.C. 20036
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It is proposed that this filing become effective (check appropriate box)
/ / immediately upon filing pursuant to paragraph (b)
/ / on [date] pursuant to paragraph (b)
/ / 60 days after filing pursuant to paragraph (a)
/X/ 75 days after filing pursuant to paragraph (a)
/ / on [date] pursuant to paragraph (a) of Rule 485.
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The Advisors' Inner Circle Fund
The Sterling Partners' Portfolios
Prospectus February 28, 2001
Sterling Partners Small Cap Value Portfolio
Sterling Partners Balanced Portfolio
The Securities and Exchange Commission (SEC) has not approved or
disapproved these securities or passed upon the adequacy or accuracy of this
prospectus. Any representation to the contrary is a criminal offense.
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TABLE OF CONTENTS
PORTFOLIO SUMMARY.................................................1
WHAT ARE THE INVESTMENT OBJECTIVES OF THE PORTFOLIOS?...........1
WHAT ARE THE PRINCIPAL INVESTMENT STRATEGIES OF THE PORTFOLIOS?.1
WHAT ARE THE PRINCIPAL RISKS OF THE PORTFOLIOS?.................2
HOW HAVE THE PORTFOLIOS PERFORMED?..............................2
WHAT ARE THE FEES AND EXPENSES OF THE PORTFOLIOS?...............5
INVESTING WITH THE STERLING PARTNERS' PORTFOLIOS..................7
BUYING SHARES...................................................7
REDEEMING SHARES................................................8
EXCHANGING SHARES...............................................8
TRANSACTION POLICIES............................................9
ACCOUNT POLICIES.................................................12
SMALL ACCOUNTS.................................................12
DISTRIBUTIONS..................................................12
FEDERAL TAXES..................................................12
PORTFOLIO DETAILS................................................14
PRINCIPAL INVESTMENTS AND RISKS OF THE PORTFOLIOS..............14
OTHER INVESTMENT PRACTICES AND STRATEGIES......................17
INVESTMENT MANAGEMENT..........................................18
SHAREHOLDER SERVICING ARRANGEMENTS.............................19
FINANCIAL HIGHLIGHTS.............................................20
SMALL CAP VALUE PORTFOLIO......................................20
BALANCED PORTFOLIO.............................................21
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PORTFOLIO SUMMARY
WHAT ARE THE INVESTMENT OBJECTIVES OF THE PORTFOLIOS?
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Listed below are the investment objectives of the portfolios. The portfolios
cannot guarantee they will meet their investment objectives. A portfolio may
not change its investment objective without shareholder approval.
Small Cap Value Portfolio
The Small Cap Value Portfolio seeks to provide maximum long-term total
return consistent with reasonable risk to principal, by investing primarily
in equity securities of smaller companies, in terms of market
capitalization.
Balanced Portfolio
The Balanced Portfolio seeks to provide maximum long-term return consistent
with reasonable risk to principal, by investing in a balanced portfolio of
common stocks and fixed-income securities.
WHAT ARE THE PRINCIPAL INVESTMENT STRATEGIES OF THE PORTFOLIOS?
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This section summarizes the principal investment strategies of the
portfolios. For more information see "PRINCIPAL INVESTMENTS AND RISKS OF THE
PORTFOLIOS."
Small Cap Value Portfolio
The Small Cap Value Portfolio normally seeks to achieve its objective by
investing primarily in common stocks of companies with market
capitalizations of $1 billion or less.
The Adviser selects individual equity securities for the portfolio using an
approach that is designed to identify equities priced at a discount from the
estimated value of their underlying businesses. The Adviser intends to fully
invest the portfolio and normally expects that cash reserves will represent
a relatively small portion of the portfolio's assets (generally 10% or
less).
Balanced Portfolio
The Balanced Portfolio typically seeks to achieve its objective by investing
approximately 60% of its assets in equity securities and 40% in debt
securities and cash. While the portfolio may invest in companies of any
size, it expects to invest the majority of its equity assets in companies
with market capitalizations over $500 million. The Adviser selects equity
securities for the portfolio using the same approach that it uses for the
Small Cap Value Portfolio. The debt portion of the portfolio will primarily
consist of investment-grade debt securities. The Adviser selects debt
securities for the portfolio using a three-step approach that emphasizes
quality and capital appreciation.
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WHAT ARE THE PRINCIPAL RISKS OF THE PORTFOLIOS?
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This section summarizes the principal risks associated with investing in the
portfolios. For more information see "PRINCIPAL INVESTMENTS AND RISKS OF THE
PORTFOLIOS."
Risks Common to the Portfolios
As with all mutual funds, at any time, your investment in a portfolio may be
worth more or less than the price that you originally paid for it. You may
lose money by investing in a portfolio because:
. The portfolio's investment strategy did not produce the intended results
or because it did not implement its strategy properly.
. Unforeseen occurrences in the securities markets negatively affect the
portfolio.
Small Cap Value Portfolio and Balanced Portfolio
As with all equity funds, the risks that could affect the value of the
portfolios' shares and the total return on your investment include the
possibility that the equity securities held by a portfolio will experience
sudden, unpredictable drops in value or long periods of decline in value.
This may occur because of factors affecting the securities markets
generally, an entire industry or sector or a particular company. This risk
is greater for small and medium sized companies, which tend to be more
vulnerable to adverse developments than larger companies.
Value oriented mutual funds may not perform as well as certain other types
of equity mutual funds during periods when value stocks are out of favor.
Balanced Portfolio
As with most funds that invest in debt securities, changes in interest rates
are one of the most important factors that could affect the value of your
investment. Rising interest rates tend to cause the prices of debt
securities (especially those with longer maturities), and a portfolio's
share price, to fall. Rising interest rates may also cause investors to pay
off mortgage-backed and asset-backed securities later than anticipated,
forcing the portfolio to keep its money invested at lower rates. Falling
interest rates, however, generally cause investors to pay off mortgage-
backed and asset-backed securities earlier than expected, forcing a
portfolio to reinvest the money at a lower interest rate.
The credit rating or financial condition of an issuer may affect the value
of a debt security. Generally, the lower the quality rating of a security,
the greater the risk that the issuer will fail to pay interest fully and
return principal in a timely manner. If an issuer defaults or becomes unable
to honor its financial obligations, the security may lose some or all of its
value.
HOW HAVE THE PORTFOLIOS PERFORMED?
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The following information illustrates how the portfolios' performance has
varied from year to year. The bar chart shows a portfolio's performance
during each calendar year for the period shown in the chart. The average
annual return table compares a portfolio's average annual returns to those
of a broad-based securities market index. Returns are based on past results
and are not an indication of future performance.
The portfolios are successors to the UAM Funds Inc. Sterling Partners'
Portfolios (predecessor funds), separate mutual funds managed by the Adviser
prior to their reorganization into the portfolios on _____, 2001. The
predecessor funds were managed by the same employees of the Adviser who
currently manages the portfolios, had identical investment objectives and
strategies, and charged the same fees and expenses.
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Small Cap Value Portfolio
Calendar Year Return:
[GRAPH APPEARS HERE]
1998 -2.86%
1999 6.50%
2000 x.xx%
Return Quarter Ended
------------------------------------------------------------------
Highest Quarter XX.XX% [xx/xx/xx]
------------------------------------------------------------------
Lowest Quarter XX.XX% [xx/xx/xx]
Average Annual Returns For Periods Ended December 31, 2000
1 Year Since 1/2/97*
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Small Cap Value Portfolio XX.XX% XX.XX%
------------------------------------------------------------------
Russell 2000 Index XX.XX% XX.XX%
* Beginning of operations. Index comparisons begin on 12/31/96.
Balanced Portfolio
Calendar Year Return
[GRAPH APPEARS HERE]
1992 8.70%
1993 9.95%
1994 -1.93%
1995 20.67%
1996 18.27%
1997 18.34%
1998 7.73%
1999 -0.37%
2000 x.xx%
Return Quarter Ended
------------------------------------------------------------------
Highest Quarter XX.XX% [xx/xx/xx]
------------------------------------------------------------------
Lowest Quarter XX.XX% [xx/xx/xx]
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Average Annual Returns For Periods Ended December 31, 2000
Since
1 Year 5 Years 3/15/91*
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Balanced Portfolio XX.XX% XX.XX% XX.XX%
---------------------------------------------------------------------------
S&P 500 Index XX.XX% XX.XX% XX.XX%
---------------------------------------------------------------------------
Lehman Brothers U.S. Government/Credit Index XX.XX% XX.XX% XX.XX%
---------------------------------------------------------------------------
Balanced Index (60% S&P 500 Index and 40%
Lehman Brothers U.S. Government/Credit Index) XX.XX% XX.XX% XX.XX%
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* Beginning of operations. Index comparisons begin on 2/28/91.
WHAT ARE THE FEES AND EXPENSES OF THE PORTFOLIOS?
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Shareholder Transaction Fees (fees paid directly from your investment)
The portfolios are no-load investments, which means there are no fees or
charges to buy or sell their shares, to reinvest dividends or to exchange
between the portfolios.
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Annual Portfolio Operating Expenses (expenses that are deducted from portfolio
assets)
The portfolios have annual operating expenses and as a shareholder you
pay them indirectly. This table describes the fees and expenses that you may
pay if you buy and hold shares of a portfolio.
Small Cap
Value Portfolio Balanced Portfolio
----------------------------------------------------------
Management Fee 1.00% 0.75%
----------------------------------------------------------
Other Expenses [0.50%] [0.45%]
----------------------------------------------------------
Total Annual [1.50%*] [1.20%]
Fund Operating
Expenses
* "Other Expenses"are based on the most recent fiscal year for the
predecessor funds. "Other Expenses" presented in the table above may be
higher than the expenses you would actually pay as a shareholder in a
portfolio. This is due to the fact that the Adviser has voluntarily
agreed to limit the expenses of the portfolios to the extent necessary to
keep their total expenses (excluding interest, taxes, brokerage
commissions and extraordinary expenses) from exceeding the amount
presented in the table below, expressed as a percentage of the
portfolio's average daily net assets. This expense limitation remains in
place for the portfolios, however the Adviser may change or cancel its
expense limitation at any time. ["Other Expenses" do not take into
account any expense offset arrangement the Fund may have that would
reduce its custodian fee based on the amount of cash the portfolio
maintains with its custodian. This would also have the effect of reducing
the portfolio's expenses.] In addition, the portfolios may enter into
arrangements with certain broker-dealers who have agreed to pay certain
portfolio expenses in return for the direction of a percentage of the
portfolios' brokerage transaction. The portfolios anticipate that these
arrangements will reduce operating expenses.
Small Cap Value Balanced
Portfolio Portfolio
---------------------------------------------------
Expenses 1.25% 1.11%
Example
This example can help you to compare the cost of investing in these
portfolios to the cost of investing in other mutual funds. The example
assumes you invest $10,000 in each portfolio for the periods shown and then
redeem all of your shares at the end of those periods. The example also
assumes that you earned a 5% return on your investment each year, that you
reinvested all of your dividends and distributions and that you paid the
total expenses stated above (which do not reflect any expense limitations)
throughout the period of your investment. Although your actual costs may be
higher or lower, based on these assumptions your costs would be:
1 Year 3 Years 5 Years 10 Years
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Small Cap Value Portfolio $153 $474 $818 $1,791
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Balanced Portfolio $122 $381 $660 $1,455
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INVESTING WITH THE STERLING PARTNERS' PORTFOLIOS
BUYING SHARES
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To open an account To buy more shares
-----------------------------------------------------------------
By Mail Send a check or money Send a check and, if
order and your account possible, the "Invest
application to the by Mail" stub that
portfolios. Make accompanied your
checks payable to statement to the
"Sterling Partners' portfolios. Be sure
Small Cap Value your check identifies
Portfolio" or clearly your name,
"Sterling Partners' account number and the
Balanced Portfolio" portfolio into which
(the portfolios will you want to invest.
not accept third-party
checks).
-----------------------------------------------------------------
By Wire Call [ # ] for an Call [ # ] to get a
account number and wire wire control number and
control number. Send wire your money to the
your completed account portfolios as follows:
application to Sterling
Partners' Portfolios.
Wire your money to the
portfolios as follows:
Wiring Instructions
[ First Union ]
ABA [#5]
The Advisors' Inner Circle Fund
[DDA Acct. #]
Ref: portfolio name/account number/
account name/wire control number
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By Automatic You may not open an To set up a plan, mail
Investment account via ACH. a completed application
Plan (Via ACH) to the portfolios.
To cancel or change a
plan, write to the
portfolios. Allow up to
15 days to create the
plan and 3 days to
cancel or change it.
-----------------------------------------------------------------
Minimum $2,500 -- regular $100
Investments account
$500 -- IRAs
$250 -- spousal IRAs
Sterling Partners' Portfolios
PO Box 219009
Kansas City, MO 64121-9009
(Toll free) [_]
[web site]
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REDEEMING SHARES
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By Mail Send a letter signed by all registered parties on the
account to the portfolio specifying:
. The name of the portfolio;
. The account number; and
. The dollar amount or number of shares you wish
to redeem.
Certain shareholders may need to include
additional documents to redeem shares. Please see
the Statement of Additional Information (SAI) if
you need more information.
----------------------------------------------------------------
By Telephone You must first establish the telephone
redemption privilege (and, if desired, the wire
redemption privilege) by completing the
appropriate sections of the account application.
Call [ ] to redeem your shares. Based on your
instructions, the portfolios will mail your
proceeds to you or wire them to your bank.
----------------------------------------------------------------
Online You can redeem shares on the Internet at [ ].
For login information, including your personal
identification number (PIN), please call [ ].
----------------------------------------------------------------
By If your account balance is at least $10,000, you
Systematic may transfer as little as $100 per month from
Withdrawal your portfolios account to your financial
Plan (Via institution.
ACH)
To participate in this service, you must complete
the appropriate sections of the account
application and mail it to the portfolios.
EXCHANGING SHARES
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At no charge, you may exchange shares of the Small Cap Value Portfolio for
shares of the Balanced Portfolio by writing to or calling the Sterling
Partners' Portfolios. You can also exchange shares between the portfolios on
the Internet [ ]. For login information, including your personal
identification number (PIN), please call [ ]. You may only exchange shares
between accounts with identical registrations (i.e., the same names and
addresses).
7
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TRANSACTION POLICIES
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Calculating Your Share Price
You may buy, sell or exchange shares of a portfolio at a price equal to its
net asset value per share (NAV) next computed after it receives and accepts
your order. NAVs are calculated as of the close of trading on the New York
Stock Exchange (NYSE) (generally 4:00 p.m. Eastern Time) on each day the
NYSE is open. Therefore, to receive the NAV on any given day, the portfolios
must accept your order before the close of trading on the NYSE that day.
Otherwise, you will receive the NAV that is calculated at the close of
trading on the following business day. The portfolios are open for business
on the same days as the NYSE which is closed on weekends and certain
holidays.
Securities that are traded on foreign exchanges may trade on days when the
NYSE is closed. Consequently, the value of a portfolio may change on days
when you are unable to purchase or redeem shares.
The portfolios calculate their NAVs by adding the total value of their
assets, subtracting their liabilities and then dividing the result by the
number of shares outstanding. The portfolios use market prices to value
their investments. Investments that do not have readily available market
prices are valued at fair value, according to guidelines established by the
portfolios. The portfolios may also value securities at fair value when
events occur that make established valuation methods (such as stock exchange
closing prices) unreliable in their judgment. The portfolios value debt
securities that are purchased with remaining maturities of 60 days or less
at amortized cost, which approximates market value. The portfolios may use a
pricing service to value some of their assets, such as debt securities or
foreign securities.
Buying or Selling Shares through a Financial Intermediary
You may buy or sell shares of the portfolios through a financial
intermediary (such as a financial planner or adviser). Generally, to buy or
sell shares at the NAV of any given day your financial intermediary must
receive your order before the close of trading on the NYSE that day. Your
financial intermediary is responsible for transmitting all purchase and
redemption requests, investment information, documentation and money to the
portfolios on time. Your financial intermediary may charge additional
transaction fees for its services.
Certain financial intermediaries have agreements with the portfolios that
allow them to enter confirmed purchase or redemption orders on behalf of
clients and customers. Under this arrangement, the financial intermediary
must send your payment to the portfolios by the time they price their shares
on the following business day. If your financial intermediary fails to do
so, it may be responsible for any resulting fees or losses.
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In-Kind Transactions
At the portfolios' discretion, you may pay for shares with securities
instead of cash. In addition, the portfolios may pay all (up to $250,000)or
part of your redemption proceeds with securities instead of cash.
Payment of Redemption Proceeds
The portfolios will pay redemption proceeds within seven days after they
receive a redemption request in proper form. To be in proper form, a
written redemption request must include the following information:
. The name of the Sterling Partners' Portfolio;
. The account number;
. The account name(s);
. The address;
. The dollar amount or number of shares you wish to redeem; and
. The signatures of all registered share owner(s) in the exact name(s)
and any special capacity in which they are registered.
The portfolios may require that signatures be guaranteed by a bank or
member firm of a national securities exchange. Signature guarantees are for
the protection of shareholders. Before they grant a redemption request, the
portfolios may require a shareholder to furnish additional legal documents
to insure proper authorization.
If you redeem shares that were purchased by check, you will not receive
your redemption proceeds until the check has cleared, which may take up to
15 days from the purchase date. You may avoid these delays by paying for
shares with a certified check, bank check or money order.
Telephone Transactions
The portfolios will employ reasonable procedures to confirm that
instructions communicated by telephone are genuine. The portfolios will not
be responsible for any loss, liability, cost or expense for following
instructions received by telephone that it reasonably believes to be
genuine.
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Rights Reserved by the Sterling Partners' Portfolios
Purchases
At any time and without notice, the portfolios may:
. Stop offering shares;
. Reject any purchase order; or
. Bar an investor engaged in a pattern of excessive trading from buying
shares. (Excessive trading can hurt performance by disrupting
management and by increasing expenses.)
Redemptions
At any time, the portfolios may change or eliminate any of the redemption
methods described above, except redemption by mail. The portfolios may
suspend your right to redeem if:
. Trading on the NYSE is restricted or halted; or
. The Securities and Exchange Commission allows the portfolios to delay
redemptions.
Exchanges
The portfolios may:
. Modify or cancel the exchange program at any time on sixty (60) days'
written notice to shareholders;
. Reject any request for an exchange; or
. Limit or cancel a shareholder's exchange privilege, especially when an
investor is engaged in a pattern of excessive trading.
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ACCOUNT POLICIES
SMALL ACCOUNTS
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The portfolios may redeem your shares without your permission if the value
of your account falls below 50% of the required minimum initial investment.
This provision does not apply:
. To retirement accounts and certain other accounts.
. When the value of your account falls below the required minimum
because of market fluctuations.
The portfolios will notify you before liquidating your account and allow you
sixty (60) days to increase the value of your account.
DISTRIBUTIONS
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Normally, the portfolios distribute any net investment income quarterly.
In addition, the portfolios distribute any net capital gains at least once a
year. The portfolios will automatically reinvest dividends and distributions
in additional shares of the portfolios, unless you elect on your account
application to receive them in cash.
FEDERAL TAXES
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The following is a summary of the federal income tax consequences of
investing in the portfolios. You may also have to pay state and local taxes
on your investment. You should always consult your tax advisor for specific
guidance regarding the tax effect of your investment in the portfolios.
Taxes on Distributions
The distributions of the portfolios will generally be taxable to
shareholders as ordinary income or capital gains. You will be subject to
income tax on these distributions regardless of whether they are paid in
cash or reinvested in additional shares. Once a year the portfolios will
send you a statement showing the types and total amount of distributions you
received during the previous year.
You should note that if you purchase shares just before a distribution, the
purchase price would reflect the amount of the upcoming distribution. In
this case, you would be taxed on the entire amount of the distribution
received, even though, as an economic matter, the distribution simply
constitutes a return of your investment. This is known as "buying into a
dividend" and should be avoided by taxable investors. Call [phone #] to find
out when the portfolios expect to make a distribution to shareholders.
11
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Taxes on Exchanges and Redemptions
When you exchange or redeem shares in either portfolio, you may generally
recognize a capital gain or loss for federal tax purposes. This gain or loss
will be based on the difference between the cost of your shares (tax basis)
and the amount you receive for them. To aid in computing your tax basis, you
should keep your account statements for the periods during which you held
shares. You may also be subject to state and local taxes on an exchange or
redemption.
The one major exception to these tax principles is that distributions on,
and sales, exchanges and redemptions of, shares held in an IRA (or other
tax-qualified plan) will generally not be currently taxable, but they may be
taxable in the future. You should consult your tax advisor regarding the
rules governing your IRA or other tax-qualified plan.
Backup Withholding
By law, the portfolios must withhold 31% of your distributions and proceeds
if you have not provided complete, correct taxpayer information.
12
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PORTFOLIO DETAILS
PRINCIPAL INVESTMENTS AND RISKS OF THE PORTFOLIOS
--------------------------------------------------------------------------------
This section briefly describes the principal investment strategies the
portfolios may employ in seeking their objectives. For more information
concerning these investment practices and their associated risks, please
read the "PORTFOLIO SUMMARY" and the SAI. You can find information on each
portfolio's recent strategies and holdings in the annual/semi-annual report
of the portfolios. As long as it is consistent with their objectives and
other policies described in the SAI, each portfolio may change these
strategies without shareholder approval.
In What Types of Securities do the Portfolios Invest?
Small Cap Value Portfolio
The Small Cap Value Portfolio normally seeks to achieve its objective by
investing primarily in common stocks of companies with market
capitalizations of $1 billion or less. The Adviser intends to fully invest
the portfolio and normally expects that cash reserves will represent a
relatively small percentage of the portfolio's assets (generally 10% or
less). While the portfolio invests mainly in common stocks, it may also
invest in other types of equity securities.
Balanced Portfolio
The Balanced Portfolio typically seeks to achieve its objective by investing
approximately 60% of its assets in equity securities and 40% in debt
securities and cash. The debt portion of the portfolio will primarily
consist of investment-grade debt securities. The portfolio will invest at
least 25% of its total assets in senior debt securities, including
preferred stocks.
While the portfolio may invest in equity securities of companies of any
size, the majority of the stocks it owns will have a market capitalization
over $500 million. The Adviser selects individual equity securities for the
portfolio using the approach described below, which is designed to identify
equities priced at a discount from the estimated value of their underlying
businesses.
How Does the Adviser Select Securities for the Portfolios?
Equity Securities
The Adviser's stock selection process focuses on identifying securities that
are priced below the estimated value of the underlying business. The Adviser
approaches each investment as a businessman would approach a private
transaction, which means that it examines all factors relevant to the worth
of an ongoing business using traditional fundamental securities analysis.
Such factors include balance sheet quality, sustainable earnings power,
industry stability, capital intensity, reinvestment opportunities, and
management talent. This "businessman's approach" is designed to produce a
high quality portfolio.
13
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The Adviser's sell discipline is as important as its buy discipline. For
every stock it buys, the Adviser defines in writing the reasons for owning
it based on the fundamental factors noted above. The Adviser reviews any
stock that underperforms its sector against a pre-written outline and sells
those that fail to demonstrate fundamental progress in keeping with the
original reasons for buying it.
For the Balanced Portfolio, another important aspect of the Adviser's
approach is an emphasis on diversification across a wide range of
industries. The Adviser divides the S&P 500 into industry groupings, and
uses the groupings as a comparison yardstick for the portfolio. The Adviser
seeks a healthy representation within each sector because it believes this
may allow it to control volatility within an acceptable range.
Debt Securities
The Adviser believes debt securities present the best source of income for
the portfolio. The Adviser also views debt securities as opportunities for
capital appreciation, sources of liquidity and a means to reduce overall
portfolio volatility. The management of the debt segment of the portfolio
consists of three important steps. First, the Adviser uses proprietary
analytical tools to manage the interest rate risk of the portfolio. After
arriving at an appropriate average maturity for the portfolio, the Adviser
uses a "top down" approach to select the most attractively valued sectors
for the debt securities. Finally, it analyzes the spectrum of the yield
curve to identify the most desirable maturities at which to invest the
portfolio. The Adviser's debt strategy emphasizes quality and capital
preservation.
What are the Characteristics and Risks of the Securities in which the Portfolios
Invest?
Debt Securities
A debt security is an interest bearing security that corporations and
governments use to borrow money from investors. The issuer of a debt
security promises to pay interest at a stated rate, which may be variable or
fixed, and to repay the amount borrowed at maturity (dates when debt
securities are due and payable). The portfolio may invest in a variety of
types of debt securities, including those issued by corporations and the
U.S. government and its agencies, mortgage-backed and asset-backed
securities (securities that are backed by pools of loans or mortgages
assembled for sale to investors), municipal notes and bonds, commercial
paper and certificates of deposit.
The concept of duration is useful in assessing the sensitivity of a
fixed-income fund to interest rate movements, which are the main source of
risk for most fixed-income funds. Duration measures price volatility by
estimating the change in price of a debt security for a 1% change in its
yield. For example, a duration of five years means the price of a debt
security will change about 5% for every 1% change in its yield. Thus, the
higher the duration, the more volatile the security.
The price of a debt security generally moves in the opposite direction from
interest rates (i.e., if interest rates go up, the price of the bond will go
down, and vice versa). Some types of debt securities are more affected by
changes in interest rates than others. For example, changes in rates may
cause people to pay off or refinance the loans underlying mortgage-backed
and asset-backed securities earlier or later than expected, which would
shorten or lengthen the maturity of the security. This behavior can
negatively affect the performance of a portfolio by shortening or
lengthening its average maturity and, thus, changing its
14
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effective duration. The unexpected timing of mortgage-backed and asset-
backed prepayments caused by changes in interest rates may also cause the
portfolio to reinvest its assets at lower rates, reducing the yield of the
portfolio.
The credit rating or financial condition of an issuer may affect the value
of a debt security. Generally, the lower the quality rating of a security,
the greater the risk that the issuer will fail to pay interest fully and
return principal in a timely manner. If an issuer defaults or becomes unable
to honor its financial obligations, the security may lose some or all of its
value.
A security rated within the four highest rating categories by a rating
agency is called investment-grade because its issuer is more likely to pay
interest and repay principal than an issuer of a lower rated bond. Adverse
economic conditions or changing circumstances, however, may weaken the
capacity of the issuer to pay interest and repay principal. If a security is
not rated or is rated under a different system, the Adviser may determine
that it is of investment-grade. The Adviser may retain securities that are
downgraded, if it believes that keeping those securities is warranted.
Equity Securities
Equity securities represent an ownership interest, or the right to acquire
an ownership interest, in an issuer. Different types of equity securities
provide different voting and dividend rights and priority in case of the
bankruptcy of the issuer. Equity securities include common stocks, preferred
stocks, convertible securities, rights and warrants.
Equity securities may lose value because of factors affecting the securities
markets generally, such as adverse changes in economic conditions, the
general outlook for corporate earnings, interest rates or investor
sentiment. These circumstances may lead to long periods of poor performance,
such as during a "bear market." Equity securities may also lose value
because of factors affecting an entire industry or sector, such as increases
in production costs, or factors directly related to a specific company, such
as decisions made by its management.
Investing in stocks of smaller companies can be riskier than investing in
larger, more mature companies. Smaller companies may be more vulnerable to
adverse developments than larger companies because they tend to have
narrower product lines and more limited financial resources. Their stocks
may trade less frequently and in limited volume.
Undervalued companies may have experienced adverse business developments or
other events that have caused their stocks to be out of favor. If the
Adviser's assessment of a company is wrong, or if the market does not
recognize the value of the company, the price of its stock may fail to meet
expectations and the portfolio's share price may suffer. A value-oriented
portfolio may not perform as well as certain other types of mutual funds
during periods when value stocks are out of favor.
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OTHER INVESTMENT PRACTICES AND STRATEGIES
--------------------------------------------------------------------------------
In addition to their principal investment strategies, the portfolios may use
the investment strategies described below. They may also employ investment
practices that this prospectus does not describe, such as repurchase
agreements, when-issued and forward commitment transactions, lending of
securities, borrowing and other techniques. For information concerning these
and other investment practices and their risks, you should read the SAI.
American Depositary Receipts (ADRs)
Each portfolio may each invest up to 20% of its total assets in ADRs. ADRs
are certificates evidencing ownership of shares of a foreign issuer that are
issued by depository banks and generally trade on an established market in
the United States or elsewhere. Although they are alternatives to directly
purchasing the underlying foreign securities in their national markets and
currencies, ADRs continue to be subject to many of the risks associated with
investing directly in foreign securities.
Foreign securities, especially those of companies in emerging markets, can
be riskier and more volatile than domestic securities. Adverse political and
economic developments or changes in the value of foreign currency can make
it harder for a portfolio to sell its securities and could reduce the value
of your shares. Changes in tax and accounting standards and difficulties
obtaining information about foreign companies can negatively affect
investment decisions.
Derivatives
Generally, a derivative is a financial transaction whose value is based on
the value of an underlying asset, interest rate, exchange rate, stock index
or other measures. Each portfolio may invest in futures and options to
protect against a change in the price of an investment a portfolio owns or
anticipates buying in the future (a practice known as hedging). A portfolio
also may use futures and options to remain fully invested and to reduce
transaction costs.
Futures contracts are contracts that obligate the buyer to receive and the
seller to deliver a security or money on a specified date. Options grant the
right, but not the obligation, to buy or sell a specified amount of a
security or other assets on or before a specified date at a predetermined
price.
Derivatives are often more volatile than other investments and may magnify a
portfolio's gains or losses. A portfolio may lose money if the Adviser:
. Fails to predict correctly the direction in which the underlying asset
or economic factor will move.
. Judges market conditions incorrectly.
. Employs a strategy that does not correlate well with the investments
of the portfolio.
Short-Term Investing
At times, the Adviser may decide to invest up to 100% of a portfolio's
assets in a variety of high-quality, short-term debt securities, such as
U.S. government securities. The Adviser
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may invest in these types of securities for temporary defensive purposes, to
earn a return on uninvested assets or to meet redemptions. The Adviser may
temporarily adopt a defensive position to reduce changes in the value of the
shares of a portfolio that may result from adverse market, economic,
political or other developments.
When the Adviser pursues a temporary defensive strategy, a portfolio may not
profit from favorable developments that it would have otherwise profited
from if it were pursuing its normal strategies. Likewise, these strategies
may prevent a portfolio from achieving its stated objectives.
INVESTMENT MANAGEMENT
--------------------------------------------------------------------------------
Investment Adviser
Sterling Capital Management LLC (the "Adviser"), a North Carolina limited
liability company located at One First Union Center, 301 S. College Street,
Suite 3200, Charlotte, North Carolina 28202, is the investment adviser to
each of the portfolios. The Adviser was organized by five key employees of
Sterling Capital Management Company, the investment adviser to the
predecessor funds. The Adviser manages and supervises the investment of each
portfolio's assets on a discretionary basis, subject to oversight by the
portfolios governing board. In addition to managing the predecessor funds,
the Adviser has provided investment management services to corporations,
pension and profit sharing plans, trusts, estates and other institutions and
individuals since 1970.
Set forth in the table below are the management fees the predecessor funds
paid to the Adviser during their most recent fiscal year, expressed as a
percentage of average net assets. The portfolios pay the Adviser an
identical management fee. In addition, the Adviser has voluntarily agreed to
limit the total expenses (excluding interest, taxes, brokerage commissions
and extraordinary expenses) of some or all of the portfolios to the amounts
listed in the table below. To maintain these expense limits, the Adviser may
waive a portion of its management fee and/or reimburse certain expenses of
the portfolios. The Adviser intends to continue its expense limitation until
further notice, but may discontinue it at any time.
Small Cap Value Balanced
Portfolio Portfolio
------------------------------------------------
Management Fee 0.75% 0.66%
------------------------------------------------
Expense Limit 1.25% 1.11%
Portfolio Managers
Teams of investment professionals of the Adviser are primarily responsible
for the day-to-day management of the portfolios.
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SHAREHOLDER SERVICING ARRANGEMENTS
--------------------------------------------------------------------------------
Brokers, dealers, banks, trust companies and other financial representatives
may receive compensation from the portfolios or their service providers for
providing a variety of services. This section briefly describes how the
financial representatives may get paid.
For providing certain services to their clients, financial representatives
may be paid a fee based on the assets of the portfolios that are
attributable to the financial representative. These services may include
record keeping, transaction processing for shareholders' accounts and
certain shareholder services not currently offered to shareholders that deal
directly with the portfolios. In addition, your financial representatives
may charge you other account fees for buying or redeeming shares of the
portfolios or for servicing your account. Your financial representative
should provide you with a schedule of its fees and services.
The portfolios may pay all or part of the fees paid to financial
representatives. Periodically, the board of the portfolios reviews these
arrangements to ensure that the fees paid are appropriate to the services
performed. The portfolios do not pay these service fees on shares purchased
directly. In addition, the Adviser and its affiliates may, at their own
expense, pay financial representatives for these services, and in some
cases, these payments may be significant.
The Adviser and its affiliates may, at their own expense, pay financial
representatives for distribution and marketing services performed with
respect to the portfolios.
The Adviser may pay its affiliated companies for distribution and marketing
services performed with respect to the portfolios.
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<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the
financial performance of the portfolios for the fiscal periods indicated.
Certain information contained in the table reflects the financial results
for a single share. The total returns in the table represent the rate that
an investor would have earned on an investment in the portfolios assuming
all dividends and distributions were reinvested. On [date], the Sterling
Partners' Small Cap Value Portfolio acquired all of the assets of the UAM
Funds Inc.'s Sterling Partners' Small Cap Value Portfolio and the Sterling
Partners' Balanced Portfolio acquired all of the assets of the UAM Fund
Inc.'s Sterling Partners' Balanced Portfolio. The information prior to that
date relates the predecessor funds. [ ], an independent public accountant,
has audited the predecessor information. The financial statements and the
unqualified opinion of [ ] are included in the annual report of the
portfolios, which is available upon request by calling the Fund at [phone
#].
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PORTFOLIO CODES
The reference information below will be helpful to you when you contact the
Sterling Partners' Portfolios to purchase or exchange shares, check daily
NAVs or get additional information.
Trading CUSIP Portfolio
Symbol Number Number
----------------------------------------------------------------------
Small Cap Value Portfolio [ ] [ ] [ ]
----------------------------------------------------------------------
Balanced Portfolio [ ] [ ] [ ]
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The Sterling Partners' Portfolios
For investors who want more information about the portfolios, the following
documents are available upon request.
Annual/Semi-Annual Reports
The annual/semi-annual reports of the portfolios provide additional
information about their investments. In the annual report, you will also
find a discussion of the market conditions and investment strategies that
significantly affected the performance of the portfolios during the last
fiscal year.
Statement of Additional Information
The SAI contains additional detailed information about the portfolios and is
incorporated by reference into (legally part of) this prospectus.
How to Get More Information
Investors can receive free copies of the SAI, shareholder reports and other
information about the Sterling Partners' Portfolios and can make shareholder
inquiries by writing to or calling:
Sterling Partners' Portfolios
PO Box 219009
Kansas City, MO 64121-9009
(Toll free)
www.[website].com
You can review and copy information about the portfolio (including the SAI)
at the Securities and Exchange Commission's Public Reference Room in
Washington, D.C. You can get information on the operation of the Public
Reference Room by calling the Securities and Exchange Commission at
1-202-942-8090. Reports and other information about the portfolio are
available on the EDGAR Database on the Securities and Exchange Commission's
Internet site at http://www.sec.gov. You may obtain copies of this
information, after paying a duplicating fee, by electronic request at the
following E-mail address: [email protected], or by writing the Securities
and Exchange Commission's Public Reference Section, Washington, D.C.
20549-0102.
The portfolios' Investment Company Act of 1940 file number is 811-6400.
<PAGE>
Sterling Partners' Balanced Portfolio
Sterling Partners' Small Cap Value Portfolio
c/o The Advisors' Inner Circle Fund
PO Box [219009]
Kansas City, MO 64141-[9009]
(Toll free)
Statement of Additional Information
[February 28, 2001]
This statement of additional information (SAI) is not a prospectus. However, you
should read it in conjunction with the prospectus of the Portfolios dated
[February 28, 2001], as supplemented from time to time. You may obtain a
prospectus for the Portfolios by contacting The Advisors' Inner Circle Fund at
the address listed above.
Table Of Contents
Glossary .................................................................. 1
Description of Permitted Investments ...................................... 1
What Investment Strategies May the Portfolios Use? ..................... 1
Debt Securities ........................................................ 2
Derivatives ............................................................ 8
Equity Securities ...................................................... 16
Foreign Securities ..................................................... 17
Investment Companies ................................................... 20
Repurchase Agreements .................................................. 21
Restricted Securities .................................................. 21
Securities Lending ..................................................... 21
When Issued Transactions ............................................... 22
Investment Policies of the Portfolios ..................................... 22
Fundamental Policies ................................................... 22
Non-Fundamental Policies ............................................... 24
Management Of The Fund .................................................... 25
Investment Advisory and Other Services .................................... 27
Investment Adviser ..................................................... 27
Distributor ............................................................ 29
Administrator .......................................................... 29
Custodian .............................................................. 30
Transfer Agent ......................................................... 31
Independent Accountants ................................................ 31
Legal Counsel .......................................................... 31
Codes of Ethics ........................................................ 31
Brokerage Allocation and Other Practices .................................. 31
Selection of Brokers ................................................... 31
Simultaneous Transactions .............................................. 31
Brokerage Commissions .................................................. 32
Capital Stock and Other Securities ........................................ 32
Description Of Shares And Voting Rights ................................ 32
Dividend and Distribution Options ...................................... 32
Shareholder Liability .................................................. 33
Limitation of Trustees' Liability ...................................... 33
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Federal Taxes ............................................................. 33
Purchase, Redemption and Pricing of Shares ................................ 35
Calculating NAV ........................................................ 35
Purchase of Shares ..................................................... 35
Redemption of Shares ................................................... 36
Exchange Privilege ..................................................... 38
Transfer Of Shares ..................................................... 38
Performance Calculations .................................................. 38
Total Return ........................................................... 38
Yield .................................................................. 39
Comparisons ............................................................ 39
Financial Statements ...................................................... 40
Bond Ratings .............................................................. 40
Moody's Investors Service, Inc. ........................................ 40
Standard & Poor's Ratings Services ..................................... 43
Fitch IBCA Ratings ..................................................... 45
February [28], 2001
[Code]
ii
<PAGE>
THE ADVISORS' INNER CIRCLE FUND
This Statement of Additional Information (SAI) relates only to the Sterling
Partners' Small Cap Value Portfolio and Sterling Partners' Balanced Portfolio
(each a "Portfolio" and, together the "Portfolios"), each a diversified
portfolio. The Portfolios were created in association with the reorganization of
their predecessor funds, the UAM Funds Inc. Sterling Partners' Small Cap
Portfolio and the Sterling Partners' Balanced Portfolio (each a "Predecessor
Fund" and together the "Predecessor Funds") on [February __, 2001]. As a result
of the reorganization, the Portfolios assumed all of the assets and liabilities
of Predecessor Funds. Each 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, as amended February 18, 1997. The Declaration of
Trust permits the Trust to offer separate series 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." Investors should read the Portfolios' prospectus before
purchasing shares.
Each 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. The Portfolios' expense ratios are disclosed in the
prospectus.
GLOSSARY
All terms that this SAI does not otherwise define have the same meaning in the
SAI as they do in the Portfolios' prospectus.
. 1933 Act means the Securities Act of 1933, as amended.
. 1934 Act means the Securities Exchange Act of 1934, as amended.
. 1940 Act means the Investment Company Act of 1940, as amended.
. Adviser means Sterling Asset Management LLC, the investment adviser to the
Portfolios.
. Board Member refers to a single member of the Fund's Board of Trustees.
. Board refers to the Fund's Board of Trustees as a group.
. Fund refers to The Advisors' Inner Circle Fund.
. NAV is the net asset value per share of a portfolio.
. NYSE is the New York Stock Exchange.
. SEC is the Securities and Exchange Commission.
. Administrator is SEI Investments Mutual Funds Services, Inc.
. Distributor is SEI Distribution Co.
Capitalized terms not defined herein are defined in the Portfolios' prospectus.
DESCRIPTION OF PERMITTED INVESTMENTS
What Investment Strategies May the Portfolios Use?
The Portfolios currently intend to use the securities and investment strategies
listed below in seeking their objectives; however, they may at any time invest
in any of the investment strategies described in this SAI. This SAI
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describes each of these investments/strategies and their risks. A Portfolio may
not notify shareholders before employing new strategies, unless it expects such
strategies to become principal strategies. The investments that are italicized
are principal strategies and you can find more information on these techniques
in the prospectus of the Portfolios. You can find more information concerning
the limits on the ability of the Portfolios to use these investments in "What
Are the Investment Policies of the Portfolios?"
Small Cap Value Portfolio Balanced Portfolio
. Equity securities. . Equity securities.
. Short-term investments. . Debt securities.
. Futures. . Futures.
. Options. . Options.
. Investment companies. . Investment companies.
. Repurchase agreements. . Repurchase agreements.
. Restricted securities. . Restricted securities.
. Securities lending. . Securities lending.
. When issued securities. . When issued securities.
Debt Securities
---------------
Corporations and governments use debt securities to borrow money from investors.
Most debt securities promise a variable or fixed rate of return and repayment of
the amount borrowed at maturity. Some debt securities, such as zero-coupon
bonds, do not pay current interest and are purchased at a discount from their
face value.
Types of Debt Securities:
U.S. Government Securities - U.S. government securities are securities that the
U.S. Treasury has issued (treasury securities) and securities that a federal
agency or a government-sponsored entity has issued (agency securities). Treasury
securities include treasury notes, which have initial maturities of one to ten
years and treasury bonds, which have initial maturities of at least ten years
and certain types of mortgage-backed securities that are described under
"Mortgage-Backed Securities" and "Other Asset-Backed Securities." This SAI
discusses mortgage-backed treasury and agency securities in detail in the
section called "Mortgage-Backed Securities" and "Other Asset-Backed Securities."
The full faith and credit of the U.S. government supports treasury securities.
Unlike treasury securities, the full faith and credit of the U.S. government
generally do not back agency securities. Agency securities are typically
supported in one of three ways:
. by the right of the issuer to borrow from the U.S. Treasury;
. by the discretionary authority of the U.S. government to buy the
obligations of the agency; or
. by the credit of the sponsoring agency.
While U.S. government securities are guaranteed as to principal and interest,
their market value is not guaranteed. U.S. government securities are subject to
the same interest rate and credit risks as other fixed income securities.
However, since U.S. government securities are of the highest quality, the credit
risk is minimal. The U.S. government does not guarantee the net asset value of
the assets of a portfolio.
Corporate Bonds - Corporations issue bonds and notes to raise money for working
capital or for capital expenditures such as plant construction, equipment
purchases and expansion. In return for the money loaned to the corporation by
investors, the corporation promises to pay investors interest, and repay the
principal amount of the bond or note.
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<PAGE>
Mortgage-Backed Securities - Mortgage-backed securities are interests in pools
of mortgage loans that various governmental, government-related and private
organizations assemble as securities for sale to investors. Unlike most debt
securities, which pay interest periodically and repay principal at maturity or
on specified call dates, mortgage-backed securities make monthly payments that
consist of both interest and principal payments. In effect, these payments are a
"pass-through" of the monthly payments made by the individual borrowers on their
mortgage loans, net of any fees paid to the issuer or guarantor of such
securities. Since homeowners usually have the option of paying either part or
all of the loan balance before maturity, the effective maturity of a
mortgage-backed security is often shorter than is stated.
Governmental entities, private insurers and mortgage poolers may insure or
guarantee the timely payment of interest and principal of these pools through
various forms of insurance or guarantees, including individual loan, title, pool
and hazard insurance and letters of credit. The Adviser will consider such
insurance and guarantees and the creditworthiness of the issuers thereof in
determining whether a mortgage-related security meets its investment quality
standards. It is possible that the private insurers or guarantors will not meet
their obligations under the insurance policies or guarantee arrangements.
Although the market for such securities is becoming increasingly liquid,
securities issued by certain private organizations may not be readily
marketable.
Government National Mortgage Association (GNMA) - GNMA is the principal
governmental guarantor of mortgage-related securities. GNMA is a wholly owned
corporation of the U.S. government and it falls within the Department of Housing
and Urban Development. Securities issued by GNMA are treasury securities, which
means the full faith and credit of the U.S. government backs them. GNMA
guarantees the timely payment of principal and interest on securities issued by
institutions approved by GNMA and backed by pools of FHA-insured or
VA-guaranteed mortgages. GNMA does not guarantee the market value or yield of
mortgage-backed securities or the value of a portfolio's shares. To buy GNMA
securities, a portfolio may have to pay a premium over the maturity value of the
underlying mortgages, which the Portfolios may lose if prepayment occurs.
Federal National Mortgage Association (FNMA) - FNMA is a government-sponsored
corporation owned entirely by private stockholders. FNMA is regulated by the
Secretary of Housing and Urban development. FNMA purchases conventional
mortgages from a list of approved sellers and service providers, including state
and federally-chartered savings and loan associations, mutual savings banks,
commercial banks and credit unions and mortgage bankers. Securities issued by
FNMA are agency securities, which means FNMA, but not the U.S. government,
guarantees their timely payment of principal and interest.
Federal Home Loan Mortgage Corporation (FHLMC) - FHLMC is a corporate
instrumentality of the U.S. government whose stock is owned by the twelve
Federal Home Loan Banks. Congress created FHLMC in 1970 to increase the
availability of mortgage credit for residential housing. FHLMC issues
Participation Certificates (PCs) which represent interests in conventional
mortgages. Like FNMA, FHLMC guarantees the timely payment of interest and
ultimate collection of principal, but PCs are not backed by the full faith and
credit of the U.S. government.
Commercial Banks, Savings and Loan Institutions, Private Mortgage Insurance
Companies, Mortgage Bankers and other Secondary Market Issuers - Commercial
banks, savings and loan institutions, private mortgage insurance companies,
mortgage bankers and other secondary market issuers also create pass-through
pools of conventional mortgage loans. In addition to guaranteeing the
mortgage-related security, such issuers may service and/or have originated the
underlying mortgage loans. Pools created by these issuers generally offer a
higher rate of interest than pools created by GNMA, FNMA & FHLMC because they
are not guaranteed by a government agency.
Risks of Mortgage-Backed Securities - Yield characteristics of mortgage-backed
securities differ from those of
3
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traditional debt securities in a variety of ways, the most significant
differences are mortgage-backed securities:
. payments of interest and principal are more frequent (usually monthly); and
. falling interest rates generally cause individual borrowers to pay off
their mortgage earlier than expected forcing a portfolio to reinvest the
money at a lower interest rate.
In addition to risks associated with changes in interest rates described in
"Factors Affecting the Value of Debt Securities," a variety of economic,
geographic, social and other factors, such as the sale of the underlying
property, refinancing or foreclosure, can cause investors to repay the loans
underlying a mortgage-backed security sooner than expected. If the prepayment
rates increase, a portfolio may have to reinvest its principal at a rate of
interest that is lower than the rate on existing mortgage-backed securities.
Other Asset-Backed Securities - These securities are interests in pools of a
broad range of assets other than mortgages, such as automobile loans, computer
leases and credit card receivables. Like mortgage-backed securities, these
securities are pass-through. In general, the collateral supporting these
securities is of shorter maturity than mortgage loans and is less likely to
experience substantial prepayments with interest rate fluctuations.
Asset-backed securities present certain risks that are not presented by
mortgage-backed securities. Primarily, these securities may not have the benefit
of any security interest in the related assets, which raises the possibility
that recoveries on repossessed collateral may not be available to support
payments on these securities. For example, credit card receivables are generally
unsecured and the debtors are entitled to the protection of a number of state
and federal consumer credit laws, many of which allow debtors to reduce their
balances by offsetting certain amounts owed on the credit cards. Most issuers of
asset-backed securities backed by automobile receivables permit the servicers of
such receivables to retain possession of the underlying obligations. If the
servicer were to sell these obligations to another party, there is a risk that
the purchaser would acquire an interest superior to that of the holders of the
related asset-backed securities. Due to the quantity of vehicles involved and
requirements under state laws, asset-backed securities backed by automobile
receivables may not have a proper security interest in all of the obligations
backing such receivables.
To lessen the effect of failures by obligors on underlying assets to make
payments, the entity administering the pool of assets may agree to ensure the
receipt of payments on the underlying pool occurs in a timely fashion
("liquidity protection"). In addition, asset-backed securities may obtain
insurance, such as guarantees, policies or letters of credit obtained by the
issuer or sponsor from third parties, for some or all of the assets in the pool
("credit support"). Delinquency or loss more than that anticipated or failure of
the credit support could adversely affect the return on an investment in such a
security.
A portfolio may also invest in residual interests in asset-backed securities,
which is the excess cash flow remaining after making required payments on the
securities and paying related administrative expenses. The amount of residual
cash flow resulting from a particular issue of asset-backed securities depends
in part on the characteristics of the underlying assets, the coupon rates on the
securities, prevailing interest rates, the amount of administrative expenses and
the actual prepayment experience on the underlying assets.
Collateralized Mortgage Obligations (CMOs) - CMOs are hybrids between
mortgage-backed bonds and mortgage pass-through securities. Similar to a bond,
CMOs usually pay interest and prepay principal monthly. While whole mortgage
loans may collateralize CMOs, mortgage-backed securities guaranteed by GNMA,
FHLMC, or FNMA and their income streams more typically collateralize them.
A REMIC is a CMO that qualifies for special tax treatment under the Internal
Revenue Code of 1986, as amended, and invests in certain mortgages primarily
secured by interests in real property and other permitted investments.
CMOs are structured into multiple classes, each bearing a different stated
maturity. Each class of CMO or REMIC
4
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certificate, often referred to as a "tranche," is issued at a specific interest
rate and must be fully retired by its final distribution date. Generally, all
classes of CMOs or REMIC certificates pay or accrue interest monthly. Investing
in the lowest tranche of CMOs and REMIC certificates involves risks similar to
those associated with investing in equity securities.
Short-Term Investments - To earn a return on uninvested assets, meet anticipated
redemptions, or for temporary defensive purposes, A portfolio may invest a
portion of its assets in the short-term securities listed below, U.S. government
securities and investment-grade corporate debt securities. Unless otherwise
specified, a short-term debt security has a maturity of one year or less.
Bank Obligations - A portfolio will only invest in a security issued by a
commercial bank if the bank:
. has total assets of at least $1 billion, or the equivalent in other
currencies;
. is a U.S. bank and a member of the Federal Deposit Insurance Corporation;
and
. is a foreign branch of a U.S. bank and the Adviser believes the security is
of an investment quality comparable with other debt securities that the
Portfolios may purchase.
Time Deposits - Time deposits are non-negotiable deposits, such as savings
accounts or certificates of deposit, held by a financial institution for a fixed
term with the understanding that the depositor can withdraw its money only by
giving notice to the institution. However, there may be early withdrawal
penalties depending upon market conditions and the remaining maturity of the
obligation. A portfolio may only purchase time deposits maturing from two
business days through seven calendar days.
Certificates of Deposit - Certificates of deposit are negotiable certificates
issued against funds deposited in a commercial bank or savings and loan
association for a definite period of time and earning a specified return.
Banker's Acceptance - A banker's acceptance is a time draft drawn on a
commercial bank by a borrower, usually in connection with an international
commercial transaction (to finance the import, export, transfer or storage of
goods).
Commercial Paper - Commercial paper is a short-term obligation with a maturity
ranging from 1 to 270 days issued by banks, corporations and other borrowers.
Such investments are unsecured and usually discounted. A portfolio may invest in
commercial paper rated A-1 or A-2 by S&P or Prime-1 or Prime-2 by Moody's, or,
if not rated, issued by a corporation having an outstanding unsecured debt issue
rated A or better by Moody's or by S&P. See "Bond Ratings" for a description of
commercial paper ratings.
Stripped Mortgage-Backed Securities - Stripped mortgage-backed securities are
derivative multiple-class mortgage-backed securities. Stripped mortgage-backed
securities usually have two classes that receive different proportions of
interest and principal distributions on a pool of mortgage assets. Typically,
one class will receive some of the interest and most of the principal, while the
other class will receive most of the interest and the remaining principal. In
extreme cases, one class will receive all of the interest ("interest only" or
"IO" class) while the other class will receive the entire principal sensitive to
the rate of principal payments (including prepayments) on the underlying
mortgage loans or mortgage-backed securities. A rapid rate of principal payments
may adversely affect the yield to maturity of IOs. Slower than anticipated
prepayments of principal may adversely affect the yield to maturity of a PO. The
yields and market risk of interest only and principal only stripped
mortgage-backed securities, respectively, may be more volatile than those of
other fixed income securities, including traditional mortgage-backed securities.
Yankee Bonds - Yankee bonds are dollar-denominated bonds issued inside the
United States by foreign entities. Investments in these securities involve
certain risks that are not typically associated with investing in domestic
securities. See "FOREIGN SECURITIES".
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Zero Coupon Bonds - These securities make no periodic payments of interest, but
instead are sold at a discount from their face value. When held to maturity,
their entire income, which consists of accretion of discount, comes from the
difference between the issue price and their value at maturity. The amount of
the discount rate varies depending on factors including the time remaining until
maturity, prevailing interest rates, the security's liquidity and the issuer's
credit quality. The market value of zero coupon securities may exhibit greater
price volatility than ordinary debt securities because a stripped security will
have a longer duration than an ordinary debt security with the same maturity. A
portfolio's investments in pay-in-kind, delayed and zero coupon bonds may
require it to sell certain of its portfolio securities to generate sufficient
cash to satisfy certain income distribution requirements.
These securities may include treasury securities that have had their interest
payments ("coupons") separated from the underlying principal ("corpus") by their
holder, typically a custodian bank or investment brokerage firm. Once the holder
of the security has stripped or separated corpus and coupons, it may sell each
component separately. The principal or corpus is then sold at a deep discount
because the buyer receives only the right to receive a future fixed payment on
the security and does not receive any rights to periodic interest (cash)
payments. Typically, the coupons are sold separately or grouped with other
coupons with like maturity dates and sold bundled in such form. The underlying
treasury security is held in book-entry form at the Federal Reserve Bank or, in
the case of bearer securities (i.e., unregistered securities which are owned
ostensibly by the bearer or holder thereof), in trust on behalf of the owners
thereof. Purchasers of stripped obligations acquire, in effect, discount
obligations that are economically identical to the zero coupon securities that
the Treasury sells itself.
The U.S. Treasury has facilitated transfers of ownership of zero coupon
securities by accounting separately for the beneficial ownership of particular
interest coupon and corpus payments on Treasury securities through the Federal
Reserve book-entry record keeping system. Under a Federal Reserve program known
as "STRIPS" or "Separate Trading of Registered Interest and Principal of
Securities," A portfolio can record its beneficial ownership of the coupon or
corpus directly in the book-entry record-keeping system.
Terms to Understand:
Maturity - Every debt security has a stated maturity date when the issuer must
repay the amount it borrowed (principal) from investors. Some debt securities,
however, are callable, meaning the issuer can repay the principal earlier, on or
after specified dates (call dates). Debt securities are most likely to be called
when interest rates are falling because the issuer can refinance at a lower
rate, similar to a homeowner refinancing a mortgage. The effective maturity of a
debt security is usually its nearest call date.
A portfolio that invests in debt securities has no real maturity. Instead, it
calculates its weighted average maturity. This number is an average of the
stated maturity of each debt security held by a portfolio, with the maturity of
each security weighted by the percentage of the assets of the portfolio it
represents.
Duration - Duration is a calculation that seeks to measure the price sensitivity
of a debt security, or a portfolio that invests in debt securities, to changes
in interest rates. It measures sensitivity more accurately than maturity because
it takes into account the time value of cash flows generated over the life of a
debt security. Future interest payments and principal payments are discounted to
reflect their present value and then are multiplied by the number of years they
will be received to produce a value expressed in years -- the duration.
Effective duration takes into account call features and sinking fund prepayments
that may shorten the life of a debt security.
An effective duration of 4 years, for example, would suggest that for each 1%
reduction in interest rates at all maturity levels, the price of a security is
estimated to increase by 4%. An increase in rates by the same magnitude is
estimated to reduce the price of the security by 4%. By knowing the yield and
the effective duration of a debt security, one can estimate total return based
on an expectation of how much interest rates, in general, will change. While
serving as a good estimator of prospective returns, effective duration is an
imperfect measure.
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Factors Affecting the Value of Debt Securities - The total return of a debt
instrument is composed of two elements: the percentage change in the security's
price and interest income earned. The yield to maturity of a debt security
estimates its total return only if the price of the debt security remains
unchanged during the holding period and coupon interest is reinvested at the
same yield to maturity. The total return of a debt instrument, therefore, will
be determined not only by how much interest is earned, but also by how much the
price of the security and interest rates change.
. Interest Rates
The price of a debt security generally moves in the opposite direction from
interest rates (i.e., if interest rates go up, the value of the bond will go
down, and vice versa).
. Prepayment Risk
This risk effects mainly mortgage-backed securities. Unlike other debt
securities, falling interest rates can hurt mortgage-backed securities, which
may cause your share price to fall. Lower rates motivate people to pay off
mortgage-backed and asset-backed securities earlier than expected. A portfolio
may then have to reinvest the proceeds from such prepayments at lower interest
rates, which can reduce its yield. The unexpected timing of mortgage and
asset-backed prepayments caused by the variations in interest rates may also
shorten or lengthen the average maturity of a portfolio. If left unattended,
drifts in the average maturity of a portfolio can have the unintended effect of
increasing or reducing the effective duration of the portfolio, which may
adversely affect the expected performance of the Portfolio.
. Extension Risk
The other side of prepayment risk occurs when interest rates are rising. Rising
interest rates can cause a portfolio's average maturity to lengthen unexpectedly
due to a drop in mortgage prepayments. This would increase the sensitivity of a
portfolio to rising rates and its potential for price declines. Extending the
average life of a mortgage-backed security increases the risk of depreciation
due to future increases in market interest rates. For these reasons,
mortgage-backed securities may be less effective than other types of U.S.
government securities as a means of "locking in" interest rates.
. Credit Rating
Coupon interest is offered to investors of debt securities as compensation for
assuming risk, although short-term Treasury securities, such as 3-month treasury
bills, are considered "risk free." Corporate securities offer higher yields than
Treasury securities because their payment of interest and complete repayment of
principal is less certain. The credit rating or financial condition of an issuer
may affect the value of a debt security. Generally, the lower the quality rating
of a security, the greater the risks that the issuer will fail to pay interest
and return principal. To compensate investors for taking on increased risk,
issuers with lower credit ratings usually offer their investors a higher "risk
premium" in the form of higher interest rates above comparable Treasury
securities.
Changes in investor confidence regarding the certainty of interest and principal
payments of a corporate debt security will result in an adjustment to this "risk
premium." Since an issuer's outstanding debt carries a fixed coupon, adjustments
to the risk premium must occur in the price, which effects the yield to maturity
of the bond. If an issuer defaults or becomes unable to honor its financial
obligations, the bond may lose some or all of its value.
A security rated within the four highest rating categories by a rating agency is
called investment-grade because its issuer is more likely to pay interest and
repay principal than an issuer of a lower rated bond. Adverse economic
conditions or changing circumstances, however, may weaken the capacity of the
issuer to pay interest and repay principal. If a security is not rated or is
rated under a different system, the Adviser may determine that it is of
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investment-grade. The Adviser may retain securities that are downgraded, if it
believes that keeping those securities is warranted.
Debt securities rated below investment-grade (junk bonds) are highly speculative
securities that are usually issued by smaller, less credit worthy and/or highly
leveraged (indebted) companies. A corporation may issue a junk bond because of a
corporate restructuring or other similar event. Compared with investment-grade
bonds, junk bonds carry a greater degree of risk and are less likely to make
payments of interest and principal. Market developments and the financial and
business condition of the corporation issuing these securities influences their
price and liquidity more than changes in interest rates, when compared to
investment-grade debt securities. Insufficient liquidity in the junk bond market
may make it more difficult to dispose of junk bonds and may cause a portfolio to
experience sudden and substantial price declines. A lack of reliable, objective
data or market quotations may make it more difficult to value junk bonds
accurately.
Rating agencies are organizations that assign ratings to securities based
primarily on the rating agency's assessment of the issuer's financial strength.
The Portfolios currently use ratings compiled by Moody's Investor Services
("Moody's"), Standard and Poor's Ratings Services ("S&P") and Fitch IBCA. Credit
ratings are only an agency's opinion, not an absolute standard of quality, and
they do not reflect an evaluation of market risk.
The section "Bond Ratings" contains further information concerning the ratings
of certain rating agencies and their significance.
The Adviser may use ratings produced by ratings agencies as guidelines to
determine the rating of a security at the time a portfolio buys it. A rating
agency may change its credit ratings at any time. The Adviser monitors the
rating of the security and will take appropriate actions if a rating agency
reduces the security's rating. A portfolio is not obligated to dispose of
securities whose issuers subsequently are in default or which are downgraded
below the above-stated ratings.
Derivatives
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Derivatives are financial instruments whose value is based on an underlying
asset, such as a stock or a bond, an underlying economic factor, such as an
interest rate or a market benchmark, such as an index. Investors can use
derivatives to gain exposure to various markets in a cost efficient manner, to
reduce transaction costs or to remain fully invested. They may also invest in
derivatives to protect it from broad fluctuations in market prices, interest
rates or foreign currency exchange rates. Investing in derivatives for these
purposes is known as "hedging." When hedging is successful, the Portfolio will
have offset any depreciation in the value of its portfolio securities by the
appreciation in the value of the derivative position. Although techniques other
than the sale and purchase of derivatives could be used to control the exposure
of the Portfolio to market fluctuations, the use of derivatives may be a more
effective means of hedging this exposure.
Types of Derivatives:
Futures - A futures contract is an agreement between two parties whereby one
party sells and the other party agrees to buy a specified amount of a financial
instrument at an agreed upon price and time. The financial instrument underlying
the contract may be a stock, stock index, bond, bond index, interest rate,
foreign exchange rate or other similar instrument. Agreeing to buy the
underlying financial information is called buying a futures contract or taking a
long position in the contract. Likewise, agreeing to sell the underlying
financial instrument is called selling a futures contract or taking a short
position in the contract.
Futures contracts are traded in the United States on commodity exchanges or
boards of trade -- known as "contract markets" -- approved for such trading and
regulated by the Commodity Futures Trading Commission, a federal agency. These
contract markets standardize the terms, including the maturity date and
underlying financial
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instrument, of all futures contracts.
Unlike other securities, the parties to a futures contract do not have to pay
for or deliver the underlying financial instrument until some future date (the
delivery date). Contract markets require both the purchaser and seller to
deposit "initial margin" with a futures broker, known as a futures commission
merchant, when they enter into the contract. Initial margin deposits are
typically equal to a percentage of the contract's value. After they open a
futures contract, the parties to the transaction must compare the purchase price
of the contract to its daily market value. If the value of the futures contract
changes in such a way that a party's position declines, that party must make
additional "variation margin" payments so that the margin payment is adequate.
On the other hand, the value of the contract may change in such a way that there
is excess margin on deposit, possibly entitling the party that has a gain to
receive all or a portion of this amount. This process is known as "marking to
the market."
Although the actual terms of a futures contract calls for the actual delivery of
and payment for the underlying security, in many cases the parties may close the
contract early by taking an opposite position in an identical contract. If the
sale price upon closing out the contract is less than the original purchase
price, the person closing out the contract will realize a loss. If the sale
price upon closing out the contract is more that the original purchase price,
the person closing out the contract will realize a gain. The opposite is also
true. If the purchase price upon closing out the contract is more than the
original sale price, the person closing out the contract will realize a loss. If
the purchase price upon closing out the contract is less than the original sale
price, the person closing out the contract will realize a gain. The Portfolios
will incur commission expenses in either opening, closing or possibly opening
and closing futures positions.
Options - An option is a contract between two parties for the purchase and sale
of a financial instrument for a specified price (known as the "strike price" or
"exercise price") at any time during the option period. Unlike a futures
contract, an option grants a right (not an obligation) to buy or sell a
financial instrument. Generally, a seller of an option can grant a buyer two
kinds of rights: a "call" (the right to buy the security) or a "put" (the right
to sell the security). Options have various types of underlying instruments,
including specific securities, indices of securities prices, foreign currencies,
interest rates and futures contracts. Options may be traded on an exchange
(exchange-traded-options) or may be customized agreements between the parties
(over-the-counter or "OTC options"). Like futures, a financial intermediary,
known as a clearing corporation, financially backs exchange-traded options.
However, OTC options have no such intermediary and are subject to the risk that
the counter-party will not fulfill its obligations under the contract.
. Purchasing Put and Call Options
When a portfolio purchases a put option, it buys the right to sell the
instrument underlying the option at a fixed strike price. In return for this
right, the Portfolio pays the current market price for the option (known as the
"option premium"). A portfolio may purchase put options to offset or hedge
against a decline in the market value of its securities ("protective puts") or
to benefit from a decline in the price of securities that it does not own. A
portfolio would ordinarily realize a gain if, during the option period, the
value of the underlying securities decreased below the exercise price
sufficiently to cover the premium and transaction costs. However, if the price
of the underlying instrument does not fall enough to offset the cost of
purchasing the option, a put buyer would lose the premium and related
transaction costs.
Call options are similar to put options, except that the Portfolio obtains the
right to purchase, rather than sell, the underlying instrument at the option's
strike price. A portfolio would normally purchase call options in anticipation
of an increase in the market value of securities it owns or wants to buy. The
Portfolio would ordinarily realize a gain if, during the option period, the
value of the underlying instrument exceeded the exercise price plus the premium
paid and related transaction costs. Otherwise, the Portfolio would realize
either no gain or a loss on the purchase of the call option.
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The purchaser of an option may terminate its position by (i) allowing it to
expire and losing its entire premium; (ii) exercising the option and either
selling (in the case of a put option); (iii) buying (in the case of a call
option) the underlying instrument at the strike price; or (iv) closing it out in
the secondary market at its current price.
. Selling (Writing) Put and Call Options
When a portfolio writes a call option it assumes an obligation to sell specified
securities to the holder of the option at a specified price if the option is
exercised at any time before the expiration date. Similarly, when the Portfolio
writes a put option it assumes an obligation to purchase specified securities
from the option holder at a specified price if the option is exercised at any
time before the expiration date. A portfolio may terminate its position in an
exchange-traded put option before exercise by buying an option identical to the
one it has written. Similarly, it may cancel an over-the-counter option by
entering into an offsetting transaction with the counter-party to the option.
The Portfolio could try to hedge against an increase in the value of securities
it would like to acquire by writing a put option on those securities. If
security prices rise, the Portfolio would expect the put option to expire and
the premium it received to offset the increase in the security's value. If
security prices remain the same over time, the Portfolio would hope to profit by
closing out the put option at a lower price. If security prices fall, the
Portfolio may lose an amount of money equal to the difference between the value
of the security and the premium it received. Writing covered put options may
deprive the Portfolio of the opportunity to profit from a decrease in the market
price of the securities it would like to acquire.
The characteristics of writing call options are similar to those of writing put
options, except that call writers expect to profit if prices remain the same or
fall. The Portfolio could try to hedge against a decline in the value of
securities it already owns by writing a call option. If the price of that
security falls as expected, the Portfolio would expect the option to expire and
the premium it received to offset the decline of the security's value. However,
the Portfolio must be prepared to deliver the underlying instrument in return
for the strike price, which may deprive it of the opportunity to profit from an
increase in the market price of the securities it holds.
A portfolio is permitted only to write covered options. A portfolio can cover a
call option by owning, at the time of selling the option:
. The underlying security (or securities convertible into the underlying
security without additional consideration), index, interest rate, foreign
currency or futures contract;
. A call option on the same security or index with the same or lesser
exercise price;
. A call option on the same security or index with a greater exercise price
and segregating cash or liquid securities in an amount equal to the
difference between the exercise prices;
. Cash or liquid securities equal to at least the market value of the
optioned securities, interest rate, foreign currency or futures contract;
or
. In case of an index, the portfolio of securities that corresponds to the
index.
A portfolio can cover a put option by, at the time of selling the option:
. Entering into a short position in the underlying security;
. Purchasing a put option on the same security, index, interest rate, foreign
currency or futures contract with the same or greater exercise price;
. Purchasing a put option on the same security, index, interest rate, foreign
currency or futures contract with a lesser exercise price and segregating
cash or liquid securities in an amount equal to the difference between the
exercise prices; or
. Maintaining the entire exercise price in liquid securities.
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. Options on Securities Indices
Options on securities indices are similar to options on securities, except that
the exercise of securities index options requires cash settlement payments and
does not involve the actual purchase or sale of securities. In addition,
securities index options are designed to reflect price fluctuations in a group
of securities or segment of the securities market rather than price fluctuations
in a single security.
. Options on Futures
An option on a futures contract provides the holder with the right to buy a
futures contract (in the case of a call option) or sell a futures contract (in
the case of a put option) at a fixed time and price. Upon exercise of the option
by the holder, the contract market clearing house establishes a corresponding
short position for the writer of the option (in the case of a call option) or a
corresponding long position (in the case of a put option). If the option is
exercised, the parties will be subject to the futures contracts. In addition,
the writer of an option on a futures contract is subject to initial and
variation margin requirements on the option position. Options on futures
contracts are traded on the same contract market as the underlying futures
contract.
The buyer or seller of an option on a futures contract may terminate the option
early by purchasing or selling an option of the same series (i.e., the same
exercise price and expiration date) as the option previously purchased or sold.
The difference between the premiums paid and received represents the trader's
profit or loss on the transaction.
A portfolio may purchase put and call options on futures contracts instead of
selling or buying futures contracts. A portfolio may buy a put option on a
futures contract for the same reasons it would sell a futures contract. It also
may purchase such put options in order to hedge a long position in the
underlying futures contract. A portfolio may buy call options on futures
contracts for the same purpose as the actual purchase of the futures contracts,
such as in anticipation of favorable market conditions.
A portfolio may write a call option on a futures contract to hedge against a
decline in the prices of the instrument underlying the futures contracts. If the
price of the futures contract at expiration were below the exercise price, the
Portfolio would retain the option premium, which would offset, in part, any
decline in the value of its portfolio securities.
The writing of a put option on a futures contract is similar to the purchase of
the futures contracts, except that, if the market price declines, the Portfolio
would pay more than the market price for the underlying instrument. The premium
received on the sale of the put option, less any transaction costs, would reduce
the net cost to the Portfolio.
. Combined Positions
A portfolio may purchase and write options in combination with each other, or in
combination with futures or forward contracts, to adjust the risk and return
characteristics of the overall position. For example, a portfolio could
construct a combined position whose risk and return characteristics are similar
to selling a futures contract by purchasing a put option and writing a call
option on the same underlying instrument. Alternatively, the Portfolio could
write a call option at one strike price and buy a call option at a lower price
to reduce the risk of the written call option in the event of a substantial
price increase. Because combined options positions involve multiple trades, they
result in higher transaction costs and may be more difficult to open and close
out.
Forward Foreign Currency Exchange Contracts - A forward foreign currency
contract involves an obligation to purchase or sell a specific amount of
currency at a future date or date range at a specific price. In the case of a
cancelable forward contract, the holder has the unilateral right to cancel the
contract at maturity by paying a
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specified fee. Forward foreign currency exchange contracts differ from foreign
currency futures contracts in certain respects. Unlike futures contracts,
forward contracts:
. Do not have standard maturity dates or amounts (i.e., the parties to the
contract may fix the maturity date and the amount).
. Are traded in the inter-bank markets conducted directly between currency
traders (usually large commercial banks) and their customers, as opposed to
futures contracts that are traded only on exchanges regulated by the CFTC.
. Do not require an initial margin deposit.
. May be closed by entering into a closing transaction with the currency
trader who is a party to the original forward contract, as opposed to a
commodities exchange.
Foreign Currency Hedging Strategies - A "settlement hedge" or "transaction
hedge" is designed to protect the Portfolio against an adverse change in foreign
currency values between the date a security is purchased or sold and the date on
which payment is made or received. Entering into a forward contract for the
purchase or sale of the amount of foreign currency involved in an underlying
security transaction for a fixed amount of U.S. dollars "locks in" the U.S.
dollar price of the security. A portfolio may also use forward contracts to
purchase or sell a foreign currency when it anticipates purchasing or selling
securities denominated in foreign currency, even if it has not yet selected the
specific investments.
A portfolio may use forward contracts to hedge against a decline in the value of
existing investments denominated in foreign currency. Such a hedge, sometimes
referred to as a "position hedge," would tend to offset both positive and
negative currency fluctuations, but would not offset changes in security values
caused by other factors. A portfolio could also hedge the position by selling
another currency expected to perform similarly to the currency in which the
Portfolio's investment is denominated. This type of hedge, sometimes referred to
as a "proxy hedge," could offer advantages in terms of cost, yield, or
efficiency, but generally would not hedge currency exposure as effectively as a
direct hedge into U.S. dollars. Proxy hedges may result in losses if the
currency used to hedge does not perform similarly to the currency in which the
hedged securities are denominated.
Transaction and position hedging do not eliminate fluctuations in the underlying
prices of the securities that the Portfolio owns or intends to purchase or sell.
They simply establish a rate of exchange that one can achieve at some future
point in time. Additionally, these techniques tend to minimize the risk of loss
due to a decline in the value of the hedged currency and to limit any potential
gain that might result from the increase in value of such currency.
A portfolio may enter into forward contracts to shift its investment exposure
from one currency into another. Such transactions may call for the delivery of
one foreign currency in exchange for another foreign currency, including
currencies in which its securities are not then denominated. This may include
shifting exposure from U.S. dollars to a foreign currency, or from one foreign
currency to another foreign currency. This type of strategy, sometimes known as
a "cross-hedge," will tend to reduce or eliminate exposure to the currency that
is sold, and increase exposure to the currency that is purchased. Cross-hedges
protect against losses resulting from a decline in the hedged currency, but will
cause the Portfolio to assume the risk of fluctuations in the value of the
currency it purchases. Cross hedging transactions also involve the risk of
imperfect correlation between changes in the values of the currencies involved.
It is difficult to forecast with precision the market value of portfolio
securities at the expiration or maturity of a forward or futures contract.
Accordingly, the Portfolio may have to purchase additional foreign currency on
the spot market if the market value of a security it is hedging is less than the
amount of foreign currency it is obligated to deliver. Conversely, the Portfolio
may have to sell on the spot market some of the foreign currency it received
upon the sale of a security if the market value of such security exceeds the
amount of foreign currency it is obligated to deliver.
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Swaps, Caps, Collars and Floors
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Swap Agreements - A swap is a financial instrument that typically involves the
exchange of cash flows between two parties on specified dates (settlement
dates), where the cash flows are based on agreed-upon prices, rates, indices,
etc. The nominal amount on which the cash flows are calculated is called the
notional amount. Swaps are individually negotiated and structured to include
exposure to a variety of different types of investments or market factors, such
as interest rates, foreign currency rates, mortgage securities, corporate
borrowing rates, security prices or inflation rates.
Swap agreements may increase or decrease the overall volatility of the
investments of a portfolio and its share price. The performance of swap
agreements may be affected by a change in the specific interest rate, currency,
or other factors that determine the amounts of payments due to and from the
Portfolio. If a swap agreement calls for payments by the Portfolio, the
Portfolio must be prepared to make such payments when due. In addition, if the
counter-party's creditworthiness declined, the value of a swap agreement would
be likely to decline, potentially resulting in losses.
Generally, swap agreements have a fixed maturity date that will be agreed upon
by the parties. The agreement can be terminated before the maturity date only
under limited circumstances, such as default by one of the parties or
insolvency, among others, and can be transferred by a party only with the prior
written consent of the other party. The Portfolio may be able to eliminate its
exposure under a swap agreement either by assignment or by other disposition, or
by entering into an offsetting swap agreement with the same party or a similarly
creditworthy party. If the counter-party is unable to meet its obligations under
the contract, declares bankruptcy, defaults or becomes insolvent, the Portfolio
may not be able to recover the money it expected to receive under the contract.
A swap agreement can be a form of leverage, which can magnify a portfolio's
gains or losses. In order to reduce the risk associated with leveraging, a
Portfolio will cover its current obligations under swap agreements according to
guidelines established by the SEC. If a Portfolio enters into a swap agreement
on a net basis, it will segregate assets with a daily value at least equal to
the excess, if any, of the Portfolio's accrued obligations under the swap
agreement over the accrued amount the Portfolio is entitled to receive under the
agreement. If the Portfolio enters into a swap agreement on other than a net
basis, it will segregate assets with a value equal to the full amount of the
Portfolio's accrued obligations under the agreement.
. Equity Swaps
In a typical equity index swap, one party agrees to pay another party the return
on a stock, stock index or basket of stocks in return for a specified interest
rate. By entering into an equity index swap, for example, the index receiver can
gain exposure to stocks making up the index of securities without actually
purchasing those stocks. Equity index swaps involve not only the risk associated
with investment in the securities represented in the index, but also the risk
that the performance of such securities, including dividends, will not exceed
the return on the interest rate that the Portfolio will be committed to pay.
. Interest Rate Swaps
Interest rate swaps are financial instruments that involve the exchange on one
type of interest rate for another type of interest rate cash flow on specified
dates in the future. Some of the different types of interest rate swaps are
"fixed-for floating rate swaps," "termed basis swaps" and "index amortizing
swaps." Fixed-for floating rate swaps involve the exchange of fixed interest
rate cash flows for floating rate cash flows. Termed basis swaps entail cash
flows to both parties based on floating interest rates, where the interest rate
indices are different. Index amortizing swaps are typically fixed-for floating
swaps where the notional amount changes if certain conditions are met.
Like a traditional investment in a debt security, a portfolio could lose money
by investing in an interest rate swap if
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interest rates change adversely. For example, if a portfolio enters into a swap
where it agrees to exchange a floating rate of interest for a fixed rate of
interest, the Portfolio may have to pay more money than it receives. Similarly,
if the Portfolio enters into a swap where it agrees to exchange a fixed rate of
interest for a floating rate of interest, the Portfolio may receive less money
than it has agreed to pay.
. Currency Swaps
A currency swap is an agreement between two parties in which one party agrees to
make interest rate payments in one currency and the other promises to make
interest rate payments in another currency. A portfolio may enter into a
currency swap when it has one currency and desires a different currency.
Typically the interest rates that determine the currency swap payments are
fixed, although occasionally one or both parties may pay a floating rate of
interest. Unlike an interest rate swap, however, the principal amounts are
exchanged at the beginning of the contract and returned at the end of the
contract. Changes in foreign exchange rates and changes in interest rates, as
described above may negatively affect currency swaps.
Caps, Collars and Floors - Caps and floors have an effect similar to buying or
writing options. In a typical cap or floor agreement, one party agrees to make
payments only under specified circumstances, usually in return for payment of a
fee by the other party. For example, the buyer of an interest rate cap obtains
the right to receive payments to the extent that a specified interest rate
exceeds an agreed-upon level. The seller of an interest rate floor is obligated
to make payments to the extent that a specified interest rate falls below an
agreed-upon level. An interest rate collar combines elements of buying a cap and
selling a floor.
Risks of Derivatives:
While transactions in derivatives may reduce certain risks, these transactions
themselves entail certain other risks. For example, unanticipated changes in
interest rates, securities prices or currency exchange rates may result in a
poorer overall performance of the Portfolio than if it had not entered into any
derivatives transactions. Derivatives may magnify the Portfolio's gains or
losses, causing it to make or lose substantially more than it invested.
When used for hedging purposes, increases in the value of the securities a
Portfolio holds or intends to acquire should offset any losses incurred with a
derivative. Purchasing derivatives for purposes other than hedging could expose
the Portfolio to greater risks.
Correlation of Prices - A Portfolio's ability to hedge its securities through
derivatives depends on the degree to which price movements in the underlying
index or instrument correlate with price movements in the relevant securities.
In the case of poor correlation, the price of the securities a Portfolio is
hedging may not move in the same amount, or even in the same direction as the
hedging instrument. The Adviser will try to minimize this risk by investing only
in those contracts whose behavior it expects to resemble the portfolio
securities it is trying to hedge. However, if the Portfolio's prediction of
interest and currency rates, market value, volatility or other economic factors
is incorrect, the Portfolio may lose money, or may not make as much money as it
expected.
Derivative prices can diverge from the prices of their underlying instruments,
even if the characteristics of the underlying instruments are very similar to
the derivative. Listed below are some of the factors that may cause such a
divergence:
. current and anticipated short-term interest rates, changes in volatility of
the underlying instrument, and the time remaining until expiration of the
contract;
. a difference between the derivatives and securities markets, including
different levels of demand, how the instruments are traded, the imposition
of daily price fluctuation limits or trading of an instrument stops; and
. differences between the derivatives, such as different margin requirements,
different liquidity of such markets and the participation of speculators in
such markets.
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Derivatives based upon a narrower index of securities, such as those of a
particular industry group, may present greater risk than derivatives based on a
broad market index. Since narrower indices are made up of a smaller number of
securities, they are more susceptible to rapid and extreme price fluctuations
because of changes in the value of those securities.
While currency futures and options values are expected to correlate with
exchange rates, they may not reflect other factors that affect the value of the
investments of the Portfolio. A currency hedge, for example, should protect a
yen-denominated security from a decline in the yen, but will not protect the
Portfolio against a price decline resulting from deterioration in the issuer's
creditworthiness. Because the value of the Portfolio's foreign-denominated
investments changes in response to many factors other than exchange rates, it
may not be possible to match the amount of currency options and futures to the
value of the Portfolio's investments precisely over time.
Lack of Liquidity - Before a futures contract or option is exercised or expires,
a Portfolio can terminate it only by entering into a closing purchase or sale
transaction. Moreover, a Portfolio may close out a futures contract only on the
exchange the contract was initially traded. Although a Portfolio intends to
purchase options and futures only where there appears to be an active market,
there is no guarantee that such a liquid market will exist. If there is no
secondary market for the contract, or the market is illiquid, the Portfolio may
not be able to close out its position. In an illiquid market, the Portfolio may:
. have to sell securities to meet its daily margin requirements at a time
when it is disadvantageous to do so;
. have to purchase or sell the instrument underlying the contract;
. not be able to hedge its investments; and
. not be able realize profits or limit its losses.
Derivatives may become illiquid (i.e., difficult to sell at a desired time and
price) under a variety of market conditions. For example:
. an exchange may suspend or limit trading in a particular derivative
instrument, an entire category of derivatives or all derivatives, which
sometimes occurs because of increased market volatility;
. unusual or unforeseen circumstances may interrupt normal operations of an
exchange;
. the facilities of the exchange may not be adequate to handle current
trading volume;
. equipment failures, government intervention, insolvency of a brokerage firm
or clearing house or other occurrences may disrupt normal trading activity;
or
. investors may lose interest in a particular derivative or category of
derivatives.
Management Risk - If the Adviser incorrectly predicts stock market and interest
rate trends, a Portfolio may lose money by investing in derivatives. For
example, if a Portfolio were to write a call option based on its Adviser's
expectation that the price of the underlying security would fall, but the price
were to rise instead, the Portfolio could be required to sell the security upon
exercise at a price below the current market price. Similarly, if the Portfolio
were to write a put option based on the Adviser's expectation that the price of
the underlying security would rise, but the price were to fall instead, the
Portfolio could be required to purchase the security upon exercise at a price
higher than the current market price.
Volatility and Leverage - The prices of derivatives are volatile (i.e., they may
change rapidly, substantially and unpredictably) and are influenced by a variety
of factors, including:
. actual and anticipated changes in interest rates;
. fiscal and monetary policies; and
. national and international political events.
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Most exchanges limit the amount by which the price of a derivative can change
during a single trading day. Daily trading limits establish the maximum amount
that the price of a derivative may vary from the settlement price of that
derivative at the end of the previous day's trading. Once the price of a
derivative reaches this value, a Portfolio may not trade that derivative at a
price beyond that limit. The daily limit governs only price movements during a
given day and does not limit potential gains or losses. Derivative prices have
occasionally moved to the daily limit for several consecutive trading days,
preventing prompt liquidation of the derivative.
Because of the low margin deposits required upon the opening of a derivative
position, such transactions involve an extremely high degree of leverage.
Consequently, a relatively small price movement in a derivative may result in an
immediate and substantial loss (as well as gain) to the Portfolio and it may
lose more than it originally invested in the derivative.
If the price of a futures contract changes adversely, the Portfolio may have to
sell securities at a time when it is disadvantageous to do so to meet its
minimum daily margin requirement. The Portfolio may lose its margin deposits if
a broker-dealer with whom it has an open futures contract or related option
becomes insolvent or declares bankruptcy.
Equity Securities
-----------------
Types of Equity Securities:
Common Stocks - Common stocks represent units of ownership in a company. Common
stocks usually carry voting rights and earn dividends. Unlike preferred stocks,
which are described below, dividends on common stocks are not fixed but are
declared at the discretion of the company's board of directors.
Preferred Stocks - Preferred stocks are also units of ownership in a company.
Preferred stocks normally have preference over common stock in the payment of
dividends and the liquidation of the company. However, in all other respects,
preferred stocks are subordinated to the liabilities of the issuer. Unlike
common stocks, preferred stocks are generally not entitled to vote on corporate
matters. Types of preferred stocks include adjustable-rate preferred stock,
fixed dividend preferred stock, perpetual preferred stock, and sinking fund
preferred stock. Generally, the market values of preferred stock with a fixed
dividend rate and no conversion element varies inversely with interest rates and
perceived credit risk.
Convertible Securities - Convertible securities are debt securities and
preferred stocks that are convertible into common stock at a specified price or
conversion ratio. In exchange for the conversion feature, many corporations will
pay a lower rate of interest on convertible securities than debt securities of
the same corporation. Their market price tends to go up if the stock price moves
up.
Convertible securities are subject to the same risks as similar securities
without the convertible feature. The price of a convertible security is more
volatile during times of steady interest rates than other types of debt
securities.
Rights and Warrants - A right is a privilege granted to existing shareholders of
a corporation to subscribe to shares of a new issue of common stock before it is
issued. Rights normally have a short life, usually two to four weeks, are freely
transferable and entitle the holder to buy the new common stock at a lower price
than the public offering price. Warrants are securities that are usually issued
together with a debt security or preferred stock and that give the holder the
right to buy proportionate amount of common stock at a specified price. Warrants
are freely transferable and are traded on major exchanges. Unlike rights,
warrants normally have a life that is measured in years and entitles the holder
to buy common stock of a company at a price that is usually higher than the
market price at the time the warrant is issued. Corporations often issue
warrants to make the accompanying debt security more attractive.
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An investment in warrants and rights may entail greater risks than certain other
types of investments. Generally, rights and warrants do not carry the right to
receive dividends or exercise voting rights with respect to the underlying
securities, and they do not represent any rights in the assets of the issuer. In
addition, their value does not necessarily change with the value of the
underlying securities, and they cease to have value if they are not exercised on
or before their expiration date. Investing in rights and warrants increases the
potential profit or loss to be realized from the investment as compared with
investing the same amount in the underlying securities.
Risks of Investing in Equity Securities:
General Risks of Investing in Stocks - While investing in stocks allows
investors to participate in the benefits of owning a company, such investors
must accept the risks of ownership. Unlike bondholders, who have preference to a
company's earnings and cash flow, preferred stockholders, followed by common
stockholders in order of priority, are entitled only to the residual amount
after a company meets its other obligations. For this reason, the value of a
company's stock will usually react more strongly to actual or perceived changes
in the company's financial condition or prospects than its debt obligations.
Stockholders of a company that fares poorly can lose money.
Stock markets tend to move in cycles with short or extended periods of rising
and falling stock prices. The value of a company's stock may fall because of:
. Factors that directly relate to that company, such as decisions made by its
management or lower demand for the company's products or services;
. Factors affecting an entire industry, such as increases in production
costs; and
. Changes in financial market conditions that are relatively unrelated to the
company or its industry, such as changes in interest rates, currency
exchange rates or inflation rates.
Because preferred stock is generally junior to debt securities and other
obligations of the issuer, deterioration in the credit quality of the issuer
will cause greater changes in the value of a preferred stock than in a more
senior debt security with similar stated yield characteristics.
Small and Medium-Sized Companies - Investors in small and medium-sized companies
typically take on greater risk and price volatility than they would by investing
in larger, more established companies. This increased risk may be due to the
greater business risks of their small or medium size, limited markets and
financial resources, narrow product lines and frequent lack of management depth.
The securities of small and medium companies are often traded in the
over-the-counter market and might not be traded in volumes typical of securities
traded on a national securities exchange. Thus, the securities of small and
medium capitalization companies are likely to be less liquid, and subject to
more abrupt or erratic market movements, than securities of larger, more
established companies.
Technology Companies - Stocks of technology companies have tended to be subject
to greater volatility than securities of companies that are not dependent upon
or associated with technological issues. Technology companies operate in various
industries. Since these industries frequently share common characteristics, an
event or issue affecting one industry may significantly influence other, related
industries. For example, technology companies may be strongly affected by
worldwide scientific or technological developments and their products and
services may be subject to governmental regulation or adversely affected by
governmental policies.
Foreign Securities
------------------
Foreign securities are debt and equity securities that are traded in markets
outside of the United States. The markets in which these securities are located
can be developed or emerging. An "emerging country" is generally a country that
the International Bank for Reconstruction and Development (World Bank) and the
International Finance Corporation would consider to be an emerging or developing
country. Typically, emerging markets are in countries that are in the process of
industrialization, with lower gross national products (GNP) than more developed
countries. There are currently over 130 countries
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that the international financial community generally considers to be emerging or
developing countries, approximately 40 of which currently have stock markets.
These countries generally include every nation in the world except the United
States, Canada, Japan, Australia, New Zealand and most nations located in
Western Europe. Consistent with their respective investment strategies, the
Portfolios can invest in foreign securities in a number of ways:
. They can invest directly in foreign securities denominated in a foreign
currency;
. They can invest in American Depositary Receipts, European Depositary
Receipts and other similar global instruments; and
. They can invest in investment funds.
Types of Foreign Securities:
American Depositary Receipts (ADRs) - American Depositary Receipts (ADRs) are
certificates evidencing ownership of shares of a foreign issuer. These
certificates are issued by depository banks and generally trade on an
established market in the United States or elsewhere. A custodian bank or
similar financial institution in the issuer's home country holds the underlying
shares in trust. The depository bank may not have physical custody of the
underlying securities at all times and may charge fees for various services,
including forwarding dividends and interest and corporate actions. ADRs are
alternatives to directly purchasing the underlying foreign securities in their
national markets and currencies. However, ADRs continue to be subject to many of
the risks associated with investing directly in foreign securities. EDRs are
similar to ADRs, except that they are typically issued by European Banks or
trust companies.
Investment Funds - Some emerging countries currently prohibit direct foreign
investment in the securities of their companies. Certain emerging countries,
however, permit indirect foreign investment in the securities of companies
listed and traded on their stock exchanges through investment funds that they
have specifically authorized. Investments in these investment funds are subject
to the provisions of the 1940 Act. Shareholders that invest in such investment
funds will bear not only their proportionate share of the expenses (including
operating expenses and the fees of the Adviser), but also will bear indirectly
bear similar expenses of the underlying investment funds. In addition, these
investment funds may trade at a premium over their net asset value.
Risks of Foreign Securities:
Foreign securities, foreign currencies, and securities issued by U.S. entities
with substantial foreign operations may involve significant risks in addition to
the risks inherent in U.S. investments.
Political and Economic Factors - Local political, economic, regulatory, or
social instability, military action or unrest, or adverse diplomatic
developments may affect the value of foreign investments. Listed below are some
of the more important political and economic factors that could negatively
affect an investment in foreign securities:
. The economies of foreign countries may differ from the economy of the
United States in such areas as growth of gross national product, rate of
inflation, capital reinvestment, resource self-sufficiency, budget deficits
and national debt;
. Foreign governments sometimes participate to a significant degree, through
ownership interests or regulation, in their respective economies. Actions
by these governments could significantly influence the market prices of
securities and payment of dividends;
. The economies of many foreign countries are dependent on international
trade and their trading partners and they could be severely affected if
their trading partners were to enact protective trade barriers and economic
conditions;
. The internal policies of a particular foreign country may be less stable
than in the United States. Other countries
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face significant external political risks, such as possible claims of
sovereignty by other countries or tense and sometimes hostile border
clashes; and
. A foreign government may act adversely to the interests of U.S. investors,
including expropriation or nationalization of assets, confiscatory taxation
and other restrictions on U.S. investment. A country may restrict or
control foreign investments in its securities markets. These restrictions
could limit the Portfolio's ability to invest in a particular country or
make it very expensive for the Portfolio to invest in that country. Some
countries require prior governmental approval, limit the types or amount of
securities or companies in which a foreigner can invest. Other countries
may restrict the ability of foreign investors to repatriate their
investment income and capital gains.
Information and Supervision - There is generally less publicly available
information about foreign companies than companies based in the United States.
For example, there are often no reports and ratings published about foreign
companies comparable to the ones written about United States companies. Foreign
companies are typically not subject to uniform accounting, auditing and
financial reporting standards, practices and requirements comparable to those
applicable to United States companies. The lack of comparable information +makes
investment decisions concerning foreign countries more difficult and less
reliable than domestic companies.
Stock Exchange and Market Risk - The Adviser anticipates that in most cases an
exchange or over-the-counter (OTC) market located outside of the United States
will be the best available market for foreign securities. Foreign stock markets,
while growing in volume and sophistication, are generally not as developed as
the markets in the United States. Foreign stocks markets tend to differ from
those in the United States in a number of ways:
. They are generally not as developed or efficient as, and more volatile,
than those in the United States;
. They have substantially less volume;
. Their securities tend to be less liquid and to experience rapid and erratic
price movements;
. Commissions on foreign stocks are generally higher and subject to set
minimum rates, as opposed to negotiated rates;
. Foreign security trading, settlement and custodial practices are often less
developed than those in U.S. markets; and
. They may have different settlement practices, which may cause delays and
increase the potential for failed settlements.
Foreign Currency Risk - While the Portfolios denominate their net asset value in
United States dollars, the securities of foreign companies are frequently
denominated in foreign currencies. Thus, a change in the value of a foreign
currency against the United States dollar will result in a corresponding change
in value of securities denominated in that currency. Some of the factors that
may impair the investments denominated in a foreign currency are:
. It may be expensive to convert foreign currencies into United States
dollars and vice versa;
. Complex political and economic factors may significantly affect the values
of various currencies, including United States dollars, and their exchange
rates;
. Government intervention may increase risks involved in purchasing or
selling foreign currency options, forward contracts and futures contracts,
since exchange rates may not be free to fluctuate in response to other
market forces;
. There may be no systematic reporting of last sale information for foreign
currencies or regulatory requirement that quotations available through
dealers or other market sources be firm or revised on a timely basis;
. Available quotation information is generally representative of very large
round-lot transactions in the inter-bank market and thus may not reflect
exchange rates for smaller odd-lot transactions (less than $1 million)
where rates may be less favorable; and
. The inter-bank market in foreign currencies is a global, around-the-clock
market. To the extent that a market is closed while the markets for the
underlying currencies remain open, certain markets may not always reflect
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significant price and rate movements.
Taxes - Certain foreign governments levy withholding taxes on dividend and
interest income. Although in some countries it is possible for the Portfolio to
recover a portion of these taxes, the portion that cannot be recovered will
reduce the income the Portfolio receives from its investments. The Portfolio
does not expect such foreign withholding taxes to have a significant impact on
performance.
Emerging Markets - Investing in emerging markets may magnify the risks of
foreign investing. Security prices in emerging markets can be significantly more
volatile than those in more developed markets, reflecting the greater
uncertainties of investing in less established markets and economies. In
particular, countries with emerging markets may:
. Have relatively unstable governments;
. Present greater risks of nationalization of businesses, restrictions on
foreign ownership and prohibitions on the repatriation of assets;
. Offer less protection of property rights than more developed countries; and
. Have economies that are based on only a few industries, may be highly
vulnerable to changes in local or global trade conditions, and may suffer
from extreme and volatile debt burdens or inflation rates.
Local securities markets may trade a small number of securities and may be
unable to respond effectively to increases in trading volume, potentially making
prompt liquidation of holdings difficult or impossible at times.
The Euro - The single currency for the European Economic and Monetary Union
("EMU"), began replacing the national currencies for participating member
countries on January 1, 1999 and ends in July 2002. At the end of that period,
use of the Euro will be compulsory and countries in the EMU will no longer
maintain separate currencies in any form. Until then, however, each country and
issuers within each country are free to choose whether to use the Euro.
On January 1, 1999, existing national currencies became denominations of the
Euro at fixed rates according to practices prescribed by the European Monetary
Institute and the Euro became available as a book-entry currency. On or about
that date, member states began conducting financial market transactions in Euros
and re-denominating many investments, currency balances and transfer mechanisms
into Euros. The Portfolios also anticipates pricing, trading, settling and
valuing investments whose nominal values remain in their existing domestic
currencies in Euros. Accordingly, the Portfolios expect the conversion to the
Euro to impact investments in countries that adopt the Euro in all aspects of
the investment process, including trading, foreign exchange, payments,
settlements, cash accounts, custody and accounting. Some of the uncertainties
surrounding the conversion to the Euro include:
. Will the payment and operational systems of banks and other financial
institutions be ready by the scheduled launch date?
. Will the conversion to the Euro have legal consequences on outstanding
financial contracts that refer to existing currencies rather than Euro?
. How will existing currencies be exchanged into Euro?
. Will suitable clearing and settlement payment systems for the new currency
be created?
Investment Companies
--------------------
A Portfolio may buy and sell shares of other investment companies. Such
investment companies may pay management and other fees that are similar to the
fees currently paid by a Portfolio. Like other shareholders, each Portfolio
would pay its proportionate share of those fees. Consequently, shareholders of a
Portfolio would pay not only the management fees of the Portfolio, but also the
management fees of the investment company in which the Portfolio invests. A
Portfolio may invest up to 10% of its total assets in the securities of other
investment
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companies, but may not invest more than 5% of its total assets in the securities
of any one investment company or acquire more than 3% of the outstanding
securities of any one investment company.
Repurchase Agreements
---------------------
In a repurchase agreement, an investor agrees to buy a security (underlying
security) from a securities dealer or bank that is a member of the Federal
Reserve System (counter-party). At the time, the counter-party agrees to
repurchase the underlying security for the same price, plus interest. Repurchase
agreements are generally for a relatively short period (usually not more than 7
days). The Portfolios normally use repurchase agreements to earn income on
assets that are not invested.
When a Portfolio enters into a repurchase agreement it will:
. Pay for the underlying securities only upon physically receiving them or
upon evidence of their receipt in book-entry form; and
. Require the counter party to add to the collateral whenever the price of
the repurchase agreement rises above the value of the underlying security
(i.e., it will require the borrower to "mark to the market" on a daily
basis).
If the seller of the security declares bankruptcy or otherwise becomes
financially unable to buy back the security, a Portfolio's right to sell the
security may be restricted. In addition, the value of the security might decline
before a Portfolio can sell it and a Portfolio might incur expenses in enforcing
its rights.
Restricted Securities
---------------------
The Portfolios may purchase restricted securities that are not registered for
sale to the general public but which are eligible for resale to qualified
institutional investors under Rule 144A of the Securities Act of 1933. Under the
supervision of the Board, the Adviser determines the liquidity of such
investments by considering all relevant factors. Provided that a dealer or
institutional trading market in such securities exists, these restricted
securities are not treated as illiquid securities for purposes of a Portfolio's
investment limitations. The price realized from the sales of these securities
could be more or less than those originally paid by a Portfolio or less than
what may be considered the fair value of such securities.
Securities Lending
------------------
A Portfolio may lend a portion of its total assets to broker- dealers or other
financial institutions. It may then reinvest the collateral it receives in
short-term securities and money market funds. When a Portfolio lends its
securities, it will follow the following guidelines:
. The borrower must provide collateral at least equal to the market value of
the securities loaned;
. The collateral must consist of cash, an irrevocable letter of credit issued
by a domestic U.S. bank or securities issued or guaranteed by the U. S.
government;
. The borrower must add to the collateral whenever the price of the
securities loaned rises (i.e., the borrower "marks to the market" on a
daily basis);
. It must be able to terminate the loan at any time;
. It must receive reasonable interest on the loan (which may include a
Portfolio investing any cash collateral in interest bearing short-term
investments); and
. It must determine that the borrower is an acceptable credit risk.
These risks are similar to the ones involved with repurchase agreements. When a
Portfolio lends securities, there is a risk that the borrower will become
financially unable to honor its contractual obligations. If this happens, a
Portfolio could:
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. Lose its rights in the collateral and not be able to retrieve the
securities it lent to the borrower; and
. Experience delays in recovering its securities.
When Issued Transactions
------------------------
A when-issued security is one whose terms are available and for which a market
exists, but which have not been issued. In a forward delivery transaction, a
Portfolio contracts to purchase securities for a fixed price at a future date
beyond customary settlement time. "Delayed delivery" refers to securities
transactions on the secondary market where settlement occurs in the future. In
each of these transactions, the parties fix the payment obligation and the
interest rate that they will receive on the securities at the time the parties
enter the commitment; however, they do not pay money or deliver securities until
a later date. Typically, no income accrues on securities a Portfolio has
committed to purchase before the securities are delivered, although a Portfolio
may earn income on securities it has in a segregated account. A Portfolio will
only enter into these types of transactions with the intention of actually
acquiring the securities, but may sell them before the settlement date.
A Portfolio uses when-issued, delayed-delivery and forward delivery transactions
to secure what it considers an advantageous price and yield at the time of
purchase. When a Portfolio engages in when-issued, delayed-delivery and forward
delivery transactions, it relies on the other party to consummate the sale. If
the other party fails to complete the sale, a Portfolio may miss the opportunity
to obtain the security at a favorable price or yield.
When purchasing a security on a when-issued, delayed delivery, or forward
delivery basis, a Portfolio assumes the rights and risks of ownership of the
security, including the risk of price and yield changes. At the time of
settlement, the market value of the security may be more or less than the
purchase price. The yield available in the market when the delivery takes place
also may be higher than those obtained in the transaction itself. Because a
Portfolio does not pay for the security until the delivery date, these risks are
in addition to the risks associated with its other investments.
A Portfolio will segregate cash and liquid securities equal in value to
commitments for the when-issued, delayed-delivery or forward delivery
transaction. A Portfolio will segregate additional liquid assets daily so that
the value of such assets is equal to the amount of its commitments.
INVESTMENT POLICIES OF THE PORTFOLIOS
A Portfolio will determine investment limitation percentages (with the exception
of a limitation relating to borrowing) immediately after and as a result of its
acquisition of such security or other asset. Accordingly, a Portfolio will not
consider changes in values, net assets or other circumstances when determining
whether the investment complies with its investment limitations.
Fundamental Policies
--------------------
The following investment limitations are fundamental, which means a Portfolio
cannot change them without approval by the vote of a majority of the outstanding
voting securities of a Portfolio, as defined by the 1940 Act.
Balanced Portfolio:
The Balanced Portfolio will not:
. With respect to 75% of its assets, invest more than 5% of its total assets
at the time of purchase in securities of any single issuer (other than
obligations issued or guaranteed as to principal and interest by the U.S.
government or any agency or instrumentality thereof).
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. With respect to 75% of its assets, purchase more than 10% of any class of
the outstanding voting securities of any issuer.
. Borrow, except from banks and as a temporary measure for extraordinary or
emergency purposes and then, in no event, in excess of 10% of the
Portfolio's gross assets valued at the lower of market or cost.
. Invest for the purpose of exercising control over management of any
company.
. Invest in commodities.
. Invest more than 25% of its assets in companies within a single industry;
however, there are no limitations on investments made in instruments issued
or guaranteed by the U.S. government and its agencies a Portfolio adopts a
temporary defensive position.
. Invest more than 5% of its assets at the time of purchase in the securities
of companies that have (with predecessors) a continuous operating history
of less than three years.
. Issue senior securities, as defined in the Investment Company Act of 1940,
as amended, except that this restriction shall not be deemed to prohibit a
Portfolio from (1) making any permitted borrowings, mortgages or pledges,
or (2) entering into options, futures or repurchase transactions.
. Make loans except by purchasing debt securities in accordance with its
investment objective and policies, or entering into repurchase agreements,
or lending its portfolio securities to banks, brokers, dealers and other
financial institutions so long as the loans are made in compliance with the
1940 Act and the rules and regulations or interpretations of the SEC.
. Pledge, mortgage, or hypothecate any of its assets to an extent greater
than 10% of its total assets at fair market value.
. Purchase additional securities when borrowings exceed 5% of total gross
assets.
. Purchase on margin or sell short.
. Purchase or retain securities of an issuer if those officers and Board
members of the Fund or their investment Adviser owning more than 1/2 of 1%
of such securities together own more than 5% of such securities.
. Purchase or sell real estate or real estate limited partnerships, although
it may purchase or sell securities of companies which deal in real estate
and may purchase and sell securities which are secured by interests in real
estate.
. Underwrite the securities of other issuers or invest more than an aggregate
of 10% of the net assets of the portfolio, determined at the time
investment, in securities subject to legal or contractual restrictions on
resale or securities for which there are no readily available markets,
including repurchase agreements having maturities of more than seven days.
. Write or acquire options or interests in oil, gas or other mineral
exploration or development programs.
Small Cap Value Portfolio:
The Small Cap Value Portfolio will not:
. With respect to 75% of its assets, invest more than 5% of its total assets
at the time of purchase in securities of any single issuer (other than
obligations issued or guaranteed as to principal and interest by the U.S.
government or any agency or instrumentality thereof).
. With respect to 75% of its assets, purchase more than 10% of any class of
the outstanding voting securities of any issuer.
. Borrow, except from banks and as a temporary measure for extraordinary or
emergency purposes and then, in
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no event, in excess of 133 1/3% of the Portfolio's gross assets valued at
the lower of market or cost.
. Invest for the purpose of exercising control over management of any
company.
. Invest in commodities.
. Invest more than 25% of its assets in companies within a single industry;
however, there are no limitations on investments made in instruments issued
or guaranteed by the U.S. government and its agencies a portfolio adopts a
temporary defensive position.
. Invest more than 5% of its assets at the time of purchase in the securities
of companies that have (with predecessors) a continuous operating history
of less than three years.
. Issue senior securities, as defined in the 1940 Act, except that this
restriction shall not be deemed to prohibit a portfolio from (1) making any
permitted borrowings, mortgages or pledges, or (2) entering into futures or
repurchase transactions.
. Make loans except by purchasing debt securities in accordance with its
investment objective and policies, or entering into repurchase agreements,
or lending its portfolio securities to banks, brokers, dealers and other
financial institutions so long as the loans are made in compliance with the
1940 Act and the rules and regulations or interpretations of the SEC.
. Pledge, mortgage, or hypothecate any of its assets to an extent greater
than 33 1/3% of its total assets at fair market value.
. Purchase additional securities when borrowings exceed 5% of total gross
assets.
. Purchase on margin or sell short.
. Purchase or retain securities of an issuer if those officers and Board
members of the Fund or its investment advisor owning more than 1/2 of 1%
of such securities together own more than 5% of such securities.
. Purchase or sell real estate or real estate limited partnerships, although
it may purchase or sell securities of companies which deal in real estate
and may purchase and sell securities which are secured by interests in real
estate.
. Underwrite the securities of other issuers or invest more than an aggregate
of 10% of the net assets of the Portfolio, determined at the time
investment, in securities subject to legal or contractual restrictions on
resale or securities for which there are no readily available markets,
including repurchase agreements having maturities of more than seven days.
. Write or acquire options or interests in oil, gas or other mineral
exploration or development programs.
Non-Fundamental Policies
------------------------
The following limitations are non-fundamental, which means a portfolio may
change them without shareholder approval.
The Portfolios will not:
. Invest in stock or bond futures and/or options on futures unless (1) not
more than 5% of the Portfolio's assets are required as deposit to secure
obligations under such futures and/or options on futures contracts; and (2)
not more than 20% of the Portfolio's assets are invested in stock or bond
futures and options on futures.
. Invest more than 20% of the Portfolio's assets in foreign securities.
In addition, the Adviser intends to limit the Balanced Portfolio's fixed income
investments to investment grade securities; however, the Adviser reserves the
right to retain securities which are rated Ba or B by Moody's or BB or
24
<PAGE>
B by S&P if, in the Adviser's judgement, maintaining a position in the
securities is warranted.
MANAGEMENT OF THE FUND
The Board supervises the management and affairs of the Fund under the laws of
the Commonwealth of Massachusetts. The Trustees have approved contracts under
which, as described above, certain companies provide essential management
services to the Fund. The Fund pays the fees for unaffiliated Trustees.
The Trustees and Executive Officers of the Fund, their respective dates of
birth, and their principal occupations for the last five years are set forth
below. Each may have held other positions with the named companies during that
period. Unless otherwise noted, the business address of each Trustee and each
Executive Officer is SEI Investments Company, Oaks, Pennsylvania 19456. Certain
officers of the Fund also serve as officers to one or more mutual funds for
which SEI Investments Company or its affiliates act as investment manager,
administrator or distributor.
ROBERT A. NESHER (DOB 08/17/46) -- Chairman of the Board of Trustees* --
Currently performs various services on behalf of SEI Investments for which Mr.
Nesher is compensated. Executive Vice President of SEI Investments, 1986-1994.
Director and Executive Vice President of the Administrator and the Distributor,
1981-1994. Trustee of The Arbor Fund, Bishop Street Funds, Boston 1784 Funds(R),
The Expedition Funds, Oak Associates Funds, Pillar Funds, SEI Asset Allocation
Trust, SEI Daily Income Trust, SEI Index Funds, SEI Institutional International
Trust, SEI Institutional Investments Trust, SEI Institutional Managed Trust, SEI
Insurance Products Trust, SEI Liquid Asset Trust and SEI Tax Exempt Trust.
JOHN T. COONEY (DOB 01/20/27)-- Trustee**-- Vice Chairman of Ameritrust Texas
N.A., 1989-1992, and MTrust Corp., 1985-1989. Trustee of The Arbor Fund, The
Expedition Funds and Oak Associates Funds.
WILLIAM M. DORAN (DOB 05/26/40) -- Trustee* -- 1701 Market Street, Philadelphia,
PA 19103. Partner, Morgan, Lewis & Bockius LLP (law firm), counsel to the Fund,
SEI Investments, the Administrator and the Distributor. Director of SEI
Investments since 1974; Secretary of SEI Investments since 1978. Trustee of The
Arbor Fund, The Expedition Funds, Oak Associates Funds, SEI Asset Allocation
Trust, SEI Daily Income Trust, SEI Index Funds, SEI Institutional International
Trust, SEI Institutional Investments Trust, SEI Institutional Managed Trust, SEI
Insurance Products 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 since 1984; Vice President-Investments,
Treasurer, Senior Vice President (Emeritus), 1982-1984. Director, Pennsylvania
Research Corp.; Member and Treasurer, Board of Trustees of Grove City College.
Trustee of The Arbor Fund, The Expedition Funds and Oak Associates Funds.
EUGENE B. PETERS (DOB 06/03/29)-- Trustee**-- Private investor from 1987 to
present. Vice President and Chief Financial Officer, Western Company of North
America (petroleum service company), 1980-1986. President of Gene Peters and
Associates (import company), 1978-1980. President and Chief Executive Officer of
Jos. Schlitz Brewing Company before 1978. Trustee of The Arbor Fund, The
Expedition Funds and Oak Associates Funds.
JAMES M. STOREY (DOB 04/12/31) -- Trustee** -- Partner, Dechert Price & Rhoads,
September 1987 - December 1993; Trustee of The Arbor Fund, The Expedition Funds,
Oak Associates Funds, SEI Asset Allocation Trust, SEI Daily Income Trust, SEI
Index Funds, SEI Institutional International Trust, SEI Institutional
Investments Trust, SEI Institutional Managed Trust, SEI Insurance Products
Trust, SEI Liquid Asset Trust and SEI Tax Exempt Trust.
25
<PAGE>
GEORGE J. SULLIVAN, JR. (DOB 11/13/42)-- Trustee**--Chief Executive Officer,
Newfound Consultants Inc. since April 1997. General Partner, Teton Partners,
L.P., June 1991- December 1996; Chief Financial Officer, Noble Partners, L.P.,
March 1991-December 1996; Treasurer and Clerk, Peak Asset Management, Inc.,
since 1991; Trustee, Navigator Securities Lending Trust, since 1995. Trustee of
The Arbor Fund, The Expedition Funds, Oak Associates Funds, SEI Asset Allocation
Trust, SEI Daily Income Trust, SEI Index Funds, SEI Institutional International
Trust, SEI Institutional Investments Trust, SEI Institutional Managed Trust, SEI
Insurance Products Trust, SEI Liquid Asset Trust and SEI Tax Exempt Trust.
JAMES R. FOGGO (DOB 06/30/64)-- President-- Vice President and Assistant
Secretary of the Administrator and the Distributor since May 1999. Associate,
Paul Weiss, Rifkind, Wharton & Garrison (law firm), 1998. Associate, Baker &
McKenzie (law firm), 1995-1998. Associate, Battle Fowler L.L.P. (law firm),
1993-1995. Operations Manager, The Shareholder Services Group, Inc., 1986-1990.
TIMOTHY D. BARTO (DOB 03/28/68)-- Vice President and Assistant
Secretary--Employed by SEI Investments since October 1999. Vice President and
Assistant Secretary of the Administrator and Distributor since December 1999.
Associate at Dechert Price & Rhoads, 1997-1999. Associate, at Richter, Miller &
Finn, 1994-1997.
TODD B. CIPPERMAN (DOB 02/14/66) -- Vice President and Assistant Secretary --
Senior Vice President and General Counsel of SEI Investments; Senior Vice
President, General Counsel and Secretary of the Administrator and the
Distributor since 2000. Vice President and Assistant Secretary of SEI
Investments, the Administrator and the Distributor, 1995-2000. Associate, Dewey
Ballantine (law firm), 1994-1995. Associate, Winston & Strawn (law firm),
1991-1994.
LYDIA A. GAVALIS (DOB 06/05/64) -- Vice President and Assistant Secretary --
Vice President and Assistant Secretary of SEI Investments, the Administrator and
the Distributor since 1998. Assistant General Counsel and Director of
Arbitration, Philadelphia Stock Exchange, 1989-1998.
CHRISTINE M. MCCULLOUGH (DOB 12/02/60) -- Vice President and Assistant Secretary
-- Employed by SEI Investments since November 1, 1999. Vice President and
Assistant Secretary of the Administrator and the Distributor since December
1999. Associate at White and Williams LLP, 1991-1999. Associate at Montgomery,
McCracken, Walker & Rhoads, 1990-1991.
WILLIAM E. ZITELLI, JR. (DOB 6/14/68) - Vice President and Secretary - Vice
President and Assistant Secretary of the Administrator and Distributor since
August 2000. Vice President, Merrill Lynch & Co. Asset Management Group (1998 -
2000). Associate at Pepper Hamilton LLP (1997-1998). Associate at Reboul,
MacMurray, Hewitt, Maynard & Kristol (1994 - 1997).
ROBERT J. DELLACROCE (DOB 12/17/63)-- Controller and Chief Financial Officer--
Director, Funds Administration and Accounting of the Administrator since 1994.
Senior Audit Manager, Arthur Andersen LLP, 1986 - 1994.
JOHN H. GRADY, JR. (DOB 06/01/61)-- Secretary-- 1701 Market Street,
Philadelphia, PA 19103, Partner since 1995, Morgan, Lewis & Bockius LLP (law
firm), counsel to the Fund, SEI Investments, the Administrator and the
Distributor.
RICHARD W. GRANT (DOB 10/25/45) - Assistant Secretary - 1701 Market Street,
Philadelphia, PA 19103-2921. Partner, Morgan, Lewis & Bockius LLP (law firm),
counsel to the Fund, the Administrator and the Distributor.
26
<PAGE>
JOHN M. FORD (DOB 09/11/69) - Assistant Secretary - 1800 M Street, NW,
Washington, DC 20036, Associate since 1998, Morgan, Lewis & Bockius, LLP (law
firm), counsel to the Trust, SEI Investments, the Administrator and the
Distributor.
*Messrs. Nesher and Doran are Trustees who may be deemed to be "interested"
persons of the Portfolio as that term is defined in the 1940 Act.
**Messrs. Cooney, Patterson, Peters, Storey and Sullivan serve as members of the
Audit Committee of the Portfolio.
The Trustees and officers of the Fund own less than 1% of the outstanding shares
of the Fund.
The following table exhibits expected Trustee compensation for the Fund's fiscal
year ended October 31, 2000. Each of the Fund's separate series bears its
proportionate share of the Trustees' compensation. Since the Sterling Partners'
Portfolios were not a series of the Fund prior to the end of the most recently
completed fiscal year, the Small Cap Value and balanced Portfolios did not
contribute to the Trustee's compensation as detailed below.
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
Aggregate
Compensation for the Pension or Retirement Estimated Annual Total Compensation from the Fund
Name of Person Fiscal Year Ended Benefits Accrued as Part Benefits Upon Paid to Trustees for the Fiscal
10/31/00 of Fund Expenses Retirement Year Ended 10/31/00*
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
John T. Cooney [$9,571.48] N/A N/A [$9,571.48] for service on one
board
------------------------------------------------------------------------------------------------------------------------------------
Robert Patterson [$9,571.48] N/A N/A [$9,571.48] for service on one
board
------------------------------------------------------------------------------------------------------------------------------------
Eugene B. Peters [$9,571.48] N/A N/A [$9,571.48] for service on one
board
------------------------------------------------------------------------------------------------------------------------------------
James M. Storey [$9,571.48] N/A N/A [$9,571.48] for service on one
board
------------------------------------------------------------------------------------------------------------------------------------
George J. Sullivan [$9,571.48] N/A N/A [$9,571.48] for service on one
board
------------------------------------------------------------------------------------------------------------------------------------
William M. Doran $0 N/A N/A $0 for service on one board
------------------------------------------------------------------------------------------------------------------------------------
Robert A. Nesher $0 N/A N/A $0 for service on one board
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
INVESTMENT ADVISORY AND OTHER SERVICES
Investment Adviser
------------------
Sterling Asset Management LLC (the "Adviser"), a North Carolina corporation
located at One First Union Center, 301 S. College Street, Suite 3200, Charlotte,
North Carolina 28202, is the investment adviser to each of the Portfolios. The
Adviser manages and supervises the investment of each Portfolio's assets on a
discretionary basis.
The Adviser is a successor to Sterling Capital Management Company ("UAM
Sterling"), a wholly-owned subsidiary of United Asset Management, Inc. ("UAM").
Mark Whalen, Dave Ralston, Ed Brea, Alex McAlister and Richard Walton, key
employees of UAM Sterling, organized the Adviser to purchase and continue the
investment advisory business of UAM Sterling. UAM Sterling was formed in 1970
and became a subsidiary of UAM in 1984. It served as investment adviser of the
Predecessor Funds from their inception (March 15, 1991 with respect to the
27
<PAGE>
Sterling Partners' Balanced Portfolio and January 2, 1997 with respect to the
Sterling Partners' Small Cap Value Portfolio) until the sale to the Adviser.
The Adviser provides investment management services to a diversified group of
clients including public investment pools, corporate, endowment, foundation and
health care clients. Its investment products include small and large
capitalization value equity, fixed income, and cash management. Currently, the
Adviser has approximately $3.25 billion under management and thirty-three
employees, including sixteen investment professionals. These investment
professionals are between 34 and 46 years old, and the Adviser anticipates that
this team will provide leadership for the Adviser for the future.
Investment Advisory Agreement
-----------------------------
This section summarizes some of the important provisions of the Investment
Advisory Agreement. The Fund has filed each agreement with the SEC as part of
its registration statement on Form N-1A.
Service Performed by Adviser
The Adviser:
. Manages the investment and reinvestment of a Portfolio's assets;
. Continuously reviews, supervises and administers the investment program of
a Portfolio; and
. Determines what portion of a Portfolio's assets will be invested in
securities and what portion will consist of cash.
Limitation of Liability
In the absence of (1) willful misfeasance, bad faith, or gross negligence on the
part of the Adviser in the performance of its obligations and duties under the
Investment Advisory Agreement or(2) reckless disregard by the Adviser of its
obligations and duties under the Investment Advisory Agreement, the Adviser
shall not be subject to any liability whatsoever to the Fund, for any error of
judgment, mistake of law or any other act or omission in the course of, or
connected with, rendering services under the Investment Advisory Agreement.
Continuing an Investment Advisory Agreement
The Investment Advisory Agreement continues in effect for periods of one year so
long as such continuance is specifically approved at least annually by a:
. Majority of those Board members who are not parties to the Investment
Advisory Agreement or interested persons of any such party; and
. a) majority of the Board members or b) a majority of the shareholders of
the Portfolio.
Terminating an Investment Advisory Agreement
The Fund may terminate an Investment Advisory Agreement at any time, without the
payment of any penalty if:
. A majority of the Portfolio's shareholders vote to do so or a majority of
Fund's Trustees vote to do so; and
. It gives the Adviser not less than 30 nor more than 60 days' written
notice.
The Adviser may terminate the Investment Advisory Agreement at any time, without
the payment of any penalty, upon 90 days' written notice to the Fund. An
Investment Advisory Agreement will automatically and immediately terminate if it
is assigned.
28
<PAGE>
Advisory Fees
For its services, each Portfolio pays its Adviser the following annual fees,
which are expressed as a percentage of the average daily net assets of the
Portfolio. Due to the effect of fee waivers by the Adviser, the actual
percentage of average net assets that a Portfolio pays in any given year may be
different from the rate set forth in its contract with the Adviser. For the last
three fiscal years, the predecessor funds paid the following in management fees
to the predecessor Adviser:
<TABLE>
<CAPTION>
Investment Advisory Investment Advisory Total Investment
Fees Paid Fees Waived Advisory Fees
<S> <C> <C> <C>
Small Cap Value Portfolio
2000 $ XXXXX $ XXXXX $ XXXXX
1999 $411,435 $104,588 $306,848
1998 $243,325 $73,508 $169,817
Balanced Portfolio
2000 $XXXXX XXXXX XXXXXX
1999 $558,088 $64,548 $523,540
1998 $608,044 $0 $608,044
</TABLE>
DISTRIBUTOR
The Distributor and the Fund are parties to a distribution agreement (the
"Distribution Agreement"). 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.
No compensation is paid to the Distributor for distribution services for the
shares of the Portfolios.
ADMINISTRATOR
The Administrator provides the Portfolios with administrative services,
including regulatory reporting and all necessary office space, equipment,
personnel and facilities.
For these administrative services, the Administrator is entitled to a fee from
each Portfolio, which is calculated daily and paid monthly based on the
respective Portfolio's asset level, at an annual rate of: [.15% on the first $50
million of average daily net assets; .125% on the next $50 million of average
daily net assets; and .10% on average daily net assets over $100 million.
However, each Portfolio pays a minimum annual administration fee of $80,000,
which would be increased by $15,000 per additional class. Due to the minimum
annual administration fee, the administration fee that a Portfolio pays will
decline according to the administration fee schedule described above, only after
a Portfolio's net asset level reaches $54 million.]
The Administration Agreement provides that the Administrator shall not be liable
for any error of judgment or mistake of law or for any loss suffered by the
Portfolios in connection with the matters to which the Administration Agreement
relates, except a loss resulting from willful misfeasance, bad faith or gross
negligence on the part of the Administrator in the performance of its duties or
from reckless disregard of its duties and obligations thereunder.
The Administration Agreement shall remain effective for the initial term of the
Agreement and each renewal term thereof unless earlier terminated (a) by the
mutual written agreement of the parties; (b) by either party of the
Administration Agreement on 90 days' written notice, as of the end of the
initial term or the end of any renewal
29
<PAGE>
term; (c) by either party of the Administration Agreement on such date as is
specified in written notice given by the terminating party, in the event of a
material breach of the Administration Agreement by the other party, provided the
terminating party has notified the other party of such breach at least 45 days'
prior to the specified date of termination and the breaching party has not
remedied such breach by the specified date; (d) effective upon the liquidation
of the Administrator; or (e) as to a Portfolio or the Fund, effective upon the
liquidation of the Portfolios or the Fund, as the case may be.
The Administrator, a Delaware business trust, has its principal business offices
at Oaks, Pennsylvania 19456. SEI Investments Management Corporation ("SIMC"), a
wholly owned subsidiary of SEI Investments Company ("SEI Investments"), is the
owner of all beneficial interest in the Administrator. SEI Investments and its
subsidiaries and affiliates, including the Administrator, are leading providers
of funds evaluation services, trust accounting systems, and brokerage and
information services to financial institutions, institutional investors, and
money managers. The Administrator and its affiliates also serve as administrator
or sub-administrator to the following other mutual funds including, but without
limitation: The Achievement Funds Trust, Alpha Select Funds, Amerindo Funds
Inc., The Arbor Fund, ARK Funds, Armada Funds, The Armada Advantage Fund, Bishop
Street Funds, CNI Charter Funds, CUFUND, The Expedition Funds, First American
Funds, Inc., First American Investment Funds, Inc., First American Strategy
Funds, Inc., First Omaha Funds, Inc., Friends Ivory Funds, HighMark Funds,
Huntington Funds, Huntington VA Funds, iShares Inc., iShares Trust, Johnson
Family Funds, Inc., The Millenium Funds, The Nevis Fund, Inc., Oak Associates
Funds, The PBHG Funds, Inc., PBHG Insurance Series Fund, Inc., The Pillar Funds,
SEI Asset Allocation Trust, Pitcairn Funds, SEI Daily Income Trust, SEI Index
Funds, SEI Institutional International Trust, SEI Institutional Investments
Trust, SEI Institutional Managed Trust, SEI Insurance Products Trust, SEI Liquid
Asset Trust, SEI Tax Exempt Trust, STI Classic Funds, STI Classic Variable
Trust, TIP Funds, UAM Funds Trust, UAM Funds, Inc. and UAM Funds, Inc. II.
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" ("RIC") under provisions of the Internal Revenue Code of 1986, as
amended (the "Code"). The term "expenses" is defined in such laws or
regulations, and generally excludes brokerage commissions, distribution
expenses, taxes, interest and extraordinary expenses.
For the last three fiscal years the Predecessor Funds paid the following in
administration and sub-administration fees:
<TABLE>
<CAPTION>
Administrators Fee Sub-Administrators Fee Total Fee*
<S> <C> <C> <C>
Small Cap Value Portfolio
2000 $ XXXX $ XXXX $ XXXX
1999 $25,532 $68,387 $93,919
1998 $15,483 $66,555 $82,038
Balanced Portfolio
2000 $ XXXX $ XXXX $ XXXX
1999 $56,040 $81,638 $137,678
1998 $51,575 $82,561 $134,136
</TABLE>
* UAM Fund Services, Inc. ("UAMFSI") served as the administrator to the
Predecessor Funds. The Administrator served as the sub-administrator to the
Predecessor Funds.
CUSTODIAN
First Union National Bank, 125 South Broad Street, Philadelphia, PA 19109 (the
"Custodian") acts as custodian for the Fund. The Custodian holds cash,
securities and other assets of the Fund as required by the 1940 Act.
30
<PAGE>
TRANSFER AGENT
DST Systems, Inc., 330 W 9th Street, Kansas City, MO 64105 serves as the
Portfolios' transfer agent.
INDEPENDENT ACCOUNTANTS
[To be filed by amendment] serves as independent accountant for the Portfolios.
LEGAL COUNSEL
Morgan, Lewis & Bockius, LLP serves as legal counsel to the Fund.
CODES OF ETHICS
The Board of Trustees of the Fund has adopted a Code of Ethics pursuant to Rule
17j-1 under the Investment Company Act of 1940. In addition, the Advisor and
Distributor have adopted Codes of Ethics pursuant to Rule 17j-1. These Codes of
Ethics (each a "Code" and together the "Codes") apply to the personal investing
activities of trustees, officers and certain employees ("access persons"). Rule
17j-1 and the Codes are designed to prevent unlawful practices in connection
with the purchase or sale of securities by access persons. Under each Code,
access persons are permitted to engage in personal securities transactions, but
are required to report their personal securities transactions for monitoring
purposes. The Codes further require certain access persons to obtain approval
before investing in initial public offerings and limited offerings. Copies of
these Codes of Ethics are on file with the Securities and Exchange Commission,
and are available to the public.
BROKERAGE ALLOCATION AND OTHER PRACTICES
Selection of Brokers
The Investment Advisory Agreement authorizes the Adviser to select the brokers
or dealers that will execute the purchases and sales of investment securities
for each Portfolio. The Investment Agreement also directs the Adviser to use its
best efforts to obtain the best execution with respect to all transactions for
the Portfolio. The Adviser may select brokers based on research, statistical and
pricing services they provide to the Adviser. Information and research provided
by a broker will be in addition to, and not instead of, the services the Adviser
is required to perform under the Investment Advisory Agreement. In so doing, the
Portfolio may pay higher commission rates than the lowest rate available when
the Adviser believes it is reasonable to do so in light of the value of the
research, statistical, and pricing services provided by the broker effecting the
transaction.
It is not the practice of the Fund to allocate brokerage or effect principal
transactions with dealers based on sales of shares that a broker-dealer firm
makes. However, the Fund may place trades with qualified broker-dealers who
recommend the Fund or who act as agents in the purchase of Fund shares for their
clients.
Simultaneous Transactions
The Adviser makes investment decisions for each Portfolio independently of
decisions made for its other clients. When a security is suitable for the
investment objective of more than one client, it may be prudent for the Adviser
to engage in a simultaneous transaction, that is, buy or sell the same security
for more than one client. The Adviser strives to allocate such transactions
among its clients, including the Portfolios, in a fair and reasonable manner.
Although there is no specified formula for allocating such transactions, the
Fund's governing board periodically reviews the various allocation methods used
by the Adviser.
31
<PAGE>
Brokerage Commissions
Equity Securities
-----------------
Generally, equity securities are bought and sold through brokerage transactions
for which commissions are payable. Purchases from underwriters will include the
underwriting commission or concession, and purchases from dealers serving as
market makers will include a dealer's mark-up or reflect a dealer's mark-down.
Debt Securities
---------------
Debt securities are usually bought and sold directly from the issuer or an
underwriter or market maker for the securities. Generally, a Portfolio will not
pay brokerage commissions for such purchases. When a debt security is bought
from an underwriter, the purchase price will usually include an underwriting
commission or concession. The purchase price for securities bought from dealers
serving as market makers will similarly include the dealer's mark up or reflect
a dealer's mark down. When a Portfolio executes transactions in the
over-the-counter market, it will deal with primary market makers unless prices
that are more favorable are otherwise obtainable.
Commissions Paid
----------------
For the last three fiscal years, the predecessor portfolios paid the following
in brokerage commissions:
Brokerage Commissions
Small Cap Value Portfolio
2000 $ XXXXX
1999 $134,535
1998 $163,245
Balanced Portfolio
2000 $ XXXXX
1999 $134,507
1998 $89,004
CAPITAL STOCK AND OTHER SECURITIES
Description of Shares and Voting Rights
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 Board 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. The Fund will not hold annual meetings
except when required to by the 1940 Act or other applicable law.
Dividend and Distribution Options
There are three ways for shareholders to receive dividends and capital gains:
. Income dividends and capital gains distributions are reinvested in
additional shares at net asset value;
. Income dividends are paid in cash and capital gains distributions are
reinvested in additional shares at NAV; and
. Income dividends and capital gains distributions are paid in cash.
32
<PAGE>
The Fund sends account statements to shareholders whenever it pays an income
dividend or capital gains distribution.
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 Board, 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 Board Member 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 Board Members 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 Board Member against any
liability for his or her willful misfeasance, bad faith, gross negligence or
reckless disregard of his or her duties.
FEDERAL TAXES
The following is only a summary of certain additional federal income tax
considerations generally affecting the Portfolios and their shareholders that is
intended to supplement the discussion contained in the Portfolios' prospectus.
No attempt is made to present a detailed explanation of the tax treatment of the
Portfolios or their shareholders, and the discussion here and in the
prospectuses is not intended as a substitute for careful tax planning.
Shareholders are urged to consult with their tax advisers with specific
reference to their own tax situation, including their state, local, and foreign
tax liabilities.
Each Portfolio intends to qualify as a regulated investment company under
Subchapter M of the Internal Revenue Code, and to distribute out its income to
shareholders each year so that the Portfolio itself generally will be relieved
of federal income and excise taxes. If a Portfolio were to fail to so qualify:
(1) it would be taxed at regular corporate rates without any deduction for
distributions to shareholder; and (2) its shareholders would be taxed as if they
received ordinary dividends, although corporate shareholders could be eligible
for the dividends received deduction.
A Portfolio's dividends that are paid to their corporate shareholders and are
attributable to qualifying dividends it received from U.S. domestic corporations
may be eligible, in the hands of such shareholders, for the corporate dividends
received deduction, subject to certain holding period requirements and debt
financing limitations.
In addition, to avoid federal excise taxes, the Internal Revenue Code requires
each Portfolio to distribute to you by December 31 of each year, at a minimum,
the following amounts: 98% of its taxable ordinary income earned during the
calendar year; 98% of its capital gain net income earned during the twelve month
period ending October
33
<PAGE>
31; and 100% of any undistributed amounts from the prior year. Each Portfolio
intends to avoid these excise taxes, but can give no assurances that its
distributions will be sufficient to eliminate all taxes.
Each Portfolio receives income generally in the form of dividends and interest
on investments. This income, less expenses incurred in the operation of a
Portfolio, constitutes a Portfolio's net investment income from which dividends
may be paid to you. Any distributions by a Portfolio from such income will be
taxable to you as ordinary income, whether you take them in cash or in
additional shares.
The Portfolio may derive capital gains and losses in connection with sales or
other dispositions of its securities. Distributions from net short-term capital
gains will be taxable to you as ordinary income. Distributions from net
long-term capital gains will be taxable to you as long-term capital gain
regardless of how long you have held your shares in a Portfolio. Any net capital
gains realized by a Portfolio generally will be distributed once each year, and
may be distributed more frequently, if necessary, in order to reduce or
eliminate excise or income taxes on a Portfolio.
Most foreign exchange gains realized on the sale of debt securities are treated
as ordinary income by a Portfolio. Similarly, foreign exchange losses realized
by a Portfolio on the sale of debt securities are generally treated as ordinary
losses by a Portfolio. These gains when distributed will be taxable to you as
ordinary dividends, and any losses will reduce a Portfolio's ordinary income
otherwise available for distribution to you. This treatment could increase or
reduce a Portfolio's ordinary income distributions to you, and may cause some or
all of a Portfolio's previously distributed income to be classified as a return
of capital.
A Portfolio may be subject to foreign withholding taxes on income from certain
of its foreign securities. If more than 50% of a Portfolio's total assets at the
end of the fiscal year are invested in securities of foreign corporations, it
may elect to pass-through to you your pro rata share of foreign taxes paid by
the Portfolio. It is not anticipated that any of the Portfolios will be eligible
to make this election.
The Portfolio may invest in complex securities. These investments may be subject
to numerous special and complex tax rules. These rules could affect whether
gains and losses recognized by the Portfolio are treated as ordinary income or
capital gain, accelerate the recognition of income to the Portfolio and/or defer
the Portfolio's ability to recognize losses, and, in limited cases, subject the
Portfolio to U.S. federal income tax on income from certain of its foreign
securities. In turn, these rules may affect the amount, timing or character of
the income distributed to you by the Portfolio.
Redemptions and exchanges of Portfolio shares are taxable transactions for
federal and state income tax purposes. If you redeem your Portfolio shares, or
exchange your Portfolio shares for shares of a different Advisors' Inner Circle
Fund, the IRS will require that you report a gain or loss on your redemption or
exchange. If you hold your shares as a capital asset, the gain or loss that you
realize will be capital gain or loss and will be long-term or short-term,
generally depending on how long you hold your shares. Any loss incurred on the
redemption or exchange of shares held for six months or less will be treated as
a long-term capital loss to the extent of any long-term capital gains
distributed to you by the Portfolio on those shares. All or a portion of any
loss that your realize upon the redemption of your Portfolio shares will be
disallowed to the extent that you buy other shares in the Portfolio (through
reinvestment of dividends or otherwise) within 30 days before or after your
share redemption. Any loss disallowed under these rules will be added to your
tax basis in the new shares you buy.
Depending upon state and local law, distributions by a Portfolio to its
shareholders and the ownership of such shares may be subject to state and local
taxes. Shareholders are urged to consult their tax advisors as to the
consequences of these and other state and local tax rules affecting an
investment in the Portfolio. Many states grant tax-free status to dividends paid
to you from interest earned on direct obligations of the U.S. government,
subject in some states to minimum investment requirements that must be met by
the Portfolio. Investments in Government National Mortgage Association or
Federal National Mortgage Association securities, bankers' acceptances,
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commercial paper and repurchase agreements collateralized by U.S. government
securities do not generally qualify for tax-free treatment. The rules on
exclusion of this income are different for corporations.
PURCHASE, REDEMPTION AND PRICING OF SHARES
Calculating NAV
---------------
The purchase and redemption price of the shares of a Portfolio is equal to the
NAV of the Portfolio. The Fund calculates the NAV of a Portfolio by subtracting
its liabilities from its total assets and dividing the result by the total
number of shares outstanding. For purposes of this calculation:
. Liabilities include accrued expenses and dividends payable; and
. Total assets include the market value of the securities held by the
Portfolio, plus cash and other assets plus income accrued but not yet
received.
Each Portfolio normally calculates its NAV as of the close of trading on the
NYSE every day the NYSE is open for trading. The NYSE usually closes at 4:00
p.m. The NYSE is closed on the following days: New Year's Day, Dr. Martin Luther
King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Thanksgiving Day and Christmas Day.
How the Fund Values it Assets
-----------------------------
Equity Securities - Equity securities listed on a securities exchange for which
market quotations are readily available are valued at the last quoted sale price
of the day. Price information on listed securities is taken from the exchange
where the security is primarily traded. Unlisted equity securities and listed
securities not traded on the valuation date for which market quotations are
readily available are valued neither exceeding the asked prices nor less than
the bid prices. Quotations of foreign securities in a foreign currency are
converted to U.S. dollar equivalents. The exchange rates used by the Fund for
the conversion are captured as of the London close each day.
Debt and Fixed Income Securities - Debt and fixed income securities may be
priced by independent, third party pricing agents. A list of third party pricing
agents with whom the Fund has contracted may be found in the Fund's Pricing and
Valuation Procedures. If a security price cannot be obtained from an
independent, third-party pricing agent, the Fund's administrator obtains a bid
price form an independent broker who makes a market in the security. The values
supplied by both the Fund's independent, third-party pricing agents and/or
independent brokers are subject to procedures described in Section IV of the
Fund's Pricing and Valuation Procedures. Securities purchased with remaining
maturities of 60 days or less are valued at amortized cost, which approximates
fair market value.
Other Assets and Fair Value Pricing - The value of other assets and securities
for which no quotations are readily available (including restricted securities)
is determined in good faith at fair value using methods determined by the Fund's
Fair Value Procedures established by the Board.
Purchase of Shares
------------------
Financial intermediaries may enter confirmed purchase orders for shares on
behalf of their customers. To do so, the financial intermediary must receive
your investment order before the close of trading on the NYSE and must transmit
it to the fund before the close of its business day to receive that day's share
price. The fund must receive proper payment for the order by the time the
Portfolio calculates its NAV on the following business day. Financial
intermediaries are responsible to their customers and the Fund for timely
transmission of all subscription and redemption requests, investment
information, documentation and money.
Shareholders can buy full and fractional (calculated to three decimal places)
shares of a Portfolio. The Fund will not
35
<PAGE>
issue certificates for fractional shares and will only issue certificates for
whole shares upon the written request of a shareholder.
The Fund may reduce or waive the minimum for initial and subsequent investment
for certain fiduciary accounts, such as employee benefit plans or under
circumstances, where certain economies can be achieved in sales of the
Portfolio's shares.
In-Kind Purchases
-----------------
At its discretion, the Fund may permit shareholders to purchase shares of the
Portfolio with securities, instead of cash. If the Fund allows a shareholder to
make an in-kind purchase, it will value such securities according to the
policies described under "How the Fund Values it Assets" at the next
determination of net asset value after acceptance. The Fund will issue shares of
the Portfolio at the NAV of the Portfolio determined as of the same time.
The Fund will only acquire securities through an in-kind purchase for investment
and not for immediate resale. The Fund will only accept in-kind purchases if the
transaction meets the following conditions:
. The securities are eligible investments for the Portfolio;
. The securities have readily available market quotations;
. The investor represents and agrees that the securities are liquid and that
there are no restrictions on their resale imposed by the 1933 Act or
otherwise;
. All dividends, interest, subscription, or other rights pertaining to such
securities become the property of the Portfolio and are delivered to the
fund by the investor upon receipt from the issuer; and
. Immediately after the transaction is complete, the value of all securities
of the same issuer held by the Portfolio cannot exceed 5% of the net assets
of the Portfolio. This condition does not apply to U.S. government
securities.
Investors who are subject to Federal taxation upon exchange may realize a gain
or loss for federal income tax purposes depending upon the cost of securities or
local currency exchanged. Investors interested in such exchanges should contact
the Adviser.
Redemption of Shares
--------------------
When you redeem, your shares may be worth more or less than the price you paid
for them depending on the market value of the investments held by the Portfolio.
By Mail - Requests to redeem shares must include:
. Share certificates, if issued;
. A letter of instruction or an assignment specifying the number of shares or
dollar amount the shareholder wishes to redeem signed by all registered
owners of the shares in the exact names in which they are registered;
. Any required signature guarantees (see "Signature Guarantees"); and
. Any other necessary legal documents for estates, trusts, guardianships,
custodianships, corporations, pension and profit sharing plans and other
organizations.
By Telephone - Shareholders may not do the following by telephone:
. Change the name of the commercial bank or the account designated to receive
redemption proceeds. To change an account in this manner, you must submit a
written request signed by each shareholder, with each signature guaranteed.
. Redeem shares represented by a certificate.
36
<PAGE>
The Fund will employ reasonable procedures to confirm that instructions
communicated by telephone are genuine, and they may be liable for any losses if
they fail to do so. The Fund will not be responsible for any loss, liability,
cost or expense for following instructions received by telephone that it
reasonably believes to be genuine.
Redemptions-In-Kind
-------------------
If the Board of Trustees determines that it would be detrimental to the best
interests of remaining shareholders of the Fund to make payment wholly or partly
in cash, the Fund may pay redemption proceeds in whole or in part by a
distribution in-kind of liquid securities held by the Portfolio in lieu of cash
in conformity with applicable rules of the SEC. Investors may incur brokerage
charges on the sale of portfolio securities received in payment of redemptions.
The Fund has made an election with the SEC to pay in cash all redemptions
requested by any shareholder of record limited in amount during any 90-day
period to the lesser of $250,000 or 1% of the net assets of the Fund at the
beginning of such period. Such commitment is irrevocable without the prior
approval of the SEC. Redemptions in excess of the above limits may be paid in
whole or in part, in investment securities or in cash, as the Board may deem
advisable; however, payment will be made wholly in cash unless the Board
believes that economic or market conditions exist which would make such a
practice detrimental to the best interests of the Fund. If redemptions are paid
in investment securities, such securities will be valued as set forth under
"Valuation of Shares." A redeeming shareholder would normally incur brokerage
expenses if these securities were converted to cash.
Signature Guarantees
--------------------
The Fund requires signature guarantees for certain types of documents,
including:
. Written requests for redemption;
. Separate instruments for assignment ("stock power"), which should specify
the total number of shares to be redeemed; and
. On all stock certificates tendered for redemption.
The purpose of signature guarantees is to verify the identity of the person who
has authorized a redemption from your account and to protect your account, the
Fund and its transfer agent from fraud.
The Fund will accept signature guarantees from any eligible guarantor
institution, as defined by the Securities Exchange Act of 1934 that participates
in a signature guarantee program. Eligible guarantor institutions include banks,
brokers, dealers, credit unions, national securities exchanges, registered
securities associations, clearing agencies and savings associations.
Broker-dealers guaranteeing signatures must be a member of a clearing
corporation or maintain net capital of at least $100,000. Credit unions must be
authorized to issue signature guarantees.
Other Redemption Information
----------------------------
Normally, the Fund will pay for all shares redeemed under proper procedures
within seven days after it received your request. However, the Fund will pay
your redemption proceeds earlier as applicable law so requires.
When the Fund may suspend redemption privileges or postpone the date of payment:
. when the NYSE and custodian bank are closed;
. when trading on the NYSE is restricted;
. during any period when an emergency exists as defined by the rules of the
SEC as a result of which it is not
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<PAGE>
reasonably practicable for the Portfolio to dispose of securities owned by
it, or to fairly determine the value of its assets; or
. for such other periods as the SEC may permit.
Exchange Privilege
------------------
The exchange privilege is only available with respect to Portfolios that are
qualified for sale in the shareholder's state of residence. Exchanges are based
on the respective net asset values of the shares involved. The shares of the
Portfolios do not charge a sales commission or charge of any kind for exchanges.
Neither the Fund nor any of its service providers will be responsible for the
authenticity of the exchange instructions received by telephone. The Board may
restrict the exchange privilege at any time. Such instructions may include
limiting the amount or frequency of exchanges and may be for the purpose of
assuring such exchanges do not disadvantage the Fund and its shareholders.
Transfer of Shares
------------------
Shareholders may transfer shares of the portfolio to another person by making a
written request to the Fund. Your request should clearly identify the account
and number of shares you wish to transfer. All registered owners should sign the
request and all stock certificates, if any, which are subject to the transfer.
The signature on the letter of request, the stock certificate or any stock power
must be guaranteed in the same manner as described under "Signature Guarantees."
As in the case of redemptions, the written request must be received in good
order before any transfer can be made.
PERFORMANCE CALCULATIONS
Each Portfolio measures its performance by calculating its yield and total
return. Yield and total return figures are based on historical earnings and are
not intended to indicate future performance. The Portfolio calculates its
current yield and average annual total return information according to the
methods required by the SEC. The performance is calculated separately for each
Portfolio.
Total Return
Total return is the change in value of an investment in a Portfolio over a given
period, assuming reinvestment of any dividends and capital gains. A cumulative
or aggregate total return reflects actual performance over a stated period. An
average annual total return is a hypothetical rate of return that, if achieved
annually, would have produced the same cumulative total return if performance
had been constant over the entire period.
The fund calculates the average annual total return of a Portfolio by finding
the average annual compounded rates of return over one, five and ten-year
periods that would equate an initial hypothetical $1,000 investment to its
ending redeemable value. The calculation assumes that all dividends and
distributions are reinvested when paid. The quotation assumes the amount was
completely redeemed at the end of each one, five and ten-year period and the
deduction of all applicable Fund expenses on an annual basis.
The fund calculates these figures according to the following formula:
P (1 + T)/n/ = ERV
Where:
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P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000 payment
made at the beginning of the 1, 5 or 10 year periods at
the end of the 1, 5 or 10 year periods (or fractional
portion thereof).
Set forth in the table below are the predecessor portfolios' average annual
returns for the one-year period and the five-year period ended October 31, 2000
and the shorter of the ten-year period ended October 30, 2000 or the period from
a portfolio's inception date through October 31, 2000.
<TABLE>
<CAPTION>
One Year Five Years Since Inception Inception Date
<S> <C> <C> <C> <C>
Small Cap Value Portfolio N/A N/A 1/2/97
Balanced Portfolio 3/15/91
</TABLE>
Yield
Yield refers to the income generated by an investment in a portfolio over a
given period of time, expressed as an annual percentage rate. Yields are
calculated according to a standard that is required for all mutual funds. As
this differs from other accounting methods, the quoted yield may not equal the
income actually paid to shareholders.
The current yield is determined by dividing the net investment income per share
earned during a 30-day base period by the maximum offering price per share on
the last day of the period and annualizing the result. Expenses accrued for the
period, include any fees charged to all shareholders during the base period.
Yield is obtained using the following formula:
Yield = 2[((a-b)/(cd)+1)/6/-1]
Where:
a = dividends and interest earned during the period
b = expenses accrued for the period (net of reimbursements)
c = the average daily number of shares outstanding during the
period that were entitled to receive income distributions
d = the maximum offering price per share on the last day of
the period.
Comparisons
A portfolio's performance may be compared to data prepared by independent
services which monitor the performance of investment companies, data reported in
financial and industry publications, and various indices. This information may
also be included in sales literature and advertising.
To help investors better evaluate how an investment in a portfolio might satisfy
their investment objective, advertisements regarding the Fund may discuss
various measures of portfolio performance as reported by various
39
<PAGE>
financial publications. Advertisements may also compare performance (as
calculated above) to performance as reported by other investments, indices and
averages.
In assessing such comparisons of performance, an investor should keep in mind:
. that the composition of the investments in the reported indices and
averages is not identical to the composition of investments in a portfolio;
. that the indices and averages are generally unmanaged; and
. that the items included in the calculations of such averages may not be
identical to the formula used by a portfolio to calculate its performance;
and
. that shareholders cannot invest directly in such indices or averages.
In addition, there can be no assurance that a portfolio will continue this
performance as compared to such other averages.
FINANCIAL STATEMENTS
The following documents are available for the Predecessor Funds and are included
in their October 31, 2000 Annual Report:
. Financial statements for the fiscal year ended October 31, 2000.
. Financial highlights for the respective periods presented
. The report of [independent auditor].
Each of the above-referenced documents is incorporated by reference into this
SAI. However, no other parts of the Predecessor Funds' Annual Reports are
incorporated by reference herein. Shareholders may get copies of the Portfolios'
Annual Reports free of charge by calling the Portfolios at the telephone number
appearing on the front page of this SAI.
BOND RATINGS
Moody's Investors Service, Inc.
Preferred Stock Ratings
-----------------------
aaa An issue which is rated "aaa" is considered to be a top-quality
preferred stock. This rating indicates good asset protection and the
least risk of dividend impairment within the universe of preferred
stocks.
aa An issue which is rated "aa" is considered a high-grade preferred
stock. This rating indicates that there is a reasonable assurance the
earnings and asset protection will remain relatively well-maintained
in the foreseeable future.
a An issue which is rated "a" is considered to be an upper- medium grade
preferred stock. While risks are judged to be somewhat greater than in
the "aaa" and "aa" classification, earnings and asset protection are,
nevertheless, expected to be maintained at adequate levels.
baa An issue that which is rated "baa" is considered to be a medium--grade
preferred stock, neither highly protected nor poorly secured. Earnings
and asset protection appear adequate at present but may be
questionable over any great length of time.
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<PAGE>
ba An issue which is rated "ba" is considered to have speculative
elements and its future cannot be considered well assured. Earnings
and asset protection may be very moderate and not well safeguarded
during adverse periods. Uncertainty of position characterizes
preferred stocks in this class.
b An issue which is rated "b" generally lacks the characteristics of a
desirable investment. Assurance of dividend payments and maintenance
of other terms of the issue over any long period of time may be small.
caa An issue which is rated "caa" is likely to be in arrears on dividend
payments. This rating designation does not purport to indicate the
future status of payments.
ca An issue which is rated "ca" is speculative in a high degree and is
likely to be in arrears on dividends with little likelihood of
eventual payments.
c This is the lowest rated class of preferred or preference stock.
Issues so rated can thus be regarded as having extremely poor
prospects of ever attaining any real investment standing.
plus (+) or Moody's applies numerical modifiers 1, 2, and 3 in each minus
(-) rating classification: the modifier 1 indicates that the security ranks
in the higher end of its generic rating category; the modifier 2 indicates
a mid-range ranking and the modifier 3 indicates that the issue ranks in
the lower end of its generic rating category.
Debt Ratings - Taxable Debt & Deposits Globally
-----------------------------------------------
Aaa Bonds which are rated Aaa 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 by 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.
Aa Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group 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 the Aaa securities.
A Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper-medium-grade obligations. Factors
giving security to principal and interest are considered adequate, but
elements may be present which suggest a susceptibility to impairment
sometime in the future.
Baa Bonds which are 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.
Ba 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.
41
<PAGE>
Uncertainty of position characterizes bonds in this class.
B 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.
Caa 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.
Ca 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.
C 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.
This rating applies only to U.S. Tax-Exempt Municipals Bonds for which
the security depends upon the completion of some act or the
fulfillment of some condition are rated conditionally. These are bonds
secured by (a) earnings of projects under construction, (b) earnings
of projects unseasoned in operating experience, (c) rentals that begin
when facilities are completed, or (d) payments to which some other
limiting condition attaches. Parenthetical rating denotes probable
credit stature upon completion of construction or elimination of basis
of condition.
Note: Moody's applies numerical modifiers 1, 2 and 3 in each generic
rating classification from Aa through Caa. The modifier 1
indicates that the obligation ranks in the higher end of its
generic rating category; modifier 2 indicates a mid-range
ranking; and the modifier 3 indicates a ranking in the lower end
of that generic rating category.
Short-Term Prime Rating System - Taxable Debt & Deposits Globally
Moody's short-term debt ratings are opinions of the ability of issuers to repay
punctually senior debt obligations. These obligations have an original maturity
not exceeding one year, unless explicitly noted.
Moody's employs the following three designations, all judged to be investment
grade, to indicate the relative repayment ability of rated issuers:
Prime-1 Issuers rated Prime-1 (or supporting institution) 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.
. 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) 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
42
<PAGE>
external conditions. Ample alternate liquidity is maintained.
Prime-3 Issuers rated Prime-3 (or supporting institutions) have an
acceptable ability for repayment of senior short-term obligation.
The effect of industry characteristics and market compositions
may be more pronounced. Variability in earnings and profitability
may result in changes in the level of debt protection
measurements and may require relatively high financial leverage.
Adequate alternate liquidity is maintained.
Not Prime Issuers rated Not Prime do not fall within any of the Prime
rating categories.
Standard & Poor's Rating Services
Long-Term Issue Credit Ratings
------------------------------
Issue credit ratings are based, in varying degrees, on the following
considerations:
1. Likelihood of payment-capacity and willingness of the obligor to meet its
financial commitment on an obligation in accordance with the terms of the
obligation;
2. Nature of and provisions of the obligation;
3. Protection afforded by, and relative position of, the obligation in the
event of bankruptcy, reorganization, or other arrangement under the laws of
bankruptcy and other laws affecting creditors' rights.
The issue rating definitions are expressed in terms of default risk. As
such, they pertain to senior obligations of an entity. Junior obligations
are typically rated lower than senior obligations, to reflect the lower
priority in bankruptcy, as noted above. Accordingly, in the case of junior
debt, the rating may not conform exactly to the category definition.
AAA An obligation rated `AAA' has the highest rating assigned by Standard
& Poor's. The obligor's capacity to meet its financial commitment on
the obligation is extremely strong.
AA An obligation rated `AA' differs from the highest rated obligations
only in small degree. The obligor's capacity to meet its financial
commitment on the obligation is very strong.
A An obligation rated `A' is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than
obligations in higher rated categories. However, the obligor's
capacity to meet its financial commitment on the obligation is still
strong.
BBB An obligation rated `BBB' exhibits adequate protection parameters.
However, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity of the obligor to meet its
financial commitment on the obligation.
Obligations rated `BB', `B', `CCC', `CC' and `C' are regarded as having
significant speculative characteristics. `BB' indicates the least degree of
speculation and `C' the highest. While such obligations will likely have
some quality and protective characteristics, these may be outweighed by
large uncertainties or major risk exposures to adverse conditions.
BB An obligation rated `BB' is less vulnerable to nonpayment than other
speculative issues. However, it faces major ongoing uncertainties or
exposures to adverse business, financial, or economic conditions which
could lead to the obligor's inadequate capacity to meet its financial
commitment
43
<PAGE>
on the obligation.
B An obligation rated `B' is more vulnerable to nonpayment than obligations
rated `BB', but the obligor currently has the capacity to meet its
financial commitment on the obligation. Adverse business, financial, or
economic conditions will likely impair the obligor's capacity or
willingness to meet its financial commitment on the obligation.
CCC An obligation rated `CCC' is currently vulnerable to non-payment, and is
dependent upon favorable business, financial, and economic conditions for
the obligor to meet its financial commitment on the obligation. In the
event of adverse business, financial, or economic conditions, the obligor
is not likely to have the capacity to meet its financial commitment on the
obligations.
CC An obligation rated `CC' is currently highly vulnerable to nonpayment.
C A subordinated debt or preferred stock obligation rated `C' is currently
highly vulnerable to non-payment. The `C' rating may be used to cover a
situation where a bankruptcy petition has been filed or similar action
taken, but payments on this obligation are being continued. A `C' will also
be assigned to a preferred stock issue in arrears on dividends or sinking
fund payments, but that is currently paying.
D An obligation rated `D' is in payment default. The `D' rating category is
used when payments on an obligation are not made on the date due even if
the applicable grace period has not expired, unless Standard & Poor's
believes that such payments will be made during such grace period. The `D'
rating also will be used upon the filing of a bankruptcy petition or the
taking of a similar action if payments on an obligation are jeopardized.
r This symbol is attached to the ratings of instruments with significant
noncredit risks. It highlights risks to principal or volatility of expected
returns which are not addressed in the credit rating. Examples include:
obligation linked or indexed to equities, currencies, or commodities;
obligations exposed to severe prepayment risk-such as interest-only or
principal-only mortgage securities; and obligations with unusually risky
interest terms, such as inverse floaters.
N.R. This indicates that no rating has been requested, that there is
insufficient information on which to base a rating, or that Standard &
Poor's does not rate a particular obligation as a matter of policy.
Plus (+) or minus (-): The ratings from `AA' to `CCC' may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
Short-Term Issue Credit Ratings
-------------------------------
A-1 A short-term obligation rated `A-1' is rated in the highest category by
Standard & Poor's. The obligor's capacity to meet its financial commitment
on the obligation is strong. Within this category, certain obligations are
designated with a plus sign (+). This indicates that the obligor's capacity
to meet its financial commitment on these obligations is extremely strong.
A-2 A short-term obligation rated `A-2' is somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions than
obligations in higher rating categories. However, the obligor's capacity to
meet its financial commitment on the obligation is satisfactory.
44
<PAGE>
A-3 A short-term obligation rated `A-3' exhibits adequate protection
parameters. However, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity of the
obligor to meet its financial commitment on the obligation.
B A short-term obligation rated `B' is regarded as having significant
speculative characteristics. The obligor currently has the capacity to
meet its financial commitment on the obligation; however, it faces
major ongoing uncertainties that could lead to the obligor's
inadequate capacity to meet its financial commitment on the
obligation.
C A short-term obligation rated `C' is currently vulnerable to
nonpayment and is dependent upon favorable business, financial, and
economic conditions for the obligor to meet its financial commitment
on the obligation.
D A short-term obligation rated `D' is in payment default. The `D'
rating category is used when payments on an obligation are not made on
the date due even if the applicable grace period has not expired,
unless Standard & Poors' believes that such payments will be made
during such grace period. The `D' rating also will be used upon the
filing of a bankruptcy petition or the taking of a similar action if
payments on an obligation are jeopardized.
Local Currency and Foreign Currency Risks
-----------------------------------------
Country risks considerations are a standard part of Standard & Poor's analysis
for credit ratings on any issuer or issue. Currency of repayment is a key factor
in this analysis. An obligor's capacity to repay foreign currency obligations
may be lower than its capacity to repay obligations in its local currency due to
the sovereign government's own relatively lower capacity to repay external
versus domestic debt. These sovereign risk considerations are incorporated in
the debt ratings assigned to specific issues. Foreign currency issuer ratings
are also distinguished from local currency issuer ratings to identity those
instances where sovereign risks make them different for the same issuer.
Fitch IBCA Ratings
International Long-Term Credit Ratings
--------------------------------------
Investment Grade
AAA Highest credit quality. `AAA' ratings denote the lowest expectation of
credit risk. They are assigned only in case of exceptionally strong
capacity for timely payment of financial commitments. This capacity is
highly unlikely to be adversely affected by foreseeable events.
AA Very high credit quality. `AA' ratings denote a very low expectation
of credit risk. They indicate very strong capacity for timely payment
of financial commitments. This capacity is not significantly
vulnerable to foreseeable events.
A High credit quality. `A' ratings denote a low expectation of credit
risk. The capacity for timely payment of financial commitments is
considered strong. This capacity may, nevertheless, be more vulnerable
to changes in circumstances or in economic conditions than is the case
for higher ratings.
BBB Good credit quality. `BBB' ratings indicate that there is currently a
low expectation of credit risk. The capacity for timely payment of
financial commitments is considered adequate, but adverse changes in
circumstances and in economic conditions are more likely to impair
this capacity. This
45
<PAGE>
is the lowest investment-grade category.
Speculative Grade
BB Speculative. `BB' ratings indicate that there is a possibility of credit
risk developing, particularly as the result of adverse economic change over
time; however, business or financial alternatives may be available to allow
financial commitments to be met. Securities rated in this category are not
investment grade.
B Highly speculative. `B' ratings indicate that significant credit risk is
present, but a limited margin of safety remains. Financial commitments are
currently being met; however, capacity for continued payment is contingent
upon a sustained, favorable business and economic environment.
CCC,CC,C High default risk. Default is a real possibility. Capacity for
meeting financial commitments is solely reliant upon sustained,
favorable business or economic developments. A `CC' rating
indicates that default of some kind appears probable. `C' ratings
signal imminent default.
DDD,DD,D Default. The ratings of obligations in this category are based on
their prospects for achieving partial or full recovery in a
reorganization or liquidation of the obligor. While expected
recovery values are highly speculative and cannot be estimated
with any precision, the following serve as general guidelines.
"DDD" obligations have the highest potential for recovery, around
90%-100% of outstanding amounts and accrued interest. "D"
indicates potential recoveries in the range of 50%-90%, and "D"
the lowest recovery potential, i.e., below 50%.
Entities rated in this category have defaulted on some or all of
their obligations. Entities rated "DDD" have the highest prospect
for resumption of performance or continued operation with or
without a formal reorganization process. Entities rated "DD" and
"D" are generally undergoing a formal reorganization or
liquidation process; those rated "DD" are likely to satisfy a
higher portion of their outstanding obligations, while entities
rated "D" have a poor prospect for repaying all obligations.
International Short-Term Credit Ratings
---------------------------------------
F1 Highest credit quality. Indicates the Best capacity for timely payment of
financial commitments; may have an added "+" to denote any exceptionally
strong credit feature.
F2 Good credit quality. A satisfactory capacity for timely payment of
financial commitments, but the margin of safety is not as great as in the
case of the higher ratings.
F3 Fair credit quality. The capacity for timely payment of financial
commitments is adequate; however, near-term adverse changes could result in
a reduction to non-investment grade.
B Speculative. Minimal capacity for timely payment of financial commitments,
plus vulnerability to near-term adverse changes in financial and economic
conditions.
C High default risk. Default is a real possibility. Capacity for meeting
financial commitments is solely reliant upon a sustained, favorable
business and economic environment.
46
<PAGE>
D Default. Denotes actual or imminent payment default.
Notes
"+" or "-" may be appended to a rating to denote relative status within major
rating categories. Such suffixes are not added to the `AAA' long-term rating
category, to categories below `CCC', or to short-term ratings other than `F1'.
"NR" indicates that Fitch IBCA does not rate the issuer or issue in question.
"Withdrawn": A rating is withdrawn when Fitch IBCA deems the amount of
information available to be inadequate for rating purposes, or when an
obligation matures, is called, or refinanced.
RatingAlert: Ratings are placed on RatingAlert to notify investors that there is
a reasonable probability of a rating change and the likely direction of such
change. These are designated as "Positive", indicating a potential upgrade,
"Negative", for a potential downgrade, or "Evolving", if ratings may be raised,
lowered or maintained. RatingAlert is typically resolved over a relatively short
period.
47
<PAGE>
PART C: OTHER INFORMATION
POST EFFECTIVE AMENDMENT NO. 41
Item 23. Exhibits:
(a)(1) Registrant's Agreement and Declaration of Trust dated July 18, 1991,
as originally filed with the SEC on August 29, 1991, is incorporated
herein by reference to Post-Effective Amendment No. 32 to Registrant's
Registration Statement on Form N-1A (File No. 33-42484), filed with
the Securities and Exchange Commission on February 27, 1998.
(a)(2) Registrant's Amendment to the Agreement and Declaration of Trust dated
December 2, 1996, is incorporated herein by reference to Post-
Effective Amendment No. 27 to Registrant's Registration Statement on
Form N-1A (File No. 33-42484), filed with the Securities and Exchange
Commission on December 13, 1996.
(a)(3) Registrant's Amendment to the Agreement and Declaration of Trust dated
February 18, 1997, is incorporated herein by reference to Post-
Effective Amendment No. 28 to Registrant's Registration Statement on
Form N-1A (File No. 33-42484), filed with the Securities and Exchange
Commission on February 27, 1997.
(b)(1) Registrant's By-Laws are incorporated herein by reference to
Registrant's Registration Statement on Form N-1A (File No. 33-42484),
filed with the Securities and Exchange Commission on August 29, 1991.
(b)(2) Registrant's Amended and Restated By-Laws are incorporated herein by
reference to Post-Effective Amendment No. 27 to Registrant's
Registration Statement on Form N-1A (File No. 33-42484), filed with
the Securities and Exchange Commission on December 12, 1996.
(c) Not Applicable.
(d)(1) Investment Advisory Agreement between Registrant and HGK Asset
Management, Inc. with respect to HGK Fixed Income Fund dated August
15, 1994 as originally filed with Post-Effective Amendment No. 15 to
Registrant's Registration Statement on Form N-1A (File No. 33-42484),
filed with the Securities and Exchange Commission on June 15, 1994 is
incorporated herein by reference to Post-Effective Amendment No. 24
filed on February 28, 1996.
(d)(2) Investment Advisory Agreement between Registrant and AIG Capital
Management Corp. with respect to AIG Money Market Fund originally
filed with Post-Effective Amendment No. 17 to Registrant's
Registration Statement on Form N-1A (File No. 33-42484), filed with
the Securities and Exchange Commission on September 19, 1994 is
incorporated herein by reference to Post-Effective Amendment No. 28
filed February 27, 1997.
(d)(3) Investment Advisory Agreement between Registrant and First Manhattan
Co. with respect to FMC Select Fund dated May 3, 1995 as originally
filed with Post-Effective Amendment No. 19 to Registrant's
Registration Statement on Form N-1A (File No. 33-42484) filed with the
Securities and Exchange Commission on February 1, 1995 is incorporated
herein by reference to Post-Effective Amendment No. 24 filed on
February 28, 1996.
(d)(4) Investment Advisory Agreement between Registrant and CRA Real Estate
Securities L.P. dated December 31, 1996 with respect to the CRA Realty
Shares Portfolio is incorporated herein by reference to Post-Effective
Amendment No. 29 to Registrant's Registration Statement on Form N-1A
(File No. 33-42484) filed with the Securities and Exchange Commission
on May 22, 1997.
C-2
<PAGE>
(d)(5) Investment Advisory Agreement between Registrant and MDL Capital
Management, Inc. with respect to the MDL Broad Market Fixed Income
Portfolio and the MDL Large Cap Growth Equity Portfolio is
incorporated herein by reference to Post-Effective Amendment No. 32 to
Registrant's Registration Statement on Form N-1A (File No. 33-42484),
filed with the Securities and Exchange Commission on February 27,
1998.
(d)(6) Investment Advisory Agreement between Registrant and SAGE Global
Funds, LLC with respect to the SAGE Corporate Bond Fund is
incorporated herein by reference to Post-Effective Amendment No. 32 to
Registrant's Registration Statement on Form N-1A (File No. 33-42484),
filed with the Securities and Exchange Commission on February 27,
1998.
(d)(7) Investment Sub-Advisory Agreement between SAGE Global Funds, LLC and
Standard Asset Group, Inc. with respect to the SAGE Corporate Bond
Fund is incorporated herein by reference to Post-Effective Amendment
No. 32 to Registrant's Registration Statement on Form N-1A (File No.
33-42484), filed with the Securities and Exchange Commission on
February 27, 1998.
(d)(8) Form of Investment Advisory Agreement between Registrant and LSV Asset
Management Company is incorporated herein by reference to Post-
Effective Amendment No. 34 to Registrant's Registration Statement on
Form N-1A (File No. 33-42484), filed with the Securities and Exchange
Commission on December 29, 1998.
(d)(9) Amended and Restated Schedule to the Investment Advisory Agreement
dated May 3, 1995 between Registrant and First Manhattan Company is
incorporated herein by reference to Post-Effective Amendment No. 34 to
Registrant's Registration Statement on Form N-1A (File No. 33-42484),
filed with the Securities and Exchange Commission on December 29,
1998.
(d)(10) Form of Investment Advisory Agreement between Registrant and Sterling
Capital Management, LLC is filed herewith.
(d)(11) Investment Advisory Agreement between the Registrant and GLB Fund
Management, Inc. is filed herewith.
(e)(1) Amended and Restated Distribution Agreement between Registrant and SEI
Financial Services Company dated August 8, 1994 as originally filed
with Post-Effective Amendment No. 17 to Registrant's Registration
Statement on Form N-1A (File No. 33-42484) filed with the Securities
and Exchange Commission on September 19, 1994 is incorporated herein
by reference to Post-Effective Amendment No. 24 filed on February 28,
1996.
(e)(2) Distribution Agreement between Registrant and CCM Securities, Inc.
dated February 28, 1997 is incorporated herein by reference to Post-
Effective Amendment No. 30 to Registrant's Registration Statement on
Form N-1A (File No. 33-42484), filed with the Securities and Exchange
Commission on June 30, 1997.
(e)(3) Amended and Restated Sub-Distribution and Servicing Agreement between
SEI Investments Company and AIG Equity Sales Corporation is
incorporated herein by reference to Post-Effective Amendment No. 32 to
Registrant's Registration Statement on Form N-1A (File No. 33-42484),
filed with the Securities and Exchange Commission on February 27,
1998.
(f) Not Applicable.
(g)(1) 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.
C-3
<PAGE>
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.
(g)(2) Amended Custodian Agreement dated between Registrant and CoreStates
Bank, N.A. is incorporated herein by reference to exhibit G2 of Post-
Effective Amendment No. 39 filed on February 25, 2000.
(h)(1) Amended and Restated Administration Agreement between Registrant and
SEI Financial Management Corporation, including schedules relating to
Clover Capital Equity Value Fund, Clover Capital Fixed Income Fund,
White Oak Growth Stock Fund, Pin Oak Aggressive Stock Fund, Roulston
Midwest Growth Fund, Roulston Growth and Income Fund, Roulston
Government Securities Fund, A+P Large-Cap Fund, Turner Fixed Income
Fund, Turner Small Cap Fund, Turner Growth Equity Fund, Morgan
Grenfell Fixed Income Fund, Morgan Grenfell Municipal Bond Fund and
HGK Fixed Income Fund dated May 17, 1994 as originally filed with
Post-Effective Amendment No. 15 to Registrant's Registration Statement
on Form N-1A (File No. 33-42484), filed with the Securities and
Exchange Commission on June 15, 1994 is incorporated herein by
reference to Post-Effective Amendment No. 24 filed on February 28,
1996.
(h)(2) Schedule dated November 11, 1996 to Administration Agreement dated
November 14, 1991 as Amended and Restated May 17, 1994 adding the CRA
Realty Shares Portfolio is incorporated herein by reference to Post-
Effective Amendment No. 29 to Registrant's Registration Statement on
Form N-1A (File No. 33-42484), filed with the Securities and Exchange
Commission on May 22, 1997.
(h)(3) Shareholder Service Plan and Agreement for the Class A Shares of the
CRA Realty Shares Portfolio is incorporated herein by reference to
Post-Effective Amendment No. 30 to Registrant's Registration Statement
on Form N-1A (File No. 33-42484), filed with the Securities and
Exchange Commission on June 30, 1997.
(h)(4) Schedule to Amended and Restated Administration Agreement dated May 8,
1995 to the Administration Agreement dated November 14, 1991 as
Amended and Restated May 17, 1994 with respect to the FMC Select Fund
is incorporated herein by reference to Post-Effective Amendment No. 28
to Registrant's Registration Statement on Form N-1A (File No.
33-42484), filed with the Securities and Exchange Commission on
February 27, 1997.
(h)(5) Consent to Assignment and Assumption of Administration Agreement dated
June 1, 1996 is incorporated herein by reference to Post-Effective
Amendment No. 28 to Registrant's Registration Statement on Form N-1A
(File No. 33-42484), filed with the Securities and Exchange Commission
on February 27, 1997.
(h)(6) Schedule to the Amended and Restated Administration Agreement adding
the MDL Broad Market Fixed Income Fund and the MDL Large Cap Growth
Equity Fund incorporated herein by reference to Post-Effective
Amendment No. 32 to Registrant's Registration Statement on Form N-1A
(File No. 33-42484), filed with the Securities and Exchange Commission
on February 27, 1998.
(h)(7) Schedule to the Amended and Restated Administration Agreement adding
the SAGE Corporate Fixed Bond Fund is incorporated herein by reference
to Post-Effective Amendment No. 32 to Registrant's Registration
Statement on Form N-1A (File No. 33-42484), filed with the Securities
and Exchange Commission on February 27, 1998.
C-4
<PAGE>
(h)(8) Schedule dated May 19, 1997 to Administration Agreement dated November
14, 1991 between the Advisors' Inner Circle Fund and SEI Financial
Management Corporation adding the AIG Money Market Fund is
incorporated herein by reference to Post-Effective Amendment No. 32 to
Registrant's Registration Statement on Form N-1A (File No. 33-42484),
filed with the Securities and Exchange Commission on February 27,
1998.
(h)(9) Schedule to Administration Agreement relating to the CRA Realty
Portfolio is incorporated herein by reference to Post-Effective
Amendment No. 32 to Registrant's Registration Statement on Form N-1A
(File No. 33-42484), filed with the Securities and Exchange Commission
on February 27, 1998.
(h)(10) Form of Shareholder Servicing Agreement for AIG Money Market Fund is
incorporated herein by reference to Post-Effective Amendment No. 32 to
Registrant's Registration Statement on Form N-1A (File No. 33-42484),
filed with the Securities and Exchange Commission on February 27,
1998.
(h)(11) Transfer Agency Agreement dated November 30, 1994 is incorporated
herein by reference to Post-Effective Amendment No. 32 to Registrant's
Registration Statement on Form N-1A (File No. 33-42484), filed with
the Securities and Exchange Commission on February 27, 1998.
(h)(12) Amendment dated August 17, 1998 to the Schedule dated May 8, 1995 to
the Administration Agreement dated November 14, 1991 as amended and
restated May 17, 1994 between Registrant and SEI Financial Management
Corporation is incorporated herein by reference to Post-Effective
Amendment No. 34 to Registrant's Registration Statement on Form N-1A
(File No. 33-42484), filed with the Securities and Exchange Commission
on December 29, 1998.
(h)(13) Assignment and Assumption Agreement dated February 27, 1998 between
Registrant and Oak Associates Funds is incorporated herein by
reference to Post-Effective Amendment No. 34 to Registrant's
Registration Statement on Form N-1A (File No. 33-42484), filed with
the Securities and Exchange Commission on December 29, 1998.
(h)(14) Amended Schedule dated March 15, 1999 to the Administration Agreement
dated November 14, 1991 as amended and restated May 17, 1994, relating
to LSV Value Equity Fund, between Registrant and SEI Fund Resources is
incorporated by reference to exhibit (h)(14) of Post-Effective
Amendment No. 39 to Registrant's Registration Statement on Form N-1A
(File No. 33-42484), filed with the Securities and Exchange Commission
on February 25, 2000.
(h)(15) Amended Schedule dated August 15, 1999 to the Administration Agreement
dated November 14, 1991 as amended and restated May 17, 1994, relating
to HGK Fixed Income Fund, HGK Equity Value Fund and HGK Mid Cap Value
Fund, between Registrant and SEI Investments Mutual Funds Services is
incorporated by reference to exhibit (h)(15) of Post-Effective
Amendment No. 39 to Registrant's Registration Statement on Form N-1A
(File No. 33-42484), filed with the Securities and Exchange Commission
on February 25, 2000.
(h)(16) Administration Agreement dated August 20, 1999 between Registrant, LSV
Asset Management and Fidelity Brokerage Services, and National
Financial Services Inc. Corporation is incorporated by reference to
exhibit (h)(16) of Post-Effective Amendment No. 39 to Registrant's
Registration Statement on Form N-1A (File No. 33-42484), filed with
the Securities and Exchange Commission on February 25, 2000.
C-5
<PAGE>
(h)(17) Amended Schedule dated December 1, 1999 to the Administration
Agreement dated November 14, 1991 as amended and restated May 17,
1994, relating CRA Realty Shares Portfolio, between Registrant and
SEI Fund Resources is incorporated by reference to exhibit (h)(17)
of Post-Effective Amendment No. 39 to Registrant's Registration
Statement on Form N-1A (File No. 33-42484), filed with the
Securities and Exchange Commission on February 25, 2000.
(h)(18) Amendment dated August 18, 1999 to the Operating Agreement dated
January 5, 1996, relating to LSV Value Equity Fund, between the
Registrant, LSV Asset Management and Charles Schwab & Co, Inc. is
incorporated by reference to exhibit (h)(15) of Post-Effective
Amendment No. 39 to Registrant's Registration Statement on Form
N-1A (File No. 33- 42484), filed with the Securities and Exchange
Commission on February 25, 2000.
(h)(19) Schedule dated May 19, 2000 to the Administration Agreement dated
November 14, 1991 between the Registrant and SEI Investments
Mutual Funds Services relating to the AIG Money Market Fund is
incorporated herein by reference to exhibit (h)(19) of the
Registrant's Post-Effective Amendment no. 40 on Form N-1A (File
No. 33-42484) filed with the Securities and Exchange Commission on
July 17, 2000.
(h)(20) Schedule dated May 22, 2000 to the Administration Agreement dated
November 14, 1991 as amended and restated May 17, 1994 between the
Registrant and SEI Investments Mutual Funds Services relating to
the FMC Select and Strategic Value Funds is is incorporated herein
by reference to exhibit (h)(20) of the Registrant's Post-Effective
Amendment no. 40 on Form N-1A (File No. 33-42484) filed with the
Securities and Exchange Commission on July 17, 2000.
(h)(21) Transfer Agency and Services Agreement dated October 1, 2000,
between the Registrant and Forum Shareholder Services, LLC, is
filed herewith.
(h)(22) Schedule to the Administration Agreement between Registrant and
SEI Investments Mutual Funds Services relating to the GLB
Aggressive Growth Fund is filed herewith.
(h)(23) Schedule to the Administration Agreement between Registrant and
SEI Investments Mutual Funds Services relating to the Sterling
Partners' Balanced Portfolio and Sterling Partners' Small Cap
Value Portfolio will be filed by later amendment.
(i) Not Applicable.
(j) Not Applicable.
(k) Not Applicable.
(l) Not Applicable.
(m) Distribution Plan for The Advisors' Inner Circle Fund is filed
herewith.
(n) Not Applicable.
(o) Rule 18f-3 Plan dated May 15, 1995, as originally filed June 1,
1995, is incorporated herein by reference to exhibit (o) of Post-
Effective Amendment No. 32 to Registrant's Registration Statement
on Form N-1A (File No. 33-42484), filed with the Securities and
Exchange Commission on February 27, 1998.
(p)(1) SEI Investments Company Code of Ethics and Insider Trading Policy
is incorporated herein by reference to exhibit (p)(11) of The
Arbor Fund's Post-Effective Amendment no. 28 on
C-6
<PAGE>
Form N-1A (File No. 33-50718) filed with the Securities and
Exchange Commission on May 30, 2000.
(p)(2) The Advisors' Inner Circle Fund Code of Ethics is incorporated
herein by reference to exhibit (p)(10) of The Arbor Fund's
Post-Effective Amendment no. 28 on Form N-1A (File No.33-50718)
filed with the Securities and Exchange Commission on May 30, 2000.
(p)(3) AIG Capital Management Corp. Code of Ethics is incorporated herein
by reference to exhibit (p)(3) of the Registrant's Post-Effective
Amendment no. 40 on Form N-1A (File No. 33-42484) filed with the
Securities and Exchange Commission on July 17, 2000.
(p)(4) Clarion CRA Securities, L.P., Code of Ethics is incorporated
herein by reference to exhibit (p)(4) of the Registrant's Post-
Effective Amendment no. 40 on Form N-1A (File No. 33-42484) filed
with the Securities and Exchange Commission on July 17, 2000.
(p)(5) First Manhattan Co. Code of Ethics is incorporated herein by
reference to exhibit (p)(5) of the Registrant's Post-Effective
Amendment no. 40 on Form N-1A (File No. 33-42484) filed with the
Securities and Exchange Commission on July 17, 2000.
(p)(6) HGK Asset Management, Inc., Code of Ethics is incorporated herein
by reference to exhibit (p)(6) of the Registrant's Post-Effective
Amendment no. 40 on Form N-1A (File No. 33-42484) filed with the
Securities and Exchange Commission on July 17, 2000.
(p)(7) LSV Asset Management, L.P., Code of Ethics is incorporated herein
by reference to exhibit (p)(9) of SEI Instititutional Managed
Trust's Post-Effective Amendment no. 33 on Form N-1A (File No. 33-
9504) filed with the Securities and Exchange Commission on July 3,
2000.
(p)(8) MDL Capital Management, Inc., Code of Ethics is incorporated
herein by reference to exhibit (p)(8) of the Registrant's Post-
Effective Amendment no. 40 on Form N-1A (File No. 33-42484) filed
with the Securities and Exchange Commission on July 17, 2000.
(p)(9) Sterling Capital Management Company Code of Ethics is filed
herewith.
(q) Powers of Attorney for John T. Cooney, William M. Doran, Robert A.
Nesher, Eugene B. Peters, Robert A. Patterson, George J. Sullivan,
James M. Storey, James R. Foggo and Robert J. DellaCroce are filed
herewith.
Item 24. Persons Controlled by or under Common Control with Registrant
See Statements of Additional Information regarding the control
relationships of The Advisors' Inner Circle Fund (the "Fund"). SEI Investments
Management Corporation a wholly-owned subsidiary of SEI Investments Company
("SEI"), is the owner of all beneficial interest in SEI Investments Mutual Funds
Services ("the Administrator"). SEI and its subsidiaries and affiliates,
including the Administrator, are leading providers of funds evaluation services,
trust accounting systems, and brokerage and information services to financial
institutions, institutional investors, and money managers.
Item 25. Indemnification:
Article VIII of the Agreement and Declaration of Trust filed as
Exhibit a to the Registration Statement is incorporated by reference. Insofar as
indemnification for liabilities arising under the Securities Act of 1933 may be
permitted to trustees, directors, officers and controlling persons of the
C-7
<PAGE>
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 26. Business and Other Connections of Investment Adviser:
Other business, profession, vocation, or employment of a substantial
nature in which each director or principal officer of the Adviser is or has
been, at any time during the last two fiscal years, engaged for his own account
or in the capacity of director, officer, employee, partner or trustee are as
follows:
HGK Asset Management, Inc.
-------------------------
HGK Asset Management, Inc. is the investment adviser for the HGK Fixed Income
Fund. The principal address of HGK Asset Management, Inc. is Newport Tower, 525
Washington Blvd., Jersey City, NJ 07310.
C-8
<PAGE>
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------
Name and Position with Name of Other Company Connection with Other
Investment Adviser Company
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Jeffrey Theodore Harris, -- --
Managing Director (Fixed
Income)
---------------------------------------------------------------------------------------------------------------------
Joseph Edward Kutzel, -- --
Managing Director
(Marketing)
---------------------------------------------------------------------------------------------------------------------
Michael Pendergast, Managing -- --
Director, Senior Equity
Manager
---------------------------------------------------------------------------------------------------------------------
Gregory Walter Lobo, -- --
Managing Director, Senior
Fixed Income Manager
---------------------------------------------------------------------------------------------------------------------
Arthur Ettore Coia, II,
Managing Director, Mid Cap
Equity Manager
---------------------------------------------------------------------------------------------------------------------
</TABLE>
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.
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------
Name and Position with Name of Other Company Connection with Other
Investment Adviser Company
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
William Naughton Dooley, American International Group, Inc. Senior Vice President of
Director Financial Services
AIG Global Investment Corp Director
(Europe) Ltd.
---------------------------------------------------------------------------------------------------------------------
Ronald Alan Latz, Director American International Group, Inc. Chief Financial Officer of
Financial Services Division
---------------------------------------------------------------------------------------------------------------------
Carol A. McFate, Director American International Group, Inc. Treasurer, Assistant Treasurer
(6/98), Director of Financial
Services (12/98)
---------------------------------------------------------------------------------------------------------------------
</TABLE>
C-9
<PAGE>
<TABLE>
<S> <C> <C>
---------------------------------------------------------------------------------------------------------------------
Win Jay Neuger, Director and AIG Global Investment Corp. Director, Chairman, CEO, CIO
Chairman, CIO AIG Asset Management, Ltd. Director
AIG Global Investment Group, Inc. Director
AIG International Group, Inc. Senior Vice President, Chief
Investment Officer
AIG Global Investment Corp, Director
(Europe), Ltd.
---------------------------------------------------------------------------------------------------------------------
Helen Stefanis, Director, American International Group, Inc. Director of Structured Finance
President and Investments
AIG Capital Corp. Vice President
AIG Equity Sales Corp. Reg. Rep., Director and
President
---------------------------------------------------------------------------------------------------------------------
John Howard Blevins, Vice AIG Global Investment Corp. Vice President, Director of
President, Director of Compliance
Compliance
---------------------------------------------------------------------------------------------------------------------
Neil Friedman, Vice President, American International Group, Inc. Various Comptrollership
Comptroller Positions
---------------------------------------------------------------------------------------------------------------------
David Hartman, General American International Group, Inc. Associate General Counsel
Counsel
---------------------------------------------------------------------------------------------------------------------
George Coheleach, Vice -- --
President, Senior Portfolio
Manager
---------------------------------------------------------------------------------------------------------------------
Edward Jay Lieber, Vice AIG Capital Corp. Vice President
President, Portfolio Manager
---------------------------------------------------------------------------------------------------------------------
</TABLE>
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.
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------
Name and Position with Name of Other Company Connection with Other
Investment Adviser Company
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
David Sanford Gottesman. -- --
General Partner
---------------------------------------------------------------------------------------------------------------------
Daniel Rosenbloom, General -- --
Partner
---------------------------------------------------------------------------------------------------------------------
Arthur Stanley Zankel, General -- --
Partner
---------------------------------------------------------------------------------------------------------------------
</TABLE>
C-10
<PAGE>
------------------------------------------------------------------------------
Allan Howard Glick, General -- --
Partner
------------------------------------------------------------------------------
Bernard C. Groveman, General -- --
Partner
------------------------------------------------------------------------------
Charles M. Rosenthal, General -- --
Partner
------------------------------------------------------------------------------
David M. Manischewitz, -- --
General Partner
------------------------------------------------------------------------------
Arthur Joel Stainman, General -- --
Partner
------------------------------------------------------------------------------
John R. Loomis, General -- --
Partner
------------------------------------------------------------------------------
Michael P. Helmick, General -- --
Partner
------------------------------------------------------------------------------
Robert W. Gottesman, General -- --
Partner
------------------------------------------------------------------------------
A. Byron Nimocks, III, General -- --
Partner
------------------------------------------------------------------------------
Neal K. Stearns, General -- --
Partner, General Counsel
------------------------------------------------------------------------------
Carrol A. Muccia, Jr., General -- --
Partner
------------------------------------------------------------------------------
Richard A. Pearl, General -- --
Partner
------------------------------------------------------------------------------
Keith B. Josephson, General -- --
Partner
------------------------------------------------------------------------------
William F. Guardenier, General -- --
Partner
------------------------------------------------------------------------------
Todd W. Green, General -- --
Partner
------------------------------------------------------------------------------
Samuel Flug Colin, General -- --
Partner
------------------------------------------------------------------------------
Fred Abrams, Limited Partner -- --
------------------------------------------------------------------------------
C-11
<PAGE>
------------------------------------------------------------------------------
John J. Caffrey, Managing -- --
Director
------------------------------------------------------------------------------
Bertram J. Cohn, Managing -- --
Director
------------------------------------------------------------------------------
Margaret DeVito, Money -- --
Manager
------------------------------------------------------------------------------
John P. Hecht, Limited Partner -- --
------------------------------------------------------------------------------
Edward I Lefferman, Managing -- --
Director
------------------------------------------------------------------------------
John P. Lipari, Money Manager -- --
------------------------------------------------------------------------------
Ralph P. Marash, Managing -- --
Director
------------------------------------------------------------------------------
William K. McElroy, Managing -- --
Director
------------------------------------------------------------------------------
Harry L. Schick, Limited -- --
Partner
------------------------------------------------------------------------------
William Wolff, Managing -- --
Director
------------------------------------------------------------------------------
Allen S. Zwickler, Managing -- --
Director
------------------------------------------------------------------------------
Alan H. Sive, Managing -- --
Director
------------------------------------------------------------------------------
Steven J. Rothenberg, Money -- --
Manager
------------------------------------------------------------------------------
Jack H. Varon, Managing -- --
Director
------------------------------------------------------------------------------
Dennis A. Baum, Managing -- --
Director
------------------------------------------------------------------------------
Christopher H. Wolters, -- --
Managing Director
------------------------------------------------------------------------------
C-12
<PAGE>
Clarion CRA Securities, L.P.
----------------------------
Clarion CRA Securities, L.P. (formerly CRA Real Estate Securities, L.P.) is the
investment adviser for the CRA Realty Shares Portfolio. The principal address
of Clarion CRA Securities, L.P. is Suite 205, 259 North Radnor-Chester Road,
Radnor, PA 19087.
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------
Name and Position with Name of Other Company Connection with Other
Investment Adviser Company
------------------------------------------------------------------------------------------
<S> <C> <C>
Thomas Ritson Ferguson, III, -- --
Managing Director
------------------------------------------------------------------------------------------
Jarrett Burt Kling, Managing -- --
Director
------------------------------------------------------------------------------------------
Kenneth Dale Campbell, Co- CRA Real Estate Securities, Managing Director (11/98)
Chief Investment Officer Inc.
------------------------------------------------------------------------------------------
John Alexander Weisz, Clarion Partners, LLC President
President
------------------------------------------------------------------------------------------
Stephen Joel Furnary, Chairman Clarion Partners, LLC Chairman
------------------------------------------------------------------------------------------
Charles Grossman, Executive Clarion Partners, LLC Executive Vice President
Vice President
------------------------------------------------------------------------------------------
Arnoldus Wilhelm Veenhuysen, Clarion Partners, LLC Managing Director
Managing Director
------------------------------------------------------------------------------------------
Sherry Lyn Rexford, Director Campbell-Radnor Advisors, Vice President (11/98)
Inc.
------------------------------------------------------------------------------------------
</TABLE>
MDL Capital Management, Inc.
----------------------------
MDL Capital Management, Inc. is the investment adviser for the MDL Broad Market
Fixed Income Portfolio and the MDL Large Cap Growth Equity Portfolio. The
principal address of MDL Capital Management, Inc. is 225 Ross Street,
Pittsburgh, PA 15222.
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------
Name and Position with Name of Other Company Connection with Other
Investment Adviser Company
-----------------------------------------------------------------------------------------------
<S> <C> <C>
Mark D. Lay, Chief Executive -- --
Officer
-----------------------------------------------------------------------------------------------
Steven P. Sanders, President Sanders Financial Chief Executive Officer (12/98)
-----------------------------------------------------------------------------------------------
Joseph L. Watkins, Executive Kinslor Inc. President
Officer
-----------------------------------------------------------------------------------------------
</TABLE>
C-13
<PAGE>
<TABLE>
-----------------------------------------------------------------------------------------------
<S> <C> <C>
Charles A. Gomulka, Director RRZ Investment Management, President
Inc.
Russel, Rea & Zappala, Inc. President, Accountant
Generation Development Secretary, Treasurer
Russel, Rea, Zappala & Vice President
Gomulka
RR&Z Public Markets, Inc. President, Chief Executive
Officer
-----------------------------------------------------------------------------------------------
Edward A. Adatepe, Portfolio -- --
Manager
-----------------------------------------------------------------------------------------------
Charles R. Zappala, Shareholder RRZ Investment Management, Vice President, Director
Inc.
Russel, Rea & Zappala, Inc. President, Director
RR&Z Realty Investments Vice President, Director
Russel, Rea, Zappala & Treasurer, Shareholder
Gomulka
RR&Z Public Markets, Inc. Vice Chairman
RR&Z Capital Group Secretary, Director
-----------------------------------------------------------------------------------------------
Tracey M. Gist, Vice President -- --
of Operations
-----------------------------------------------------------------------------------------------
</TABLE>
LSV Asset Management Company
----------------------------
LSV Asset Management Company is an investment investment adviser for the LSV
Value Equity Fund. The address of LSV Asset Management Company is 181 West
Madison Avenue, Chicago, Illinois 60602. LSV Asset Management Company is an
investment adviser registered under the Advisers Act.
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------
Name and Position with Name of Other Company Connection with Other
Investment Adviser Company
---------------------------------------------------------------------------------------
<S> <C> <C>
Lakonishok Corporation, -- --
General Partner
---------------------------------------------------------------------------------------
SEI Funds, Inc., General Partner -- --
---------------------------------------------------------------------------------------
Shleifer Corporation, General -- --
Partner
---------------------------------------------------------------------------------------
</TABLE>
GLB Fund Management, Inc.
-------------------------
GLB Fund Management, Inc. is the investment adviser to the GLB New Opportunity
Growth Fund. The principal address of GLB Fund Management, Inc., is 510 King
Street, Suite 315A, Alexandria, VA 22314.
C-14
<PAGE>
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------
Name and Position with Name of Other Company Connection with Other
Investment Adviser Company
-----------------------------------------------------------------------------------------------
<S> <C> <C>
Robert Francis Black, Goodwyn, Long & Black Investment President
Chief Investment Officer Management, Inc.
Mercury Capital Management, LLC Manager, Co-Owner
-----------------------------------------------------------------------------------------------
Patrick Matthew Walsh, Goodwyn, Long & Black Investment Treasurer, Director of
Management, Inc. Operations
Mercury Capital Management, LLC Director, Co-Owner
-----------------------------------------------------------------------------------------------
Robert Eugene Long, Goodwyn, Long & Black Investment Vice President
Chief Executive Officer Management, Inc.
Emerald City Radio Partners, Inc. Chief Executive Officer
Goodwyn, Long Investment Chairman (1/99)
Management, Inc.
Business News Network, Inc. President, Chief Executive
Officer (6/98)
-----------------------------------------------------------------------------------------------
Wilfred Lacy Goodwyn, Goodwyn, Long & Black Investment Chairman
Director Management, Inc.
Goodwyn, Long Investment President (1/99)
Management, Inc.
-----------------------------------------------------------------------------------------------
</TABLE>
Sterling Capital Management LLC
-------------------------------
Sterling Capital Management LLC is the investment adviser to the Sterling
Partners' Balanced Portfolio and Sterling Partners' Small Cap Value Portfolio.
The principal address of Sterling Capital Management LLC, is One First Union
Center, 301 S. College Street, Suite 3200, Charlotte, North Carolina 28202.
<TABLE>
<CAPTION>
Name and Position with Name of Other Company Connection with Other
Investment Adviser Company
-----------------------------------------------------------------------------------------------
<S> <C> <C>
Mark Whitaker Whalen,
President and Director -- --
-----------------------------------------------------------------------------------------------
David Michael Ralston,
Ex. Vice President and
Director -- --
-----------------------------------------------------------------------------------------------
Alexander Worth McAlister,
Sr. Vice President -- --
-----------------------------------------------------------------------------------------------
Mary Dupere Chaney,
Vice President and
Treasurer, Secretary (98) -- --
-----------------------------------------------------------------------------------------------
Mary Weeks Fountain,
Vice President/Fixed
Income Portfolio Mgr. -- --
-----------------------------------------------------------------------------------------------
James Finrey Easterlin
Sr. Vice President/Equity Legg Mason Vice President/Equity Analyst
Portfolio Mgr. (1/98)
-----------------------------------------------------------------------------------------------
Eduardo Alejandro Brea,
Sr. Vice President/Equity
Portfolio Mgr. -- --
-----------------------------------------------------------------------------------------------
</TABLE>
C-15
<PAGE>
Item 27. Principal Underwriters:
(a) Furnish the name of each investment company (other than the Registrant) for
which each principal underwriter currently distributing the securities of the
Registrant also acts as a principal underwriter, distributor or investment
adviser.
Registrant's distributor, SEI Investments Distribution Co. (the "Distributor"),
acts as distributor for:
SEI Daily Income Trust July 15, 1982
SEI Liquid Asset Trust November 29, 1982
SEI Tax Exempt Trust December 3, 1982
SEI Index Funds July 10, 1985
SEI Institutional Managed Trust January 22, 1987
SEI Institutional International Trust August 30, 1988
The Pillar Funds February 28, 1992
CUFUND May 1, 1992
STI Classic Funds May 29, 1992
First American Funds, Inc. November 1, 1992
First American Investment Funds, Inc. November 1, 1992
The Arbor Fund January 28, 1993
Boston 1784 Funds June 1, 1993
The PBHG Funds, Inc. July 16, 1993
The Achievement Funds Trust December 27, 1994
Bishop Street Funds January 27, 1995
STI Classic Variable Trust August 18, 1995
ARK Funds November 1, 1995
Huntington Funds January 11, 1996
SEI Asset Allocation Trust April 1, 1996
TIP Funds April 28, 1996
SEI Institutional Investments Trust June 14, 1996
First American Strategy Funds, Inc. October 1, 1996
HighMark Funds February 15, 1997
Armada Funds March 8, 1997
PBHG Insurance Series Fund, Inc. April 1, 1997
The Expedition Funds June 9, 1997
Alpha Select Funds January 1, 1998
Oak Associates Funds February 27, 1998
The Nevis Fund, Inc. June 29, 1998
CNI Charter Funds April 1, 1999
The Armada Advantage Fund May 1, 1999
Amerindo Funds Inc. July 13, 1999
Huntington VA Funds October 15, 1999
Friends Ivory Funds December 16, 1999
iShares, Inc. January 28, 2000
SEI Insurance Products Trust March 29, 2000
C-16
<PAGE>
iShares Trust April 25, 2000
Pitcairn Funds August 1, 2000
First Omaha Funds, Inc. October 1, 2000
JohnsonFamily Funds, Inc. November 1, 2000
Millennium Funds November 1, 2000
The Distributor provides numerous financial services to investment managers,
pension plan sponsors, and bank trust departments. These services include
portfolio evaluation, performance measurement and consulting services ("Funds
Evaluation") and automated execution, clearing and settlement of securities
transactions ("MarketLink").
(b) Furnish the Information required by the following table with respect to each
director, officer or partner of each principal underwriter named in the answer
to Item 21 of Part B. Unless otherwise noted, the business address of each
director or officer is Oaks, PA 19456.
<TABLE>
<CAPTION>
Position and Office Positions and Offices
Name with Underwriter with Registrant
---- ---------------- ---------------
<S> <C> <C>
Alfred P. West, Jr. Director, Chairman of the Board of Directors --
Richard B. Lieb Director, Executive Vice President --
Carmen V. Romeo Director --
Mark J. Held President & Chief Operating Officer --
Dennis J. McGonigle Executive Vice President --
Robert M. Silvestri Chief Financial Officer & Treasurer --
Todd Cipperman Senior Vice President & General Counsel --
Leo J. Dolan, Jr. Senior Vice President --
Carl A. Guarino Senior Vice President --
Jack May Senior Vice President --
Hartland J. McKeown Senior Vice President --
Kevin P. Robins Senior Vice President --
Patrick K. Walsh Senior Vice President --
Wayne M. Withrow Senior Vice President --
Robert Aller Vice President --
John D. Anderson Vice President & Managing Director --
Timothy D. Barto Vice President & Assistant Secretary Vice President &
Assistant Secretary
Robert Crudup Vice President & Managing Director --
Richard A. Deak Vice President & Assistant Secretary --
Scott W. Dellorfano Vice President & Managing Director --
Barbara Doyne Vice President --
Jeff Drennen Vice President --
Scott C. Fanatico Vice President & Managing Director --
Vic Galef Vice President & Managing Director --
Steven A. Gardner Vice President & Managing Director --
Lydia A. Gavalis Vice President & Assistant Secretary Vice President &
</TABLE>
C-17
<PAGE>
<TABLE>
<S> <C> <C>
Assistant Secretary
Greg Gettinger Vice President & Assistant Secretary --
Kathy Heilig Vice President --
Jeff Jacobs Vice President --
Samuel King Vice President --
John Kirk Vice President & Managing Director --
Kim Kirk Vice President & Managing Director --
John Krzeminski Vice President & Managing Director --
Alan H. Lauder Vice President --
Paul Lonergan Vice President & Managing Director --
Ellen Marquis Vice President & Managing Director --
Christine M. McCullough Vice President & Assistant Secretary Vice President &
Assistant Secretary
Carolyn McLaurin Vice President & Managing Director --
Mark Nagle Vice President --
Joanne Nelson Vice President --
Cynthia M. Parrish Vice President & Secretary --
Rob Redican Vice President --
Maria Rinehart Vice President --
Steve Smith Vice President --
Daniel Spaventa Vice President --
Kathryn L. Stanton Vice President --
Lori L. White Vice President & Assistant Secretary --
William E. Zitelli, Jr. Vice President & Assistant Secretary Vice President &
Assistant Secretary
</TABLE>
Item 28. Location of Accounts and Records:
Books or other documents required to be maintained by Section 31(a) of the
Investment Company Act of 1940, and the rules promulgated thereunder, are
maintained as follows:
(a) With respect to Rules 31a-1(a); 31a-1(b)(1); (2)(a) and (b); (3); (6);
(8); (12); and 31a-I (d), the required books and records are maintained at
the offices of Registrant's Custodian:
First Union National Bank
125 Broad Street
Philadelphia, PA 19109
(b)/(c) With respect to Rules 31a-1(a); 31a-1 (b)(1),(4); (2)(C) and (D);
(4); (5); (6); (8); (9); (10); (11); and 31a-1(f), the required books and
records are maintained at the offices of Registrant's Administrator:
SEI Investments Mutual Funds Services
Oaks, PA 19456
C-18
<PAGE>
(c) With respect to Rules 31a-1 (b)(5), (6), (9) and (10) and 31a-1 (f), the
required books and records are maintained at the offices of the Registrant's
Advisers:
HGK Asset Management, Inc.
Newport Tower
525 Washington Blvd.
Jersey City, NJ 07310
AIG Capital Management Corp.
70 Pine Street
20th Floor
New York, NY 10270
First Manhattan Co.
437 Madison Avenue
New York, NY 10022-7022
CRA Real Estate Securities L.P.
Suite 205
259 North Radnor-Chester Road
Radnor, PA 19087
MDL Capital Management, Inc.
225 Ross Street
Pittsburgh, PA 15222
LSV Asset Management Company
200 W. Madison Street, 27/th/ Floor
Chicago, Illinois 60606
GLB Fund Management, Inc.
510 King Street, Suite 315A
Alexandria, VA 22314
Sterling Capital Management LLC
One First Union Center
301 S. College Street, Suite 3200
Charlotte, NC 28202
Item 29. Management Services: None.
Item 30. Undertakings: None.
C-19
<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.
C-20
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, and the
Investment Company Act of 1940, as amended, the Registrant has duly caused this
Post-Effective Amendment No. 41 to the Registration Statement No. 33-42484 to be
signed on its behalf by the undersigned, thereto duly authorized in the City of
Oaks, and Commonwealth of Pennsylvania on the 13th day of December, 2000.
THE ADVISORS' INNER CIRCLE FUND
By: /s/ James R. Foggo
-------------------------------------
James R. Foggo, President
Pursuant to the requirements of the Securities Act of 1933, this Amendment to
the Registration Statement has been signed below by the following persons in the
capacity and on the dates indicated.
* Trustee December 13, 2000
-------------------------------
John T. Cooney
* Trustee December 13, 2000
-------------------------------
William M. Doran
* Trustee December 13, 2000
-------------------------------
Robert A. Nesher
* Trustee December 13, 2000
-------------------------------
Robert A. Patterson
* Trustee December 13, 2000
-------------------------------
Eugene Peters
* Trustee December 13, 2000
-------------------------------
George J. Sullivan, Jr.
* Trustee December 13, 2000
-------------------------------
James M. Storey
/s/ James R. Foggo President December 13, 2000
-------------------------------
James R. Foggo
/s/ Robert J. DellaCroce Controller & December 13, 2000
-------------------------------
Chief Financial Officer
*By: /s/ James R. Foggo
-------------------------
James R. Foggo
Attorney-in-Fact
C-21
<PAGE>
EXHIBIT INDEX
Exhibit No. and Description
EX-99.A1 Registrant's Agreement and Declaration of Trust dated July
18, 1991, as originally filed with the SEC on August 29,
1991, is incorporated herein by reference to Post-Effective
Amendment No. 32 to Registrant's Registration Statement
on Form N-1A (File No. 33-42484), filed with the
Securities and Exchange Commission on February 27,
1998.
EX-99.A2 Registrant's Amendment to the Agreement and Declaration
of Trust dated December 2, 1996, is incorporated herein by
reference to Post-Effective Amendment No. 27 to
Registrant's Registration Statement on Form N-1A (File
No. 33-42484), filed with the Securities and Exchange
Commission on December 13, 1996.
EX-99.A3 Registrant's Amendment to the Agreement and Declaration
of Trust dated February 18, 1997, is incorporated herein by
reference to Post-Effective Amendment No. 28 to
Registrant's Registration Statement on Form N-1A (File
No. 33-42484), filed with the Securities and Exchange
Commission on February 27, 1997.
EX-99.B1 Registrant's By-Laws are incorporated herein by reference to
Registrant's Registration Statement on Form N-1A (File No.
33-42484), filed with the Securities and Exchange Commission
on August 29, 1991.
EX-99.B2 Registrant's Amended and Restated By-Laws are
incorporated herein by reference to Post-Effective
Amendment No. 27 to Registrant's Registration Statement
on Form N-1A (File No. 33-42484), filed with the
Securities and Exchange Commission on December 12,
1996.
EX-99.C Not Applicable.
EX-99.D1 Investment Advisory Agreement between Registrant and
HGK Asset Management, Inc. with respect to HGK Fixed
Income Fund dated August 15, 1994 as originally filed with
Post-Effective Amendment No. 15 to Registrant's
Registration Statement on Form N-1A (File No. 33-42484),
filed with the Securities and Exchange Commission on
June 15, 1994 is incorporated herein by reference to Post-
Effective Amendment No. 24 filed on February 28, 1996.
EX-99.D2 Investment Advisory Agreement between Registrant and
AIG Capital Management Corp. with respect to AIG
Money Market Fund 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,
C-22
<PAGE>
Exhibit No. and Description
---------------------------
1994 is incorporated herein by reference to Post-Effective
Amendment No. 28 filed February 27, 1997.
EX-99.D3 Investment Advisory Agreement between Registrant and
First Manhattan Co. with respect to FMC Select Fund dated
May 3, 1995 as originally filed with Post-Effective
Amendment No. 19 to Registrant's Registration Statement
on Form N-1A (File No. 33-42484) filed with the Securities
and Exchange Commission on February 1, 1995 is
incorporated herein by reference to Post-Effective
Amendment No. 24 filed on February 28, 1996.
EX-99.D4 Investment Advisory Agreement between Registrant and
CRA Real Estate Securities L.P. dated December 31, 1996
with respect to the CRA Realty Shares Portfolio is
incorporated herein by reference to Post-Effective
Amendment No. 29 to Registrant's Registration Statement
on Form N-1A (File No. 33-42484) filed with the Securities
and Exchange Commission on May 22, 1997.
EX-99.D5 Investment Advisory Agreement between Registrant and
MDL Capital Management, Inc. with respect to the MDL
Broad Market Fixed Income Portfolio and the MDL Large
Cap Growth Equity Portfolio is incorporated herein by
reference to Post-Effective Amendment No. 32 to
Registrant's Registration Statement on Form N-1A (File
No. 33-42484), filed with the Securities and Exchange
Commission on February 27, 1998.
EX-99.D6 Investment Advisory Agreement between Registrant and
SAGE Global Funds, LLC with respect to the SAGE
Corporate Bond Fund is incorporated herein by reference to
Post-Effective Amendment No. 32 to Registrant's
Registration Statement on Form N-1A (File No. 33-42484),
filed with the Securities and Exchange Commission on
February 27, 1998.
EX-99.D7 Investment Sub-Advisory Agreement between SAGE
Global Funds, LLC and Standard Asset Group, Inc. with
respect to the SAGE Corporate Bond Fund is incorporated
herein by reference to Post-Effective Amendment No. 32 to
Registrant's Registration Statement on Form N-1A (File
No. 33-42484), filed with the Securities and Exchange
Commission on February 27, 1998.
EX-99.D8 Form of Investment Advisory Agreement between
Registrant and LSV Asset Management Company is
incorporated herein by reference to Post-Effective
C-23
<PAGE>
Exhibit No. and Description
---------------------------
Amendment No. 34 to Registrant's Registration Statement
on Form N-1A (File No. 33-42484), filed with the
Securities and Exchange Commission on December 29, 1998.
EX-99.D9 Amended and Restated Schedule to the Investment
Advisory Agreement dated May 3, 1995 between
Registrant and First Manhattan Company is incorporated
herein by reference to Post-Effective Amendment No. 34 to
Registrant's Registration Statement on Form N-1A (File
No. 33-42484), filed with the Securities and Exchange
Commission on December 29, 1998.
EX-99.D10 Form of Investment Advisory Agreement between Registrant and
Sterling Partners Capital Management LLC is filed herewith.
EX-99.D11 Investment Advisory Agreement between the Registrant
and GLB Fund Management, Inc. is filed herewith.
EX-99.E1 Amended and Restated Distribution Agreement between
Registrant and SEI Financial Services Company dated
August 8, 1994 as originally filed with Post-Effective
Amendment No. 17 to Registrant's Registration Statement
on Form N-1A (File No. 33-42484) filed with the Securities
and Exchange Commission on September 19, 1994 is
incorporated herein by reference to Post-Effective
Amendment No. 24 filed on February 28, 1996.
EX-99.E2 Distribution Agreement between Registrant and CCM
Securities, Inc. dated February 28, 1997 is incorporated
herein by reference to Post-Effective Amendment No. 30 to
Registrant's Registration Statement on Form N-1A (File
No. 33-42484), filed with the Securities and Exchange
Commission on June 30, 1997.
EX-99.E3 Amended and Restated Sub-Distribution and Servicing
Agreement between SEI Investments Company and AIG
Equity Sales Corporation is incorporated herein by
reference to Post-Effective Amendment No. 32 to
Registrant's Registration Statement on Form N-1A (File
No. 33-42484), filed with the Securities and Exchange
Commission on February 27, 1998.
EX-99.F Not Applicable.
EX-99.G1 Custodian Agreement between Registrant and CoreStates
Bank N.A. originally filed Pre-Effective Amendment No. 1
C-24
<PAGE>
Exhibit No. and Description
---------------------------
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.G2 Amended Custodian Agreement dated between Registrant
and CoreStates Bank, N.A. is incorporated herein by
reference to exhibit (g)(2) of Post-Effective Amendment
No. 39 filed on February 25, 2000.
EX-99.H1 Amended and Restated Administration Agreement between
Registrant and SEI Financial Management Corporation,
including schedules relating to Clover Capital Equity Value
Fund, Clover Capital Fixed Income Fund, White Oak
Growth Stock Fund, Pin Oak Aggressive Stock Fund,
Roulston Midwest Growth Fund, Roulston Growth and
Income Fund, Roulston Government Securities Fund, A+P
Large-Cap Fund, Turner Fixed Income Fund, Turner Small
Cap Fund, Turner Growth Equity Fund, Morgan Grenfell
Fixed Income Fund, Morgan Grenfell Municipal Bond
Fund and HGK Fixed Income Fund dated May 17, 1994 as
originally filed with Post-Effective Amendment No. 15 to
Registrant's Registration Statement on Form N-1A (File
No. 33-42484), filed with the Securities and Exchange
Commission on June 15, 1994 is incorporated herein by
reference to Post-Effective Amendment No. 24 filed on
February 28, 1996.
EX-99.H2 Schedule dated November 11, 1996 to Administration
Agreement dated November 14, 1991 as Amended and
Restated May 17, 1994 adding the CRA Realty Shares
Portfolio is incorporated herein by reference to Post-
Effective Amendment No. 29 to Registrant's Registration
Statement on Form N-1A (File No. 33-42484), filed with
the Securities and Exchange Commission on May 22, 1997.
EX-99.H3 Shareholder Service Plan and Agreement for the Class A Shares
of the CRA Realty Shares Portfolio is incorporated herein by
reference to Post-Effective Amendment No. 30 to Registrant's
Registration Statement on Form N-1A (File No. 33-42484), filed
with the Securities and Exchange Commission on June 30, 1997.
EX-99.H4 Schedule to Amended and Restated Administration
Agreement dated May 8, 1995 to the Administration
Agreement dated November 14, 1991 as Amended and
C-25
<PAGE>
Exhibit No. and Description
---------------------------
Restated May 17, 1994 with respect to the FMC Select Fund is
incorporated herein by reference to Post-Effective Amendment
No. 28 to Registrant's Registration Statement on Form N-1A
(File No. 33-42484), filed with the Securities and Exchange
Commission on February 27, 1997.
EX-99.H5 Consent to Assignment and Assumption of Administration
Agreement dated June 1, 1996 is incorporated herein by
reference to Post-Effective Amendment No. 28 to Registrant's
Registration Statement on Form N-1A (File No. 33-42484), filed
with the Securities and Exchange Commission on February 27,
1997.
EX-99.H6 Schedule to the Amended and Restated Administration
Agreement adding the MDL Broad Market Fixed Income
Fund and the MDL Large Cap Growth Equity Fund
incorporated herein by reference to Post-Effective
Amendment No. 32 to Registrant's Registration Statement
on Form N-1A (File No. 33-42484), filed with the
Securities and Exchange Commission on February 27,
1998.
EX-99.H7 Schedule to the Amended and Restated Administration
Agreement adding the SAGE Corporate Fixed Bond Fund
is incorporated herein by reference to Post-Effective
Amendment No. 32 to Registrant's Registration Statement
on Form N-1A (File No. 33-42484), filed with the
Securities and Exchange Commission on February 27,
1998.
EX-99.H8 Schedule dated May 19, 1997 to Administration Agreement
dated November 14, 1991 between The Advisors' Inner
Circle Fund and SEI Financial Management Corporation
adding the AIG Money Market Fund is incorporated herein
by reference to Post-Effective Amendment No. 32 to
Registrant's Registration Statement on Form N-1A (File
No. 33-42484), filed with the Securities and Exchange
Commission on February 27, 1998.
EX-99.H9 Schedule to Administration Agreement relating to the CRA
Realty Portfolio is incorporated herein by reference to Post-
Effective Amendment No. 32 to Registrant's Registration
Statement on Form N-1A (File No. 33-42484), filed with
the Securities and Exchange Commission on February 27,
1998.
C-26
<PAGE>
Exhibit No. and Description
---------------------------
EX-99.H10 Form of Shareholder Servicing Agreement for AIG Money
Market Fund is incorporated herein by reference to Post-
Effective Amendment No. 32 to Registrant's Registration
Statement on Form N-1A (File No. 33-42484), filed with
the Securities and Exchange Commission on February 27,
1998.
EX-99.H11 Transfer Agency Agreement dated November 30, 1994 is
incorporated herein by reference to Post-Effective
Amendment No. 32 to Registrant's Registration Statement
on Form N-1A (File No. 33-42484), filed with the
Securities and Exchange Commission on February 27,
1998.
EX-99.H12 Amendment dated August 17, 1998 to the Schedule dated
May 8, 1995 to the Administration Agreement dated
November 14, 1991 as amended and restated May 17, 1994
between Registrant and SEI Financial Management
Corporation is incorporated herein by reference to Post-
Effective Amendment No. 34 to Registrant's Registration
Statement on Form N-1A (File No. 33-42484), filed with
the Securities and Exchange Commission on December 29,
1998.
EX-99.H13 Assignment and Assumption Agreement dated February 27, 1998
between Registrant and Oak Associates Funds is incorporated
herein by reference to Post-Effective Amendment No. 34 to
Registrant's Registration Statement on Form N-1A (File No.
33-42484), filed with the Securities and Exchange Commission
on December 29, 1998.
EX-99.H14 Amended Schedule dated March 15, 1999 to the
Administration Agreement dated November 14, 1991 as
amended and restated May 17, 1994, relating to LSV Value
Equity Fund, between Registrant and SEI Fund Resources
is incorporated by reference to exhibit (h)(14) of Post-
Effective Amendment No. 39 to Registrant's Registration
Statement on Form N-1A (File No. 33-42484), filed with
the Securities and Exchange Commission on February 25,
2000.
EX-99.H15 Amended Schedule dated August 15, 1999 to the
Administration Agreement dated November 14, 1991 as
amended and restated May 17, 1994, relating to HGK Fixed
Income Fund, HGK Equity Value Fund and HGK Mid Cap
Value Fund, between Registrant and SEI Investments
C-27
<PAGE>
Exhibit No. and Description
---------------------------
Mutual Funds Services is incorporated by reference to
exhibit (h)(15) of Post-Effective Amendment No. 39 to
Registrant's Registration Statement on Form N-1A (File
No. 33-42484), filed with the Securities and Exchange
Commission on February 25, 2000.
EX-99.H16 Administration Agreement dated August 20, 1999 between
Registrant, LSV Asset Management and Fidelity Brokerage
Services, Inc. and National Financial Services Corporation
is incorporated by reference to exhibit (h)(16) of Post-
Effective Amendment No. 39 to Registrant's Registration
Statement on Form N-1A (File No. 33-42484), filed with
the Securities and Exchange Commission on February 25,
2000.
EX-99.H17 Amended Schedule dated December 1, 1999 to the
Administration Agreement dated November 14, 1991 as
amended and restated May 17, 1994, relating CRA Realty
Shares Portfolio, between Registrant and SEI Fund
Resources is incorporated by reference to exhibit (h)(17) of
Post-Effective Amendment No. 39 to Registrant's
Registration Statement on Form N-1A (File No. 33-42484),
filed with the Securities and Exchange Commission on
February 25, 2000.
EX-99.H18 Amendment dated August 18, 1999 to the Operating
Agreement dated January 5, 1996, relating to LSV Value
Equity Fund, between the Registrant, LSV Asset
Mangement and Charles Schwab & Co, Inc. is incorporated
by reference to exhibit (h)(15) of Post-Effective
Amendment No. 39 to Registrant's Registration Statement
on Form N-1A (File No. 33-42484), filed with the
Securities and Exchange Commission on February 25,
2000.
EX-99.H19 Schedule dated May 19, 2000 to the Administration
Agreement dated November 14, 1991 between the
Registrant and SEI Investments Mutual Funds Services
relating to the AIG Money Market Fund is incorporated
herein by reference to exhibit (h)(19) of thRegistrant's
Post-Effective Amendment no. 40 on Form N-1A (File No.
33-42484) filed with the Securities and Exchange
Commission on July 17, 2000.
EX-99.H20 Schedule dated May 22, 2000 to the Administration
Agreement dated November 14, 1991 as amended and
restated May 17, 1994 between the Registrant and SEI
C-28
<PAGE>
Exhibit No. and Description
---------------------------
Investments Mutual Funds Services relating to the FMC
Select and Strategic Value Funds is is incorporated herein
by reference to exhibit (h)(20) of the Registrant's Post-
Effective Amendment no. 40 on Form N-1A (File No. 33-
42484) filed with the Securities and Exchange Commission
on July 17, 2000.
EX-99.H21 Transfer Agency and Services Agreement dated October 1, 2000,
between the Registrant and Forum Shareholder Services, LLC, is
filed herewith.
EX-99.H22 Schedule to the Administration Agreement between Registrant
and SEI Investments Mutual Funds Services relating to the GLB
Aggressive Growth Fund is filed herewith.
EX-99.H23 Schedule to the Administration Agreement between Registrant
and SEI Investments Mutual Funds Services relating to the
Sterling Partners' Balanced Portfolio and Sterling Partners'
Small Cap Value Portfolio will be filed by later amendment.
EX-99.I Not Applicable.
EX-99.J Not Applicable.
EX-99.K Not Applicable.
EX-99.L Not Applicable.
EX-99.M Distribution Plan for The Advisors' Inner Circle Fund is
filed herewith.
EX-99.N Not Applicable.
EX-99.O Rule 18f-3 Plan dated May 15, 1995, as originally filed June
1, 1995, is incorporated herein by reference to exhibit (o) of
Post-Effective Amendment No. 32 to Registrant's Registration
Statement on Form N-1A (File No. 33-42484), filed with the
Securities and Exchange Commission on February 27, 1998.
EX-99.P1 SEI Investments Company Code of Ethics and Insider Trading
Policy is incorporated herein by reference to exhibit (p)(11)
of The Arbor Fund's Post-Effective Amendment no. 28 on
FormN-1A (File No. 33-50718) filed with the Securities and
Exchange Commission on May 30, 2000.
C-29
<PAGE>
Exhibit No. and Description
---------------------------
EX-99.P2 The Advisors' Inner Circle Fund Code of Ethics is incorporated
herein by reference to exhibit (p)(10) of The Arbor Fund's
Post-Effective Amendment no. 28 on Form N-1A (File
No.33-50718) filed with the Securities and Exchange Commission
on May 30, 2000.
EX-99.P3 AIG Capital Management Corp. Code of Ethics is
incorporated herein by reference to exhibit (p)(3) of the
Registrant's Post-Effective Amendment no. 40 on Form N-
1A (File No. 33-42484) filed with the Securities and
Exchange Commission on July 17, 2000.
EX-99.P4 Clarion CRA Securities, L.P., Code of Ethics is
incorporated herein by reference to exhibit (p)(4) of the
Registrant's Post-Effective Amendment no. 40 on Form N-
1A (File No. 33-42484) filed with the Securities and
Exchange Commission on July 17, 2000.
EX-99.P5 First Manhattan Co. Code of Ethics is incorporated herein by
reference to exhibit (p)(5) of the Registrant's Post-Effective
Amendment no. 40 on Form N-1A (File No. 33-42484) filed with
the Securities and Exchange Commission on July 17, 2000.
EX-99.P6 HGK Asset Management, Inc., Code of Ethics is
incorporated herein by reference to exhibit (p)(6) of the
Registrant's Post-Effective Amendment no. 40 on Form N-
1A (File No. 33-42484) filed with the Securities and
Exchange Commission on July 17, 2000.
EX-99.P7 LSV Asset Management, L.P., Code of Ethics is
incorporated herein by reference to exhibit (p)(9) of SEI
Instititutional Managed Trust's Post-Effective Amendment
no. 33 on Form N-1A (File No. 33-9504) filed with the
Securities and Exchange Commission on July 3, 2000.
EX-99.P8 MDL Capital Management, Inc., Code of Ethics is
incorporated herein by reference to exhibit (p)(8) of the
Registrant's Post-Effective Amendment no. 40 on Form N-
1A (File No. 33-42484) filed with the Securities and
Exchange Commission on July 17, 2000.
EX-99.P9 Sterling Capital Management LLC Code of Ethics is filed
herewith.
EX-99.Q Powers of Attorney for John T. Cooney, William M. Doran,
Robert A. Nesher, Eugene B. Peters, Robert A. Patterson,
George J. Sullivan, James M. Storey, James R. Foggo and
Robert J. DellaCroce are filed herewith.
C-30
<PAGE>
Exhibit No. and Description
---------------------------
C-31
