<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 25, 2000
File No. 33-42484
File No. 811-6400
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933
/X/ POST-EFFECTIVE AMENDMENT NO. 39
AND
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940
/X/ AMENDMENT NO. 40
THE ADVISORS' INNER CIRCLE FUND
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
2 OLIVER STREET
BOSTON, MASSACHUSETTS 02109
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES, ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (800) 932-7781
MARK E. NAGLE
C/O SEI CORPORATION
OAKS, PENNSYLVANIA 19456
(NAME AND ADDRESS OF AGENT FOR SERVICE)
Copies to:
RICHARD W. GRANT, ESQUIRE
JOHN H. GRADY, ESQUIRE
MORGAN, LEWIS & BOCKIUS LLP
1701 MARKET STREET
PHILADELPHIA, PENNSYLVANIA 19103
- -------------------------------------------------------------------------------
It is proposed that this filing become effective (check appropriate box)
/ / immediately upon filing pursuant to paragraph (b)
/X/ on February 28, 2000 pursuant to paragraph (b)
/ / 60 days after filing pursuant to paragraph (a)
/ / 75 days after filing pursuant to paragraph (a)
/ / on [date] pursuant to paragraph (a) of Rule 485.
- -------------------------------------------------------------------------------
<PAGE>
CRA REALTY SHARES PORTFOLIO
CLASS A SHARES AND INSTITUTIONAL SHARES
PROSPECTUS
MARCH 1, 2000
THE ADVISORS' INNER CIRCLE FUND
INVESTMENT ADVISER:
CLARION CRA SECURITIES, L.P.
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED
THESE SECURITIES OR PASSED UPON THE ACCURACY THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
Page 1 of 19
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<PAGE>
ABOUT THIS PROSPECTUS
The CRA Realty Shares Portfolio (Portfolio) is a separate series of The
Advisors' Inner Circle Fund (Trust), a mutual fund family that offers different
classes of shares in separate investment portfolios. The portfolios have
individual investment goals and strategies. This prospectus gives you important
information about the Class A Shares and Institutional Shares of the CRA Realty
Shares Portfolio that you should know before investing. Please read this
prospectus and keep it for future reference.
THIS PROSPECTUS HAS BEEN ARRANGED INTO DIFFERENT SECTIONS SO THAT YOU CAN EASILY
REVIEW THIS IMPORTANT INFORMATION. FOR DETAILED INFORMATION ABOUT THE PORTFOLIO,
PLEASE SEE:
PAGE
PRINCIPAL INVESTMENT STRATEGIES AND PRINCIPAL RISKS,
PERFORMANCE INFORMATION AND EXPENSES.......................XXX
MORE INFORMATION ABOUT RISK....................................XXX
MORE INFORMATION ABOUT PORTFOLIO INVESTMENTS...................XXX
THE INVESTMENT ADVISER AND PORTFOLIO MANAGER...................XXX
PURCHASING AND SELLING PORTFOLIO SHARES........................XXX
DIVIDENDS AND DISTRIBUTIONS....................................XXX
TAXES..........................................................XXX
FINANCIAL HIGHLIGHTS...........................................XXX
HOW TO OBTAIN MORE INFORMATION ABOUT THE
CRA REALTY SHARES PORTFOLIO................................Back Cover
Page 2 of 19
<PAGE>
<TABLE>
<CAPTION>
CRA REALTY SHARES PORTFOLIO
PORTFOLIO SUMMARY
<S> <C>
INVESTMENT GOAL Total return through investment in real estate
securities
INVESTMENT FOCUS Equity securities of real estate companies
SHARE PRICE VOLATILITY Medium
PRINCIPAL INVESTMENT STRATEGY Investing in dividend paying equity securities of
real estate companies
INVESTOR PROFILE Investors who seek income and long-term capital
appreciation through exposure to the real estate
industry and who can accept the greater risk of
volatility inherent in a narrowly focused fund
</TABLE>
INVESTMENT STRATEGY OF THE CRA REALTY SHARES PORTFOLIO
The Portfolio invests primarily (at least 65% of its assets) in common and
preferred stocks of U.S. real estate investment trusts (REITs) and real estate
companies that generally provide income and also have the potential for
long-term capital appreciation. The Adviser uses systematic, top-down research
to evaluate property market conditions and trends to judge which market sectors
offer potentially attractive returns. The Adviser uses proprietary analytical
techniques to identify the securities which it believes will provide
above-average cash flow yield and growth. Companies are evaluated for purchase
and sale using several different qualitative and quantitative factors such as
valuation, capital structure, and management and strategy. The Adviser will sell
a security when it no longer meets these criteria.
The Portfolio's investment approach, with its emphasis on investments in
companies primarily engaged in the real estate industry, is expected to produce
a total return that is closely tied to the performance of the market for
publicly traded real estate companies, including REITs, which is a narrow
segment of the overall U.S. stock market.
PRINCIPAL RISKS OF INVESTING IN THE CRA REALTY SHARES PORTFOLIO
Since it purchases equity securities, the Portfolio is subject to the risk that
stock prices will fall over short or extended periods of time. The equity
markets move in cycles, and the value of the Portfolio's securities may
fluctuate drastically from day to day. Individual companies may report poor
results or be negatively affected by industry and/or economic trends and
developments. The prices of securities issued by such companies may suffer a
decline in response.
The Portfolio is subject to the risk that the securities of issuers in the real
estate industry that the Portfolio purchases will underperform the market as a
whole. To the extent that the Portfolio's investments are concentrated in
issuers conducting business in the real estate industry, the
Page 3 of 19
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Portfolio is subject to legislative or regulatory changes, adverse market
conditions and/or increased competition affecting that industry.
The Portfolio is non-diversified, which means that it may invest in the
securities of relatively few issuers. As a result, the Portfolio may be more
susceptible than a diversified fund to a single adverse economic or regulatory
occurrence affecting one or more of these issuers, and may experience increased
volatility due to its investments in those securities.
The Portfolio is also subject to the risk that dividend-paying stocks of real
estate companies may underperform other segments of the equity market or the
equity markets as a whole.
PERFORMANCE INFORMATION
The bar chart and the performance table below illustrate the risks and
volatility of an investment in the Portfolio. Of course, the Portfolio's past
performance does not necessarily indicate how the Portfolio will perform in the
future. As of December 31, 1999, Class A Shares were not available to investors.
This bar chart shows changes in the performance of the Portfolio's
Institutional Shares from year to year.*
<TABLE>
<CAPTION>
<S> <C>
1997 25.32%
1998 -17.75%
1999 -2.55%
BEST QUARTER WORST QUARTER
13.47% -12.77%
(9/30/97) (9/30/98)
</TABLE>
* The performance information shown above is based on a calendar year.
This table compares the Portfolio's average annual total returns for the periods
ended December 31, 1999 to those of the Wilshire Real Estate Securities Index.
<TABLE>
<CAPTION>
INSTITUTIONAL SHARES 1 YEAR SINCE INCEPTION
- ----------------------------------------------------------------------------------
<S> <C> <C>
CRA REALTY SHARES PORTFOLIO -2.55% 0.15%*
WILSHIRE REAL ESTATE SECURITIES INDEX -3.19 -1.43%**
</TABLE>
* Since 1/1/97
** Since 12/31/96
What is an Index?
An index measures the market prices of a specific group of securities in a
particular market or securities in a market sector. You cannot invest directly
in an index. Unlike a mutual fund, an index does not have an investment adviser
and does not pay any commissions or expenses. If an index had expenses, its
performance would be lower. The Wilshire Real Estate Securities Index is a
market capitalization weighted index of publicly traded real estate securities,
such as real estate investment trusts (REITs), real estate operating companies
(REOCs) and partnerships. The index is comprised of companies whose charter is
the equity ownership and operation of commercial real estate.
Page 4 of 19
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PORTFOLIO FEES AND EXPENSES
THIS TABLE DESCRIBES THE FEES AND EXPENSES THAT YOU MAY PAY IF YOU BUY AND HOLD
PORTFOLIO SHARES.
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
<TABLE>
<CAPTION>
CLASS A SHARES INSTITUTIONAL SHARES
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of
offering price)* 4.25% None
Maximum Deferred Sales Charge (Load) (as a percentage of net asset value) None None
Maximum Sales Charge (Load) Imposed on Reinvested Dividends and other
Distributions (as a percentage of offering price) None None
Redemption Fee (as a percentage of amount redeemed, if applicable)** None 0.75%
Exchange Fee None None
</TABLE>
* This sales charge varies depending upon how much you invest. See "Purchasing
Portfolio Shares."
** This redemption fee is imposed if you sell Institutional Shares within six
months of your purchase. See "Selling Portfolio Shares."
ANNUAL PORTFOLIO OPERATING EXPENSES (EXPENSES DEDUCTED FROM PORTFOLIO ASSETS)*
<TABLE>
<CAPTION>
CLASS A SHARES INSTITUTIONAL SHARES
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
Investment Advisory Fees 0.70% 0.70%
Distribution and Service (12b-1) Fees 0.25% None
Other Expenses 0.41% 0.41%
----- -----
Total Annual Portfolio Operating Expenses 1.36% 1.11%
</TABLE>
* The Portfolio's total actual annual fund operating expenses for the most
recent fiscal year were less than the amount shown above because the Adviser
waived a portion of the fees in order to keep total operating expenses at a
specified level. These fee waivers remain in place as of the date of this
prospectus, but the Adviser may discontinue all or part of these waivers at any
time. With these fee waivers, the Portfolio's actual total operating expenses
are expected to be as follows:
CRA Realty Shares Portfolio - Class A Shares 1.25%
CRA Realty Shares Portfolio - Institutional Shares 1.00%
For more information about these fees, see "Investment Adviser" and
"Distribution of Portfolio Shares."
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EXAMPLE
This Example is intended to help you compare the cost of investing in the
Portfolio with the cost of investing in other mutual funds. The Example
assumes that you invest $10,000 in the Portfolio for the time periods
indicated and that you sell your shares at the end of the period.
The Example also assumes that each year your investment has a 5% return,
Portfolio operating expenses remain the same and you reinvest all dividends and
distributions. Although your actual costs and returns might be different, your
approximate costs of investing $10,000 in the Portfolio would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS A SHARES $558 $837 $1,138 $1,991
INSTITUTIONAL SHARES $113 $353 $612 $1,352
</TABLE>
Page 6 of 19
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MORE INFORMATION ABOUT RISK
The Portfolio is a mutual fund. A mutual fund pools shareholders' money and,
using professional investment managers, invests it in securities.
The Portfolio has an investment goal and strategies for reaching that goal. The
investment managers invest Portfolio assets in a way that they believe will help
the Portfolio achieve its goal. Still, investing in the Portfolio involves risk
and there is no guarantee that the Portfolio will achieve its goal. An
investment manager's judgments about the markets, the economy, or companies may
not anticipate actual market movements, economic conditions or company
performance, and these judgments may affect the return on your investment. In
fact, no matter how good a job an investment manager does, you could lose money
on your investment in the Portfolio, just as you could with other investments.
The value of your investment in the Portfolio is based on the market prices of
the securities the Portfolio holds. These prices change daily due to economic
and other events that affect particular companies and other issuers. These price
movements, sometimes called volatility, may be greater or lesser depending on
the types of securities the Portfolio owns and the markets in which they trade.
The effect on the Portfolio of a change in the value of a single security will
depend on how widely the Portfolio diversifies its holdings.
EQUITY RISK - Equity securities include public and privately issued equity
securities, common and preferred stocks, warrants, rights to subscribe to common
stock and convertible securities, as well as instruments that attempt to track
the price movement of equity indices. Investments in equity securities and
equity derivatives in general are subject to market risks that may cause their
prices to fluctuate over time. The value of securities convertible into equity
securities, such as warrants or convertible debt, is also affected by prevailing
interest rates, the credit quality of the issuer and any call provision.
Fluctuations in the value of equity securities in which a mutual fund invests
will cause a fund's net asset value to fluctuate. An investment in a portfolio
of equity securities may be more suitable for long-term investors who can bear
the risk of these share price fluctuations.
REAL ESTATE INVESTING - The Portfolio will invest in the securities of REITs and
companies principally engaged in the real estate industry. These investments may
subject the Portfolio to the risks associated with the direct ownership of real
estate. Equity REITs may be affected by changes in the value of the underlying
property owned by the REITs, while Mortgage REITs may be affected by the quality
of credit extended. In addition to these risks, REITs are dependent on
specialized management skills and some REITs may have investments in relatively
few properties, or in a small geographic area or a single type of property.
These factors may increase the volatility of the Portfolio's investments in
REITs. Shareholders in the Portfolio should realize that by investing in REITs
indirectly through the Portfolio, they bear not only their proportionate share
of the expenses of the Portfolio but also, indirectly, the management expenses
of underlying REITs.
Page 7 of 19
<PAGE>
MORE INFORMATION ABOUT PORTFOLIO INVESTMENTS
This prospectus describes the Portfolio's primary strategies, and the Portfolio
will normally invest in the types of securities described in this prospectus.
However, in addition to the investments and strategies described in this
prospectus, the Portfolio also may invest in other securities, use other
strategies and engage in other investment practices. These investments and
strategies, as well as those described in this prospectus, are described in
detail in our Statement of Additional Information. Of course, we cannot
guarantee that the Portfolio will achieve its investment goal.
The investments and strategies described in this prospectus are those that we
use under normal conditions. During unusual economic or market conditions, or
for temporary defensive or liquidity purposes, the Portfolio may invest up to
100% of its assets in cash and money market instruments that would not
ordinarily be consistent with the Portfolio's objectives. The Portfolio will do
so only if the Adviser believes that the risk of loss outweighs the opportunity
for capital gains or higher income.
INVESTMENT ADVISER
The Investment Adviser makes investment decisions for the Portfolio and
continuously reviews, supervises and administers its Portfolio's investment
program. The Board of Trustees supervises the Adviser and establishes policies
that the Adviser must follow in its management activities.
Clarion CRA Securities, L.P. (Clarion CRA), serves as the Adviser to the CRA
Realty Shares Portfolio. Clarion CRA is a registered investment adviser and
through its predecessors has been managing investments in real estate securities
on behalf of institutional investors since 1984. As of December 31, 1999, the
Adviser had approximately $1.4 billion in assets under management. For its
services, the Adviser is entitled to an annual fee of 0.70% of the Portfolio's
average daily net assets. The Adviser has voluntarily agreed to waive a portion
of its fees and reimburse certain expenses of the Portfolios so that Total
Operating Expenses do not exceed 1.00% (not including distribution and service
fees) of the Fund's average daily net assets. For the fiscal year ended October
31, 1999, Clarion CRA received advisory fees as a percentage of average daily
net assets (after waivers) of 0.59% for the Portfolio.
The Adviser may use its affiliates as brokers for Portfolio transactions.
PORTFOLIO MANAGERS
Kenneth D. Campbell has served as Chairman, Co-Chief Investment Officer and
Co-Portfolio Manager of Clarion CRA since 1969. He has co-managed the CRA Realty
Shares Portfolio since its inception. He has more than 31 years of investment
experience. Prior to joining the Adviser, Mr. Campbell had managed real estate
securities portfolios since 1980 for a select number of institutional and
individual accounts.
T. Ritson Ferguson, CFA has served as President, Co-Chief Investment Officer and
Co-Portfolio Manager of Clarion CRA since 1992. He has co-managed the CRA Realty
Shares Portfolio since its inception. He has more than 14 years of investment
experience. Prior to joining the Adviser, Mr. Ferguson gained extensive direct
real estate investment experience at Radnor Advisers and
Page 8 of 19
<PAGE>
Trammell Crow Company where he was involved with acquisition, development and
management of commercial real estate since 1986.
PURCHASING AND SELLING PORTFOLIO SHARES
This section tells you how to purchase and sell (sometimes called "redeem")
Class A Shares and Institutional Shares of the Portfolio.
Class A Shares and Institutional Shares have different expenses and other
characteristics, allowing you to choose the class that best suits your needs.
You should consider the amount you want to invest, how long you plan to have it
invested, and whether you plan to make additional investments.
CLASS A SHARES
- Front-end sales charge
- 12b-1 fees
- $5,000 minimum initial investment
INSTITUTIONAL SHARES
- No sales charge
- No 12b-1 fees or shareholder fees
- $100,000 minimum initial investment
For some investors the minimum initial investment for Class A Shares and
Institutional Shares may be lower.
Class A Shares are for individual and institutional investors.
Institutional Shares are for financial institutions investing for their own or
their customers' accounts. For information on how to open an account and set
up procedures for placing transactions call 1-888-712-1103.
HOW TO PURCHASE PORTFOLIO SHARES
You may purchase shares by:
- - Mail
- - Telephone, or
- - Wire
To purchase shares directly from us, complete and send in the application. If
you need an application or have questions, please call 1-888-712-1103. Unless
you arrange to pay by wire, write your check, payable in U.S. dollars, to "CRA
Realty Shares Portfolio." The Portfolio cannot accept third-party checks, credit
cards, credit card checks or cash.
You may also buy shares through accounts with brokers and other institutions
that are authorized to place trades in Portfolio shares for their customers. If
you invest through an authorized institution, you will have to follow its
procedures, which may be different from the procedures for investing directly.
Your broker or institution may charge a fee for its services, in addition to the
fees charged by the Portfolio. You will also generally have to address your
correspondence or questions regarding the Portfolio to your institution.
Page 9 of 19
<PAGE>
GENERAL INFORMATION
You may purchase shares on any day that the New York Stock Exchange (NYSE) is
open for business (a Business Day). Shares cannot be purchased by Federal
Reserve wire on days when either the NYSE or the Federal Reserve is closed.
The Portfolio may reject any purchase order if it is determined that accepting
the order would not be in the best interests of the Portfolio or its
shareholders.
The price per share (the offering price) will be the net asset value per share
(NAV) next determined after the Portfolio receives your purchase order, plus, in
the case of Class A Shares, the applicable front-end sales charge.
The Portfolio calculates its NAV once each Business Day at the
regularly-scheduled close of normal trading on the NYSE (normally, 4:00 p.m.
Eastern time). So, for you to receive the current Business Day's NAV, generally
the Portfolio must receive your purchase order before 4:00 p.m. Eastern time.
HOW WE CALCULATE NAV
NAV for one Portfolio share is the value of that share's portion of all of the
net assets of the Portfolio.
In calculating NAV, the Portfolio generally values its investment portfolio at
market price. If market prices are unavailable or the Portfolio thinks that they
are unreliable, fair value prices may be determined in good faith using methods
approved by the Board of Trustees.
MINIMUM PURCHASES
To purchase shares for the first time, you must invest at least:
CLASS DOLLAR AMOUNT
Class A Shares $5,000
Institutional Shares $100,000
There is no minimum for your subsequent investments in the Portfolio.
The Portfolio may accept investments of smaller amounts for either class of
shares at our discretion.
SYSTEMATIC INVESTMENT PLAN
If you have a checking or savings account with a bank, you may purchase shares
from either class automatically through regular deductions from your account in
amounts of at least $50 per month.
Page 10 of 19
<PAGE>
SALES CHARGES
FRONT-END SALES CHARGES - CLASS A SHARES
The offering price of Class A Shares is the NAV next calculated after the
Portfolio receives your request, plus the front-end sales load.
The amount of any front-end sales charge included in your offering price varies,
depending on the amount of your investment:
<TABLE>
<CAPTION>
YOUR SALES CHARGE AS A PERCENTAGE YOUR SALES CHARGE AS A PERCENTAGE
OF OFFERING PRICE OF YOUR NET INVESTMENT
IF YOUR INVESTMENT IS:
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
LESS THAN $50,000 4.25% 4.99%
$50,000 TO $99,999 4.00% 4.17%
$100,000 TO $249,999 3.50% 3.63%
$250,000 TO $499,999 2.75% 2.83%
$500,000 TO $999,999 2.00% 2.04%
$1,000,000 AND OVER 0.00% 0.00%
</TABLE>
WAIVER OF FRONT-END SALES CHARGE -CLASS A SHARES
The front-end sales charge will be waived on Class A Shares purchased:
- - by reinvestment of dividends and distributions;
- - by employees, and members of their immediate family, of Clarion CRA and
its affiliates;
- - by Trustees and officers of The Advisors' Inner Circle Fund; or
- - through dealers, retirement plans, asset allocation programs and
financial institutions that have entered into an agreement with the
Portfolio's administrator or its affiliates.
REDUCED SALES CHARGES -CLASS A SHARES
RIGHTS OF ACCUMULATION. In calculating the appropriate sales charge rate, this
right allows you to add the value of the Class A Shares you already own to the
amount that you are currently purchasing. The Portfolio will combine the value
of your current purchases with the current value of any Class A Shares you
purchased previously for (i) your account, (ii) your spouse's account, (iii) a
joint account with your spouse, or (iv) your minor children's trust or custodial
accounts. A fiduciary purchasing shares for the same fiduciary account, trust or
estate may also use this right of accumulation. The Portfolio will only consider
the value of Class A Shares purchased previously that were sold subject to a
sales charge. TO BE ENTITLED TO A REDUCED SALES CHARGE BASED ON SHARES ALREADY
OWNED, YOU MUST ASK US FOR THE REDUCTION AT THE TIME OF PURCHASE. You must
provide the Portfolio with your account number(s) and, if applicable, the
account numbers for your spouse and/or children (and provide the children's
ages). The Portfolio may amend or terminate this right of accumulation at any
time.
LETTER OF INTENT. You may purchase Class A Shares at the sales charge rate
applicable to the total amount of the purchases you intend to make over a
13-month period. In other words, a Letter of Intent allows you to purchase Class
A Shares of the Portfolio over a 13-month period and receive the same sales
charge as if you had purchased all the shares at the same time. The Portfolio
will only consider the value of Class A Shares sold subject to a sales charge.
As a result, Class A Shares purchased with dividends or distributions will not
be included in the calculation. To be entitled to a reduced sales charge based
on shares you intend to purchase over the 13-month period, you must send us a
Letter of Intent. In calculating the total amount of
Page 11 of 19
<PAGE>
purchases you may include in your letter purchases made up to 90 days before the
date of the Letter. The 13-month period begins on the date of the first
purchase, including those purchases made in the 90-day period before the date of
the Letter. Please note that the purchase price of these prior purchases will
not be adjusted.
You are not legally bound by the terms of your Letter of Intent to purchase the
amount of your shares stated in the Letter. The Letter does, however, authorize
us to hold in escrow 4.0% of the total amount you intend to purchase. If you do
not complete the total intended purchase at the end of the 13-month period, the
transfer agent will redeem the necessary portion of the escrowed shares to make
up the difference between the reduced rate sales charge (based on the amount you
intended to purchase) and the sales charge that would normally apply (based on
the actual amount you purchased).
COMBINED PURCHASE/QUANTITY DISCOUNT PRIVILEGE. When calculating the appropriate
sales charge rate, the Portfolio will combine same day purchases of Class A
Shares (that are subject to a sales charge) made by you, your spouse and your
minor children (under age 21). This combination also applies to Class A Shares
you purchase with a Letter of Intent.
GENERAL INFORMATION ABOUT SALES CHARGES
Your securities dealer is paid a commission when you buy your shares and is paid
a servicing fee as long as you hold your shares. Your securities dealer or
servicing agent may receive different levels of compensation depending on which
Class of shares you buy.
From time to time, some financial institutions, including brokerage firms
affiliated with the Adviser or the Distributor may be reallowed up to the entire
sales charge. Firms that receive a reallowance of the entire sales charge may be
considered underwriters for the purpose of federal securities law.
The Distributor may, from time to time in its sole discretion, institute one or
more promotional incentive programs for dealers, which will be paid for by the
Distributor from any sales charge it receives or from any other source available
to it. Under any such program, the Distributor may provide incentives, in the
form of cash or other compensation, including merchandise, airline vouchers,
trips and vacation packages, to dealers selling shares of the Portfolio.
HOW TO SELL YOUR PORTFOLIO SHARES
Holders of Institutional Shares may sell shares by following the procedures
established when they opened their account or accounts. If you have questions,
call 1-888-712-1103.
If you own your shares directly, you may sell your shares on any Business Day by
contacting the Portfolio directly by mail or telephone at 1-888-712-1103.
If you own your shares through an account with a broker or other institution,
contact that broker or institution to sell your shares. Your broker or
institution may charge a fee for its services, in addition to the fees charged
by the Portfolio.
If you would like your sale proceeds sent to a third party or an address other
than your own, please notify the Portfolio in writing and include a signature
guarantee by a bank or other financial institution (a notarized signature is not
sufficient).
Page 12 of 19
<PAGE>
The sale price of each share will be the next NAV determined after the Portfolio
receives your request.
SYSTEMATIC WITHDRAWAL PLAN
If you have at least $25,000 in your account, you may use the systematic
withdrawal plan. Under the plan you may arrange monthly, quarterly, semi-annual
or annual automatic withdrawals of at least $100 from the Portfolio. The
proceeds of each withdrawal will be mailed to you by check or, if you have a
checking or savings account with a bank, electronically transferred to your
account.
RECEIVING YOUR MONEY
Normally, we will send your sale proceeds within seven days after we receive
your request. Your proceeds can be wired to your bank account (subject to a
$10.00 fee) or sent to you by check. IF YOU RECENTLY PURCHASED YOUR SHARES BY
CHECK OR THROUGH ACH, REDEMPTION PROCEEDS MAY NOT BE AVAILABLE UNTIL YOUR CHECK
HAS CLEARED (WHICH MAY TAKE UP TO 15 DAYS FROM YOUR DATE OF PURCHASE).
REDEMPTION FEE (INSTITUTIONAL SHARES)
The Portfolio charges a redemption fee of 0.75% on redemptions of Institutional
Shares that have been held less than six months. The fee will be deducted from
your sale proceeds and cannot be paid separately. The fee does not apply to
shares purchased with reinvested dividends or distributions. The redemption fee
is designed to discourage short-term trading and any proceeds of the fee will be
credited to the assets of the Portfolio.
REDEMPTIONS IN KIND
We generally pay sale (redemption) proceeds in cash. However, under unusual
conditions that make the payment of cash unwise (and for the protection of the
Portfolio's remaining shareholders) we might pay all or part of your redemption
proceeds in liquid securities with a market value equal to the redemption price
(redemption in kind). It is highly unlikely that your shares would ever be
redeemed in kind, but if they were you would probably have to pay transaction
costs to sell the securities distributed to you, as well as taxes on any capital
gains from the sale as with any redemption.
INVOLUNTARY REDEMPTIONS OF YOUR SHARES
If your account balance drops below the required minimum because of redemptions,
the Portfolio may redeem your shares. The account balance minimums are:
CLASS DOLLAR AMOUNT
Class A Shares $5,000
Institutional Shares $100,000
But, the Portfolio will always give you at least 60 days' written notice to give
you time to add to your account and avoid the involuntary redemption of your
shares.
Page 13 of 19
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SUSPENSION OF YOUR RIGHT TO SELL YOUR SHARES
The Portfolio may suspend your right to sell your shares during times when
trading on the NYSE is restricted or halted, or otherwise as permitted by the
SEC. More information about this is in our Statement of Additional Information.
TELEPHONE TRANSACTIONS
Purchasing and selling Portfolio shares over the telephone is extremely
convenient, but not without risk. Although the Portfolio has certain safeguards
and procedures to confirm the identity of callers and the authenticity of
instructions, the Portfolio is not responsible for any losses or costs incurred
by following telephone instructions we reasonably believe to be genuine. If you
or your financial institution transact with the Portfolio over the telephone,
you will generally bear the risk of any loss.
DISTRIBUTION OF PORTFOLIO SHARES
The Portfolio has adopted a distribution plan that allows the Portfolio to pay
distribution and service fees for the sale and distribution of its shares, and
for services provided to Class A shareholders. Because these fees are paid out
of the Portfolio's assets continuously, over time these fees will increase the
cost of your investment and may cost you more than paying other types of sales
charges.
Distribution fees, as a percentage of average daily net assets, are 0.25% for
Class A Shares.
DIVIDENDS AND DISTRIBUTIONS
The Portfolio distributes its income in the form of quarterly dividends and
makes distributions of capital gains, if any, at least annually. If you own
Portfolio shares on a Portfolio's record date, you will be entitled to receive
the distribution.
You will receive dividends and distributions in the form of additional Portfolio
shares unless you elect to receive payment in cash. To elect cash payment, you
must notify the Portfolio in writing prior to the date of the distribution. Your
election will be effective for dividends and distributions paid after the
Portfolio receives your written notice. To cancel your election, simply send the
Portfolio written notice.
TAXES
PLEASE CONSULT YOUR TAX ADVISER REGARDING YOUR SPECIFIC QUESTIONS ABOUT FEDERAL,
STATE AND LOCAL INCOME TAXES. Below we have summarized some important tax issues
that affect the Portfolio and its shareholders. This summary is based on current
tax laws, which may change.
The Portfolio will distribute substantially all of its income and capital gains,
if any. The dividends and distributions you receive may be subject to federal,
state and local taxation, depending upon your tax situation. Distributions you
receive from the Portfolio may be taxable whether or not you reinvest them.
Income distributions are generally taxable at ordinary income tax rates. Capital
gains distributions are generally taxable at the rates applicable to long-term
capital gains. EACH SALE OF PORTFOLIO SHARES IS A TAXABLE EVENT.
Page 14 of 19
<PAGE>
IMPORTANT NOTE ON TAX REPORTING FOR THE PORTFOLIO
- - A large portion of the dividends paid by REITs may represent a "return
of capital." Consequently, a portion of the Portfolio's distributions
may also represent a return of capital. Return of capital distributions
are not taxable to you, but you must deduct them from the cost basis of
your investment in the Portfolio. Returns of capital are listed as
"nontaxable distributions" on Form 1099-DIV.
- - REITs typically do not indicate what portion of their dividends
represent return of capital in time for the Portfolio to meet its
January 31 deadline for sending 1099-DIV forms to investors. To ensure
that you receive accurate and complete tax information, we will send
your 1099-DIV for the Portfolio in February (subject to IRS approval).
MORE INFORMATION ABOUT TAXES IS IN THE STATEMENT OF ADDITIONAL INFORMATION.
Page 15 of 19
<PAGE>
FINANCIAL HIGHLIGHTS
The table that follows presents performance information about the Institutional
Shares of the Portfolio. This information is intended to help you understand the
Portfolio's financial performance for the past five years, or, if shorter, the
period of the Portfolio's operations. Some of this information reflects
financial information for a single Portfolio share. The total returns in the
table represent the rate that you would have earned (or lost) on an investment
in the Portfolio, assuming you reinvested all of your dividends and
distributions. As of October 31, 1999, Class A Shares were not available to
investors. This information has been audited by Arthur Andersen LLP, independent
public accountants. Their report, along with the Portfolio's financial
statements, appears in the annual report that accompanies our Statement of
Additional Information. You can obtain the annual report, which contains more
performance information, at no charge by calling 1-888-712-1103.
Page 16 of 19
<PAGE>
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD ENDED OCTOBER 31,
<TABLE>
<CAPTION>
NET ASSET REALIZED
VALUE AND UNREALIZED DISTRIBUTIONS NET ASSET NET ASSETS
BEGINNING NET GAINS FROM NET DISTRIBUTIONS VALUE END END OF
OF INVESTMENT (LOSSES) ON INVESTMENT FROM OF TOTAL PERIOD
PERIOD INCOME SECURITIES INCOME CAPITAL GAINS PERIOD RETURN (000)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CRA REALTY SHARES PORTFOLIO
1999 $9.10 0.49 (0.80) (0.55) -- $8.24 (3.70)% $55,968
1998 $11.49 0.35 (1.85) (0.40) (0.49) $9.10 (14.16)% $55,617
1997(1)(2) $10.00 0.26 1.53 (0.30) -- $11.49 18.17% $34,797
<CAPTION>
RATIO OF NET RATIO OF EXPENSES RATIO OF NET
RATIO OF INVESTMENT TO AVERAGE NET INVESTMENT INCOME TO PORTFOLIO
EXPENSES INCOME TO ASSETS AVERAGE NET ASSETS TURNOVER
TO AVERAGE AVERAGE (EXCLUDING (EXCLUDING WAIVERS RATE
NET ASSETS NET ASSETS WAIVERS) AND REIMBURSEMENTS)
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
CRA REALTY SHARES PORTFOLIO
1999 1.00% 5.37% 1.11% 5.26% 66.56%
1998 1.00% 3.29% 1.17% 3.12% 73.54%
1997(1)(2)* 1.00%* 2.91%* 1.63%* 2.28%* 102.74%
</TABLE>
* ANNUALIZED
(1) TOTAL RETURN IS FOR THE PERIOD INDICATED AND HAS NOT BEEN ANNUALIZED.
(2) THE CRA REALTY SHARES PORTFOLIO COMMENCED OPERATIONS ON JANUARY 1, 1997.
AMOUNTS DESIGNATED "__" ARE EITHER $0 OR ROUND TO $0.
Page 17 of 19
<PAGE>
THE ADVISORS' INNER CIRCLE FUND
CRA REALTY SHARES PORTFOLIO
INVESTMENT ADVISER
Clarion CRA Securities, L.P.
259 North Radnor-Chester Road
Suite 205
Radnor, Pennsylvania 19087
DISTRIBUTOR
SEI Investments Distribution Co.
One Freedom Valley Drive
Oaks, Pennsylvania 19456
LEGAL COUNSEL
Morgan, Lewis & Bockius LLP
More information about the Portfolio is available without charge through the
following:
STATEMENT OF ADDITIONAL INFORMATION (SAI)
The SAI dated March 1, 2000, includes detailed information about The Advisors'
Inner Circle Fund and CRA Realty Shares Portfolio. The SAI is on file with the
SEC and is incorporated by reference into this prospectus. This means that the
SAI, for legal purposes, is a part of this prospectus.
ANNUAL AND SEMI-ANNUAL REPORTS
These reports list the Portfolio's holdings and contain information from the
Portfolio's managers about strategies, and recent market conditions and trends
and their impact on Portfolio performance. The reports also contain detailed
financial information about the Portfolio.
TO OBTAIN AN SAI, ANNUAL OR SEMI-ANNUAL REPORT, OR MORE INFORMATION:
BY TELEPHONE: CALL 1-888-712-1103
BY MAIL: Write to us
CRA Realty Shares Portfolio
c/o The Advisors' Inner Circle Fund
P.O. Box 219009
Kansas City, Missouri 64121-9009
BY E-MAIL: www.crainvest.com
Page 18 of 19
<PAGE>
FROM THE SEC: You can also obtain the SAI or the Annual and Semi-Annual reports,
as well as other information about The Advisors' Inner Circle Fund, from the
EDGAR Database on the SEC's website ("http://www.sec.gov"). You may review and
copy documents at the SEC Public Reference Room in Washington, DC (for
information on the operation of the Public Reference Room, call 202-942-8090).
You may request documents by mail from the SEC, upon payment of a duplicating
fee, by writing to: Securities and Exchange Commission, Public Reference
Section, Washington, DC 20549-6009. You may also obtain this information, upon
payment of a duplicating fee, by e-mailing the SEC at the following address:
[email protected]. The Fund's Investment Company Act registration number is
811-6400.
Page 19 of 19
<PAGE>
THE ADVISORS' INNER CIRCLE FUND
PROSPECTUS
MARCH 1, 2000
FMC SELECT FUND
INVESTMENT ADVISER:
FIRST MANHATTAN CO.
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE
SECURITIES OR PASSED UPON THE ACCURACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Page 1 of 15
<PAGE>
ABOUT THIS PROSPECTUS
The FMC Select Fund (Fund) is a separate series of The Advisors' Inner Circle
Fund (Trust), a mutual fund family that offers shares in separate investment
portfolios. The portfolios have individual investment goals and strategies. This
prospectus gives you important information about the FMC Select Fund that you
should know before investing. Please read this prospectus and keep it for future
reference.
THIS PROSPECTUS HAS BEEN ARRANGED INTO DIFFERENT SECTIONS SO THAT YOU CAN EASILY
REVIEW THIS IMPORTANT INFORMATION. FOR DETAILED INFORMATION ABOUT THE FUND,
PLEASE SEE:
PAGE
INVESTMENT STRATEGY OF THE FMC SELECT FUND......................XXX
PRINCIPAL RISKS OF INVESTING IN THE FMC SELECT FUND.............XXX
PERFORMANCE INFORMATION.........................................XXX
FUND FEES AND EXPENSES..........................................XXX
MORE INFORMATION ABOUT RISK.....................................XXX
MORE INFORMATION ABOUT FUND INVESTMENTS.........................XXX
INVESTMENT ADVISER..............................................XXX
PORTFOLIO MANAGERS..............................................XXX
PURCHASING AND SELLING FUND SHARES..............................XXX
DIVIDENDS AND DISTRIBUTIONS.....................................XXX
TAXES...........................................................XXX
FINANCIAL HIGHLIGHTS............................................XXX
HOW TO OBTAIN MORE INFORMATION ABOUT THE
FMC SELECT FUND.............................................Back Cover
Page 2 of 15
<PAGE>
FMC SELECT FUND
FUND SUMMARY
INVESTMENT GOAL Total return principally through capital
appreciation and, to a limited degree,
through current income
INVESTMENT FOCUS Predominantly U.S. common stocks and to
a lesser degree investment grade fixed
income securities
SHARE PRICE VOLATILITY Medium
PRINCIPAL INVESTMENT STRATEGY Investing principally in equity
securities of U.S. companies with medium
to large market capitalizations and
secondarily in investment grade fixed
income securities
INVESTOR PROFILE Investors who seek total return
principally through capital appreciation
with some current income and who are
willing to assume the risk that net
asset value per share will fluctuate
INVESTMENT STRATEGY OF THE FMC SELECT FUND
The FMC Select Fund invests principally in common stocks of U.S. companies with
medium to large market capitalizations (in excess of $1 billion) and secondarily
in investment grade fixed income securities. The Fund ordinarily will invest a
predominant portion of its assets (75%-85%) in equity securities and the
remainder in fixed income securities, cash and cash equivalents. In selecting
equity securities, the Fund emphasizes companies with strong balance sheets,
above average returns on equity and businesses that the Adviser believes it
understands. In addition, the Fund may invest in companies where not all of
these factors may be present, but where the Adviser believes the companies'
shares are selling at a market price below their intrinsic value.
In selecting fixed income securities, the Fund emphasizes investment grade debt
with incrementally higher yields compared to U.S. Treasury securities, such as
corporate or U.S. government agency securities. The Fund seeks added return from
these incrementally higher yields rather than from attempting to anticipate
interest rate movements. The fixed income securities that the Fund owns
ordinarily will not have a duration beyond eight years.
The Fund intends to buy and hold securities of companies for the long-term, and
seeks to limit portfolio turnover. The Fund may sell a security, however, if the
security achieves a designated price target or if there is a fundamental change
in a company's outlook.
The Fund's investment approach, with its primary emphasis on equity securities
and a secondary focus on fixed income securities, has as its objective total
return, primarily through capital appreciation. The Fund's fixed income
component should lessen returns in rising equity markets and cushion negative
returns in falling equity markets.
Page 3 of 15
<PAGE>
PRINCIPAL RISKS OF INVESTING IN THE FMC SELECT FUND
Because it purchases common stocks, the Fund is subject to the risk that stock
prices will fall over short or extended periods of time. Historically, the
equity markets have moved in cycles, and the value of the Fund's securities may
fluctuate drastically from day to day. Individual companies may report poor
results or be negatively affected by industry and/or economic trends and
developments. The prices of securities issued by such companies may suffer a
decline in response. These factors contribute to price volatility which is the
principal risk of investing in the Fund.
The prices of the Fund's fixed income securities respond to economic
developments, particularly interest rate changes, as well as to perceptions
about the creditworthiness of individual issuers, including governments.
Generally, the Fund's fixed income securities will decrease in value if interest
rates rise and vice versa, and the volatility of lower rated securities is
greater than that of higher rated securities. Also, longer-term securities are
generally more volatile, so the average maturity or duration of these securities
affects risk.
The Fund is also subject to the risk that the Adviser's asset allocation
decisions will not anticipate market trends successfully. For example, weighting
common stocks too heavily during a stock market decline may result in a failure
to preserve capital. Conversely, investing too heavily in fixed income
securities during a period of stock market appreciation may result in lower
total return. In fact, since the Fund will always have a portion of its assets
invested in fixed income securities it may not perform as well during periods of
stock market appreciation as funds that invest only in stocks.
The Fund is also subject to the risk that its investment approach which blends
medium and large capitalization equity securities with fixed income securities,
may perform differently than other funds which target a specific equity market
segment or that invest in other asset classes.
PERFORMANCE INFORMATION
The bar chart and the performance table below illustrate the risks and
volatility of an investment in the Fund. Of course, the Fund's past performance
does not necessarily indicate how the Fund will perform in the future.
This bar chart shows changes in the performance of the Fund from calendar year
to calendar year.
<TABLE>
<CAPTION>
<S> <C>
1996 20.18%
1997 34.10%
1998 13.03%
1999 8.78%
BEST QUARTER WORST QUARTER
18.29% -12.76%
(12/31/98) (9/30/98)
</TABLE>
Page 4 of 15
<PAGE>
THIS TABLE COMPARES THE FUND'S AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS
ENDED DECEMBER 31, 1999 TO THOSE OF THE S&P 500 INDEX, THE MERRILL LYNCH 1-10
YEAR CORPORATE & GOVERNMENT BOND INDEX AND AN 80/20 BLEND OF THE TWO.
<TABLE>
<CAPTION>
1 YEAR SINCE INCEPTION
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
FMC SELECT FUND 8.78% 20.28%*
S&P 500 INDEX 21.04% 26.98%**
MERRILL LYNCH 1-10 YEAR CORPORATE & GOVERNMENT BOND INDEX 0.47% 5.84%**
80/20 BLEND OF THE ABOVE S&P AND MERRILL INDICES 16.77% 22.63%*
</TABLE>
* Since 5/8/95
** Since 5/31/95
WHAT IS AN INDEX?
An index measures the market prices of a specific group of securities in a
particular market or securities in a market sector. You cannot invest directly
in an index. Unlike a mutual fund, an index does not have an investment adviser
and does not pay any commissions or expenses. If an index had expenses, its
performance would be lower. The S&P 500 Index is a widely-recognized, market
value-weighted (higher market value stocks have more influence than lower market
value stocks) index of 500 stocks designed to mimic the overall equity market's
industry weightings. The Merrill Lynch 1 - 10 Year Corporate & Government Bond
Index is a widely-recognized index of over 4,500 U.S. Treasury securities,
government agency obligations and investment grade corporate debt securities
with remaining maturities of 1 to 10 years.
FUND FEES AND EXPENSES
THIS TABLE DESCRIBES THE FEES AND EXPENSES THAT YOU MAY PAY IF YOU BUY AND HOLD
FUND SHARES.
<TABLE>
<CAPTION>
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
- ------------------------------------------------------------------------------------------
<S> <C>
Maximum Sales Charge (Load) Imposed on Purchases
(as a percentage of offering price) None
Maximum Deferred Sales Charge (Load)
(as a percentage of net asset value) None
Maximum Sales Charge (Load) Imposed on Reinvested Dividends and other
Distributions (as a percentage of offering price) None
Redemption Fee (as a percentage of amount redeemed, if applicable) None
Exchange Fee None
</TABLE>
Page 5 of 15
<PAGE>
<TABLE>
<CAPTION>
ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS)
<S> <C>
Investment Advisory Fees 0.80%
Distribution and Service (12b-1) Fees None
Other Expenses 0.28%
- ---------------------------------------------------------------------------
Total Annual Fund Operating Expenses 1.08%
</TABLE>
For more information about these fees, see "Investment Adviser."
EXAMPLE
This example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. The example assumes that you
invest $10,000 in the Fund for the time periods indicated and that you sell your
shares at the end of the period.
The example also assumes that each year your investment has a 5% return, Fund
operating expenses remain the same and you reinvest all dividends and
distributions. Although your actual costs and returns might be different, your
approximate costs of investing $10,000 in the Fund would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C>
$110 $343 $595 $1,317
</TABLE>
Page 6 of 15
<PAGE>
MORE INFORMATION ABOUT RISK
The Fund is a mutual fund. A mutual fund pools shareholders' money and, using
professional investment managers, invests it in securities.
The Fund has an investment goal and strategies for reaching that goal. The
investment managers invest Fund assets in a way that they believe will help the
Fund achieve its goal. Still, investing in the Fund involves risk and there is
no guarantee that the Fund will achieve its goal. An investment manager's
judgments about the markets, the economy, or companies may not anticipate actual
market movements, economic conditions or company performance, and these
judgments may affect the return on your investment. In fact, no matter how good
a job an investment manager does, you could lose money on your investment in the
Fund, just as you could with other investments.
The value of your investment in the Fund is based on the market prices of the
securities the Fund holds. These prices change daily due to economic and other
events that affect particular companies and other issuers. These price
movements, sometimes called volatility, may be greater or lesser depending on
the types of securities the Fund owns and the markets in which they trade. The
effect on the Fund of a change in the value of a single security will depend on
how widely the Fund diversifies its holdings.
EQUITY RISK - Equity securities include public and privately issued equity
securities, common and preferred stocks, warrants, rights to subscribe to common
stock and convertible securities, as well as instruments that attempt to track
the price movement of equity indices. Investments in equity securities and
equity derivatives in general are subject to market risks that may cause their
prices to fluctuate over time. The value of securities convertible into equity
securities, such as warrants or convertible debt, is also affected by prevailing
interest rates, the credit quality of the issuer and any call provision.
Fluctuations in the value of equity securities in which a mutual fund invests
will cause a fund's net asset value to fluctuate.
FIXED INCOME RISK - The market value of fixed income investments change in
response to interest rate changes and other factors. During periods of falling
interest rates, the values of outstanding fixed income securities generally
rise. Moreover, while securities with longer maturities tend to produce higher
yields, the prices of longer maturity securities are also subject to greater
market fluctuations as a result of changes in interest rates. In addition to
these fundamental risks, different types of fixed income securities may be
subject to the following additional risks:
CALL RISK - During periods of falling interest rates, certain debt obligations
with high interest rates may be prepaid (or "called") by the issuer prior to
maturity. This may cause a Fund's average weighted maturity to fluctuate, and
may require a Fund to invest the resulting proceeds at lower interest rates.
CREDIT RISK - The possibility that an issuer will be unable to make timely
payments of either principal or interest.
Page 7 of 15
<PAGE>
MORE INFORMATION ABOUT FUND INVESTMENTS
This prospectus describes the Fund's primary strategies, and the Fund will
normally invest in the types of securities described in this prospectus.
However, in addition to the investments and strategies described in this
prospectus, the Fund also may invest in other securities, use other strategies
and engage in other investment practices. These investments and strategies, as
well as those described in this prospectus, are described in detail in our
Statement of Additional Information. Of course, we cannot guarantee that the
Fund will achieve its investment goal.
The investments and strategies described in this prospectus are those that we
use under normal conditions. During unusual economic or market conditions, or
for temporary defensive or liquidity purposes, the Fund may invest up to 100% of
its assets in cash or money market instruments that would not ordinarily be
consistent with the Fund's objectives. The Fund will do so only if the Adviser
believes that the risk of loss outweighs the opportunity for capital gains or
higher income.
INVESTMENT ADVISER
The Investment Adviser makes investment decisions for the Fund and continuously
reviews, supervises and administers the Fund's investment program. The Board of
Trustees supervises the Adviser and establishes policies that the Adviser must
follow in its management activities.
First Manhattan Co. (FMC) serves as the Adviser to the Fund. FMC has provided
investment advisory services to individuals, partnerships, trusts, pension and
employee benefit plans and other institutions since its founding in 1964. As of
December 31, 1999, FMC managed approximately $8 billion in assets. For its
advisory services to the Fund, FMC is entitled to an annual investment advisory
fee of 0.80% of the Fund's average daily net assets. FMC has voluntarily agreed
to waive a portion of its fees and reimburse certain expenses of the Fund so
that total operating expenses do not exceed 1.10% of the Fund's average daily
net assets. For the fiscal period ended October 31, 1999, FMC received advisory
fees as a percentage of average daily net assets (after waivers) of:
<TABLE>
<S> <C>
FMC Select Fund 0.80%
</TABLE>
FMC may use its affiliates as brokers for Fund transactions.
Page 8 of 15
<PAGE>
PORTFOLIO MANAGERS
Bernard C. Groveman, CFA, is a general partner and portfolio manager at First
Manhattan Co. He has co-managed the equity investments of the FMC Select Fund
since the Fund commenced operations. He has more than 16 years of investment
experience. Prior to joining the Adviser in 1985, Mr. Groveman worked at CS
First Boston and Lehman Brothers Kuhn Loeb.
A. Byron Nimocks is a general partner and portfolio manager at First Manhattan
Co. He has co-managed the equity investments of the FMC Select Fund since the
Fund commenced operations. He has more than 16 years of investment experience.
Prior to joining the Adviser in 1988, Mr. Nimocks worked at E.F. Hutton and
Morgan Keegan.
William K. McElroy is a Managing Director and portfolio manager at First
Manhattan Co. He has managed the fixed income investments of the FMC Select Fund
since the Fund commenced operations. He has more than 31 years of investment
experience. Prior to joining the Adviser in 1987, Mr. McElroy managed fixed
income securities for Axe-Houghton Management.
PURCHASING AND SELLING FUND SHARES
This section tells you how to purchase and sell (sometimes called "redeem")
shares of the Fund.
The Fund is for individual and institutional investors.
HOW TO PURCHASE FUND SHARES
You may purchase shares by:
- - Mail
- - Wire
- - Automated Clearing House (ACH), or
- - Telephone
To purchase shares directly from us, complete and send in the enclosed
application. If you need an application or have questions, please call
1-877-FMC-4099. Unless you arrange to pay by wire or through ACH, write your
check, payable in U.S. dollars, to "FMC Select Fund." The Fund cannot accept
third-party checks, credit cards, credit card checks or cash.
You may also buy shares through accounts with brokers and other institutions
that are authorized to place trades in Fund shares for their customers. If you
invest through an authorized institution, you will have to follow its
procedures, which may be different from the procedures for investing directly.
Your broker or institution may charge a fee for its services, in addition to the
fees charged by the Fund. You will also generally have to address your
correspondence or questions regarding the Fund to your institution.
GENERAL INFORMATION
You may purchase shares on any day that the New York Stock Exchange (NYSE) is
open for business (a Business Day). Shares cannot be purchased by Federal
Reserve wire on days when either the NYSE or the Federal Reserve is closed.
Page 9 of 15
<PAGE>
A Fund may reject any purchase order if it is determined that accepting the
order would not be in the best interests of the Fund or its shareholders.
The price per share (the offering price) will be the net asset value per share
(NAV) next determined after the Fund receives your purchase order.
The Fund calculates its NAV once each Business Day at the regularly-scheduled
close of normal trading on the NYSE (normally, 4:00 p.m. Eastern time). So, for
you to receive the current Business Day's NAV, generally the Fund must receive
your purchase order before 4:00 p.m. Eastern time.
HOW WE CALCULATE NAV
NAV for one Fund share is the value of that share's portion of all of the net
assets of the Fund.
In calculating NAV, the Fund generally values its investment portfolio at market
price. If market prices are unavailable or the Fund thinks that they are
unreliable, fair value prices may be determined in good faith using methods
approved by the Board of Trustees.
MINIMUM PURCHASES
To purchase shares for the first time, you must invest at least $10,000 in the
Fund. Your subsequent investments in the Fund must be made in amounts of at
least $1,000.
The Fund may accept investments of smaller amounts at its discretion. In
addition, these minimum purchase requirements may be reduced or waived by the
Distributor or for investors who purchase shares of the Fund through omnibus
accounts maintained by registered broker-dealers who have executed
sub-distribution agreements with the Distributor.
SYSTEMATIC INVESTMENT PLAN
If you have a checking or savings account with a bank, you may purchase shares
automatically through regular deductions from your account in amounts of at
least $25 per month.
HOW TO SELL YOUR FUND SHARES
If you own your shares directly, you may sell your shares on any Business Day by
contacting the Fund directly by mail or telephone at 1-877-FMC-4099.
If you own your shares through an account with a broker or other institution,
contact that broker or institution to sell your shares. Your broker or
institution may charge a fee for its services, in addition to the fees charged
by the Fund.
If you would like your sale proceeds sent to a third party or an address other
than your own, please notify the Portfolio in writing and include a signature
guarantee by a bank or other financial institution (a notarized signature is not
sufficient).
The sale price of each share will be the next NAV determined after the Fund
receives your request.
Page 10 of 15
<PAGE>
SYSTEMATIC WITHDRAWAL PLAN
If you have at least $25,000 in your account, you may use the systematic
withdrawal plan. Under the plan you may arrange monthly, quarterly, semi-annual
or annual automatic withdrawals of at least $100 from the Fund. The proceeds of
each withdrawal will be mailed to you by check or, if you have a checking or
savings account with a bank, electronically transferred to your account.
RECEIVING YOUR MONEY
Normally, we will send your sale proceeds within seven days after we receive
your request. Your proceeds can be wired to your bank account (subject to a
$10.00 fee) or sent to you by check. IF YOU RECENTLY PURCHASED YOUR SHARES BY
CHECK OR THROUGH ACH, REDEMPTION PROCEEDS MAY NOT BE AVAILABLE UNTIL YOUR CHECK
HAS CLEARED (WHICH MAY TAKE UP TO 15 DAYS FROM YOUR DATE OF PURCHASE).
REDEMPTIONS IN KIND
We generally pay sale (redemption) proceeds in cash. However, under unusual
conditions that make the payment of cash unwise (and for the protection of the
Fund's remaining shareholders) we might pay all or part of your redemption
proceeds in liquid securities with a market value equal to the redemption price
(redemption in kind). It is highly unlikely that your shares would ever be
redeemed in kind, but if they were you would probably have to pay transaction
costs to sell the securities distributed to you, as well as taxes on any capital
gains from the sale as with any redemption.
INVOLUNTARY REDEMPTIONS OF YOUR SHARES
If your account balance drops below $10,000 because of redemptions the Fund may
redeem your shares. However, the Fund will always give you at least 60 days'
written notice to give you time to add to your account and avoid the involuntary
redemption of your shares.
SUSPENSION OF YOUR RIGHT TO SELL YOUR SHARES
The Fund may suspend your right to sell your shares during times when trading on
the NYSE is restricted or halted, or otherwise as permitted by the SEC. More
information about this is in our Statement of Additional Information.
DIVIDENDS AND DISTRIBUTIONS
The Fund distributes its income in the form of quarterly dividends and makes
distributions of capital gains, if any, at least annually. If you own Fund
shares on the Fund's record date, you will be entitled to receive the
distribution.
You will receive dividends and distributions in the form of additional Fund
shares unless you elect to receive payment in cash. To elect cash payment, you
must notify the Fund in writing prior to the date of the distribution. Your
election will be effective for dividends and distributions paid after the Fund
receives your written notice. To cancel your election, simply send the Fund
written notice.
Page 11 of 15
<PAGE>
TAXES
PLEASE CONSULT YOUR TAX ADVISER REGARDING YOUR SPECIFIC QUESTIONS ABOUT FEDERAL,
STATE AND LOCAL INCOME TAXES. Below we have summarized some important tax issues
that affect the Fund and its shareholders. This summary is based on current tax
laws, which may change.
The Fund will distribute substantially all of its income and capital gains, if
any. The dividends and distributions you receive may be subject to federal,
state and local taxation, depending upon your tax situation. Distributions you
receive from the Fund may be taxable whether or not you reinvest them. Income
distributions are generally taxable at ordinary income tax rates. Capital gains
distributions are generally taxable at the rates applicable to long-term capital
gains. EACH SALE OF FUND SHARES IS A TAXABLE EVENT.
MORE INFORMATION ABOUT TAXES IS IN THE STATEMENT OF ADDITIONAL INFORMATION.
Page 12 of 15
<PAGE>
FINANCIAL HIGHLIGHTS
The table that follows presents performance information about the Fund. This
information is intended to help you understand the Fund's financial performance
for the past five years, or, if shorter, the period of the Fund's operations.
Some of this information reflects financial information for a single Fund share.
The total returns in the table represent the rate that you would have earned (or
lost) on an investment in the Fund, assuming you reinvested all of your
dividends and distributions. This information has been audited by Arthur
Andersen LLP, independent public accountants. Their report, along with the
Fund's financial statements, appears in the annual report that accompanies our
Statement of Additional Information. You can obtain the annual report, which
contains more performance information, at no charge by calling 1-877-FMC-4099.
<TABLE>
<CAPTION>
FOR A SHARE OUTSTANDING THROUGHOUT THE
PERIOD ENDED OCTOBER 31, FMC SELECT FUND
1999 1998 1997 1996 1995 (1)
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE BEGINNING OF PERIOD $17.26 $16.82 $13.42 $10.97 $10.00
Net Investment Income 0.14 0.17 0.16 0.14 0.10
Realized and Unrealized Gains on
Securities 2.88 1.43 3.81 2.48 0.96
Distributions from Net Investment Income (0.11) (0.17) (0.16) (0.14) (0.09)
Distributions from Capital Gains (0.83) (0.99) (0.41) (0.03) -
Net Asset Value End of Period $19.34 $17.26 $16.82 $13.42 $10.97
TOTAL RETURN 18.18% 9.81% 30.51% 23.99% 10.60%+
Net Assets End of Period (000) $115,569 $99,961 $75,691 $47,909 $27,202
Ratio of Expenses to Average Net Assets 1.08% 1.09% 1.10% 1.10% 1.10%*
Ratio of Net Investment Income to Average 0.73% 1.01% 1.08% 1.10% 1.96%*
Net Assets
Ratio of Expenses to Average Net Assets
(Excluding Waivers) 1.08% 1.11% 1.17% 1.20% 1.57%*
Ratio of Net Investment Income to Average
Net Assets
(Excluding Waivers) 0.73% 0.99% 1.01% 1.00% 1.49%*
Portfolio Turnover Rate 26.23% 29.72% 21.71% 24.39% 1.87%
</TABLE>
* Annualized
+ Total return is for the period indicated and has not been annualized.
(1) The FMC Select Fund commenced operations on May 8, 1995.
Amounts designated as "-" are either $0 or have been rounded to $0.
Page 13 of 15
<PAGE>
THE ADVISORS' INNER CIRCLE FUND
FMC SELECT FUND
INVESTMENT ADVISER
First Manhattan Co.
437 Madison Avenue
New York, New York 10022-7002
DISTRIBUTOR
SEI Investments Distribution Co.
One Freedom Valley Drive
Oaks, Pennsylvania 19456
LEGAL COUNSEL
Morgan, Lewis & Bockius LLP
More information about the Fund is available without charge through the
following:
STATEMENT OF ADDITIONAL INFORMATION (SAI)
The SAI dated March 1, 2000, includes detailed information about The Advisors'
Inner Circle Fund and the FMC Select Fund. The SAI is on file with the SEC and
is incorporated by reference into this prospectus. This means that the SAI, for
legal purposes, is a part of this prospectus.
ANNUAL AND SEMI-ANNUAL REPORTS
These reports list the Fund's holdings and contain information from the Fund's
managers about strategies, and recent market conditions and trends and their
impact on Fund performance. The reports also contain detailed financial
information about the Fund.
TO OBTAIN AN SAI, ANNUAL OR SEMI-ANNUAL REPORT, OR MORE INFORMATION:
BY TELEPHONE: CALL 1-877-FMC-4099 (362-4099)
BY MAIL: Write to us
FMC Select Fund
c/o The Advisors' Inner Circle Fund
P.O. Box 219009
Kansas City, Missouri 64121-9009
Page 14 of 15
<PAGE>
FROM THE SEC: You can also obtain the SAI or the Annual and Semi-Annual reports,
as well as other information about The Advisors' Inner Circle Fund, from the
EDGAR Database on the SEC's website ("http://www.sec.gov"). You may review and
copy documents at the SEC Public Reference Room in Washington, DC (for
information on the operation of the Public Reference Room, call 202-942-8090).
You may request documents by mail from the SEC, upon payment of a duplicating
fee, by writing to: Securities and Exchange Commission, Public Reference
Section, Washington, DC 20549-6009. You may also obtain this information, upon
payment of a duplicating fee, by e-mailing the SEC at the following address:
[email protected]. The Fund's Investment Company Act registration number is
811-6400.
Page 15 of 15
<PAGE>
THE ADVISORS' INNER CIRCLE FUND
PROSPECTUS
MARCH 1, 2000
FMC STRATEGIC VALUE FUND
INVESTMENT ADVISER:
FIRST MANHATTAN CO.
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR
DISAPPROVED THESE SECURITIES OR PASSED UPON THE ACCURACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTARRY IS A
CRIMINAL OFFENSE.
Page 1 of 15
<PAGE>
ABOUT THIS PROSPECTUS
The FMC Strategic Value Fund (Fund) is a separate series of The Advisors' Inner
Circle Fund (Trust), a mutual fund family that offers shares in separate
investment portfolios. The portfolios have individual investment goals and
strategies. This prospectus gives you important information about the FMC
Strategic Value Fund that you should know before investing. Please read this
prospectus and keep it for future reference.
THIS PROSPECTUS HAS BEEN ARRANGED INTO DIFFERENT SECTIONS SO THAT YOU CAN EASILY
REVIEW THIS IMPORTANT INFORMATION. FOR DETAILED INFORMATION ABOUT THE FUND,
PLEASE SEE:
<TABLE>
<CAPTION>
PAGE
<S> <C>
INVESTMENT STRATEGY OF THE FMC
STRATEGIC VALUE FUND...........................................................XXX
PRINCIPAL RISKS OF INVESTING IN THE FMC
STRATEGIC VALUE FUND...........................................................XXX
PERFORMANCE INFORMATION............................................................XXX
FUND FEES AND EXPENSES.............................................................XXX
MORE INFORMATION ABOUT RISK........................................................XXX
MORE INFORMATION ABOUT FUND INVESTMENTS............................................XXX
THE INVESTMENT ADVISER.............................................................XXX
PORTFOLIO MANAGER..................................................................XXX
PURCHASING AND SELLING FUND SHARES.................................................XXX
DIVIDENDS AND DISTRIBUTIONS........................................................XXX
TAXES..............................................................................XXX
FINANCIAL HIGHLIGHTS...............................................................XXX
HOW TO OBTAIN MORE INFORMATION ABOUT THE
FMC STRATEGIC VALUE FUND ......................................................Back Cover
</TABLE>
Page 2 of 15
<PAGE>
<TABLE>
<CAPTION>
FMC STRATEGIC VALUE FUND
FUND SUMMARY
<S> <C>
INVESTMENT GOAL Long-term capital appreciation
INVESTMENT FOCUS Small to mid cap U.S. common stocks
SHARE PRICE VOLATILITY High
PRINCIPAL INVESTMENT STRATEGY Investing in equity securities of U.S. companies
with small to medium market capitalizations that
the Adviser considers undervalued by the market
INVESTOR PROFILE Investors who seek long-term capital appreciation,
and are willing to assume the risks of equity
investing
</TABLE>
INVESTMENT STRATEGY OF THE FMC STRATEGIC VALUE FUND
The FMC Strategic Value Fund invests principally (at least 65% of its assets) in
common stocks of U.S. companies with small to medium market capitalizations
(between $500 million and $5 billion) that the Adviser believes are selling at a
market price below their true value and offer the potential to increase in
value. In selecting investments, the Fund emphasizes companies where the Adviser
believes it has a substantial understanding of the industry and the business
where the company operates. The Fund also seeks to invest in companies where the
Adviser has identified a catalyst which could have a significant positive impact
on the market price of the company's stock. The Fund intends to buy and hold
securities of companies for the long-term, and seeks to limit portfolio
turnover. The Fund may sell a security, however, if the security achieves a
designated price target or there is a fundamental change in a company's outlook.
PRINCIPAL RISKS OF INVESTING IN THE FMC STRATEGIC VALUE FUND
Because it purchases common stocks, the Fund is subject to the risk that stock
prices will fall over short or extended periods of time. Historically, the
equity markets have moved in cycles, and the value of the Fund's securities may
fluctuate drastically from day to day. Individual companies may report poor
results or be negatively affected by industry and/or economic trends and
developments. The prices of securities issued by such companies may suffer a
decline in response. These factors contribute to price volatility, which is the
principal risk of investing in the Fund.
The smaller capitalization companies the Fund invests in may be more vulnerable
to adverse business or economic events than larger capitalization companies. In
particular, these smaller capitalization companies may have limited product
lines, markets and financial resources, and may depend upon a relatively smaller
management group than larger capitalization companies. As a result, small cap
stocks may be more volatile than larger cap companies. These securities may be
traded over the counter or listed on an exchange.
Page 3 of 15
<PAGE>
The Fund is also subject to the risk that small and medium capitalization value
stocks may underperform other segments of the equity market or the equity
markets as a whole.
PERFORMANCE INFORMATION
The bar chart and the performance table below illustrate the risks and
volatility of an investment in the Fund. Of course, the Fund's past performance
does not necessarily indicate how the Fund will perform in the future.
This bar chart shows the Fund's performance for the past calendar year.
<TABLE>
<CAPTION>
1999 5.43%
<S> <C> <C>
BEST QUARTER WORST QUARTER
14.89% -8.64%
(6/30/99) (9/30/99)
</TABLE>
THIS TABLE COMPARES THE FUND'S AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS
ENDED DECEMBER 31, 1999 TO THOSE OF THE FRANK RUSSELL 2000 VALUE INDEX.
<TABLE>
<CAPTION>
1 YEAR SINCE INCEPTION
- ------------------------------------------------- ---------------- -----------------
<S> <C> <C>
FMC STRATEGIC VALUE FUND 5.43% 8.44%*
FRANK RUSSELL 2000 VALUE INDEX -1.49% 9.98%**
</TABLE>
* Since 08/17/98
** Since 08/31/98
WHAT IS AN INDEX?
An index measures the market prices of a specific group of securities in a
particular market or securities in a market sector. You cannot invest directly
in an index. Unlike a mutual fund, an index does not have an investment adviser
and does not pay any commissions or expenses. If an index had expenses, its
performance would be lower. The Frank Russell 2000 Value Index is a
widely-recognized, capitalization-weighted (companies with larger market
capitalizations have more influence than those with smaller market
capitalizations) index of the 2000 largest U.S. companies with lower growth
rates and price-to-book ratios.
Page 4 of 15
<PAGE>
<TABLE>
<CAPTION>
FUND FEES AND EXPENSES
THIS TABLE DESCRIBES THE FEES AND EXPENSES THAT YOU MAY PAY IF YOU BUY AND HOLD
FUND SHARES.
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
- ---------------------------------------------------------------------------------------------- --------------
<S> <C>
Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price) None
Maximum Deferred Sales Charge (Load) (as a percentage of net asset value) None
Maximum Sales Charge (Load) Imposed on Reinvested Dividends and other Distributions (as a
percentage of offering price) None
Redemption Fee (as a percentage of amount redeemed, if applicable) None
Exchange Fee None
</TABLE>
<TABLE>
<CAPTION>
ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS)*
- --------------------------------------------------------------------- ----------------------
<S> <C>
Investment Advisory Fees 1.00%
Distribution and Service (12b-1) Fees None
Other Expenses 2.10%
- --------------------------------------------------------------------- ----------------------
Total Annual Fund Operating Expenses 3.10%
</TABLE>
- --------------------------------------------------------------------------------
* The Fund's total actual annual fund operating expenses for the most recent
fiscal year were less than the amount shown above because the Adviser waived a
portion of the fees and reimbursed certain expenses of the Fund in order to keep
total operating expenses from exceeding 1.30% of the Fund's average daily net
assets. The Adviser may discontinue all or part of these waivers and
reimbursements at any time. With these fee waivers and reimbursements, the
Fund's actual total operating expenses for the fiscal year ended October 31,
1999 were as follows:
<TABLE>
<S> <C>
FMC Strategic Value Fund 1.30%
</TABLE>
For more information about these fees, see "Investment Adviser."
EXAMPLE
This example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. The example assumes that you
invest $10,000 in the Fund for the time periods indicated and that you sell your
shares at the end of the period.
The example also assumes that each year your investment has a 5% return, Fund
operating expenses remain the same and you reinvest all dividends and
distributions. Although your actual costs and returns might be different, your
approximate costs of investing $10,000 in the Fund would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
$313 $957 $1,625 $3,411
</TABLE>
Page 5 of 15
<PAGE>
MORE INFORMATION ABOUT RISK
The Fund is a mutual fund. A mutual fund pools shareholders' money and, using
professional investment managers, invests it in securities.
The Fund has an investment goal and strategies for reaching that goal. The
investment managers invest Fund assets in a way that they believe will help the
Fund achieve its goal. Still, investing in the Fund involves risk and there is
no guarantee that the Fund will achieve its goal. An investment manager's
judgments about the markets, the economy, or companies may not anticipate actual
market movements, economic conditions or company performance, and these
judgments may affect the return on your investment. In fact, no matter how good
a job an investment manager does, you could lose money on your investment in the
Fund, just as you could with other investments.
The value of your investment in the Fund is based on the market prices of the
securities the Fund holds. These prices change daily due to economic and other
events that affect particular companies and other issuers. These price
movements, sometimes called volatility, may be greater or lesser depending on
the types of securities the Fund owns and the markets in which they trade. The
effect on the Fund of a change in the value of a single security will depend on
how widely the Fund diversifies its holdings.
EQUITY RISK - Equity securities include public and privately issued equity
securities, common and preferred stocks, warrants, rights to subscribe to common
stock and convertible securities, as well as instruments that attempt to track
the price movement of equity indices. Investments in equity securities and
equity derivatives in general are subject to market risks that may cause their
prices to fluctuate over time. The value of securities convertible into equity
securities, such as warrants or convertible debt, is also affected by prevailing
interest rates, the credit quality of the issuer and any call provision.
Fluctuations in the value of equity securities in which a mutual fund invests
will cause a fund's net asset value to fluctuate.
Page 6 of 15
<PAGE>
MORE INFORMATION ABOUT FUND INVESTMENTS
This prospectus describes the Fund's primary strategies, and the Fund will
normally invest in the types of securities described in this prospectus.
However, in addition to the investments and strategies described in this
prospectus, the Fund also may invest in other securities, use other strategies
and engage in other investment practices. These investments and strategies, as
well as those described in this prospectus, are described in detail in our
Statement of Additional Information. Of course, we cannot guarantee that the
Fund will achieve its investment goal.
The investments and strategies described in this prospectus are those that the
Fund uses under normal conditions. During unusual economic or market conditions,
or for temporary defensive or liquidity purposes, the Fund may invest up to 100%
of its assets in cash or money market instruments that would not ordinarily be
consistent with the Fund's objectives. The Fund will do so only if the Adviser
believes that the risk of loss outweighs the opportunity for capital gains.
INVESTMENT ADVISER
The Investment Adviser makes investment decisions for the Fund and continually
reviews, supervises and administers the Fund's investment program. The Board of
Trustees of The Advisors' Inner Circle Fund supervises the Adviser and
establishes policies that the Adviser must follow in its management activities.
First Manhattan Co. (FMC) serves as the Adviser to the Fund. FMC has provided
investment advisory services to individuals, partnerships, trusts, pensions and
employee benefit plans and other institutions since its founding in 1964. As of
December 31, 1999, FMC had approximately $8 billion in assets under management.
For its advisory services to the Fund, FMC is entitled to receive 1.00% of the
Fund's average daily net assets. FMC has voluntarily agreed to waive a portion
of its fees and reimburse certain expenses of the Fund so that total operating
expenses do not exceed 1.30% of the Fund's average daily net assets. For the
fiscal period ended October 31, 1999, FMC waived the entire amount of its
advisory fees for the Fund and reimbursed Fund expenses to maintain the
voluntary fee cap.
FMC may use its affiliates as brokers for Fund transactions.
PORTFOLIO MANAGER
Edward I. Lefferman, CFA has served as a Managing Director and portfolio manager
with First Manhattan Co. since 1984. He has managed the Fund since it commenced
operations. Mr. Lefferman has more than 31 years of investment experience. Prior
to joining First Manhattan Co., Mr. Lefferman served as a senior research
analyst at Lehman Brothers.
Page 7 of 15
<PAGE>
PURCHASING AND SELLING FUND SHARES
This section tells you how to purchase and sell (sometimes called "redeem")
shares of the Fund.
The Fund is for individual and institutional investors.
HOW TO PURCHASE FUND SHARES
You may purchase shares directly by:
- - Mail
- - Wire
- - Automated Clearing House (ACH), or
- - Telephone
To purchase shares directly from us, complete and send in the enclosed
application. If you need an application or have questions, please call
1-877-FMC-4099. Unless you arrange to pay by wire or through ACH, write your
check, payable in U.S. dollars, to "FMC Strategic Value Fund." The Fund cannot
accept third-party checks, credit cards, credit card checks or cash.
You may also buy shares through accounts with brokers and other institutions
that are authorized to place trades in Fund shares for their customers. If you
invest through an authorized institution, you will have to follow its
procedures, which may be different from the procedures for investing directly.
Your broker or institution may charge a fee for its services, in addition to the
fees charged by the Fund. You will also generally have to address your
correspondence or questions regarding the Fund to your institution.
GENERAL INFORMATION
You may purchase shares on any day that the New York Stock Exchange (NYSE) is
open for business (a Business Day). Shares cannot be purchased by Federal
Reserve wire on days when either the NYSE or the Federal Reserve is closed.
The Fund may reject any purchase order if it is determined that accepting the
order would not be in the best interests of the Fund or its shareholders.
The price per share (the offering price) will be the net asset value per share
(NAV) next determined after the Fund receives your purchase order.
The Fund calculates its NAV once each Business Day at the regularly-scheduled
close of normal trading on the NYSE (normally, 4:00 p.m. Eastern time). So, for
you to receive the current Business Day's NAV, generally the Fund must receive
your purchase order before 4:00 p.m. Eastern time.
Page 8 of 15
<PAGE>
HOW WE CALCULATE NAV
NAV for one Fund share is the value of that share's portion of all of the net
assets of the Fund.
In calculating NAV, the Fund generally values its investment portfolio at market
price. If market prices are unavailable or the Fund thinks that they are
unreliable, fair value prices may be determined in good faith using methods
approved by the Board of Trustees.
MINIMUM PURCHASES
To purchase shares for the first time, you must invest at least $10,000 in the
Fund. Your subsequent investments in the Fund must be made in amounts of at
least $1,000.
The Fund may accept investments of smaller amounts at its discretion. In
addition, these minimum purchase requirements may be reduced or waived by the
Distributor or for investors who purchase shares of the Fund through omnibus
accounts maintained by registered broker-dealers who have executed
sub-distribution agreements with the Distributor.
SYSTEMATIC INVESTMENT PLAN
If you have a checking or savings account with a bank, you may purchase shares
of the Fund automatically through regular deductions from your account in
amounts of at least $25 per month.
HOW TO SELL YOUR FUND SHARES
If you own your shares directly, you may sell your shares on any Business Day by
contacting the Fund directly by mail or telephone at 1-877-FMC-4099.
If you own your shares through an account with a broker or other institution,
contact that broker or institution to sell your shares. Your broker or
institution may charge a fee for its services, in addition to the fees charged
by the Fund.
If you would like to close your account, or have your sale proceeds sent to a
third party or an address other than your own, please notify the Fund in writing
and include a signature guarantee by a bank or other financial institution (a
notarized signature is not sufficient).
The sale price of each share will be the next NAV determined after the Fund
receives your request.
SYSTEMATIC WITHDRAWAL PLAN
If you have at least $25,000 in your account, you may use the systematic
withdrawal plan. Under the plan you may arrange monthly, quarterly, semiannual
or annual automatic withdrawals of at least $100 from the Fund. The proceeds of
each withdrawal will be mailed to you by check or, if you have a checking or
savings account with a bank, electronically transferred to your account.
Page 9 of 15
<PAGE>
RECEIVING YOUR MONEY
Normally, we will send your sale proceeds within seven days after we receive
your request. Your proceeds can be wired to your bank account (subject to a $10
fee) or sent to you by check. IF YOU RECENTLY PURCHASED YOUR SHARES BY CHECK OR
THROUGH ACH, REDEMPTION PROCEEDS MAY NOT BE AVAILABLE UNTIL YOUR CHECK HAS
CLEARED (WHICH MAY TAKE UP TO 15 DAYS FROM YOUR DATE OF PURCHASE).
REDEMPTIONS IN KIND
We generally pay sale (redemption) proceeds in cash. However, under unusual
conditions that make the payment of cash unwise (and for the protection of the
Fund's remaining shareholders) we might pay all or part of your redemption
proceeds in liquid securities with a market value equal to the redemption price
(redemption in kind). It is highly unlikely that your shares would ever be
redeemed in kind, but if they were you would probably have to pay transaction
costs to sell the securities distributed to you, as well as taxes on any capital
gains from the sale as with any redemption.
INVOLUNTARY REDEMPTIONS OF YOUR SHARES
If your account balance drops below $10,000 because of redemptions, the Fund may
redeem your shares. But, the Fund will always give you at least 60 days' written
notice to give you time to add to your account and avoid the involuntary
redemption of your shares.
SUSPENSION OF YOUR RIGHT TO SELL YOUR SHARES
The Fund may suspend your right to sell your shares during times when trading on
the NYSE is restricted or halted, or otherwise as permitted by the SEC. More
information about this is in our Statement of Additional Information.
DIVIDENDS AND DISTRIBUTIONS
The Fund distributes its income in the form of quarterly dividends and makes
distributions of capital gains, if any, at least annually. If you own Fund
shares on the Fund's record date, you will be entitled to receive the
distribution.
You will receive dividends and distributions in the form of additional Fund
shares unless you elect to receive payment in cash. To elect cash payment, you
must notify the Fund in writing prior to the date of the distribution. Your
election will be effective for dividends and distributions paid after the Fund
receives your written notice. To cancel your election, simply send the Fund
written notice.
Page 10 of 15
<PAGE>
TAXES
PLEASE CONSULT YOUR TAX ADVISER REGARDING YOUR SPECIFIC QUESTIONS ABOUT FEDERAL,
STATE AND LOCAL INCOME TAXES. Below we have summarized some important tax issues
that affect the Fund and its shareholders. This summary is based on current tax
laws, which may change.
The Fund will distribute substantially all of its income and capital gains, if
any. The dividends and distributions you receive may be subject to federal,
state and local taxation, depending upon your tax situation. Distributions you
receive from the Fund may be taxable whether or not you reinvest them. Income
distributions are generally taxable at ordinary income tax rates. Capital gains
distributions are generally taxable at the rates applicable to long-term capital
gains. EACH SALE OF FUND SHARES IS A TAXABLE EVENT.
MORE INFORMATION ABOUT TAXES IS IN THE STATEMENT OF ADDITIONAL INFORMATION.
Page 11 of 15
<PAGE>
FINANCIAL HIGHLIGHTS
The table that follows presents performance information about the Fund. This
information is intended to help you understand the Fund's financial performance
for the past five years, or, if shorter, the period of the Fund's operations.
Some of this information reflects financial information for a single Fund share.
The total returns in the table represent the rate that you would have earned (or
lost) on an investment in a Fund, assuming you reinvested all of your dividends
and distributions. This information has been audited by Arthur Andersen LLP,
independent public accountants. Their report, along with the Fund's financial
statements, appears in the annual report that accompanies the Statement of
Additional Information. You can obtain the annual report, which contains more
performance information, at no charge by calling 1-877-FMC-4099.
Page 12 of 15
<PAGE>
<TABLE>
<CAPTION>
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD ENDED OCTOBER 31,
NET REALIZED
ASSET NET AND DISTRIBUTIONS DISTRIBUTION NET
VALUE INVESTMENT UNREALIZED FROM NET FROM CAPITAL ASSET TOTAL
BEGINNING INCOME GAINS ON INVESTMENT INCOME GAINS VALUE RETURN
OF PERIOD SECURITIES END
OF PERIOD
FMC STRATEGIC VALUE FUND
<S> <C> <C> <C> <C> <C> <C> <C>
1999 $10.40 0.07 (0.05) (0.07) (0.04) $10.31 0.26%
1998(1) 10.00 0.03 0.39 (0.02) -- 10.40 4.25%+
<CAPTION>
RATIO OF
RATIO OF NET RATIO OF RATIO OF NET
NET EXPENSES INVESTMENT EXPENSES INVESTMENT PORTFOLIO
ASSETS TO INCOME TO TO AVERAGE INCOME TO TURNOVER
END OF AVERAGE AVERAGE NET ASSETS AVERAGE NET RATE
PERIOD (000) NET ASSETS NET ASSETS (EXCLUDING WAIVERS) ASSETS
(EXCLUDING WAIVERS)
FMC STRATEGIC VALUE FUND
<S> <C> <C> <C> <C> <C> <C>
1999 $9,552 1.30% 0.59% 3.10% (1.21)% 11.85%
1998(1) 5,691 1.30%* 1.45%* 5.07%* (2.32)%* 6.86%
</TABLE>
* ANNUALIZED
+ TOTAL RETURN IS FOR THE PERIOD INDICATED AND HAS NOT BEEN ANNUALIZED.
(1) THE FMC STRATEGIC VALUE FUND COMMENCED OPERATIONS ON AUGUST 17, 1998.
AMOUNTS DESIGNATED AS "--" ARE EITHER $0 OR HAVE BEEN ROUNDED TO $0.
Page 13 of 15
<PAGE>
THE ADVISORS' INNER CIRCLE FUND
FMC STRATEGIC VALUE FUND
INVESTMENT ADVISER
First Manhattan Co.
437 Madison Avenue
New York, New York 10022-7002
DISTRIBUTOR
SEI Investments Distribution Co.
One Freedom Valley Drive
Oaks, Pennsylvania 19456
LEGAL COUNSEL
Morgan, Lewis & Bockius LLP
More information about the Fund is available without charge through the
following:
STATEMENT OF ADDITIONAL INFORMATION (SAI)
The SAI dated March 1, 2000, includes detailed information about The Advisors'
Inner Circle Fund and the FMC Strategic Value Fund. The SAI is on file with the
SEC and is incorporated by reference into this prospectus. This means that the
SAI, for legal purposes, is a part of this prospectus.
ANNUAL AND SEMI-ANNUAL REPORTS
These reports list the Fund's holdings and contain information from the Fund's
managers about strategies, and recent market conditions and trends and their
impact on Fund performance. The reports also contain detailed financial
information about the Fund.
TO OBTAIN AN SAI, ANNUAL OR SEMI-ANNUAL REPORT, OR MORE INFORMATION:
BY TELEPHONE: CALL 1-877-FMC-4099 (362-4099)
BY MAIL: Write to us
FMC Strategic Value Fund
c/o The Advisors' Inner Circle Fund
P.O. Box 219009
Kansas City, Missouri 64121-9009
Page 14 of 15
<PAGE>
FROM THE SEC: You can also obtain the SAI or the Annual and Semi-Annual reports,
as well as other information about The Advisors' Inner Circle Fund, from the
EDGAR Database on the SEC's website ("http://www.sec.gov"). You may review and
copy documents at the SEC Public Reference Room in Washington, DC (for
information on the operation of the Public Reference Room, call 202-942-8090).
You may request documents by mail from the SEC, upon payment of a duplicating
fee, by writing to: Securities and Exchange Commission, Public Reference
Section, Washington, DC 20549-6009. You may also obtain this information, upon
payment of a duplicating fee, by e-mailing the SEC at the following address:
[email protected]. The Fund's Investment Company Act registration number is
811-6400.
Page 15 of 15
<PAGE>
THE ADVISORS' INNER CIRCLE FUND
PROSPECTUS
MARCH 1, 2000
HGK FIXED INCOME FUND
INVESTMENT ADVISER:
HGK ASSET MANAGEMENT, INC.
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE
SECURITIES OR PASSED UPON THE ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
Page 1 of 16
<PAGE>
ABOUT THIS PROSPECTUS
The HGK Fixed Income Fund (Fund) is a separate series of The Advisors' Inner
Circle Fund, a mutual fund family that offers separate investment portfolios.
The portfolios have individual investment goals and strategies. This prospectus
gives you important information about the Fund that you should know before
investing. Please read this prospectus and keep it for future reference.
THIS PROSPECTUS HAS BEEN ARRANGED INTO DIFFERENT SECTIONS SO THAT YOU CAN EASILY
REVIEW THIS IMPORTANT INFORMATION. FOR DETAILED INFORMATION ABOUT THE FUND,
PLEASE SEE:
<TABLE>
<CAPTION> PAGE
<S> <C>
INVESTMENT STRATEGY OF THE HGK FIXED INCOME FUND...................................XXX
PRINCIPAL RISKS OF INVESTING IN THE
HGK FIXED INCOME FUND..........................................................XXX
PERFORMANCE INFORMATION............................................................XXX
FUND FEES AND EXPENSES.............................................................XXX
MORE INFORMATION ABOUT RISK........................................................XXX
MORE INFORMATION ABOUT FUND INVESTMENTS............................................XXX
INVESTMENT ADVISER ................................................................XXX
PORTFOLIO MANAGERS.................................................................XXX
PURCHASING AND SELLING FUND SHARES.................................................XXX
DIVIDENDS AND DISTRIBUTIONS........................................................XXX
TAXES..............................................................................XXX
FINANCIAL HIGHLIGHTS...............................................................XXX
HOW TO OBTAIN MORE INFORMATION ABOUT THE
HGK FIXED INCOME FUND .........................................................Back Cover
</TABLE>
Page 2 of 16
<PAGE>
<TABLE>
<CAPTION>
HGK FIXED INCOME FUND
Fund Summary
<S> <C>
INVESTMENT GOAL Total return through current income and capital
appreciation, consistent with the preservation of
capital
INVESTMENT FOCUS U.S. dollar denominated fixed income securities
SHARE PRICE VOLATILITY Low
PRINCIPAL INVESTMENT STRATEGY Investing in fixed income securities issued by the
U.S. Government and investment grade corporate
debt obligations
INVESTOR PROFILE Investors who seek current income, low risk to
principal, and a total return commensurate with
fixed income investing
</TABLE>
INVESTMENT STRATEGY OF THE HGK FIXED INCOME FUND
The Fund invests primarily in U.S. dollar denominated investment grade fixed
income securities issued by U.S. corporations and the U.S. Government, including
U.S. Treasury securities, agency obligations and mortgage-backed securities. In
selecting investments for the Fund, the Adviser performs analysis and research
on individual securities available for purchase. The Adviser seeks to add value
by overweighting particular sectors and the Adviser determines how the Fund's
investments will be rotated between the corporate and government sectors. The
Adviser may purchase securities with any stated remaining maturity, but under
normal circumstances, the Fund will have an average duration of approximately 5
years. The Adviser attempts to maintain the Fund's duration at a level which is
within 10% of the duration of the Lehman Government/Corporate Bond Index. The
Adviser does not make large interest rate bets or large changes to the Fund's
duration. The Adviser believes that this policy will reduce the volatility of
returns and limit the loss of principal.
The Adviser's sell discipline consists of three elements, any or all of which
may bear upon the decision to sell a security. The first element is based on a
particular security's characteristics within the context of the characteristics
of the total portfolio. For example, a decision to adjust the sector allocation
or duration of the Fund, whether a result or spread moves or general interest
rate moves, would initiate a sale. The second element, which is closely related
to the first, is a swap that will add relative value and improve performance
characteristics of the Fund. Such a swap may involve intra-sector or
inter-sector opportunities. The third element of the Adviser's sell discipline
involves its continuous monitoring of corporate creditworthiness. Such analysis
may lead to a sale if the Adviser anticipates that a particular issue may come
under ratings pressure or if the issue is trading rich to its fair value based
on its credit characteristics. If a security is downgraded below investment
grade, then it will be sold at the first prudent opportunity. The Fund may buy
and sell securities frequently. This may result in higher transaction costs and
additional capital gains taxes.
Page 3 of 16
<PAGE>
PRINCIPAL RISKS OF INVESTING IN THE HGK FIXED INCOME FUND
The prices of the Fund's fixed income securities respond to economic
developments, particularly interest rate changes, as well as to perceptions
about the creditworthiness of individual issuers. Generally, the Fund's fixed
income securities will decrease in value if interest rates rise and vice versa,
and the volatility of lower rated securities is even greater than that of higher
rated securities. Also, longer-term securities are generally more volatile, so
the average maturity or duration of these securities affects risk.
The mortgages underlying mortgage-backed securities may be paid off early, which
makes it difficult to determine their actual maturity and therefore calculate
how they will respond to changes in interest rates. The Fund may have to
reinvest prepaid amounts at lower interest rates. This risk of prepayment is an
additional risk of mortgage-backed securities.
Although the Fund's U.S. government securities are considered to be among the
safest investments, they are not guaranteed against price movements due to
changing interest rates. Obligations issued by some U.S. government agencies are
backed by the U.S. Treasury, while others are backed solely by the ability of
the agency to borrow from the U.S. Treasury or by the agency's own resources.
The Fund is also subject to the risk that its market segment, investment grade
fixed income securities, may underperform other fixed income market segments or
the fixed income markets as a whole.
PERFORMANCE INFORMATION
The bar chart and the performance table below illustrate the risks and
volatility of an investment in the Fund. Of course, the Fund's past performance
does not necessarily indicate how the Fund will perform in the future.
This bar chart shows changes in the performance of the Fund from year to year.*
<TABLE>
<S> <C> <C>
1995 17.88%
1996 2.41%
1997 9.36%
1998 6.07%
1999 -1.70%
BEST QUARTER WORST QUARTER
6.31% -2.17%
(6/30/95) (3/31/96)
</TABLE>
* The performance information shown above is based on a calendar year.
Page 4 of 16
<PAGE>
This table compares the Fund's average annual total returns for the periods
ended December 31, 1999 to those of the Lehman Brothers Government/Corporate
Bond Index.
<TABLE>
<CAPTION>
1 YEAR 5 YEARS SINCE
INCEPTION
- -------------------------------------------------------------- -------------- --------------- ---------------
<S> <C> <C> <C>
HGK FIXED INCOME FUND -1.70% 6.60% 6.59%*
LEHMAN BROTHERS GOVERNMENT/ CORPORATE BOND INDEX -2.15% 7.60% 7.61%**
</TABLE>
* Since 11/3/94
** Since 11/30/94
WHAT IS AN INDEX?
An index measures the market prices of a specific group of securities in a
particular market or securities in a market sector. You cannot invest directly
in an index. Unlike a mutual fund, an index does not have an investment adviser
and does not pay any commissions or expenses. If an index had expenses, its
performance would be lower. The Lehman Brothers Government/Corporate Bond Index
is a widely-recognized, market value-weighted (higher market value bonds have
more influence than lower market value bonds) index of U.S. Treasury securities,
U.S. government agency obligations, corporate debt backed by the U.S.
government, fixed-rate nonconvertible corporate debt securities, Yankee bonds,
and nonconvertible debt securities issued by or guaranteed by foreign
governments and agencies. All securities in the index are rated investment grade
(BBB) or higher, with maturities of at least 1 year.
FUND FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
Fund shares.
<TABLE>
<CAPTION>
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
- ---------------------------------------------------------------------------------------------- --------------
<S> <C>
Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price) None
Maximum Deferred Sales Charge (Load) (as a percentage of net asset value) None
Maximum Sales Charge (Load) Imposed on Reinvested Dividends and other Distributions (as a
percentage of offering price) None
Redemption Fee (as a percentage of amount redeemed, if applicable) None
Exchange Fee None
- ---------------------------------------------------------------------------------------------- --------------
</TABLE>
<TABLE>
<CAPTION>
ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS)*
<S> <C>
Investment Advisory Fees 0.50%
Other Expenses 1.21%
-----
Total Annual Fund Operating Expenses 1.71%
</TABLE>
- --------------------------------------------------------------------------------
* The Fund's total actual annual fund operating expenses for the most recent
fiscal year were less than the amount shown above because the Adviser waived
a portion of the fees and reimbursed certain expenses of the Fund in order to
keep total operating expenses at a specified level. These fee waivers remain
in place as of the date of this prospectus, but the Adviser may discontinue
all or part of these waivers at any time. With these fee waivers, the Fund's
actual total operating expenses are expected to be as follows:
HGK Fixed Income Fund 1.00%
For more information about these fees, see "Investment Adviser."
Page 5 of 16
<PAGE>
EXAMPLE
This Example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. The Example assumes that you
invest $10,000 in the Fund for the time periods indicated and that you sell your
shares at the end of the period.
The Example also assumes that each year your investment has a 5% return, Fund
operating expenses remain the same and you reinvest all dividends and
distributions. Although your actual costs and returns might be different, your
approximate costs of investing $10,000 in the Fund would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
$174 $539 $928 $2,019
</TABLE>
Page 6 of 16
<PAGE>
MORE INFORMATION ABOUT RISK
The Fund is a mutual fund. A mutual fund pools shareholders' money and, using
professional investment managers, invests it in securities.
The Fund has an investment goal and strategies for reaching that goal. The
investment managers invest Fund assets in a way that they believe will help the
Fund achieve its goal. Still, investing in the Fund involves risk and there is
no guarantee that the Fund will achieve its goal. An investment manager's
judgments about the markets, the economy, or companies may not anticipate actual
market movements, economic conditions or company performance, and these
judgments may affect the return on your investment. In fact, no matter how good
a job an investment manager does, you could lose money on your investment in the
Fund, just as you could with other investments.
The value of your investment in the Fund is based on the market prices of the
securities the Fund holds. These prices change daily due to economic and other
events that affect particular companies and other issuers. These price
movements, sometimes called volatility, may be greater or lesser depending on
the types of securities the Fund owns and the markets in which they trade. The
effect on a Fund of a change in the value of a single security will depend on
how widely the Fund diversifies its holdings.
FIXED INCOME RISK - The market value of fixed income investments change in
response to interest rate changes and other factors. During periods of falling
interest rates, the values of outstanding fixed income securities generally
rise. Moreover, while securities with longer maturities tend to produce higher
yields, the prices of longer maturity securities are also subject to greater
market fluctuations as a result of changes in interest rates. In addition to
these fundamental risks, different types of fixed income securities may be
subject to the following additional risks:
CALL RISK - During periods of falling interest rates, certain debt
obligations with high interest rates may be prepaid (or "called") by
the issuer prior to maturity. This may cause a Fund's average weighted
maturity to fluctuate, and may require a Fund to invest the resulting
proceeds at lower interest rates.
CREDIT RISK - The possibility that an issuer will be unable to make
timely payments of either principal or interest.
EVENT RISK - Securities may suffer declines in credit quality and
market value due to issuer restructurings or other factors. This risk
should be reduced because of the Fund's multiple holdings.
Page 7 of 16
<PAGE>
MORTGAGE-BACKED SECURITIES - Mortgage-backed securities are fixed income
securities representing an interest in a pool of underlying mortgage loans. They
are sensitive to changes in interest rates, but may respond to these changes
differently from other fixed income securities due to the possibility of
prepayment of the underlying mortgage loans. As a result, it may not be possible
to determine in advance the actual maturity date or average life of a
mortgage-backed security. Rising interest rates tend to discourage refinancings,
with the result that the average life and volatility of the security will
increase exacerbating its decrease in market price. When interest rates fall,
however, mortgage-backed securities may not gain as much in market value because
of the expectation of additional mortgage prepayments that must be reinvested at
lower interest rates. Prepayment risk may make it difficult to calculate the
average maturity of a portfolio of mortgage-backed securities and, therefore, to
assess the volatility risk of the portfolio.
MORE INFORMATION ABOUT FUND INVESTMENTS
This prospectus describes the Fund's primary strategies, and the Fund will
normally invest in the types of securities described in this prospectus.
However, in addition to the investments and strategies described in this
prospectus, the Fund also may invest in other securities, use other strategies
and engage in other investment practices. These investments and strategies, as
well as those described in this prospectus, are described in detail in our
Statement of Additional Information. Of course, we cannot guarantee that the
Fund will achieve its investment goal.
The investments and strategies described in this prospectus are those that we
use under normal conditions. During unusual economic or market conditions, or
for temporary defensive or liquidity purposes, the Fund may invest up to 100% of
its assets in cash and money instruments that would not ordinarily be consistent
with the Fund's objectives. The Fund will do so only if the Adviser believes
that the risk of loss outweighs the opportunity for higher income.
INVESTMENT ADVISER
The Investment Adviser makes investment decisions for the Fund and continuously
reviews, supervises and administers the Fund's investment program. The Board of
Trustees supervises the Adviser and establishes policies that the Adviser must
follow in its management activities.
HGK Asset Management, Inc. (HGK), serves as the Adviser to the Fund. HGK has
provided equity, fixed income and balanced asset management services for the
assets of institutional and individual investors since its inception in 1983. As
of December 31, 1999, HGK had approximately $__ billion in assets under
management. HGK is entitled to receive 0.50% of the Fund's average daily net
assets for its investment advisory services, but may receive less due to
waivers. HGK has voluntarily agreed to waive a portion of its fees and reimburse
certain expenses of the Fund so that total operating expenses do not exceed
1.00% of the Fund's average daily net assets. For the fiscal period ended
October 31, 1999, HGK waived the entire amount of its advisory fees for the
Fund.
The Adviser may use its affiliates as brokers for Fund transactions.
Page 8 of 16
<PAGE>
PORTFOLIO MANAGERS
Gregory W. Lobo has served as Managing Director of HGK since 1990. He has helped
manage the HGK Fixed Income Fund since its inception. He has more than 10 years
of investment experience.
Anthony Santoliquido has served as a Portfolio Manager for HGK since 1993. He
has helped manage the HGK Fixed Income Fund since its inception. He has more
than 12 years of investment experience. Prior to joining HGK, Mr. Santoliquido
was with Hilliard Farber and Co. Brokerage.
Patricia Bernabeo has served as a Portfolio Manager for HGK since 1992. She has
helped manage the HGK Fixed Income Fund since its inception. She has more than 8
years of investment experience. Prior to joining HGK, Ms. Bernabeo attended New
York University.
PURCHASING AND SELLING FUND SHARES
This section tells you how to purchase and sell (sometimes called "redeem")
shares of the Fund.
The Fund is for individual and institutional investors.
HOW TO PURCHASE FUND SHARES
You may purchase shares directly by:
- - Mail
- - Telephone, or
- - Wire
To purchase shares directly from us, complete and send in the enclosed
application. If you need an application or have questions, please call
1-877-DIAL-HGK. Unless you arrange to pay by wire, write your check, payable in
U.S. dollars, to "HGK Fixed Income Fund." The Fund cannot accept third-party
checks, credit cards, credit card checks or cash.
You may also buy shares through accounts with brokers and other institutions
that are authorized to place trades in Fund shares for their customers. If you
invest through an authorized institution, you will have to follow its
procedures, which may be different from the procedures for investing directly.
Your broker or institution may charge a fee for its services, in addition to the
fees charged by the Fund. You will also generally have to address your
correspondence or questions regarding the Fund to your institution.
GENERAL INFORMATION
You may purchase shares on any day that the New York Stock Exchange (NYSE) is
open for business (a Business Day). Shares cannot be purchased by Federal
Reserve Wire on days when either the NYSE or the Federal Reserve is closed.
The Fund may reject any purchase order if it is determined that accepting the
order would not be in the best interests of the Fund or its shareholders.
Page 9 of 16
<PAGE>
The price per share (the offering price) will be the net asset value per share
(NAV) next determined after the Fund receives your purchase order.
The Fund calculates its NAV once each Business Day at the regularly-scheduled
close of normal trading on the NYSE (normally, 4:00 p.m. Eastern time). So, for
you to receive the current Business Day's NAV, generally the Fund must receive
your purchase order before 4:00 p.m. Eastern time.
HOW WE CALCULATE NAV
NAV for one Fund share is the value of that share's portion of all of the net
assets of the Fund.
In calculating NAV, the Fund generally values its investment portfolio at market
price. If market prices are unavailable or the Fund thinks that they are
unreliable, fair value prices may be determined in good faith using methods
approved by the Board of Trustees.
MINIMUM PURCHASES
To purchase shares for the first time, you must invest at least $2,000 in the
Fund. Your subsequent investments in the Fund must be made in amounts of at
least $1,000.
The Fund may accept investments of smaller amounts at its discretion.
SYSTEMATIC INVESTMENT PLAN
If you have a checking or savings account with a bank, you may purchase shares
automatically through regular deductions from your account in amounts of at
least $25 per month.
HOW TO SELL YOUR FUND SHARES
If you own your shares directly, you may sell your shares on any Business Day by
contacting the Fund directly by mail or telephone at 1-877-DIAL-HGK.
If you own your shares through an account with a broker or other institution,
contact that broker or institution to sell your shares. Your broker or
institution may charge a fee for its services, in addition to the fees charged
by the Fund.
If you would like to close your account, or have your sale proceeds sent to a
third party or an address other than your own, please notify the Fund in writing
and include a signature guarantee by a bank or other financial institution (a
notarized signature is not sufficient).
The sale price of each share will be the next NAV determined after the Fund
receives your request.
SYSTEMATIC WITHDRAWAL PLAN
If you have at least $50,000 in your account, you may use the systematic
withdrawal plan. Under the plan you may arrange monthly, quarterly, semi-annual
or annual automatic withdrawals of at least $100 from the Fund. The proceeds of
each withdrawal will be mailed to you by check or, if you have a checking or
savings account with a bank, electronically transferred to your account.
Page 10 of 16
<PAGE>
RECEIVING YOUR MONEY
Normally, we will send your sale proceeds within seven days after we receive
your request. Your proceeds can be wired to your bank account (subject to a
$10 fee) or sent to you by check. IF YOU RECENTLY PURCHASED YOUR SHARES BY
CHECK OR THROUGH ACH, REDEMPTION PROCEEDS MAY NOT BE AVAILABLE UNTIL YOUR
CHECK HAS CLEARED (WHICH MAY TAKE UP TO 15 DAYS FROM YOUR DATE OF PURCHASE).
REDEMPTIONS IN KIND
We generally pay sale (redemption) proceeds in cash. However, under unusual
conditions that make the payment of cash unwise (and for the protection of the
Fund's remaining shareholders) we might pay all or part of your redemption
proceeds in liquid securities with a market value equal to the redemption price
(redemption in kind). It is highly unlikely that your shares would ever be
redeemed in kind, but if they were you would probably have to pay transaction
costs to sell the securities distributed to you, as well as taxes on any capital
gains from the sale as with any redemption.
INVOLUNTARY REDEMPTION OF YOUR SHARES
If your account balance drops below $2,000 because of redemptions, the Fund may
redeem your shares. But, the Fund will always give you at least 30 days' written
notice to give you time to add to your account and avoid the involuntary
redemption of your shares.
SUSPENSION OF YOUR RIGHT TO SELL YOUR SHARES
The Fund may suspend your right to sell your shares during times when trading on
the NYSE is restricted or halted, or otherwise as permitted by the SEC. More
information about this is in our Statement of Additional Information.
TELEPHONE TRANSACTIONS
Purchasing and selling Fund shares over the telephone is extremely convenient,
but not without risk. Although the Fund has certain safeguards and procedures to
confirm the identity of callers and the authenticity of instructions, the Fund
is not responsible for any losses or costs incurred by following telephone
instructions we reasonably believe to be genuine. If you or your financial
institution transact with the Fund over the telephone, you will generally bear
the risk of any loss.
DIVIDENDS AND DISTRIBUTIONS
The Fund declares dividends of substantially all of its net investment income
(excluding capital gains) every day and distributes this income each month. The
Fund makes distributions of capital gains, if any, at least annually. If you own
Fund shares on a Fund's record date, you will be entitled to receive the
distribution.
You will receive dividends and distributions in the form of additional Fund
shares unless you elect to receive payment in cash. To elect cash payment, you
must notify the Fund in writing prior to the date of the distribution. Your
election will be effective for dividends and distributions
Page 11 of 16
<PAGE>
paid after the Fund receives your written notice. To cancel your election,
simply send the Fund written notice.
TAXES
PLEASE CONSULT YOUR TAX ADVISER REGARDING YOUR SPECIFIC QUESTIONS ABOUT FEDERAL,
STATE AND LOCAL INCOME TAXES. Below we have summarized some important tax issues
that affect the Fund and its shareholders. This summary is based on current tax
laws, which may change.
The Fund will distribute substantially all of its income and capital gains, if
any. The dividends and distributions you receive may be subject to federal,
state and local taxation, depending upon your tax situation. Distributions you
receive from the Fund may be taxable whether or not you reinvest them. Income
distributions are generally taxable at ordinary income tax rates. Capital gains
distributions are generally taxable at the rates applicable to long-term capital
gains. EACH SALE OF FUND SHARES IS A TAXABLE EVENT.
MORE INFORMATION ABOUT TAXES IS IN THE STATEMENT OF ADDITIONAL INFORMATION.
Page 12 of 16
<PAGE>
FINANCIAL HIGHLIGHTS
The table that follows presents performance information about the Fund. This
information is intended to help you understand the Fund's financial performance
for the past five years, or, if shorter, the period of the Fund's operations.
Some of this information reflects financial information for a single Fund share.
The total returns in the table represent the rate that you would have earned (or
lost) on an investment in a Fund, assuming you reinvested all of your dividends
and distributions. This information has been audited by Arthur Andersen LLP,
independent public accountants. Their report, along with the Fund's financial
statements, appears in the annual report that accompanies our Statement of
Additional Information. You can obtain the annual report, which contains more
performance information, at no charge, by calling 1-877-DIAL-HGK.
Page 13 of 16
<PAGE>
Financial Highlights
For a Share Outstanding Throughout Each Period
For The Periods Ended October 31,
<TABLE>
<CAPTION>
REALIZED
AND
NET ASSET UNREALIZED
VALUE NET GAINS OR DISTRIBUTIONS
BEGINNING INVESTMENT (LOSSES) ON FROM NET DISTRIBUTIONS
OF PERIOD INCOME SECURITIES INVESTMENT INCOME FROM CAPITAL GAINS
HGK FIXED INCOME
<S> <C> <C> <C> <C> <C>
1999 $10.51 0.54 (0.49) (0.54) (0.14)
1998 $10.53 0.60 0.02 (0.60) (0.04)
1997 $10.29 0.60 0.24 (0.60) --
1996 $10.88 0.61 (0.17) (0.61) (0.42)
1995(1) $10.00 0.67 0.88 (0.67) --
<CAPTION>
RATIO OF
NET
RATIO OF INVESTMENT
RATIO OF EXPENSES INCOME TO
NET TO AVERAGE AVERAGE
RATIO OF INVESTMENT NET ASSETS NET ASSETS
NET ASSET NET ASSETS EXPENSES INCOME TO (EXCLUDING (EXCLUDING PORTFOLIO
VALUE END TOTAL END OF TO AVERAGE AVERAGE WAIVERS AND WAIVERS AND TURNOVER
OF PERIOD RETURN PERIOD (000) NET ASSETS NET ASSETS REIMBURSEMENTS) REIMBURSEMENTS) RATE
HGK FIXED INCOME
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1999 $9.88 0.48% $16,242 1.00% 5.33% 1.71% 4.62% 322.36%
1998 $10.51 6.00% $14,945 1.00% 5.62% 1.70% 4.92% 173.93%
1997 $10.53 8.47% $13,371 1.00% 5.85% 1.64% 5.21% 256.52%
1996 $10.29 4.29% $12,515 1.00% 5.92% 1.51% 5.41% 264.02%
1995(1) $10.88 16.07%* $10,420 1.00%* 6.38%* 2.37%* 5.01%* 300.48%
</TABLE>
AMOUNTS DESIGNATED AS "--" ARE EITHER $0 OR HAVE BEEN ROUNDED TO $0.
* ANNUALIZED
(1) THE HGK FIXED INCOME FUND COMMENCED OPERATIONS ON NOVEMBER 3, 1994.
Page 14 of 16
<PAGE>
HGK
FIXED INCOME FUND
INVESTMENT ADVISER
HGK Asset Management, Inc.
525 Washington Boulevard
Jersey City, New Jersey 07310
DISTRIBUTOR
SEI Investments Distribution Co.
One Freedom Valley Drive
Oaks, Pennsylvania 19456
LEGAL COUNSEL
Morgan, Lewis & Bockius LLP
More information about the Fund is available without charge through the
following:
STATEMENT OF ADDITIONAL INFORMATION (SAI)
The SAI dated March 1, 2000, includes detailed information about The Advisors'
Inner Circle Fund and the HGK Fixed Income Fund. The SAI is on file with the SEC
and is incorporated by reference into this prospectus. This means that the SAI,
for legal purposes, is a part of this prospectus.
ANNUAL AND SEMI-ANNUAL REPORTS
These reports list the Fund's holdings and contain information from the Fund's
managers about strategies, and recent market conditions and trends and their
impact on Fund performance. The reports also contain detailed financial
information about the Fund.
TO OBTAIN AN SAI, ANNUAL OR SEMI-ANNUAL REPORT, OR MORE INFORMATION:
BY TELEPHONE: CALL 1-877-DIAL-HGK (877-342-5445)
BY MAIL: Write to us
HGK Fixed Income Fund
c/o The Advisors' Inner Circle Fund
P.O. Box 219009
Kansas City, Missouri 64121-9009
BY INTERNET: www.hgk.com
Page 15 of 16
<PAGE>
FROM THE SEC: You can also obtain the SAI or the Annual and Semi-Annual reports,
as well as other information about The Advisors' Inner Circle Fund, from the
EDGAR Database on the SEC's website ("http://www.sec.gov"). You may review and
copy documents at the SEC Public Reference Room in Washington, DC (for
information on the operation of the Public Reference Room, call 202-942-8090).
You may request documents by mail from the SEC, upon payment of a duplicating
fee, by writing to: Securities and Exchange Commission, Public Reference
Section, Washington, DC 20549-6009. You may also obtain this information, upon
payment of a duplicating fee, by e-mailing the SEC at the following address:
[email protected]. The Fund's Investment Company Act registration number is
811-6400.
Page 16 of 16
<PAGE>
THE ADVISORS' INNER CIRCLE FUND
PROSPECTUS
MARCH 1, 2000
HGK EQUITY VALUE FUND
INVESTMENT ADVISER:
HGK ASSET MANAGEMENT, INC.
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE
SECURITIES OR PASSED UPON THE ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
Page 1 of 18
<PAGE>
ABOUT THIS PROSPECTUS
The HGK Equity Value Fund (Fund) is a separate series of The Advisors' Inner
Circle Fund, a mutual fund family that offers shares in separate investment
portfolios. The portfolios have individual investment goals and strategies. This
prospectus gives you important information about the Fund that you should know
before investing. Please read this prospectus and keep it for future reference.
THIS PROSPECTUS HAS BEEN ARRANGED INTO DIFFERENT SECTIONS SO THAT YOU CAN
EASILY REVIEW THIS IMPORTANT INFORMATION. FOR MORE DETAILED INFORMATION ABOUT
THE FUND, PLEASE SEE:
PAGE
INVESTMENT STRATEGY OF THE HGK EQUITY VALUE FUND................XXX
PRINCIPAL RISKS OF INVESTING IN THE HGK EQUITY VALUE FUND.......XXX
FUND FEES AND EXPENSES..........................................XXX
MORE INFORMATION ABOUT RISK.....................................XXX
MORE INFORMATION ABOUT FUND INVESTMENTS.........................XXX
INVESTMENT ADVISER..............................................XXX
PORTFOLIO MANAGERS..............................................XXX
THE ADVISER'S PAST PERFORMANCE..................................XXX
PURCHASING AND SELLING FUND SHARES..............................XXX
DISTRIBUTION OF FUND SHARES.....................................XXX
DIVIDENDS AND DISTRIBUTIONS.....................................XXX
TAXES...........................................................XXX
FINANCIAL HIGHLIGHTS............................................XXX
HOW TO OBTAIN MORE INFORMATION ABOUT
THE HGK EQUITY VALUE FUND.......................................Back Cover
Page 2 of 18
<PAGE>
<TABLE>
<CAPTION>
HGK EQUITY VALUE FUND
FUND SUMMARY
<S> <C>
INVESTMENT GOAL Long-term capital appreciation
INVESTMENT FOCUS Large capitalization U.S. common stocks
SHARE PRICE VOLATILITY Medium
PRINCIPAL INVESTMENT STRATEGY Investing in common stocks of large-sized
companies which are undervalued relative to their
ability to generate cash flows
INVESTOR PROFILE Investors who seek long-term capital appreciation
and who are willing to bear the risks of investing
in equity securities
</TABLE>
INVESTMENT STRATEGY OF THE HGK EQUITY VALUE FUND
The Fund invests primarily (or at least 65% of its assets) in common stocks of
established U.S. companies with large market capitalizations (in excess of $5
billion) that exhibit value characteristics. In choosing investments for the
Fund, the Adviser identifies value through in-depth cash flow analysis,
selecting those companies that exhibit improving cash flow return on investment
and that currently trade at a price below the present value of their discounted
cash flows. The Adviser's process seeks to eliminate the accounting distortions
inherent in financial statements and allow comparisons between companies based
on their ability to generate cash flow for a given level of invested capital.
The Adviser also incorporates traditional "value criteria," such as
price/earnings ratios, to reinforce and enhance the investment selection
process.
The Adviser employs a sell discipline for individual stocks based on a
discounted cash flow model. Using consensus earnings estimates and historical
asset growth rates, a model of future cash flows is constructed with a duration
based on a company's average asset life and a residual value comprised of cash,
land, accounts receivable, and inventories. A company-specific discount rate is
then applied to the cash flows and residual value, resulting in a present value
for the stock. When a stock's present value reaches its market price, it becomes
a candidate for sale.
The Adviser seeks to keep the Fund well-diversified and exposed to all major
market sectors (such as technology, consumer staples, etc.) in the Standard &
Poor's Composite 500 Index (S&P 500) and will overweight sectors which it
believes are undervalued. The Adviser will attempt to avoid overweighting the
Fund's position in any specific sector beyond 150% of the weighting that sector
has in the S&P 500. Conversely, for sectors that it believes are overvalued, the
Adviser will attempt to avoid underweighting the Fund's position in any specific
sector below 50% of the weighting that sector has in the S&P 500.
Page 3 of 18
<PAGE>
PRINCIPAL RISKS OF INVESTING IN THE HGK EQUITY VALUE FUND
Since it purchases equity securities, the Fund is subject to the risk that stock
prices will fall over short or extended periods of time. Historically, the
equity markets have moved in cycles, and the value of the Fund's securities may
fluctuate drastically from day to day. Individual companies may report poor
results or be negatively affected by industry and/or economic trends and
developments. The prices of securities issued by such companies may suffer a
decline in response. These factors contribute to price volatility, which is the
principal risk of investing in the Fund.
The Fund is subject to the risk that large capitalization value stocks may
underperform other segments of the equity market or the equity markets as a
whole.
PERFORMANCE INFORMATION
The Fund commenced operations on June 9, 1999, and therefore does not have a
performance history for a full calendar year.
FUND FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
Fund shares.
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
<S> <C>
Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price)* 5.50%
Maximum Deferred Sales Charge (Load) (as a percentage of net asset value) None
Maximum Sales Charge (Load) Imposed on Reinvested Dividends and other Distributions (as a
percentage of offering price) None
Redemption Fee (as a percentage of amount redeemed, if applicable) None
Exchange Fee None
- -------------------------------------------------------------------------------------------------
</TABLE>
* This sales charge varies depending upon how much you invest. See "Purchasing
Fund Shares."
ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS)*
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
<S> <C>
Investment Advisory Fees 0.90%
Distribution and Service (12b-1) Fees 0.25%
Other Expenses 4.61%
- -----------------------------------------------------------------------------------
Total Annual Fund Operating Expenses 5.76%
Fee Waivers and Expense Reimbursements 4.26%
- -----------------------------------------------------------------------------------
Net Expenses 1.50%
- -----------------------------------------------------------------------------------
</TABLE>
* The Fund's Adviser has contractually agreed to waive fees and reimburse
expenses in order to keep total operating expenses from exceeding 1.50% for a
period of one year from the date of this prospectus. Other Expenses are
estimated. For more information about these fees, see "Investment Adviser" and
"Distribution of Fund Shares."
Page 4 of 18
<PAGE>
EXAMPLE
This Example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. The Example assumes that you
invest $10,000 in the Fund for the time periods indicated and that you sell your
shares at the end of the period.
The Example also assumes that each year your investment has a 5% return, Fund
operating expenses remain the same and you reinvest all dividends and
distributions. Although your actual costs and returns might be different, your
approximate costs of investing $10,000 in the Fund would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C>
$694 $1,812 $2,914 $5,594
</TABLE>
Page 5 of 18
<PAGE>
MORE INFORMATION ABOUT RISK
The Fund is a mutual fund. A mutual fund pools shareholders' money and, using
professional investment managers, invests it in securities.
The Fund has its own investment goal and strategies for reaching that goal. The
investment managers invest Fund assets in a way that they believe will help the
Fund achieve its goal. Still, investing in the Fund involves risk and there is
no guarantee that the Fund will achieve its goal. An investment manager's
judgments about the markets, the economy, or companies may not anticipate actual
market movements, economic conditions or company performance, and these
judgments may affect the return on your investment. In fact, no matter how good
a job an investment manager does, you could lose money on your investment in the
Fund, just as you could with other investments.
The value of your investment in the Fund is based on the market prices of the
securities the Fund holds. These prices change daily due to economic and other
events that affect particular companies and other issuers. These price
movements, sometimes called volatility, may be greater or lesser depending on
the types of securities the Fund owns and the markets in which they trade. The
effect on the Fund of a change in the value of a single security will depend on
how widely the Fund diversifies its holdings.
EQUITY RISK -- Equity securities include public and privately issued equity
securities, common and preferred stocks, warrants, rights to subscribe to common
stock and convertible securities, as well as instruments that attempt to track
the price movement of equity indices. Investments in equity securities and
equity derivatives in general are subject to market risks that may cause their
prices to fluctuate over time. The value of securities convertible into equity
securities, such as warrants or convertible debt, is also affected by prevailing
interest rates, the credit quality of the issuer and any call provision.
Fluctuations in the value of equity securities in which a mutual fund invests
will cause a fund's net asset value to fluctuate. An investment in a portfolio
of equity securities may be more suitable for long-term investors who can bear
the risk of these share price fluctuations.
MORE INFORMATION ABOUT FUND INVESTMENTS
This prospectus describes the Fund's primary strategies, and the Fund will
normally invest in the types of securities described in this prospectus.
However, in addition to the investments and strategies described in this
prospectus, the Fund also may invest in other securities, use other strategies
and engage in other investment practices. These investments and strategies, as
well as those described in this prospectus, are described in detail in our
Statement of Additional Information.
The investments and strategies described in this prospectus are those that we
use under normal conditions. During unusual economic or market conditions, or
for temporary defensive or liquidity purposes, the Fund may invest up to 100% of
its assets in cash or money market instruments that would not ordinarily be
consistent with the Fund's objectives. The Fund will do so only if the Adviser
believes that the risk of loss outweighs the opportunity for capital gains. Of
course, we cannot guarantee that the Fund will achieve its investment goal.
Page 6 of 18
<PAGE>
INVESTMENT ADVISER
The Investment Adviser makes investment decisions for the Fund and continuously
reviews, supervises and administers the Fund's respective investment program.
The Board of Trustees of The Advisors' Inner Circle Fund supervises the Adviser
and establishes policies that the Adviser must follow in its management
activities.
HGK Asset Management, Inc. (HGK), serves as the Adviser to the Fund. HGK has
provided equity, fixed income and balanced asset management services for the
assets of institutional and individual investors since its inception in 1983. As
of December 31, 1999, HGK had approximately $2.6 billion in assets under
management. For its advisory services to the Fund, HGK is entitled to receive
0.90% of the average daily net assets of the Fund. HGK has contractually agreed,
for a period of one year from the date of this prospectus, to waive a portion of
its fees and reimburse certain expenses for the Fund so that total operating
expenses do not exceed 1.50% of the Fund's average daily net assets. For the
fiscal period ended October 31, 1999, HGK waived the entire amount of its
advisory fee.
PORTFOLIO MANAGERS
Michael Pendergast, CFA serves as a Senior Equity Portfolio Manager for HGK and
co-manages the HGK Equity Value Fund. He has more than 16 years of investment
experience. Prior to joining HGK in 1983, Mr. Pendergast served as an equity
portfolio manager at L.F. Rothchild, Unterberg, Towbin.
Paul B. Carlson, CFA serves as a Portfolio Manager for HGK and co-manages the
HGK Equity Value Fund. He has more than 11 years of investment experience. Prior
to joining HGK in 1991, Mr. Carlson served as a trading assistant at Dillon,
Read.
Page 7 of 18
<PAGE>
THE ADVISER'S PAST PERFORMANCE
The following table represents the average annual return for all of the accounts
managed by HGK with investment goals and strategies that are substantially
similar to those of the Fund and a comparison to the Fund's performance
benchmark. These similarly managed accounts are referred to as "composites." The
composites were managed by the same portfolio managers that currently manage the
investments of the Fund. The composite performance has been adjusted based on
the applicable sales charges and the estimated total operating expenses of the
Fund, based on the Adviser's contractual agreement to waive its fees and
reimburse fund expenses to limit the Fund's expenses to 1.50% of average daily
net assets. This adjustment reduces the actual performance of the composites.
The comparison of the composites to the benchmarks is meant to provide you with
a general sense of how the composites performed compared to an appropriate
broad-based equity market index. In addition, the composites were not registered
mutual funds so they were not subject to the same investment and tax
restrictions as the Fund. If they had been, the composites' performance might
have been lower. The past performance of the composites is no guarantee of the
future performance of the Fund.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN FOR THE
PERIODS ENDED 12/31/99
- -----------------------------------------------------------------------------------------------------------------------
SINCE INCEPTION
COMPOSITES/BENCHMARKS 1 YEAR 5 YEARS (10/1/90)
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
HGK Equity Value Composite (reflects sales load and fees) (3.87)% 18.30% 14.83%
- -----------------------------------------------------------------------------------------------------------------------
HGK Equity Value Composite (without sales load and fees) 3.27% 21.50% 17.41%
- -----------------------------------------------------------------------------------------------------------------------
Wilshire Targeted Large Cap Value Index (7.11)% 18.33% 15.99%
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
Page 8 of 18
<PAGE>
PURCHASING, SELLING AND EXCHANGING FUND SHARES
This section tells you how to purchase, sell (sometimes called "redeem") and
exchange shares of the Fund.
The Fund is for individual and institutional investors.
HOW TO PURCHASE FUND SHARES
You may purchase shares directly by:
- - Mail
- - Telephone
- - Wire, or
- - Automated Clearing House (ACH).
To purchase shares directly from us, complete and send in the attached
application. If you need an application or have questions, please call
1-877-DIAL-HGK. Unless you arrange to pay by wire or through or ACH, write your
check, payable in U.S. dollars, to "HGK Equity Value Fund." The Fund cannot
accept third-party checks, credit cards, credit card checks or cash.
You may also buy shares through accounts with brokers and other institutions
that are authorized to place trades in Fund shares for their customers. If you
invest through an authorized institution, you will have to follow its
procedures, which may be different from the procedures for investing directly.
Your broker or institution may charge a fee for its services, in addition to the
fees charged by the Fund.
You will also generally have to address your correspondence or questions
regarding the Fund to your institution.
GENERAL INFORMATION
You may purchase shares on any day that the New York Stock Exchange (NYSE) is
open for business (a Business Day). Shares cannot be purchased by Federal
Reserve Wire on days when either the NYSE or the Federal Reserve is closed.
The Fund may reject any purchase order if it determines that accepting the order
would not be in the best interests of the Fund or its shareholders.
The price per share (the offering price) will be the net asset value per share
(NAV) next determined after the Fund receives your purchase order plus, the
applicable front-end sales charge.
The Fund calculates its NAV once each Business Day at the regularly-scheduled
close of normal trading on the NYSE (normally, 4:00 p.m., Eastern time). So, for
you to receive the current Business Day's NAV, generally the Fund must receive
your purchase order before 4:00 p.m., Eastern time.
HOW WE CALCULATE NAV
NAV for one Fund share is the value of that share's portion of the net assets of
the Fund.
Page 9 of 18
<PAGE>
In calculating NAV, the Fund generally values its investment portfolio at market
price. If market prices are unavailable or the Fund thinks that they are
unreliable, fair value prices may be determined in good faith using methods
approved by the Board of Trustees.
MINIMUM PURCHASES
To purchase shares for the first time, you must invest at least $2,000 in the
Fund. There is no minimum for subsequent investments in the Fund. The Fund may
accept investments of smaller amounts at its discretion.
SYSTEMATIC INVESTMENT PLAN
If you have a checking or savings account with a bank, you may purchase shares
of the Fund automatically through regular deductions from your account in
amounts of at least $25 per month.
SALES CHARGES
FRONT-END SALES CHARGES
The offering price of Fund shares is the NAV next calculated after the Fund
receives your request, plus the front-end sales load.
The amount of any front-end sales charge included in your offering price varies,
depending on the amount of your investment:
<TABLE>
<CAPTION>
YOUR SALES CHARGE AS A YOUR SALES CHARGE AS A
IF YOUR INVESTMENT IS: PERCENTAGE OF OFFERING PERCENTAGE OF YOUR NET
PRICE INVESTMENT
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
LESS THAN $50,000 5.50% 5.82%
$50,000 BUT LESS THAN $100,000 4.75% 4.99%
$100,000 BUT LESS THAN $250,000 3.75% 3.90%
$250,000 BUT LESS THAN $500,000 2.75% 2.83%
$500,000 BUT LESS THAN $1,000,000 2.00% 2.04%
$1,000,000 AND OVER 0.00% 0.00%
</TABLE>
WAIVER OF FRONT-END SALES CHARGE
The front-end sales charge will be waived on shares purchased:
- - through reinvestment of dividends and distributions;
- - by employees, and members of their immediate family, of HGK and its
affiliates and vendors;
- - by employees and retirees of the Administrator or Distributor;
- - by Trustees and officers of The Advisors' Inner Circle Fund;
- - by all Taft-Hartley labor unions and their members and sold through HGK
(purchases made through brokers and dealers that are not affiliated with HGK
may be subject to a sales charge);
- - by existing shareholders of the HGK Fixed Income Fund as of May 24, 1999; or
- - by existing clients of HGK.
Page 10 of 18
<PAGE>
REDUCED SALES CHARGES
RIGHTS OF ACCUMULATION. In calculating the appropriate sales charge rate, this
right allows you to add the value of the shares you already own to the amount
that you are currently purchasing. The Fund will combine the value of your
current purchases with the current value of any shares you purchased previously
for (i) your account, (ii) your spouse's account, (iii) a joint account with
your spouse, or (iv) your minor children's trust or custodial accounts. A
fiduciary purchasing shares for the same fiduciary account, trust or estate may
also use this right of accumulation. The Fund will only consider the value of
shares purchased previously that were sold subject to a sales charge. TO BE
ENTITLED TO A REDUCED SALES CHARGE BASED ON SHARES ALREADY OWNED, YOU MUST ASK
US FOR THE REDUCTION AT THE TIME OF PURCHASE. You must provide the Fund with
your account number(s) and, if applicable, the account numbers for your spouse
and/or children (and provide the children's ages). The Fund may amend or
terminate this right of accumulation at any time.
LETTER OF INTENT. You may purchase shares at the sales charge rate applicable to
the total amount of the purchases you intend to make over a 13-month period. In
other words, a Letter of Intent allows you to purchase the shares over a
13-month period and receive the same sales charge as if you had purchased all
the shares at the same time. The Fund will only consider the value of shares
sold subject to a sales charge. As a result, shares of the Fund purchased with
dividends or distributions will not be included in the calculation. To be
entitled to a reduced sales charge based on shares you intend to purchase over
the 13-month period, you must send the Fund a Letter of Intent. In calculating
the total amount of purchases you may include in your letter purchases made up
to 90 days before the date of the Letter. The 13-month period begins on the date
of the first purchase, including those purchases made in the 90-day period
before the date of the Letter. Please note that the purchase price of these
prior purchases will not be adjusted.
You are not legally bound by the terms of your Letter of Intent to purchase the
amount of your shares stated in the Letter. The Letter does, however, authorize
the Fund to hold in escrow 4.0% of the total amount you intend to purchase. If
you do not complete the total intended purchase at the end of the 13-month
period, the Fund's transfer agent will redeem the necessary portion of the
escrowed shares to make up the difference between the reduced rate sales charge
(based on the amount you intended to purchase) and the sales charge that would
normally apply (based on the actual amount you purchased).
COMBINED PURCHASE/QUANTITY DISCOUNT PRIVILEGE. When calculating the appropriate
sales charge rate, the Fund will combine same day purchases of shares (that are
subject to a sales charge) made by you, your spouse and your minor children
(under age 21). This combination also applies to the shares you purchase with a
Letter of Intent.
GENERAL INFORMATION ABOUT SALES CHARGES
Your securities dealer is paid a commission when you buy your shares and is paid
a servicing fee as long as you hold your shares.
From time to time, some financial institutions, including brokerage firms
affiliated with the Adviser, may be reallowed up to the entire sales charge.
Firms that receive a reallowance of the entire sales charge may be considered
underwriters for the purpose of federal securities law.
The Distributor may, from time to time in its sole discretion, institute one or
more promotional incentive programs for dealers, which will be paid for by the
Distributor from any sales charge it
Page 11 of 14
<PAGE>
receives or from any other source available to it. Under any such program, the
Distributor may provide incentives, in the form of cash or other compensation,
including merchandise, airline vouchers, trips and vacation packages, to dealers
selling shares of the Fund.
HOW TO SELL YOUR FUND SHARES
If you own your shares directly, you may sell your shares on any Business Day by
contacting the Fund directly by mail or telephone at 1-877-DIAL-HGK.
If you own your shares through an account with a broker or other institution,
contact that broker or institution to sell your shares. Your broker or
institution may charge a fee for its services, in addition to the fees charged
by the Fund.
If you would like to close your account, or have your sale proceeds sent to a
third party or an address other than your own, please notify the Fund in writing
and include a signature guarantee by a bank or other financial institution (a
notarized signature is not sufficient).
The sale price of each share will be the next NAV determined after the Fund
receives your request.
SYSTEMATIC WITHDRAWAL PLAN
If you have at least $50,000 in your account, you may use the systematic
withdrawal plan. Under the plan you may arrange monthly, quarterly, semi-annual
or annual automatic withdrawals of at least $100 from the Fund. The proceeds of
each withdrawal will be mailed to you by check or, if you have a checking or
savings account with a bank, electronically transferred to your account. The
Fund may waive the $50,000 minimum account size for the systematic withdrawal
plan at its discretion.
RECEIVING YOUR MONEY
Normally, we will send your sale proceeds within seven days after we receive
your request. Your proceeds can be wired to your bank account (subject to a $10
wire fee) or sent to you by check. IF YOU RECENTLY PURCHASED YOUR SHARES BY
CHECK OR THROUGH ACH, REDEMPTION PROCEEDS MAY NOT BE AVAILABLE UNTIL YOUR CHECK
HAS CLEARED (WHICH MAY TAKE UP TO 15 DAYS FROM YOUR DATE OF PURCHASE).
REDEMPTIONS IN KIND
We generally pay sale (redemption) proceeds in cash. However, under unusual
conditions that make the payment of cash unwise (and for the protection of the
Fund's remaining shareholders) we might pay all or part of your redemption
proceeds in liquid securities with a market value equal to the redemption price
(redemption in kind). It is highly unlikely that your shares would ever be
redeemed in kind, but if they were you would probably have to pay transaction
costs to sell the securities distributed to you, as well as taxes on any capital
gains from the sale as with any redemption.
Page 12 of 19
<PAGE>
INVOLUNTARY REDEMPTIONS OF YOUR SHARES
If your account balance drops below $2,000 because of redemptions, the Fund may
redeem your shares. But, the Fund will always give you at least 60 days' written
notice to give you time to add to your account and avoid the sale of your
shares.
SUSPENSION OF YOUR RIGHT TO SELL YOUR SHARES
The Fund may suspend your right to sell your shares during times when trading
on the NYSE is restricted or halted, or otherwise is possible by the SEC.
More information about this is in our Statement of Additional Information.
TELEPHONE TRANSACTIONS
Purchasing, selling and exchanging Fund shares over the telephone is extremely
convenient, but not without risk. Although the Fund has certain safeguards and
procedures to confirm the identity of callers and the authenticity of
instructions, the Fund is not responsible for any losses or costs incurred by
following telephone instructions we reasonably believe to be genuine. If you or
your financial institution transact with the Fund over the telephone, you will
generally bear the risk of any loss.
DISTRIBUTION OF FUND SHARES
The Fund has adopted a distribution plan that allows the Fund to pay
distribution and service fees for the sale and distribution of its shares, and
for services provided to shareholders. Because these fees are paid out of the
Fund's assets continuously, over time these fees will increase the cost of your
investment and may cost you more than paying other types of sales charges.
Distribution fees, as a percentage of average daily net assets are 0.25%.
Page 13 of 18
<PAGE>
DIVIDENDS AND DISTRIBUTIONS
The Fund distributes its income monthly and makes distributions of capital
gains, if any, at least annually. If you own Fund shares on a Fund's record
date, you will be entitled to receive the distribution.
You will receive dividends and distributions in the form of additional Fund
shares unless you elect to receive payment in cash. To elect cash payment, you
must notify the Fund in writing prior to the date of the distribution. Your
election will be effective for dividends and distributions paid after the Fund
receives your written notice. To cancel your election, simply send the Fund
written notice.
TAXES
PLEASE CONSULT YOUR TAX ADVISER REGARDING YOUR SPECIFIC QUESTIONS ABOUT FEDERAL,
STATE AND LOCAL INCOME TAXES. Below we have summarized some important tax issues
that affect the Fund and its shareholders. This summary is based on current tax
laws, which may change.
The Fund will distribute substantially all of its income and capital gains, if
any. The dividends and distributions you receive may be subject to federal,
state and local taxation, depending upon your tax situation. Distributions you
receive from the Fund may be taxable whether or not you reinvest them. Income
distributions are generally taxable at ordinary income tax rates. Capital gains
distributions are generally taxable at the rates applicable to long-term capital
gains. EACH SALE OF FUND SHARES IS A TAXABLE EVENT.
MORE INFORMATION ABOUT TAXES IS IN THE STATEMENT OF ADDITIONAL INFORMATION.
Page 14 of 18
<PAGE>
FINANCIAL HIGHLIGHTS
The table that follows presents performance information about the HGK Equity
Value Fund. This information is intended to help you understand the Fund's
financial performance for the past five years, or, if shorter, the period of the
Fund's operations. Some of this information reflects financial information for a
single Fund share. The total returns in the table represent the rate that you
would have earned (or lost) on an investment in the Fund, assuming you
reinvested all of your dividends and distributions. This information has been
audited by Arthur Andersen, LLP, independent public accountants. Their report,
along with the Fund's financial statements, appears in the annual report that
accompanies our Statement of Additional Information. You can obtain the annual
report, which contains more performance information, at no charge by calling
1-877-DIAL-HGK.
Page 15 of 18
<PAGE>
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD ENDED OCTOBER 31,
<TABLE>
<CAPTION>
NET ASSET REALIZED
VALUE AND UNREALIZED DISTRIBUTIONS NET ASSET NET ASSETS
BEGINNING NET GAINS OR FROM NET DISTRIBUTIONS VALUE END END OF
OF INVESTMENT (LOSSES) ON INVESTMENT FROM OF TOTAL PERIOD
PERIOD INCOME SECURITIES INCOME CAPITAL GAINS PERIOD RETURN (000)
- -----------------------------------------------------------------------------------------------------------------
HGK EQUITY VALUE
<C> <C> <C> <C> <C> <C> <C> <C> <C>
1999(1) $10.00 0.02 (0.68) (0.02) -- $9.32 (6.46)% $6,420
<CAPTION>
AMOUNTS DESIGNATED AS -- ARE EITHER $0 OR HAVE BEEN ROUNDED TO $0.
(1) THE HGK EQUITY VALUE FUND COMMENCED OPERATIONS ON JUNE 9, 1999.
RATIO OF NET
RATIO OF NET RATIO OF EXPENSES INVESTMENT INCOME
RATIO OF INVESTMENT TO AVERAGE NET (LOSS) TO AVERAGE
EXPENSES INCOME TO ASSETS NET ASSETS PORTFOLIO
TO AVERAGE AVERAGE (EXCLUDING WAIVERS (EXCLUDING WAIVEERS TURNOVER
NET ASSETS NET ASSETS AND REIMBURSEMENTS) AND REIMBURSEMENTS RATE
--------------------------------------------------------------------------
HGK EQUITY VALUE
<C> <C> <C> <C> <C> <C>
1999(1 1.50% 0.52% 5.76% (3.74)% 5.01%
</TABLE>
Page 16 of 18
<PAGE>
THE ADVISORS' INNER CIRCLE FUND
HGK EQUITY VALUE FUND
INVESTMENT ADVISER
HGK Asset Management, Inc.
525 Washington Boulevard
Jersey City, New Jersey 07310
DISTRIBUTOR
SEI Investments Distribution Co.
One Freedom Valley Drive
Oaks, Pennsylvania 19456
LEGAL COUNSEL
Morgan, Lewis & Bockius LLP
More information about the Fund is available without charge through the
following:
STATEMENT OF ADDITIONAL INFORMATION (SAI)
The SAI dated March 1, 2000, includes detailed information about The Advisors'
Inner Circle Fund and the HGK Equity Value Fund. The SAI is on file with the SEC
and is incorporated by reference into this prospectus. This means that the SAI,
for legal purposes, is a part of this prospectus.
ANNUAL AND SEMI-ANNUAL REPORTS
These reports list the Fund's holdings and contain information from the Fund's
managers about strategies, and recent market conditions and trends and their
impact on Fund performance. The reports also contain detailed financial
information about the Fund.
TO OBTAIN AN SAI, ANNUAL OR SEMI-ANNUAL REPORT, OR MORE INFORMATION:
BY TELEPHONE: CALL 1-877-DIAL-HGK (877-342-5445)
BY MAIL: Write to us
HGK Equity Value Fund
c/o The Advisors' Inner Circle Fund
P.O. Box 219009
Kansas City, Missouri 64121-9009
BY E-MAIL: [email protected]
BY INTERNET: www.hgk.com
Page 17 of 18
<PAGE>
FROM THE SEC: You can also obtain the SAI or the Annual and Semi-Annual reports,
as well as other information about The Advisors' Inner Circle Fund, from the
EDGAR Database on the SEC's website ("http://www.sec.gov"). You may review and
copy documents at the SEC Public Reference Room in Washington, DC (for
information on the operation of the Public Reference Room, call 202-942-8090).
You may request documents by mail from the SEC, upon payment of a duplicating
fee, by writing to: Securities and Exchange Commission, Public Reference
Section, Washington, DC 20549-6009. You may also obtain this information, upon
payment of a duplicating fee, by e-mailing the SEC at the following address:
[email protected]. The Advisors' Inner Circle Fund's Investment Company Act
registration number is 811-6400.
Page 18 of 18
<PAGE>
THE ADVISORS' INNER CIRCLE FUND
PROSPECTUS
MARCH 1, 2000
HGK MID CAP VALUE FUND
INVESTMENT ADVISER:
HGK ASSET MANAGEMENT, INC.
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE
SECURITIES OR PASSED UPON THE ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
Page 1 of 16
<PAGE>
ABOUT THIS PROSPECTUS
The HGK Mid Cap Value Fund (Fund) is a separate series of The Advisors' Inner
Circle Fund, a mutual fund family that offers shares in separate investment
portfolios. The portfolios have individual investment goals and strategies. This
prospectus gives you important information about the Fund that you should know
before investing. Please read this prospectus and keep it for future reference.
THIS PROSPECTUS HAS BEEN ARRANGED INTO DIFFERENT SECTIONS SO THAT YOU CAN EASILY
REVIEW THIS IMPORTANT INFORMATION. FOR MORE DETAILED INFORMATION ABOUT THE FUND,
PLEASE SEE:
INVESTMENT STRATEGY OF THE HGK MID CAP VALUE FUND................XXX
PRINCIPAL RISKS OF INVESTING IN THE HGK MID CAP VALUE FUND.......XXX
FUND FEES AND EXPENSES...........................................XXX
MORE INFORMATION ABOUT RISK......................................XXX
MORE INFORMATION ABOUT FUND INVESTMENTS..........................XXX
INVESTMENT ADVISER...............................................XXX
PORTFOLIO MANAGER................................................XXX
THE ADVISER'S PAST PERFORMANCE...................................XXX
PURCHASING, SELLING AND EXCHANGING FUND SHARES...................XXX
DIVIDENDS AND DISTRIBUTIONS......................................XXX
TAXES............................................................XXX
HOW TO OBTAIN MORE INFORMATION ABOUT
THE HGK MID CAP VALUE FUND.......................................Back Cover
Page 2 of 16
<PAGE>
HGK MID CAP VALUE FUND
FUND SUMMARY
INVESTMENT GOAL Long-term capital appreciation
INVESTMENT FOCUS Medium capitalization U.S. common stocks
SHARE PRICE VOLATILITY High
PRINCIPAL INVESTMENT STRATEGY Investing in common stocks of medium-sized
U.S. companies which are undervalued
relative to their ability to generate cash
flows
INVESTOR PROFILE Investors who seek long-term capital
appreciation and who are willing to bear
the risks of investing in equity
securities of medium-sized companies
INVESTMENT STRATEGY OF THE HGK MID CAP VALUE FUND
The Fund invests primarily in common stocks of established U.S. companies with
medium market capitalizations (between $1 billion and $5 billion) that exhibit
value characteristics. In choosing investments for the Fund, the Adviser
identifies value through in-depth cash flow analysis, selecting those companies
that exhibit improving cash flow return on investment and that trade at a price
below the present value of their discounted cash flows. The Adviser's process
seeks to eliminate the accounting distortions inherent in financial statements
and allow comparisons between companies based on their ability to generate cash
flow for a given level of invested capital. The Adviser also incorporates
traditional "value criteria," such as price/earnings ratios, to reinforce and
enhance the investment selection process.
The Adviser seeks to keep the Fund well-diversified and exposed to all major
market sectors (such as technology, consumer staples, etc.) represented in the
broad market and will overweight sectors which it believes are undervalued. The
Adviser will attempt to avoid significant overweighting or underweighting of the
Fund's position in any specific sector.
The Adviser employs a sell discipline for individual stocks based on a
discounted cash flow model. Using consensus earnings estimates and historical
asset growth rates, a model of future cash flows is constructed with a duration
based on a company's average asset life and a residual value comprised of cash,
land, accounts receivable, and inventories. A company-specific discount rate is
then applied to the cash flows and residual value, resulting in a present value
for the stock. When a stock's present value reaches its market price, it becomes
a candidate for sale.
PRINCIPAL RISKS OF INVESTING IN THE HGK MID CAP VALUE FUND
The medium capitalization companies the Fund invests in may be more vulnerable
to adverse business or economic events than larger, more established companies.
In particular, these medium-sized companies may have limited product lines,
markets and financial resources, and may depend upon a relatively small
management group. Therefore, medium capitalization stocks
Page 3 of 16
<PAGE>
may be more volatile than those of larger companies. These securities may be
traded over the counter or listed on an exchange and may or may not pay
dividends.
The Fund is also subject to the risk that medium capitalization value stocks may
underperform other segments of the equity market or the equity markets as a
whole.
PERFORMANCE INFORMATION
The Fund has not commenced operations and therefore did not have performance
information at the time this prospectus was printed.
FUND FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
Fund shares.
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
<TABLE>
- -------------------------------------------------------------------------------------------------------------
<S> <C>
Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price)* 5.50%
Maximum Deferred Sales Charge (Load) (as a percentage of net asset value) None
Maximum Sales Charge (Load) Imposed on Reinvested Dividends and other Distributions (as a
percentage of offering price) None
Redemption Fee (as a percentage of amount redeemed, if applicable) None
Exchange Fee None
- -------------------------------------------------------------------------------------------------------------
</TABLE>
* This sales charge varies depending upon how much you invest. See
"Purchasing Fund Shares."
ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS)*
<TABLE>
- --------------------------------------------------------------------- ----------------------
<S> <C>
Investment Advisory Fees 0.90%
Distribution and Service (12b-1) Fees 0.25%
Other Expenses 1.03%
- --------------------------------------------------------------------- ----------------------
Total Annual Fund Operating Expenses 2.18%
Fee Waivers and Expense Reimbursements 0.68%
- --------------------------------------------------------------------- ----------------------
Net Expenses 1.50%
</TABLE>
- --------------------------------------------------------------------------------
* The Fund's Adviser has contractually agreed to waive fees and reimburse
expenses in order to keep total operating expenses from exceeding 1.50% for a
period of one year from the date of this prospectus. Other Expenses are
estimated. For more information about these fees, see "Investment Adviser" and
"Distribution of Fund Shares."
Page 4 of 16
<PAGE>
EXAMPLE
This Example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. The Example assumes that you
invest $10,000 in the Fund for the time periods indicated and that you sell your
shares at the end of the period.
The Example also assumes that each year your investment has a 5% return, Fund
operating expenses remain the same and you reinvest all dividends and
distributions. Although your actual costs and returns might be different, your
approximate costs of investing $10,000 in the Fund would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C>
$694 $1,133 $1,596 $2,875
</TABLE>
Page 5 of 16
<PAGE>
MORE INFORMATION ABOUT RISK
The Fund is a mutual fund. A mutual fund pools shareholders' money and, using
professional investment managers, invests it in securities.
The Fund has its own investment goal and strategies for reaching that goal. The
investment managers invest Fund assets in a way that they believe will help the
Fund achieve its goal. Still, investing in the Fund involves risk and there is
no guarantee that the Fund will achieve its goal. An investment manager's
judgments about the markets, the economy, or companies may not anticipate actual
market movements, economic conditions or company performance, and these
judgments may affect the return on your investment. In fact, no matter how good
a job an investment manager does, you could lose money on your investment in the
Fund, just as you could with other investments.
The value of your investment in a Fund is based on the market prices of the
securities the Fund holds. These prices change daily due to economic and other
events that affect particular companies and other issuers. These price
movements, sometimes called volatility, may be greater or lesser depending on
the types of securities the Fund owns and the markets in which they trade. The
effect on the Fund of a change in the value of a single security will depend on
how widely the Fund diversifies its holdings.
EQUITY RISK
The Fund principally invests (at least 65% of its assets) in the types of equity
securities described in its respective investment strategy. Equity securities
include public and privately issued equity securities, common and preferred
stocks, warrants, rights to subscribe to common stock and convertible
securities. Investments in equity securities in general are subject to market
risks that may cause their prices to fluctuate over time. The value of
securities convertible into equity securities, such as warrants or convertible
debt, is also affected by prevailing interest rates, the credit quality of the
issuer and any call provision.
Fluctuations in the value of equity securities in which a mutual fund invests
will cause the Fund's net asset value to fluctuate. Historically, the equity
markets have moved in cycles, and the value of the Fund's equity securities may
fluctuate drastically from day to day. Individual companies may report poor
results or be negatively affected by industry and/or economic trends and
developments. The prices of securities issued by such companies may suffer a
decline in response. These factors contribute to price volatility, which is the
principal risk of investing in the Fund. An investment in the Fund may be more
suitable for long-term investors who can bear the risk of these share price
fluctuations.
MORE INFORMATION ABOUT FUND INVESTMENTS
This prospectus describes the Fund's primary strategies, and the Fund will
normally invest in the types of securities described in this prospectus.
However, in addition to the investments and strategies described in this
prospectus, the Fund also may invest in other securities, use other strategies
and engage in other investment practices. These investments and strategies, as
well as those described in this prospectus, are described in detail in our
Statement of Additional Information.
Page 6 of 16
<PAGE>
The investments and strategies described in this prospectus are those that we
use under normal conditions. During unusual economic or market conditions, or
for temporary defensive or liquidity purposes, the Fund may invest up to 100% of
its assets in cash or money market instruments that would not ordinarily be
consistent with the Fund's objectives. The Fund will do so only if the Adviser
believes that the risk of loss outweighs the opportunity for capital gains. Of
course, we cannot guarantee that the Fund will achieve its investment goal.
INVESTMENT ADVISER
The Investment Adviser makes investment decisions for the Fund and continuously
reviews, supervises and administers the Fund's investment program. The Board of
Trustees of The Advisors' Inner Circle Fund supervises the Adviser and
establishes policies that the Adviser must follow in its management activities.
HGK Asset Management, Inc. (HGK), serves as the Adviser to the Fund. HGK has
provided equity, fixed income and balanced asset management services for the
assets of institutional and individual investors since its inception in 1983. As
of December 31, 1999, HGK had approximately $2.6 billion in assets under
management. For its advisory services to the Fund, HGK is entitled to receive
0.90% of the average daily net assets of the Fund. HGK has contractually agreed,
for a period of one year from the date of this prospectus, to waive a portion of
its fees and reimburse certain expenses for the Fund so that total operating
expenses do not exceed 1.50% of the Fund's average daily net assets.
PORTFOLIO MANAGER
Arthur E. Coia, II serves as a managing director of HGK and manages the HGK Mid
Cap Value Fund. He has more than 8 years of investment experience. Prior to
joining HGK in 1998, Mr. Coia managed equity accounts for a Manhattan investment
firm.
THOMAS M. NAPPI
Thomas M. Nappi serves as a Portfolio Manager for HGK and co-manages the HGK
Mid Cap Value Fund. He has more than 3 years of investment experience.
Prior to joining HGK, Mr. Nappi was employed at BCS Brokerage, Inc., where he
was a Vice President and equity investments specialist. Prior to his tenure
at BCS Brokerage, Mr. Nappi was an assistant equity trader with Herzoq, Heine
and Geduld, Inc.
Page 7 of 16
<PAGE>
THE ADVISER'S PAST PERFORMANCE
The following table represents the average annual return for all of the accounts
managed by HGK with investment goals and strategies that are substantially
similar to those of the Fund and a comparison to the Fund's performance
benchmark. These similarly managed accounts are referred to as "composites." The
composites were managed by the same portfolio managers that currently manage the
investments of the Fund. The composite performance has been adjusted based on
the applicable sales charges and the estimated total operating expenses of the
Fund, based on the Adviser's contractual agreement to waive its fees and
reimburse fund expenses to limit the Fund's expenses to 1.50% of average daily
net assets. This adjustment reduces the actual performance of the composites.
The comparison of the composites to the benchmarks is meant to provide you with
a general sense of how the composites performed compared to an appropriate
broad-based equity market index. In addition, the composites were not registered
mutual funds so they were not subject to the same investment and tax
restrictions as the Fund. If they had been, the composites' performance might
have been lower. The past performance of the composites is no guarantee of the
future performance of the Fund.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------ ----------------------------------------------
AVERAGE ANNUAL TOTAL RETURN FOR THE PERIODS
ENDED 12/31/99
- ------------------------------------------------------------------------ ------------ -------------- ------------------
SINCE INCEPTION
1 YEAR (7/1/98)
<S> <C> <C> <C>
- ------------------------------------------------------------------------ ------------ -------------- ------------------
HGK Mid Cap Value Composite (reflects sales load and fees) (19.50)% (13.48)%
- ------------------------------------------------------------------------ ------------ -------------- ------------------
HGK Mid Cap Value Composite (without sales load and fees) (13.52)% (8.78)%
- ------------------------------------------------------------------------ ------------ -------------- ------------------
Wilshire Targeted Mid Cap 750 Index 26.73% 14.15%
- ------------------------------------------------------------------------ ------------ -------------- ------------------
</TABLE>
Page 8 of 16
<PAGE>
PURCHASING, SELLING AND EXCHANGING FUND SHARES
This section tells you how to purchase, sell (sometimes called "redeem") and
exchange shares of the Fund.
The Fund is for individual and institutional investors.
HOW TO PURCHASE FUND SHARES
You may purchase shares directly by:
- - Mail
- - Telephone
- - Wire, or
- - Automated Clearing House (ACH).
To purchase shares directly from us, complete and send in the attached
application. If you need an application or have questions, please call
1-877-DIAL-HGK. Unless you arrange to pay by wire or through or ACH, write your
check, payable in U.S. dollars, to "HGK Mid Cap Value Fund." The Fund cannot
accept third-party checks, credit cards, credit card checks or cash.
You may also buy shares through accounts with brokers and other institutions
that are authorized to place trades in Fund shares for their customers. If you
invest through an authorized institution, you will have to follow its
procedures, which may be different from the procedures for investing directly.
Your broker or institution may charge a fee for its services, in addition to the
fees charged by the Fund. You will also generally have to address your
correspondence or questions regarding the Fund to your institution.
GENERAL INFORMATION
You may purchase shares on any day that the New York Stock Exchange (NYSE) is
open for business (a Business Day). Shares cannot be purchased by Federal
Reserve Wire on days when either the NYSE or the Federal Reserve is closed.
The Fund may reject any purchase order if it determines that accepting the order
would not be in the best interests of the Fund or its shareholders.
The price per share (the offering price) will be the net asset value per share
(NAV) next determined after the Fund receives your purchase order plus, the
applicable front-end sales charge.
The Fund calculates its NAV once each Business Day at the regularly-scheduled
close of normal trading on the NYSE (normally, 4:00 Eastern time). So, for you
to receive the current Business Day's NAV, generally the Fund must receive your
purchase order before 4:00 Eastern time.
HOW WE CALCULATE NAV
NAV for one Fund share is the value of that share's portion of the net assets of
the Fund.
Page 9 of 16
<PAGE>
In calculating NAV, the Fund generally values its investment portfolio at market
price. If market prices are unavailable or the Fund thinks that they are
unreliable, fair value prices may be determined in good faith using methods
approved by the Board of Trustees.
MINIMUM PURCHASES
To purchase shares for the first time, you must invest at least $2,000 in the
Fund. There is no minimum for subsequent investments in the Fund. The Fund may
accept investments of smaller amounts at its discretion.
SYSTEMATIC INVESTMENT PLAN
If you have a checking or savings account with a bank, you may purchase shares
of the Fund automatically through regular deductions from your account in
amounts of at least $25 per month.
SALES CHARGES
FRONT-END SALES CHARGES
The offering price of Fund shares is the NAV next calculated after the Fund
receives your request, plus the front-end sales load.
The amount of any front-end sales charge included in your offering price varies,
depending on the amount of your investment:
<TABLE>
<CAPTION>
YOUR SALES CHARGE AS A YOUR SALES CHARGE AS A
IF YOUR INVESTMENT IS: PERCENTAGE OF OFFERING PERCENTAGE OF YOUR NET
PRICE INVESTMENT
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
LESS THAN $50,000 5.50% 5.82%
$50,000 BUT LESS THAN $100,000 4.75% 4.99%
$100,000 BUT LESS THAN $250,000 3.75% 3.90%
$250,000 BUT LESS THAN $500,000 2.75% 2.83%
$500,000 BUT LESS THAN $1,000,000 2.00% 2.04%
$1,000,000 AND OVER 0.00% 0.00%
</TABLE>
WAIVER OF FRONT-END SALES CHARGE
The front-end sales charge will be waived on shares purchased:
- - through reinvestment of dividends and distributions;
- - by employees, and members of their immediate family, of HGK and its
affiliates and vendors;
- - by employees and retirees of the Administrator or Distributor;
- - by Trustees and officers of The Advisors' Inner Circle Fund;
- - by all Taft-Hartley labor unions and their members and sold through HGK
(purchases made through brokers and dealers that are not affiliated with
HGK may be subject to a sales charge);
- - by existing shareholders of the HGK Fixed Income Fund as of May 24, 1999;
or
- - by existing clients of HGK.
Page 10 of 16
<PAGE>
REDUCED SALES CHARGES
RIGHTS OF ACCUMULATION. In calculating the appropriate sales charge rate, this
right allows you to add the value of the shares you already own to the amount
that you are currently purchasing. The Fund will combine the value of your
current purchases with the current value of any shares you purchased previously
for (i) your account, (ii) your spouse's account, (iii) a joint account with
your spouse, or (iv) your minor children's trust or custodial accounts. A
fiduciary purchasing shares for the same fiduciary account, trust or estate may
also use this right of accumulation. The Fund will only consider the value of
shares purchased previously that were sold subject to a sales charge. TO BE
ENTITLED TO A REDUCED SALES CHARGE BASED ON SHARES ALREADY OWNED, YOU MUST ASK
US FOR THE REDUCTION AT THE TIME OF PURCHASE. You must provide the Fund with
your account number(s) and, if applicable, the account numbers for your spouse
and/or children (and provide the children's ages). The Fund may amend or
terminate this right of accumulation at any time.
LETTER OF INTENT. You may purchase shares at the sales charge rate applicable to
the total amount of the purchases you intend to make over a 13-month period. In
other words, a Letter of Intent allows you to purchase the shares over a
13-month period and receive the same sales charge as if you had purchased all
the shares at the same time. The Fund will only consider the value of shares
sold subject to a sales charge. As a result, shares of the Fund purchased with
dividends or distributions will not be included in the calculation. To be
entitled to a reduced sales charge based on shares you intend to purchase over
the 13-month period, you must send the Fund a Letter of Intent. In calculating
the total amount of purchases you may include in your letter purchases made up
to 90 days before the date of the Letter. The 13-month period begins on the date
of the first purchase, including those purchases made in the 90-day period
before the date of the Letter. Please note that the purchase price of these
prior purchases will not be adjusted.
You are not legally bound by the terms of your Letter of Intent to purchase the
amount of your shares stated in the Letter. The Letter does, however, authorize
the Fund to hold in escrow 4.0% of the total amount you intend to purchase. If
you do not complete the total intended purchase at the end of the 13-month
period, the Fund's transfer agent will redeem the necessary portion of the
escrowed shares to make up the difference between the reduced rate sales charge
(based on the amount you intended to purchase) and the sales charge that would
normally apply (based on the actual amount you purchased).
COMBINED PURCHASE/QUANTITY DISCOUNT PRIVILEGE. When calculating the appropriate
sales charge rate, the Fund will combine same day purchases of shares (that are
subject to a sales charge) made by you, your spouse and your minor children
(under age 21). This combination also applies to the shares you purchase with a
Letter of Intent.
GENERAL INFORMATION ABOUT SALES CHARGES
Your securities dealer is paid a commission when you buy your shares and is paid
a servicing fee as long as you hold your shares.
From time to time, some financial institutions, including brokerage firms
affiliated with the Adviser, may be reallowed up to the entire sales charge.
Firms that receive a reallowance of the entire sales charge may be considered
underwriters for the purpose of federal securities law.
The Distributor may, from time to time in its sole discretion, institute one or
more promotional incentive programs for dealers, which will be paid for by the
Distributor from any sales charge it
Page 11 of 16
<PAGE>
receives or from any other source available to it. Under any such program, the
Distributor may provide incentives, in the form of cash or other compensation,
including merchandise, airline vouchers, trips and vacation packages, to dealers
selling shares of the Fund.
HOW TO SELL YOUR FUND SHARES
If you own your shares directly, you may sell your shares on any Business Day by
contacting the Fund directly by mail or telephone at 1-877-DIAL-HGK.
If you own your shares through an account with a broker or other institution,
contact that broker or institution to sell your shares. Your broker or
institution may charge a fee for its services, in addition to the fees charged
by the Fund.
If you would like to close your account, or have your sale proceeds sent to a
third party or an address other than your own, please notify the Fund in writing
and include a signature guarantee by a bank or other financial institution (a
notarized signature is not sufficient).
The sale price of each share will be the next NAV determined after the Fund
receives your request.
SYSTEMATIC WITHDRAWAL PLAN
If you have at least $50,000 in your account, you may use the systematic
withdrawal plan. Under the plan you may arrange monthly, quarterly, semi-annual
or annual automatic withdrawals of at least $100 from the Fund. The proceeds of
each withdrawal will be mailed to you by check or, if you have a checking or
savings account with a bank, electronically transferred to your account. The
Fund may waive the $50,000 minimum account size for the systematic withdrawal
plan at its discretion.
RECEIVING YOUR MONEY
Normally, we will send your sale proceeds within seven days after we receive
your request. Your proceeds can be wired to your bank account (subject to a $10
wire fee) or sent to you by check. IF YOU RECENTLY PURCHASED YOUR SHARES BY
CHECK OR THROUGH ACH, REDEMPTION PROCEEDS MAY NOT BE AVAILABLE UNTIL YOUR CHECK
HAS CLEARED (WHICH MAY TAKE UP TO 15 DAYS FROM YOUR DATE OF PURCHASE).
REDEMPTIONS IN KIND
We generally pay sale (redemption) proceeds in cash. However, under unusual
conditions that make the payment of cash unwise (and for the protection of the
Fund's remaining shareholders) we might pay all or part of your redemption
proceeds in liquid securities with a market value equal to the redemption price
(redemption in kind). It is highly unlikely that your shares would ever be
redeemed in kind, but if they were you would probably have to pay transaction
costs to sell the securities distributed to you, as well as taxes on any capital
gains from the sale as with any redemption.
Page 12 of 16
<PAGE>
INVOLUNTARY REDEMPTIONS OF YOUR SHARES
If your account balance drops below $2,000 because of redemptions, the Fund may
redeem your shares. But, the Fund will always give you at least 60 days' written
notice to give you time to add to your account and avoid the sale of your
shares.
SUSPENSION OF YOUR RIGHT TO SELL YOUR SHARES
The Fund may suspend your right to sell your shares during times when trading on
the NYSE is restricted or halted, or otherwise as permitted by the SEC. More
information about this is in our Statement of Additional Information.
HOW TO EXCHANGE YOUR SHARES
You may exchange your shares of the HGK Mid Cap Value Fund for shares of the HGK
Equity Value Fund (and vice versa) on any Business Day by contacting us directly
by mail or telephone.
You may also exchange shares through your financial institution by mail or
telephone.
IF YOU RECENTLY PURCHASED SHARES BY CHECK OR THROUGH ACH, YOU MAY NOT BE ABLE TO
EXCHANGE YOUR SHARES UNTIL YOUR CHECK HAS CLEARED (WHICH MAY TAKE UP TO 15 DAYS
FROM YOUR DATE OF PURCHASE). This exchange privilege may be changed or canceled
at any time upon 60 days' notice.
When you exchange shares, you are really selling your shares and buying other
Fund shares. So, your sale price and purchase price will be based on the NAV
next calculated after the Fund receives your exchange request.
TELEPHONE TRANSACTIONS
Purchasing, selling and exchanging Fund shares over the telephone is extremely
convenient, but not without risk. Although the Fund has certain safeguards and
procedures to confirm the identity of callers and the authenticity of
instructions, the Fund is not responsible for any losses or costs incurred by
following telephone instructions we reasonably believe to be genuine. If you or
your financial institution transact with the Fund over the telephone, you will
generally bear the risk of any loss.
DISTRIBUTION OF FUND SHARES
The Fund has adopted a distribution plan that allows the Fund to pay
distribution and service fees for the sale and distribution of its shares, and
for services provided to shareholders. Because these fees are paid out of the
Fund's assets continuously, over time these fees will increase the cost of your
investment and may cost you more than paying other types of sales charges.
Distribution fees, as a percentage of average daily net assets are 0.25%.
Page 13 of 16
<PAGE>
DIVIDENDS AND DISTRIBUTIONS
The Fund distributes its income monthly and makes distributions of capital
gains, if any, at least annually. If you own Fund shares on the Fund's record
date, you will be entitled to receive the distribution.
You will receive dividends and distributions in the form of additional Fund
shares unless you elect to receive payment in cash. To elect cash payment, you
must notify the Fund in writing prior to the date of the distribution. Your
election will be effective for dividends and distributions paid after the Fund
receives your written notice. To cancel your election, simply send the Fund
written notice.
TAXES
PLEASE CONSULT YOUR TAX ADVISER REGARDING YOUR SPECIFIC QUESTIONS ABOUT FEDERAL,
STATE AND LOCAL INCOME TAXES. Below we have summarized some important tax issues
that affect the Fund and its shareholders. This summary is based on current tax
laws, which may change.
The Fund will distribute substantially all of its income and capital gains, if
any. The dividends and distributions you receive may be subject to federal,
state and local taxation, depending upon your tax situation. Distributions you
receive from the Fund may be taxable whether or not you reinvest them. Income
distributions are generally taxable at ordinary income tax rates. Capital gains
distributions are generally taxable at the rates applicable to long-term capital
gains. EACH SALE OR EXCHANGE OF FUND SHARES IS A TAXABLE EVENT.
MORE INFORMATION ABOUT TAXES IS IN THE STATEMENT OF ADDITIONAL INFORMATION.
Page 14 of 16
<PAGE>
HGK MID CAP VALUE FUND
INVESTMENT ADVISER
HGK Asset Management, Inc.
525 Washington Boulevard
Jersey City, New Jersey 07310
DISTRIBUTOR
SEI Investments Distribution Co.
One Freedom Valley Drive
Oaks, Pennsylvania 19456
LEGAL COUNSEL
Morgan, Lewis & Bockius LLP
More information about the Fund is available without charge through the
following:
STATEMENT OF ADDITIONAL INFORMATION (SAI)
The SAI dated March 1, 2000, includes detailed information about The Advisors'
Inner Circle Fund and the HGK Mid Cap Value Fund. The SAI is on file with the
SEC and is incorporated by reference into this prospectus. This means that the
SAI, for legal purposes, is a part of this prospectus.
ANNUAL AND SEMI-ANNUAL REPORTS
These reports list the Fund's holdings and contain information from the Fund's
managers about strategies, and recent market conditions and trends and their
impact on Fund performance. The reports also contain detailed financial
information about the Fund.
TO OBTAIN AN SAI, ANNUAL OR SEMI-ANNUAL REPORT, OR MORE INFORMATION:
BY TELEPHONE: CALL 1-877-DIAL-HGK (877-342-5445)
BY MAIL: Write to us
HGK Mid Cap Value Fund
c/o The Advisors' Inner Circle Fund
P.O. Box 219009
Kansas City, Missouri 64121-9009
BY E-MAIL: [email protected]
BY INTERNET: www.hgk.com
Page 15 of 16
<PAGE>
FROM THE SEC: You can also obtain the SAI or the Annual and Semi-Annual reports,
as well as other information about The Advisors' Inner Circle Fund, from the
EDGAR Database on the SEC's website ("http://www.sec.gov"). You may review and
copy documents at the SEC Public Reference Room in Washington, DC (for
information on the operation of the Public Reference Room, call 202-942-8090).
You may request documents by mail from the SEC, upon payment of a duplicating
fee, by writing to: Securities and Exchange Commission, Public Reference
Section, Washington, DC 20549-6009. You may also obtain this information, upon
payment of a duplicating fee, by e-mailing the SEC at the following address:
[email protected]. The Advisors' Inner Circle Fund's Investment Company Act
registration number is 811-6400.
Page 16 of 16
<PAGE>
THE ADVISORS' INNER CIRCLE FUND
PROSPECTUS
MARCH 1, 2000
LSV VALUE EQUITY FUND
INVESTMENT ADVISER:
LSV ASSET MANAGEMENT
THE SECURITIES AND EXCHANGE COMMISSION HAS
NOT APPROVED OR DISAPPROVED THESE
SECURITIES OR PASSED UPON THE ACCURACY
OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Page 1 of 14
<PAGE>
ABOUT THIS PROSPECTUS
The LSV Value Equity Fund (Fund) is a separate series of The Advisors' Inner
Circle Fund, a mutual fund family that offers separate investment portfolios
that have individual investment goals and strategies. This prospectus gives you
important information about the LSV Value Equity Fund that you should know
before investing. Please read this prospectus and keep it for future reference.
This prospectus has been arranged into different sections so that you can easily
review this important information. For detailed information about the Fund,
please see:
<TABLE>
<CAPTION>
PAGE
<S> <C>
INVESTMENT STRATEGIES AND PRINCIPAL RISKS..........................................XXX
PERFORMANCE INFORMATION AND EXPENSES...............................................XXX
MORE INFORMATION ABOUT RISK........................................................XXX
MORE INFORMATION ABOUT FUND INVESTMENTS............................................XXX
THE INVESTMENT ADVISER AND PORTFOLIO MANAGERS......................................XXX
PURCHASING AND SELLING FUND SHARES.................................................XXX
DIVIDENDS AND DISTRIBUTIONS........................................................XXX
TAXES..............................................................................XXX
FINANCIAL HIGHLIGHTS...............................................................XXX
HOW TO OBTAIN MORE INFORMATION ABOUT THE
LSV VALUE EQUITY FUND..............................................................Back Cover
</TABLE>
Page 2 of 14
<PAGE>
LSV VALUE EQUITY FUND
FUND SUMMARY
INVESTMENT GOAL Long-term growth of capital
INVESTMENT FOCUS Medium to large capitalization U.S. common stocks
SHARE PRICE VOLATILITY High
PRINCIPAL INVESTMENT Investing in undervalued stocks which are
STRATEGY out-of-favor in the market
INVESTOR PROFILE Investors who seek long-term growth of capital and
income and are willing to bear the risk of
investing in equity securities
INVESTMENT STRATEGY OF THE LSV VALUE EQUITY FUND
The Fund invests primarily in common stocks of large and medium U.S. companies
(i.e., those with market capitalizations of $1 billion or more) which, in the
Adviser's opinion, are out-of-favor (undervalued) in the marketplace at the time
of purchase and have potential for near-term appreciation. The Fund may also
invest to a lesser extent in common stocks of such undervalued companies with
small market capitalizations (between $500 million and $1 billion). The Adviser
believes that these out-of-favor securities will produce superior future returns
if their future growth exceeds the market's low expectations. The Fund expects
to remain as fully invested in the above securities as practicable, but in any
case, at least 65% of its assets will be invested in these securities.
The Adviser's investment strategy uses a strictly quantitative investment model
to make investment decisions for the Fund. The investment model ranks securities
based on fundamental measures of value (such as the price-to-earnings ratio) and
indicators of near-term appreciation potential (such as recent price
appreciation). The investment model selects the stocks to buy from the
higher-ranked stocks and selects stocks to sell from those whose rankings have
decreased. This investment strategy seeks to control overall portfolio risk
while seeking to maximize the expected return. The Fund is expected to
experience a low level of portfolio turnover.
PRINCIPAL RISKS OF INVESTING IN THE LSV VALUE EQUITY FUND
Since it purchases common stocks, the Fund is subject to the risk that stock
prices will fall over short or extended periods of time. Historically, the
equity markets have moved in cycles, and the value of the Fund's equity
securities may fluctuate drastically from day-to-day. Individual companies may
report poor results or be negatively affected by industry and/or economic trends
and developments. The prices of securities issued by such companies may suffer a
decline in response. These factors contribute to price volatility, which is the
principal risk of investing in the Fund.
The smaller capitalization companies the Fund invests in may be more vulnerable
to adverse business or economic events than larger, more established companies.
In particular, these small
Page 3 of 14
<PAGE>
companies may have limited product lines, markets and financial resources, and
may depend upon a relatively small management group. Therefore, small cap stocks
may be more volatile than those of larger companies. These securities may be
traded over the counter or listed on an exchange.
The Fund is also subject to the risk that mid to large cap equity value
securities may underperform other segments of the equity market or the equity
markets as a whole.
PERFORMANCE INFORMATION
The Fund commenced operations on March 31, 1999, and therefore does not have a
performance history for a full calendar year.
FUND FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
Fund shares.
ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS)
<TABLE>
- ----------------------------------------------------------------
<S> <C>
Investment Advisory Fees 0.55%
Other Expenses 1.42%
-----
Total Annual Fund Operating Expenses 1.97%*
- ----------------------------------------------------------------
</TABLE>
* The Fund's total actual annual fund operating expenses for the most
recent fiscal year were less than the amount shown above because the Adviser
waived a portion of the fees in order to keep total operating expenses at a
specified level. These fee waivers remain in place as of the date of this
prospectus, but the Adviser may discontinue all or part of these waivers at any
time. With these fee waivers, the Fund's actual total operating expenses are
expected to be as follows:
<TABLE>
<S> <C>
LSV Value Equity Fund 0.90%
</TABLE>
For more information about these fees, see "Investment Adviser."
EXAMPLE
This Example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. The Example assumes that you
invest $10,000 in the Fund for the time periods indicated and that you sell your
shares at the end of the period.
The Example also assumes that each year your investment has a 5% return, Fund
operating expenses remain the same and you reinvest all dividends and
distributions. Although your actual costs and returns might be different, your
approximate costs of investing $10,000 in the Fund would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C>
$200 $618 $1,062 $2,296
</TABLE>
Page 4 of 14
<PAGE>
MORE INFORMATION ABOUT RISK
The Fund is a mutual fund. A mutual fund pools shareholders' money and, using
professional investment managers, invests it in securities.
The Fund has an investment goal and strategies for reaching that goal. The
investment managers invest Fund assets in a way that they believe will help the
Fund achieve its goal. Still, investing in the Fund involves risk and there is
no guarantee that the Fund will achieve its goal. An investment manager's
judgments about the markets, the economy, or companies may not anticipate actual
market movements, economic conditions or company performance, and these
judgments may affect the return on your investment. In fact, no matter how good
a job an investment manager does, you could lose money on your investment in the
Fund, just as you could with other investments.
The value of your investment in the Fund is based on the market prices of the
securities the Fund holds. These prices change daily due to economic and other
events that affect particular companies and other issuers. These price
movements, sometimes called volatility, may be greater or lesser depending on
the types of securities the Fund owns and the markets in which they trade. The
effect on the Fund of a change in the value of a single security will depend on
how widely the Fund diversifies its holdings.
MORE INFORMATION ABOUT FUND INVESTMENTS
This prospectus describes the Fund's primary strategies, and the Fund will
normally invest in the types of securities described in this prospectus.
However, in addition to the investments and strategies described in this
prospectus, the Fund also may invest in other securities, use other strategies
and engage in other investment practices. These investments and strategies, as
well as those described in this prospectus, are described in detail in our
Statement of Additional Information. For liquidity purposes, the Fund may invest
a portion of its assets in cash, money market instruments or equity index
futures contracts. But, the Fund intends to remain as fully invested as
practicable regardless of market conditions. Of course, we cannot guarantee that
the Fund will achieve its investment goal.
Page 5 of 14
<PAGE>
INVESTMENT ADVISER
The Investment Adviser makes investment decisions for the Fund and continuously
reviews, supervises and administers the Fund's investment program. The Board of
Trustees of the Advisor's Inner Circle Fund supervises the Adviser and
establishes policies that the Adviser must follow in its management activities.
LSV Asset Management (LSV) serves as the Adviser to the Fund. Formed in 1994,
LSV is a quantitative value equity manager providing active asset management for
institutional clients through the application of proprietary models. As of
December 31, 1999, LSV had approximately $6 billion in assets under management.
For its services, the Adviser is entitled to an annual investment advisory fee
of 0.55% of the average daily net assets of the Fund. The Adviser has
voluntarily agreed to waive a portion of its fees and reimburse certain expenses
of the Fund so that total operating expenses do not exceed 0.90% of the Fund's
average daily net assets. The Adviser may discontinue all or part of this waiver
at any time. For the fiscal year ended October 31, 1999, the Adviser waived its
entire fee.
PORTFOLIO MANAGERS
Josef Lakonishok has served as a CEO, Partner and Portfolio Manager for LSV
since its founding in 1994. He has more than 21 years of investment and
research experience. In addition to his duties at LSV, Mr. Lakonishok serves
as the William G. Karnes Professor of Finance at the University of Illinois
at Urbana-Champaign.
Robert Vishny has served as a Partner and Portfolio Manager of LSV since its
founding in 1994. He has more than 14 years of investment and research
experience. In addition to his duties at LSV, Mr. Vishny serves as the Eric J.
Gleacher Professor of Finance at the University of Chicago.
Menno Vermuelen has served as a Portfolio Manager and Senior Quantitative
Analyst of LSV since 1995 and a Partner since 1998. He has more than 9 years of
investment experience. Prior to joining LSV, Mr. Vermuelen served as a portfolio
manager for ABP Investments.
Page 6 of 14
<PAGE>
THE ADVISER'S PAST PERFORMANCE
The following table represents the average annual total return and the one year
total returns for all of the accounts managed by LSV with investment goals and
strategies that are substantially similar to those of the LSV Value Equity Fund,
and a comparison to the Fund's performance benchmark. These similarly managed
accounts are referred to as a "composite." The composite was managed by the same
portfolio managers that currently manage the investments of the Fund. The
composite performance has been adjusted using the estimated total operating
expenses of the Fund, based on the Adviser's voluntary agreement to waive its
fees and reimburse Fund expenses to limit the Fund's expenses to 0.90% of
average daily net assets. The comparison of the composite to the benchmark is
meant to provide you with a general sense of how the composite performed
compared to an appropriate broad-based equity market index. The past performance
of the composite is no guarantee of the future performance of the Fund.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN FOR THE ONE YEAR TOTAL RETURN FOR THE
PERIODS PERIODS
ENDED DECEMBER 31, 1999 ENDED DECEMBER 31,
COMPOSITE/BENCHMARK 1 YEAR 3 YEAR 5 YEAR SINCE 1998 1997 1996 1995 1994
INCEPTION *
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
LSV Large Cap Value
Composite (gross of fees) 4.4% 16.8% 23.5% 19.7% 9.8% 39.1% 27.2% 41.5% 2.6%
LSV Large Cap Value
Composite (net of fees)** 3.4% 15.8% 22.4% 18.7% 8.8% 37.9% 26.1% 40.2% 1.7%
Russell 1000 Value Index 7.3% 18.8% 23.1% 18.6% 15.6% 35.2% 21.6% 38.3% (2.0)%
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
* Inception date 12/1/93.
** Gross returns adjusted for estimated annual fees of .90%.
WHAT IS AN INDEX?
An index measures the market prices of a specific group of securities in a
particular market or securities in a market sector. You cannot invest directly
in an index. Unlike a mutual fund, an index does not have an investment adviser
and does not pay any commissions or expenses. If an index had expenses, its
performance would be lower. The Frank Russell 1000 Value Index is a
widely-recognized, capitalization-weighted (companies with larger market
capitalizations have more influence than those with smaller market
capitalization) index of the 1000 largest U.S. companies with lower forecasted
growth rates and price-to-book ratios.
PURCHASING AND SELLING FUND SHARES
This section tells you how to purchase and sell (sometimes called "redeem")
shares of the Fund.
The Fund is for individual and institutional investors.
HOW TO PURCHASE FUND SHARES
To purchase shares directly from us, complete and send in the application. If
you need an application or have questions, please call 1-888-FUND-LSV. Unless
you arrange to pay by wire, write your check, payable in U.S. dollars, to "LSV
Value Equity Fund." The Fund cannot accept third-party checks, credit cards,
credit card checks or cash.
Shares of the Fund may also be purchased "in-kind," subject to the Adviser's
determination that the securities are acceptable investments for the Fund. In an
in-kind purchase, investors transfer securities to the Fund in exchange for Fund
shares. Securities accepted by the Fund in an in-kind purchase will be valued at
market value. More information about in-kind purchases is discussed in our
Statement of Additional Information.
Page 7 of 14
<PAGE>
You may also buy shares through accounts with brokers and other institutions
that are authorized to place trades in Fund shares for their customers. If you
invest through an authorized institution, you will have to follow its
procedures, which may be different from the procedures for investing directly.
Your broker or institution may charge a fee for its services, in addition to the
fees charged by the Fund. You will also generally have to address your
correspondence or questions regarding the Fund to your institution.
GENERAL INFORMATION
You may purchase shares by mail or wire on any day that the New York Stock
Exchange is open for business (a Business Day). Shares cannot be purchased by
Federal Reserve wire on days when either the New York Stock Exchange or the
Federal Reserve is closed.
The Fund may reject any purchase order if it determines that accepting the order
would not be in the best interests of the Fund or its shareholders.
The price per share (the offering price) will be the net asset value per share
(NAV) next determined after the Fund receives your purchase order.
The Fund calculates its NAV once each Business Day at the regularly-scheduled
close of normal trading on the New York Stock Exchange (normally, 4:00 p.m.
Eastern time). So, for you to receive the current Business Day's NAV, generally
the Fund must receive your purchase order before 4:00 p.m. Eastern time.
HOW WE CALCULATE NAV
NAV for one Fund share is the value of that share's portion of the net assets of
the Fund.
In calculating NAV, the Fund generally values its investment portfolio at market
price. If market prices are unavailable or the Fund thinks that they are
unreliable, fair value prices may be determined in good faith using methods
approved by the Board of Trustees.
MINIMUM PURCHASES
To purchase shares for the first time, you must invest at least $500,000 in the
Fund. There is no minimum for subsequent investments. The Fund may accept
investments of smaller amounts at its discretion.
Page 8 of 14
<PAGE>
HOW TO SELL YOUR FUND SHARES
If you own your shares directly, you may sell your shares on any Business Day by
contacting the Fund directly by mail or telephone at 1-888-FUND-LSV.
If you own your shares through an account with a broker or other institution,
contact that broker or institution to sell your shares. Your broker or
institution may charge a fee for its services, in addition to the fees charged
by the Fund.
If you would like to close your account, or have your sale proceeds sent to a
third party or an address other than your own, please notify the Fund in writing
and include a signature guarantee by a bank or other financial institution (a
notarized signature is not sufficient).
The sale price of each share will be the next NAV determined after the Fund
receives your request.
RECEIVING YOUR MONEY
Normally, we will send your sale proceeds within seven days after we receive
your request. Your proceeds can be wired to your bank account (subject to a $10
fee) or sent to you by check. IF YOU RECENTLY PURCHASED YOUR SHARES BY CHECK,
REDEMPTION PROCEEDS MAY NOT BE AVAILABLE UNTIL YOUR CHECK HAS CLEARED (WHICH MAY
TAKE UP TO 15 DAYS FROM YOUR DATE OF PURCHASE).
REDEMPTIONS IN KIND
We generally pay sale (redemption) proceeds in cash. However, under unusual
conditions that make the payment of cash unwise (or for the protection of the
Fund's remaining shareholders) we might pay all or part of your redemption
proceeds in securities with a market value equal to the redemption price
(redemption in kind). If your shares are redeemed in kind, you would probably
have to pay transaction costs to sell the securities distributed to you, as well
as taxes on any capital gains from the sale as with any redemption. The Fund may
also redeem in kind to discourage short-term trading of shares.
INVOLUNTARY REDEMPTIONS OF YOUR SHARES
If your account balance drops below $500,000 because of redemptions you may be
required to sell your shares. But, we will always give you at least 60 days'
written notice to give you time to add to your account and avoid the sale of
your shares.
SUSPENSION OF YOUR RIGHT TO SELL YOUR SHARES
The Fund may suspend your right to sell your shares during times when trading
on the NYSE is restricted or halted, or otherwise as permitted by the SEC.
More information about this is in our Statement of Additional Information.
TELEPHONE TRANSACTIONS
Purchasing and selling Fund shares over the telephone is extremely convenient,
but not without risk. Although the Fund has certain safeguards and procedures to
confirm the identity of callers and the authenticity of instructions, the Fund
is not responsible for any losses or costs incurred by
Page 9 of 14
<PAGE>
following telephone instructions we reasonably believe to be genuine. If you or
your financial institution transact with the Fund over the telephone, you will
generally bear the risk of any loss.
DIVIDENDS AND DISTRIBUTIONS
The Fund distributes its income annually and the Fund makes distributions of
capital gains, if any, at least annually. If you own Fund shares on a Fund's
record date, you will be entitled to receive the distribution.
You will receive dividends and distributions in the form of additional Fund
shares unless you elect to receive payment in cash. To elect cash payment, you
must notify the Fund in writing prior to the date of the distribution. Your
election will be effective for dividends and distributions paid after the Fund
receives your written notice. To cancel your election, simply send the Fund
written notice.
TAXES
PLEASE CONSULT YOUR TAX ADVISOR REGARDING YOUR SPECIFIC QUESTIONS ABOUT FEDERAL,
STATE AND LOCAL INCOME taxes. Below we have summarized some important tax issues
that affect the Fund and its shareholders. This summary is based on current tax
laws, which may change.
The Fund will distribute substantially all of its income and capital gains, if
any. The dividends and distributions you receive may be subject to federal,
state and local taxation, depending upon your tax situation. Distributions you
receive from the Fund may be taxable whether or not you reinvest them. Income
distributions are generally taxable at ordinary income tax rates. Capital gains
distributions are generally taxable at the rates applicable to long-term capital
gains. EACH SALE OF FUND SHARES IS A TAXABLE EVENT.
MORE INFORMATION ABOUT TAXES IS IN THE STATEMENT OF ADDITIONAL INFORMATION.
Page 10 of 14
<PAGE>
FINANCIAL HIGHLIGHTS
The table that follows presents performance information about the Fund. This
information is intended to help you understand the Fund's financial performance
for the past five years, or, if shorter, the period of the Fund's operations.
Some of this information reflects financial information for a single Fund share.
The total returns in the table represent the rate that you would have earned (or
lost) on an investment in a Fund, assuming you reinvested all of your dividends
and distributions. This information has been audited by Arthur Andersen, LLP,
independent public accountants. Their report, along with the Fund's financial
statements, appears in the annual report that accompanies our Statement of
Additional Information. You can obtain the annual report, which contains more
performance information, at no charge by calling 1-888-FUND-LSV.
Page 11 of 14
<PAGE>
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD ENDED OCTOBER 31,
<TABLE>
<CAPTION>
RATIO OF NET
RATIO OF INVESTMENT
RATIO OF EXPENSES (LOSS) TO
REALIZED NET TO AVERAGE AVERAGE
NET ASSET AND NET ASSETS RATIO OF INVESTMENT NET ASSETS NET ASSETS
VALUE NET UNREALIZED NET ASSET END OF EXPENSES INCOME TO (EXCLUDING (EXCLUDING PORTFOLIO
BEGINNING INVESTMENT GAINS ON VALUE END TOTAL PERIOD TO AVERAGE AVERAGE WAIVERS AND WAIVERS AND TURNOVER
0F PERIOD INCOME SECURITIES OF PERIOD RETURN (000) NET ASSETS NET ASSETS REIMBURSEMENTS) REIMBURSEMENTS) RATE
- ----------------------------------------------------------------------------------------------------------------------------------
LSV
VALUE
EQUITY
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1999 (1) $10.00 0.05 0.28 $10.33 3.30% $13,365 0.90% 0.95% 1.97% (0.12)% 10.70%
</TABLE>
(1) The LSV Value Equity Fund commenced operations on March 31, 1999.
Page 12 of 14
<PAGE>
THE ADVISORS' INNER CIRCLE FUND
LSV VALUE EQUITY FUND
INVESTMENT ADVISER
LSV Asset Management
200 W. Madison Street, 27th Floor
Chicago, Illinois 60606
DISTRIBUTOR
SEI Investments Distribution Co.
One Freedom Valley Drive
Oaks, Pennsylvania 19456
LEGAL COUNSEL
Morgan, Lewis & Bockius LLP
More information about the Fund is available without charge through the
following:
STATEMENT OF ADDITIONAL INFORMATION (SAI):
The SAI dated March 1, 2000, includes detailed information about the LSV Value
Equity Fund and Advisors' Inner Circle Fund. The SAI is on file with the SEC and
is incorporated by reference into this prospectus. This means that the SAI, for
legal purposes, is a part of this prospectus.
ANNUAL AND SEMI-ANNUAL REPORTS:
These reports list the Fund's holdings and contain information from the Fund's
managers about strategies, and recent market conditions and trends and their
impact on Fund performance. The reports also contain detailed financial
information about the Fund.
TO OBTAIN AN SAI, ANNUAL OR SEMI-ANNUAL REPORT, OR MORE INFORMATION:
BY TELEPHONE: CALL 1-888-FUND-LSV
BY MAIL: Write to us
LSV Value Equity Fund
c/o The Advisors' Inner Circle Fund
P.O. Box 219009
Kansas City, Missouri 64121-9009
Page 13 of 14
<PAGE>
FROM THE SEC: You can also obtain the SAI or the Annual and Semi-Annual reports,
as well as other information about The Advisors' Inner Circle Fund, from the
EDGAR Database on the SEC's website ("http://www.sec.gov"). You may review and
copy documents at the SEC Public Reference Room in Washington, DC (for
information on the operation of the Public Reference Room, call 202-942-8090).
You may request documents by mail from the SEC, upon payment of a duplicating
fee, by writing to: Securities and Exchange Commission, Public Reference
Section, Washington, DC 20549-6009. You may also obtain this information, upon
payment of a duplicating fee, by e-mailing the SEC at the following address:
[email protected]. The Fund's Investment Company Act registration number is
811-6400.
<PAGE>
THE ADVISORS' INNER CIRCLE FUND
PROSPECTUS
MARCH 1, 2000
MDL BROAD MARKET FIXED INCOME FUND
MDL LARGE CAP GROWTH EQUITY FUND
INVESTMENT ADVISER:
MDL CAPITAL MANAGEMENT, INC.
THE SECURITIES AND EXCHANGE COMMISSION
HAS NOT APPROVED OR DISAPPROVED THESE
SECURITIES OR PASSED UPON THE
ACCURACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Page 1 of 19
<PAGE>
ABOUT THIS PROSPECTUS
The MDL Funds are a mutual fund family that offers shares of separate investment
portfolios (Funds). The Funds have individual investment goals and strategies.
This prospectus gives you important information about the MDL Broad Market Fixed
Income Fund and the MDL Large Cap Growth Equity Fund that you should know before
investing. Please read this prospectus and keep it for future reference.
This prospectus has been arranged into different sections so that you can easily
review this important information. On the next page, there is some general
information you should know about risk and return that is common to each of the
Funds. For more detailed information about the Funds, please see:
<TABLE>
<CAPTION>
PAGE
<S> <C>
MDL BROAD MARKET FIXED INCOME FUND.................................................XXX
PERFORMANCE INFORMATION............................................................XXX
FUND FEES AND EXPENSES.............................................................XXX
MDL LARGE CAP GROWTH EQUITY FUND...................................................XXX
PERFORMANCE INFORMATION............................................................XXX
FUND FEES AND EXPENSES.............................................................XXX
MORE INFORMATION ABOUT RISK........................................................XXX
MORE INFORMATION ABOUT FUND INVESTMENTS............................................XXX
THE INVESTMENT ADVISER AND PORTFOLIO MANAGERS......................................XXX
PURCHASING AND SELLING FUND SHARES.................................................XXX
DIVIDENDS AND DISTRIBUTIONS........................................................XXX
TAXES..............................................................................XXX
FINANCIAL HIGHLIGHTS...............................................................XXX
HOW TO OBTAIN MORE INFORMATION ABOUT THE
MDL FUNDS......................................................................XXX
</TABLE>
Page 2 of 19
<PAGE>
RISK/RETURN INFORMATION COMMON TO THE FUNDS
Each Fund is a mutual fund. A mutual fund pools shareholders' money and, using
professional investment managers, invests it in securities.
Each Fund has its own investment goal and strategies for reaching that goal. The
investment managers invest Fund assets in a way that they believe will help each
Fund achieve its goal. Still, investing in each Fund involves risk and there is
no guarantee that a Fund will achieve its goal. An investment manager's
judgments about the markets, the economy, or companies may not anticipate actual
market movements, economic conditions or company performance, and these
judgments may affect the return on your investment. In fact, no matter how good
a job an investment manager does, you could lose money on your investment in the
Fund, just as you could with other investments.
The value of your investment in a Fund is based on the market prices of the
securities the Fund holds. These prices change daily due to economic and other
events that affect particular companies and other issuers. These price
movements, sometimes called volatility, may be greater or lesser depending on
the types of securities a Fund owns and the markets in which they trade. The
effect on a Fund of a change in the value of a single security will depend on
how widely the Fund diversifies its holdings.
Page 3 of 19
<PAGE>
MDL BROAD MARKET FIXED INCOME FUND
FUND SUMMARY
<TABLE>
<S> <C>
INVESTMENT GOAL Total return consistent with
preservation of capital
INVESTMENT FOCUS Fixed income securities
SHARE PRICE VOLATILITY Medium
PRINCIPAL INVESTMENT STRATEGY Investing in fixed income securities
of the U.S. government and its
agencies and U.S. corporations
INVESTOR PROFILE Investors who seek current income and
are willing to have values fluctuate
based on interest rate changes
</TABLE>
INVESTMENT STRATEGY OF THE MDL BROAD MARKET FIXED INCOME FUND
The Fund invests primarily (at least 80% of its assets) in a broad portfolio of
fixed income securities. These securities include U.S. Treasury bills, notes and
bonds and other fixed income securities issued or guaranteed by the U.S.
government and its agencies or instrumentalities, including mortgage-backed
securities. The Fund also invests in U.S. corporate fixed income securities
rated in one of the three highest ratings categories. The Adviser will increase
the Fund's average weighted maturity when it expects interest rates to decline
and lower the average weighted maturity when interest rates are expected to
rise. The duration of the Fund's investments will generally range from 4 to 7
years. The Adviser's investment selection process begins with a top-down
analysis of general economic conditions to determine how the Fund's investments
will be weighted among the U.S. Treasury, government agency and corporate
sectors. The Adviser conducts credit analysis of the corporate issues it buys
and diversifies the Fund's investments in corporate debt among the major
industry sectors. The Adviser continually monitors the sector weighting of the
Fund and may sell a security when there is a fundamental change in a company's
or sector's outlook or better opportunities become available. If a security's
credit rating is downgraded, the Adviser will immediately review that security
and take appropriate action, including the possible sale of that security.
PRINCIPAL RISKS OF INVESTING IN THE MDL BROAD MARKET FIXED INCOME FUND
The prices of the Fund's fixed income securities respond to economic
developments, particularly interest rate changes, as well as to perceptions
about the creditworthiness of individual issuers. Generally, the Fund's fixed
income securities will decrease in value if interest rates rise and vice versa,
and the volatility of lower rated securities is even greater than that of higher
rated securities. Also, longer-term securities are generally more volatile, so
the average maturity or duration of these securities affects risk.
The mortgages underlying mortgage-backed securities may be paid off early, which
makes it difficult to determine their actual maturity and therefore calculate
how they will respond to changes in interest rates. The Fund may have to
reinvest prepaid amounts at lower interest rates. This risk of prepayment is an
additional risk of mortgage-backed securities.
Page 4 of 19
<PAGE>
Although the Fund's U.S. government securities are considered to be among the
safest investments, they are not guaranteed against price movements due to
changing interest rates. Obligations issued by some U.S. government agencies are
backed by the U.S. Treasury, while others are backed solely by the ability of
the agency to borrow from the U.S. Treasury or by the agency's own resources.
The Fund is also subject to the risk that its investment approach, which focuses
on a broad range of fixed income instruments, may perform differently than other
mutual funds which target specific segments of the fixed income market or invest
in other asset classes.
PERFORMANCE INFORMATION
The bar chart and the performance table below illustrate the risks and
volatility of an investment in the Fund. Of course, the Fund's past performance
does not necessarily indicate how the Fund will perform in the future.
This bar chart shows changes in the Fund's performance from year to year.*
<TABLE>
<S> <C>
1998 8.36%
1999 -2.97%
<CAPTION>
BEST QUARTER WORST QUARTER
<S> <C>
6.48% -2.51%
(09/30/98) (03/31/99)
</TABLE>
* The performance information shown above is based on a calendar year.
This table compares the Fund's average annual total returns for the periods
ended December 31, 1999 to those of the Lehman Brothers Aggregate Bond Index.
<TABLE>
<CAPTION>
1 YEAR SINCE INCEPTION
- --------------------------------------------------------------------------------------
<S> <C> <C>
MDL BROAD MARKET FIXED INCOME FUND -2.97% 2.59%*
LEHMAN BROTHERS AGGREGATE BOND INDEX -0.83% 4.22%*
</TABLE>
* Since 10/31/97
WHAT IS AN INDEX?
An index measures the market prices of a specific group of securities in a
particular market or securities in a market sector. You cannot invest directly
in an index. Unlike a mutual fund, an index does not have an investment adviser
and does not pay any commissions or expenses. If an index had expenses, its
performance would be lower. The Lehman Brothers Aggregate Bond Index is a widely
recognized, market value-weighted (higher market value bonds have more influence
than lower market value bonds) index of U.S. government obligations, corporate
debt securities, and AAA rated mortgage-backed securities. All securities in the
index are rated investment grade (BBB) or higher, with maturities of at least
1 year.
Page 5 of 19
<PAGE>
FUND FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
Fund shares.
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
<TABLE>
- ------------------------------------------------------------------------------------------------------------
<S> <C>
Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price) None
Maximum Deferred Sales Charge (Load) (as a percentage of net asset value) None
Maximum Sales Charge (Load) Imposed on Reinvested Dividends and other Distributions
(as a percentage of offering price) None
Redemption Fee (as a percentage of amount redeemed, if applicable) None
Exchange Fee None
- ------------------------------------------------------------------------------------------------------------
</TABLE>
ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS)*
<TABLE>
<S> <C>
Investment Advisory Fees 0.45%
Other Expenses 1.05%
-----
Total Annual Fund Operating Expenses 1.50%
- ------------------------------------------------------------------------------------------------------------
</TABLE>
* The Fund's total actual annual fund operating expenses for the most recent
fiscal year were less than the amount shown above because the Adviser
waived a portion of the fees and reimbursed certain expenses of the Fund in
order to keep total operating expenses at a specified level. These fee
waivers remain in place as of the date of this prospectus, but the Adviser
may discontinue all or part of these fee waivers and reimbursements at any
time. With these fee waivers and reimbursements, the Fund's actual total
operating expenses are expected to be as follows:
<TABLE>
<S> <C>
MDL Broad Market Fixed Income Fund 0.90%
</TABLE>
For more information about these fees, see "Investment Adviser."
EXAMPLE
This Example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. The Example assumes that you
invest $10,000 in the Fund for the time periods indicated and that you sell your
shares at the end of the period.
The Example also assumes that each year your investment has a 5% return, Fund
operating expenses remain the same and you reinvest all dividends and
distributions. Although your actual costs and returns might be different, your
approximate costs of investing $10,000 in the Fund would be:
<TABLE>
<S> <C> <C> <C>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
$153 $474 $818 $1,791
</TABLE>
Page 6 of 19
<PAGE>
MDL LARGE CAP GROWTH EQUITY FUND
FUND SUMMARY
<TABLE>
<S> <C>
INVESTMENT GOAL Long-term growth of capital, with a secondary
objective of income
INVESTMENT FOCUS U.S. common stocks
SHARE PRICE VOLATILITY Medium
PRINCIPAL INVESTMENT STRATEGY Investing in common stocks issued by large U.S.
companies
INVESTOR PROFILE Investors who seek long term growth of capital and
are willing to bear the risk of investing in equity
securities
</TABLE>
INVESTMENT STRATEGY OF THE MDL LARGE CAP GROWTH EQUITY FUND
The Fund invests primarily (at least 80% of its assets) in common stocks of
large U.S. companies (companies with market capitalizations of $3 billion or
more). The Fund seeks to own companies that have consistently grown earnings
above the S&P 500 earnings growth rate but that offer "value" in terms of
current price relative to growth prospects. The Adviser's investment selection
process begins with a top-down analysis of general economic conditions to
determine how the investments will be weighted among industry sectors. The Fund
normally invests in all major industry sectors represented in the S&P 500. The
Adviser then conducts analysis of fundamental growth characteristics of the
companies within those sectors to identify stocks which are likely to perform
best over a six to twelve month horizon. Finally, the Adviser uses quantitative
techniques to screen these companies based on factors such as earnings momentum,
earnings consistency, and price/earnings ratios. These stocks are placed on the
Adviser's "buy list," which is updated frequently. The Adviser will generally
sell a security when it no longer appears on the "buy list." Due to this
investment strategy, the Fund may buy and sell securities frequently. This may
result in higher transaction costs and additional capital gains taxes.
PRINCIPAL RISKS OF INVESTING IN THE MDL LARGE CAP GROWTH EQUITY FUND
Since it purchases common stocks, the Fund is subject to the risk that stock
prices will fall over short or extended periods of time. Historically, the
equity markets have moved in cycles, and the value of the Fund's securities may
fluctuate drastically from day to day. Individual companies may report poor
results or be negatively affected by industry and/or economic trends and
developments. The prices of securities issued by such companies may suffer a
decline in response. These factors contribute to price volatility, which is the
principal risk of investing in the Fund.
The Fund is also subject to the risk that large cap growth stocks may
underperform other segments of the equity market or the equity markets as a
whole.
Page 7 of 19
<PAGE>
PERFORMANCE INFORMATION
The bar chart and the performance table below illustrate the risks and
volatility of an investment in the Fund. Of course, the Fund's past performance
does not necessarily indicate how the Fund will perform in the future.
This bar chart shows changes in the Fund's performance from year to year.*
<TABLE>
<S> <C>
1998 26.03%
1999 20.77%
<CAPTION>
BEST QUARTER WORST QUARTER
<S> <C>
21.69% -13.57%
(12/31/98) (09/30/98)
</TABLE>
* The performance information shown above is based on a calendar year.
This table compares the Fund's average annual total returns for the periods
ended December 31, 1999 to those of the S&P 500 Index.
<TABLE>
<CAPTION>
1 YEAR SINCE INCEPTION
- ----------------------------------------------------------------------------
<S> <C> <C>
MDL LARGE CAP GROWTH EQUITY FUND 20.77% 24.34%*
S&P 500 INDEX 21.04% 26.23%*
</TABLE>
* Since 10/31/97
WHAT IS AN INDEX?
An index measures the market prices of a specific group of securities in a
particular market or securities in a market sector. You cannot invest directly
in an index. Unlike a mutual fund, an index does not have an investment adviser
and does not pay any commissions or expenses. If an index had expenses, its
performance would be lower. The S&P 500 Index is a widely-recognized, market
value-weighted (higher market value stocks have more influence than lower market
value stocks) index of 500 stocks designed to mimic the overall equity market's
industry weightings.
FUND FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
Fund shares.
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
<S> <C>
Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price) None
Maximum Deferred Sales Charge (Load) (as a percentage of net asset value) None
Maximum Sales Charge (Load) Imposed on Reinvested Dividends and other Distributions
(as a percentage of offering price) None
Redemption Fee (as a percentage of amount redeemed, if applicable) None
Exchange Fee None
- ------------------------------------------------------------------------------------------------------------
</TABLE>
Page 8 of 19
<PAGE>
ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS)*
<TABLE>
<S> <C>
Investment Advisory Fees 0.74%
Other Expenses 0.83%
-----
Total Annual Fund Operating Expenses 1.57%
- ------------------------------------------------------------------------------------------------------------
</TABLE>
* The Fund's total actual annual fund operating expenses for the most recent
fiscal year were less than the amount shown above because the Adviser
waived a portion of the fees and reimbursed certain expenses of the Fund in
order to keep total operating expenses at a specified level. These fee
waivers remain in place as of the date of this prospectus, but the Adviser
may discontinue all or part of these fee waivers and reimbursements at any
time. With these fee waivers and reimbursements, the Fund's actual total
operating expenses are expected to be as follows:
<TABLE>
<S> <C>
MDL Large Cap Growth Equity Fund 1.26%
</TABLE>
For more information about these fees, see "Investment Adviser."
EXAMPLE
This Example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. The Example assumes that you
invest $10,000 in the Fund for the time periods indicated and that you sell your
shares at the end of the period.
The Example also assumes that each year your investment has a 5% return, Fund
operating expenses remain the same and you reinvest all dividends and
distributions. Although your actual costs and returns might be different, your
approximate costs of investing $10,000 in the Fund would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C>
$160 $496 $855 $1,867
</TABLE>
Page 9 of 19
<PAGE>
MORE INFORMATION ABOUT RISK
<TABLE>
<S> <C>
EQUITY RISK - Equity securities include public and privately issued equity MDL Large Cap Growth Equity Fund
securities, common and preferred stocks, warrants, rights to subscribe to common
stock and convertible securities, as well as instruments that attempt to track
the price movement of equity indices. Investments in equity securities and
equity derivatives in general are subject to market risks that may cause their
prices to fluctuate over time. The value of securities convertible into equity
securities, such as warrants or convertible debt, is also affected by prevailing
interest rates, the credit quality of the issuer and any call provision.
Fluctuations in the value of equity securities in which a mutual fund invests
will cause a fund's net asset value to fluctuate. An investment in a portfolio
of equity securities may be more suitable for long-term investors who can bear
the risk of these share price fluctuations.
FIXED INCOME RISK - The market value of fixed income investments change in MDL Broad Market Fixed Income Fund
response to interest rate changes and other factors. During periods of falling
interest rates, the values of outstanding fixed income securities generally
rise. Moreover, while securities with longer maturities tend to produce higher
yields, the prices of longer maturity securities are also subject to greater
market fluctuations as a result of changes in interest rates. During periods of
falling interest rates, certain debt obligations with high interest rates may be
prepaid (or "called") by the issuer prior to maturity. This may cause a Fund's
average weighted maturity to fluctuate, and may require a Fund to invest the
resulting proceeds at lower interest rates. In addition to these risks, fixed
income securities may be subject to credit risk, which is the possibility that
an issuer will be unable to make timely payments of either principal or
interest.
</TABLE>
Page 10 of 19
<PAGE>
<TABLE>
<S> <C>
MORTGAGE-BACKED SECURITIES - Mortgage-backed securities are fixed income MDL Broad Market Fixed Income Fund
securities representing an interest in a pool of underlying mortgage loans. They
are sensitive to changes in interest rates, but may respond to these changes
differently from other fixed income securities due to the possibility of
prepayment of the underlying mortgage loans. As a result, it may not be possible
to determine in advance the actual maturity date or average life of a
mortgage-backed security. Rising interest rates tend to discourage refinancings,
with the result that the average life and volatility of the security will
increase exacerbating its decrease in market price. When interest rates fall,
however, mortgage-backed securities may not gain as much in market value because
of the expectation of additional mortgage prepayments that must be reinvested at
lower interest rates. Prepayment risk may make it difficult to calculate the
average maturity of a portfolio of mortgage-backed securities and, therefore, to
assess the volatility risk of that portfolio.
</TABLE>
MORE INFORMATION ABOUT FUND INVESTMENTS
This prospectus describes the Funds' primary strategies, and each Fund will
normally invest in the types of securities described in this prospectus.
However, in addition to the investments and strategies described in this
prospectus, each Fund also may invest in other securities, use other strategies
and engage in other investment practices. These investments and strategies, as
well as those described in this prospectus, are described in detail in our
Statement of Additional Information. Of course, we cannot guarantee that any
Fund will achieve its investment goal.
The investments and strategies described in this prospectus are those that we
use under normal conditions. During unusual economic or market conditions, or
for temporary defensive or liquidity purposes, each Fund may invest up to 100%
of its assets in cash, money market instruments, repurchase agreements and
short-term obligations that would not ordinarily be consistent with a Fund's
objectives. A Fund will do so only if the Adviser believes that the risk of loss
outweighs the opportunity for capital gains or higher income.
INVESTMENT ADVISER
The Investment Adviser makes investment decisions for the Funds and continuously
reviews, supervises and administers each Fund's respective investment program.
The Board of Trustees of the Advisors' Inner Circle Fund supervises the Adviser
and establishes policies that the Adviser must follow in its management
activities.
MDL Capital Management, Inc. (MDL), serves as the Adviser to the Funds. MDL has
served as an investment adviser for the assets of institutional clients such as
Taft-Hartley plans, hospitals, public sector funds, foundations and ERISA plans
since it was founded in 1993. As of December 31, 1999, the Adviser had
approximately $1.6 billion in assets under management. For its advisory services
to the Funds, MDL is entitled to receive 0.45% for the MDL Broad Market Fixed
Income Fund and 0.74% for the MDL Large Cap Growth Equity Fund, as a percentage
of
Page 11 of 19
<PAGE>
each Fund's average daily net assets. MDL has voluntarily agreed to waive a
portion of its fees and reimburse certain expenses of the Fund so that total
operating expenses do not exceed 0.90% for the MDL Broad Market Fixed Income
Fund and 1.26% for the MDL Large Cap Growth Equity Fund, as a percentage of each
Fund's average daily net assets. For the fiscal period ended October 31, 1999,
the Adviser waived the entire amount of its advisory fees for the MDL Broad
Market Fixed Income Fund and received 0.43% of the MDL Large Cap Growth Fund's
average daily net assets.
PORTFOLIO MANAGERS
Mark D. Lay has served as Chairman and Chief Executive Officer of MDL since
1993. He has co-managed the Funds since their inception. He has more than 16
years of investment experience. Prior to founding MDL, Mr. Lay served as an
account executive at Dean Witter Reynolds, Inc.
Edward Adatepe has served as Chief Investment Officer of MDL since 1994. He has
co-managed the Funds since their inception. He has more than 15 years of
investment experience. Prior to joining MDL, Mr. Adatepe served as a Managing
Director of RRZ Investment Management, Inc.
PURCHASING AND SELLING FUND SHARES
This section tells you how to buy and sell your shares of the Funds.
The Funds are for individual and institutional investors.
HOW TO PURCHASE FUND SHARES
To purchase shares directly from us, complete and send in the enclosed
application. If you need an application or have questions, please call
1-877-MDL-FUNDS. Unless you arrange to pay by wire or through ACH, write your
check, payable in U.S. dollars, to "MDL Broad Market Fixed Income Fund" or "MDL
Large Cap Growth Equity Fund." A Fund cannot accept third-party checks, credit
cards, credit card checks or cash.
You may also buy shares through accounts with brokers and other institutions
that are authorized to place trades in Fund shares for their customers. If you
invest through an authorized institution, you will have to follow its procedures
which may be different from the procedures for investing directly. Your broker
or institution may charge a fee for its services, in addition to the fees
charged by the Fund. You will also generally have to address your correspondence
or questions regarding a Fund to your institution.
GENERAL INFORMATION
You may purchase shares by mail or wire on any day that the New York Stock
Exchange is open for business (a Business Day). Shares cannot be purchased by
Federal Reserve wire on days when either the New York Stock Exchange or the
Federal Reserve is closed.
A Fund may reject any purchase order if it is determined that accepting the
order would not be in the best interests of the Fund or its shareholders.
Page 12 of 19
<PAGE>
The price per share (the offering price) will be the net asset value per share
(NAV) next determined after a Fund receives your purchase order.
Each Fund calculates its NAV once each Business Day at the regularly-scheduled
close of normal trading on the New York Stock Exchange (normally, 4:00 p.m.
Eastern time). So, for you to receive the current Business Day's NAV, generally
a Fund must receive your purchase order before 4:00 p.m. Eastern time.
HOW WE CALCULATE NAV
NAV for one Fund share is the value of that share's portion of all of the net
assets of the Fund.
In calculating NAV, a Fund generally values its investment portfolio at market
price. If market prices are unavailable or a Fund thinks that they are
unreliable, fair value prices may be determined in good faith using methods
approved by the Board of Trustees.
MINIMUM PURCHASES
To purchase shares for the first time, you must invest at least $500 in either
Fund. Your subsequent investments in any Fund must be made in amounts of at
least $100. A Fund may accept investments of smaller amounts at its discretion.
SYSTEMATIC INVESTMENT PLAN
If you have a checking or savings account with a bank, you may purchase shares
automatically through regular deductions by Automated Clearing House (ACH) from
your account in amounts of at least $50 per month.
HOW TO SELL YOUR FUND SHARES
If you own your shares directly, you may sell your shares on any Business Day by
contacting a Fund directly by mail or telephone at 1-877-MDL-FUNDS.
If you own your shares through an account with a broker or other institution,
contact that broker or institution to sell your shares. Your broker or
institution may charge a fee for its services, in addition to the fees charged
by the Fund.
If you would like to close your account, or have your sale proceeds sent to a
third party or an address other than your own, please notify the Fund in writing
and include a signature guarantee by a bank or other financial institution (a
notarized signature is not sufficient).
The sale price of each share will be the next NAV determined after the Fund
receives your request.
SYSTEMATIC WITHDRAWAL PLAN
If you have at least $500 in your account, you may use the systematic withdrawal
plan. Under the plan you may arrange monthly, quarterly, semi-annual or annual
automatic withdrawals of at least $50 from any Fund. The proceeds of each
withdrawal will be mailed to you by check or, if you have a checking or savings
account with a bank, electronically transferred to your account.
Page 13 of 19
<PAGE>
RECEIVING YOUR MONEY
Normally, we will send your sale proceeds within seven days after we receive
your request. Your proceeds can be wired to your bank account (subject to a
$10.00 fee) or sent to you by check. IF YOU RECENTLY PURCHASED YOUR SHARES BY
CHECK OR ACH, REDEMPTION PROCEEDS MAY NOT BE AVAILABLE UNTIL YOUR CHECK HAS
CLEARED (WHICH MAY TAKE UP TO 15 DAYS FROM YOUR DATE OF PURCHASE).
REDEMPTIONS IN KIND
We generally pay sale (redemption) proceeds in cash. However, under unusual
conditions that make the payment of cash unwise (and for the protection of the
Fund's remaining shareholders) we might pay all or part of your redemption
proceeds in liquid securities with a market value equal to the redemption price
(redemption in kind). It is highly unlikely that your shares would ever be
redeemed in kind, but if they were you would probably have to pay transaction
costs to sell the securities distributed to you, as well as taxes on any capital
gains from the sale as with any redemption.
INVOLUNTARY REDEMPTIONS OF YOUR SHARES
If your account balance drops below $500 because of redemptions, the Fund may
redeem your shares. But, the Fund will always give you at least 60 days' written
notice to give you time to add to your account and avoid the sale of your
shares.
SUSPENSION OF YOUR RIGHT TO SELL YOUR SHARES
A Fund may suspend your right to sell your shares during times when trading
on the NYSE is restricted or halted or otherwise as permitted by the SEC.
More information about this is in our Statement of Additional Information.
TELEPHONE TRANSACTIONS
Purchasing and selling Fund shares over the telephone is extremely convenient,
but not without risk. Although the Fund has certain safeguards and procedures to
confirm the identity of callers and the authenticity of instructions, the Fund
is not responsible for any losses or costs incurred by following telephone
instructions we reasonably believe to be genuine. If you or your financial
institution transact with the Fund over the telephone, you will generally bear
the risk of any loss.
DIVIDENDS AND DISTRIBUTIONS
The Fixed Income Fund distributes its income on a monthly basis and makes
distributions of capital gains, if any, at least annually. In addition, the
Equity Fund distributes its income on a quarterly basis and makes distributions
of capital gains, if any, at least annually. If you own Fund shares on a Fund's
record date, you will be entitled to receive the distribution.
You will receive dividends and distributions in the form of additional Fund
shares unless you elect to receive payment in cash. To elect cash payment, you
must notify the Fund in writing prior to the date of the distribution. Your
election will be effective for dividends and distributions
Page 14 of 19
<PAGE>
paid after the Fund receives your written notice. To cancel your election,
simply send the Fund written notice.
TAXES
PLEASE CONSULT YOUR TAX ADVISER REGARDING YOUR SPECIFIC QUESTIONS ABOUT FEDERAL,
STATE AND LOCAL INCOME TAXES. Below we have summarized some important tax issues
that affect the Funds and its shareholders. This summary is based on current tax
laws, which may change.
Each Fund will distribute substantially all of its income and capital gains, if
any. The dividends and distributions you receive may be subject to federal,
state and local taxation, depending upon your tax situation. Distributions you
receive from a Fund may be taxable whether or not you reinvest them. Income
distributions are generally taxable at ordinary income tax rates. Capital gains
distributions are generally taxable at the rates applicable to long-term capital
gains. EACH SALE OF FUND SHARES IS A TAXABLE EVENT.
MORE INFORMATION ABOUT TAXES IS IN THE STATEMENT OF ADDITIONAL INFORMATION.
Page 15 of 19
<PAGE>
FINANCIAL HIGHLIGHTS
The tables that follow present performance information about each Fund. This
information is intended to help you understand each Fund's financial performance
for the past five years, or, if shorter, the period of the Fund's operations.
Some of this information reflects financial information for a single Fund share.
The total returns in the tables represent the rates that you would have earned
(or lost) on an investment in the Fund, assuming you reinvested all of your
dividends and distributions. This information has been audited by Arthur
Andersen LLP, independent public accountants. Their report, along with the
Fund's financial statements, appears in the annual report that accompanies our
Statement of Additional Information. You can obtain the annual report, which
contains more performance information, at no charge by calling 1-877-MDL-FUNDS.
Page 16 of 19
<PAGE>
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD ENDED OCTOBER 31,
<TABLE>
<CAPTION>
REALIZED
AND
NET ASSET UNREALIZED DISTRIBUTIONS
VALUE NET GAINS OR FROM NET DISTRIBUTION NET ASSET
BEGINNING INVESTMENT (LOSSES) ON INVESTMENT FROM CAPITOL VALUE END
OF PERIOD INCOME SECURITIES INCOME GAINS OF PERIOD
<S> <C> <C> <C> <C> <C> <C>
MDL BROAD MARKET FIXED INCOME FUND
1999 $10.48 0.44 (0.73) (0.43) -- $9.76
1998 (1) $10.00 0.41 0.48 (0.41) -- $10.48
<CAPTION>
RATIO OF NET
RATIO OF INVESTMENT
RATIO OF EXPENSES INCOME TO
NET TO AVERAGE AVERAGE
RATIO OF INVESTMENT NET ASSETS NET ASSETS
NET ASSETS EXPENSES INCOME TO (EXCLUDING (EXCLUDING PORTFOLIO
TOTAL END OF TO AVERAGE AVERAGE WAIVERS AND WAIVERS AND TURNOVER
RETURN PERIOD NET ASSETS NET ASSETS REIMBURSEMENTS) REIMBURSEMENTS) RATE
<S> <C> <C> <C> <C> <C> <C> <C>
MDL BROAD MARKET FIXED INCOME FUND
1999 (2.80)% $20,792 0.90% 4.40% 1.50% 3.80% 198.83%
1998 (1) 9.10% $5,411 0.90% 4.38% 11.24% (5.96)% 72.82%
<CAPTION>
REALIZED
AND
NET ASSET UNREALIZED DISTRIBUTIONS
VALUE NET GAINS OR FROM NET DISTRIBUTION NET ASSET
BEGINNING INVESTMENT (LOSSES) ON INVESTMENT FROM CAPITOL VALUE END
OF PERIOD INCOME SECURITIES INCOME GAINS OF PERIOD
<S> <C> <C> <C> <C> <C> <C>
MDL LARGE CAP GROWTH FUND
1999 $11.84 (0.01) 3.13 -- -- $14.96
1998 (1) $10.00 0.04 1.83 (0.03) -- $11.84
<CAPTION>
RATIO OF NET
RATIO OF INVESTMENT
RATIO OF EXPENSES INCOME TO
NET TO AVERAGE AVERAGE
RATIO OF INVESTMENT NET ASSETS NET ASSETS
NET ASSETS EXPENSES INCOME TO (EXCLUDING (EXCLUDING PORTFOLIO
TOTAL END OF TO AVERAGE AVERAGE WAIVERS AND WAIVERS AND TURNOVER
RETURN PERIOD NET ASSETS NET ASSETS REIMBURSEMENTS) REIMBURSEMENTS) RATE
<S> <C> <C> <C> <C> <C> <C> <C>
MDL LARGE CAP GROWTH FUND
1999 26.40% $25,947 1.26% (0.19)% 1.57% (0.50)% 75.29%
1998 (1) 18.72% $5,989 1.26% 0.41% 12.88% (11.21)% 127.68%
</TABLE>
AMOUNTS DESIGNATED AS "--" ARE EITHER $0 OR HAVE BEEN ROUNDED TO $0.
(1) THE FUNDS COMMENCED OPERATIONS ON OCTOBER 31, 1997.
Page 17 of 19
<PAGE>
THE ADVISORS' INNER CIRCLE FUND
INVESTMENT ADVISER
MDL Capital Management, Inc.
225 Ross Street
3rd Floor
Pittsburgh, Pennsylvania 15219
DISTRIBUTOR
SEI Investments Distribution Co.
One Freedom Valley Drive
Oaks, Pennsylvania 19456
LEGAL COUNSEL
Morgan, Lewis & Bockius LLP
More information about the Funds is available without charge through the
following:
STATEMENT OF ADDITIONAL INFORMATION (SAI)
The SAI dated March 1, 2000, includes detailed information about The Advisor's
Inner Circle Fund and the MDL Funds. The SAI is on file with the SEC and is
incorporated by reference into this prospectus. This means that the SAI, for
legal purposes, is a part of this prospectus.
ANNUAL AND SEMI-ANNUAL REPORTS
These reports list each Fund's holdings and contain information from the Fund's
managers about strategies, and recent market conditions and trends and their
impact on Fund performance. The reports also contain detailed financial
information about the Funds.
TO OBTAIN AN SAI, ANNUAL OR SEMI-ANNUAL REPORT, OR MORE INFORMATION:
BY TELEPHONE: CALL 1-877-MDL-FUNDS (877-635-3863)
BY MAIL: Write to us
MDL Funds
P.O. Box 219009
Kansas City, Missouri 64121-9009
Page 18 of 19
<PAGE>
FROM THE SEC: You can also obtain the SAI or the Annual and Semi-Annual reports,
as well as other information about The Advisors' Inner Circle Fund, from the
EDGAR Database on the SEC's website ("http://www.sec.gov"). You may review and
copy documents at the SEC Public Reference Room in Washington, DC (for
information on the operation of the Public Reference Room, call 202-942-8090).
You may request documents by mail from the SEC, upon payment of a duplicating
fee, by writing to: Securities and Exchange Commission, Public Reference
Section, Washington, DC 20549-6009. You may also obtain this information, upon
payment of a duplicating fee, by e-mailing the SEC at the following address:
[email protected]. The Funds' Investment Company Act registration number is
811-6400.
Page 19 of 19
<PAGE>
----------------------------------------------
AIG MONEY MARKET FUND
A PORTFOLIO OF THE ADVISORS' INNER CIRCLE FUND
----------------------------------------------
CLASS A SHARES
PROSPECTUS
March 1, 2000
INVESTMENT ADVISER:
AIG CAPITAL MANAGEMENT CORP.
These securities have not been approved or disapproved by the Securities and
Exchange Commission nor has the Commision passed upon the accuracy or adequacy
of this prospectus. Any representation to the contrary is a criminal offense.
<PAGE>
- --------------------------------------------------------------------------------
Introduction - AIG Money Market Fund - Class A Shares
- --------------------------------------------------------------------------------
THE FUND
- --------------------------------------------------------------------------------
The AIG Money Market Fund (Fund) is a money market mutual fund that offers
investors a convenient and economical way to invest in a professionally managed
diversified portfolio of short-term high quality securities. The Fund is a
separate series of The Advisors' Inner Circle Fund, a Massachusetts business
trust (Trust).
The Fund consists of two classes of shares: Class A and Class B.
This prospectus offers Class A Shares of the Fund and contains important
information about the objectives, risks and policies of the Fund. Investors are
advised to read this Prospectus and keep it for future reference. This
prospectus has been arranged into different sections so that investors can
easily review this important information.
FOR MORE DETAILED INFORMATION ABOUT THE FUND, PLEASE SEE:
Investment Strategies and Principal Risks . . . . . . . . . . . . . 3
Performance Information and Expenses . . . . . . . . . . . . . . . . 4
The Fund's Other Investments . . . . . . . . . . . . . . . . . . . . 5
The Investment Adviser . . . . . . . . . . . . . . . . . . . . . . . 5
Purchasing and Selling Fund Shares . . . . . . . . . . . . . . . . . 6
Dividends, Distributions and Taxes . . . . . . . . . . . . . . . . . 8
Financial Highlights . . . . . . . . . . . . . . . . . . . . . . . . 9
How to Obtain More Information About the AIG Money Market Fund . . . 10
2
<PAGE>
- --------------------------------------------------------------------------------
AIG Money Market Fund
- --------------------------------------------------------------------------------
FUND SUMMARY
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVE Preserve principal value and maintain a high
degree of liquidity while providing current
income. It is also a fundamental policy of the
Fund to maintain a stable share price of $1. There
is no assurance that the Fund will achieve its
investment objective or that it will be able to
maintain a constant share price of $1 on a
continuous basis.
- --------------------------------------------------------------------------------
INVESTMENT FOCUS Money market instruments.
- --------------------------------------------------------------------------------
RISK LEVEL Conservative.
- --------------------------------------------------------------------------------
PRINCIPAL INVESTMENT STRATEGY Investing in a broad range of short-term, high
quality U.S. dollar denominated debt securities.
- --------------------------------------------------------------------------------
INVESTOR PROFILE Conservative investors who want to receive current
income through a liquid investment.
- --------------------------------------------------------------------------------
INVESTMENT STRATEGY OF THE AIG MONEY MARKET FUND
- --------------------------------------------------------------------------------
The Fund invests in a broad range of high quality, short-term U.S. dollar
denominated money market instruments, such as obligations of the U.S. Treasury,
agencies and instrumentalities of the U.S. government, domestic and foreign
banks, domestic and foreign corporate issuers, supranational entities, and
foreign governments, as well as in repurchase agreements. The Fund's portfolio
is comprised only of short-term debt securities that are rated in the highest
category by nationally recognized ratings organizations or securities that the
Adviser determines are of equal quality. The Fund may concentrate its
investments (invest more than 25% of its assets) in obligations issued by
domestic branches of U.S. banks or U.S. branches of foreign banks that are
subject to a similar level of regulation. The Fund will maintain an average
weighted maturity of 90 days or less, and will only acquire securities that have
a remaining maturity of 397 days or less.
- --------------------------------------------------------------------------------
PRINCIPAL RISKS OF INVESTING IN THE AIG MONEY MARKET FUND
AN INVESTMENT IN THE FUND IS NEITHER INSURED NOR GUARANTEED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY. ALTHOUGH THE FUND
SEEKS TO KEEP A CONSTANT PRICE PER SHARE OF $1.00, IT IS POSSIBLE TO LOSE MONEY
BY INVESTING IN THE FUND.
THE FUND'S INVESTMENTS ARE SUBJECT TO FLUCTUATIONS IN THE CURRENT INTEREST RATES
FOR SHORT-TERM OBLIGATIONS. ACCORDINGLY, AN INVESTMENT IN THE FUND IS SUBJECT TO
INCOME RISK, WHICH IS THE POSSIBILITY THAT THE FUND'S YIELD WILL DECLINE DUE TO
FALLING INTEREST RATES.
AN INVESTMENT IN THE FUND IS ALSO SUBJECT, TO A LIMITED EXTENT, TO CREDIT RISK,
WHICH IS THE POSSIBILITY THAT THE ISSUER OF A SECURITY OWNED BY THE FUND WILL BE
UNABLE TO REPAY INTEREST AND PRINCIPAL IN A TIMELY MANNER. AIG CAPITAL
MANAGEMENT CORP., THE FUND'S INVESTMENT ADVISER (ADVISER), ATTEMPTS TO LESSEN
THIS RISK THROUGH A CONSERVATIVE INVESTMENT POLICY FOR THE FUND, WHICH INCLUDES
DIVERSIFICATION (SPREADING FUND INVESTMENTS ACROSS A BROAD NUMBER OF ISSUERS),
AND INVESTING IN OBLIGATIONS OF HIGH CREDIT QUALITY ISSUERS.
- --------------------------------------------------------------------------------
3
<PAGE>
- --------------------------------------------------------------------------------
AIG Money Market Fund
- --------------------------------------------------------------------------------
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
The bar chart and the performance table below illustrate the risks and
volatility of an investment in Class A Shares of the Fund by showing changes in
the Fund's performance from year to year and comparing this performance to an
average. Of course, past performance does not necessarily indicate future
performance.
This bar chart shows changes in the performance of the Fund's Class A Shares.
<TABLE>
<S> <C> <C> <C> <C>
1995 1996 1997 1998 1999
5.73% 5.21% 5.46% 5.41% 5.00%
</TABLE>
*THE PERFORMANCE INFORMATION SHOWN ABOVE IS BASED ON A CALENDAR YEAR.
<TABLE>
<CAPTION>
BEST QUARTER WORST QUARTER
------------ -------------
<S> <C>
1.44% 1.17%
(6/30/95) (6/30/99)
</TABLE>
This table compares the Fund's average annual total returns for the periods
ending December 31, 1999 to those of the IBC First Tier Taxable Money Market
Funds Average (IBC Fist Tier).
<TABLE>
<CAPTION>
SINCE INCEPTION
CLASS A SHARES 1 YEAR 5 YEARS (12/1/94)
- --------------------------------------------------------------------
<S> <C> <C> <C>
AIG Money Market Fund 5.00% X.XX% 5.36%
IBC First Tier 4.94% X.XX% 5.34%*
</TABLE>
*THE INCEPTION DATE FOR THE IBC FIRST TIER IS 12/31/94.
- --------------------------------------------------------------------------------
WHAT IS AN AVERAGE?
AN AVERAGE IS A COMPOSITE OF MUTUAL FUNDS WITH SIMILAR INVESTMENT GOALS. THE IBC
FIRST TIER AVERAGE IS A WIDELY-RECOGNIZED AVERAGE OF MONEY MARKET FUNDS WHICH
INVEST IN SECURITIES RATED PRIME-1 BY MOODY'S OR A-1 BY S&P.
- --------------------------------------------------------------------------------
FUND FEES AND EXPENSES
- --------------------------------------------------------------------------------
This table describes the fees and expense that you may pay if you buy and hold
Class A shares of the Fund.
<TABLE>
<CAPTION>
ANNUAL FUND OPERATING EXPENSES
(EXPENSES DEDUCTED FROM FUND ASSETS)*
- --------------------------------------------------------------------------------
CLASS A SHARES
<S> <C>
Investment Advisory Fees ..................................... .25%
Other Expenses ............................................... .11%
-----
Total Annual Fund Operating Expenses ......................... .36%
-----
</TABLE>
* THE FUND'S TOTAL ACTUAL ANNUAL FUND OPERATING EXPENSES FOR THE MOST RECENT
FISCAL YEAR WERE LESS THAN THE AMOUNT SHOWN ABOVE BECAUSE THE ADVISER IS
WAIVING .10% OF ITS ADVISORY FEES SO THAT TOTAL OPERATING EXPENSES DO NOT
EXCEED .40%. THE ADVISER MAY DISCONTINUE ALL OR PART OF THIS VOLUNTARY WAIVER
AT ANY TIME. WITH THIS FEE WAIVER, THE FUND'S ACTUAL TOTAL OPERATING EXPENSES
FOR THE MOST RECENT FISCAL YEAR WERE AS FOLLOWS:
AIG MONEY MARKET FUND -- CLASS A .26%
For more information about these fees, see "Investment Adviser".
EXAMPLE
- --------------------------------------------------------------------------------
This example is intended to help you compare the cost of investing Class A
shares of the Fund with the cost of investing in other mutual funds. The Example
assumes that you invest $10,000 in the Fund for the time periods indicated and
that you sell your shares at the end of the period.
The example also assumes that each year your investment has a 5% return and
Fund operating expenses remain the same. Although your actual costs and returns
might be different, your approximate cost of investing $10,000 in Class A shares
of the Fund would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ---------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A Shares $37 $116 $202 $456
</TABLE>
4
<PAGE>
- --------------------------------------------------------------------------------
AIG Money Market Fund
- --------------------------------------------------------------------------------
THE FUND'S OTHER INVESTMENTS
- --------------------------------------------------------------------------------
In addition to the principal investments and strategies described in this
prospectus, the Fund may also invest in other securities, use other strategies
and engage in other investment practices within its stated investment
objectives. These investments and strategies, as well as those described in the
prospectus, are described in detail in the Fund's Statement of Additional
Information. Of course, there is no guarantee that the Fund will achieve its
investment goal.
INVESTMENT ADVISER
- --------------------------------------------------------------------------------
The Investment Adviser makes investment decisions for the Fund and continuously
reviews, supervises and administers the Fund's investment program. The Board of
Trustees of the Advisors' Inner Circle Fund supervises the Adviser and
establishes policies that the Adviser must follow in its management activities.
AIG Capital Management Corp. is a wholly-owned subsidiary of American
International Group, Inc. (AIG) and is the Adviser to the Fund. For the fiscal
period ended October 31, 1999, AIG Capital Management Corp. received advisory
fees from the Fund as a percentage of average daily net assets (after waivers)
of:
AIG Money Market Fund .15%
5
<PAGE>
- --------------------------------------------------------------------------------
AIG Money Market Fund
- --------------------------------------------------------------------------------
PURCHASING FUND SHARES
- --------------------------------------------------------------------------------
Shares of the Fund may be purchased by check, wire transfer or through certain
authorized dealers or other financial institutions authorized to sell Fund
shares. For first time purchases, an application form must be completed and
submitted to the Fund to establish an account.
- --------------------------------------------------------------------------------
WHEN CAN YOU PURCHASE SHARES?
SHARES MAY BE PURCHASED ONLY ON DAYS THAT THE NEW YORK STOCK EXCHANGE AND THE
FEDERAL RESERVE ARE OPEN FOR BUSINESS (A BUSINESS DAY).
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
OPEN A NEW ACCOUNT ADD TO AN EXISTING ACCOUNT
- --------------------------------- --------------------------------------- -----------------------------------
<S> <C> <C>
MINIMUM INVESTMENT $10,000,000 None
- --------------------------------- --------------------------------------- -----------------------------------
BY MAIL Complete and sign the application Mail check with an Invest-By-Mail
form. form detached from acount
statement.
Mail to: Check should be payable to: Check should be payable to:
AIG Money Market Fund AIG Money Market Fund-Class A. AIG Money Market Fund-Class A.
P.O. Box 219009 Reference account name Reference the account name
Kansas City, Missouri 64121-9009 and number. and number.
All purchases must be in U.S. All purchases must be in U.S.
dollars, and checks must be drawn dollars, and checks must be drawn
on U.S. banks. on U.S. banks.
- --------------------------------- --------------------------------------- -----------------------------------
BY WIRE Please call client services at Please call client services at
1-800-845-3885 to arrange the 1-800-845-3885 to arrange the
wire transfer. wire transfer.
Wire to:
United Missouri Bank, N.A. The shareholder's name and The shareholder's name and
ABA# 10-10-00695 account number must be account number must be
For a/c no. 9870600404 specified in the wire. specified in the wire.
Credit AIG Money Market Fund
- -------------------------------------------------------------------------------------------------------------
</TABLE>
For a purchase order to be eligible to receive dividends on the day of purchase,
the order must be received before 1:00 p.m. Eastern time and federal funds
(readily available funds) must be received before 3:00 p.m.
Eastern time.
Checks received by the Fund will be credited to the investor's account upon
conversion of the proceeds in federal funds (readily available funds). The Fund
cannot accept third-party checks, credit cards, credit card checks or cash.
The Fund reserves the right to reject an account application or a purchase
order if it is not in the best interest of the Fund or its shareholders, and may
accept, at its discretion, amounts smaller than the stated minimum investment
amount.
6
<PAGE>
- --------------------------------------------------------------------------------
AIG Money Market Fund
- --------------------------------------------------------------------------------
HOW WE CALCULATE NAV
- --------------------------------------------------------------------------------
The Fund calculates its Net Asset Value (NAV) per share once each Business day
at 2:00 p.m. Eastern time. The Fund generally calculates NAV using the amortized
cost method of valuation, which is described in detail in the Fund's Statement
of Additional Information. If it is determined that this method is unreliable
during certain market conditions or for other reasons, fair value prices for the
Fund's securities may be determined in good faith using procedures approved by
the Fund's Board of Trustees.
- --------------------------------------------------------------------------------
NET ASSET VALUE
NAV FOR ONE FUND SHARE IS THE VALUE OF THAT SHARE'S PORTION OF ALL OF THE NET
ASSETS IN THE FUND.
- --------------------------------------------------------------------------------
MINIMUM PURCHASES
The minimum investment in Class A Shares is generally $10,000,000. An investor
may also purchase Class A Shares in an amount below the minimum if the
investor:
- - makes an initial investment of $5,000,000 and intends to increase his or her
account balance to $10,000,000 within 90 days;
- - invests assets managed by a registered investment advisor that is owned by
AIG;
- - is AIG (or any company where AIG owns at least 19% of the stock);
- - is C.V. Starr & Co., Inc. (including its subsidiaries and affiliates);
- - is an AIG senior executive officer or their family members; or
- - certain employee benefit plans sponsored by AIG.
The Fund may waive this minimum at its discretion.
- --------------------------------------------------------------------------------
TELEPHONE TRANSACTIONS
PURCHASING AND SELLING FUND SHARES OVER THE TELEPHONE IS EXTREMELY CONVENIENT,
BUT NOT WITHOUT RISK. ALTHOUGH THE FUND HAS ESTABLISHED CERTAIN SAFEGUARDS AND
PROCEDURES TO CONFIRM THE IDENTITY OF CALLERS AND THE AUTHENTICITY OF
INSTRUCTIONS, THE FUND AND ITS AGENTS ARE NOT RESPONSIBLE FOR ANY LOSSES OR
COSTS INCURRED BY FOLLOWING TELEPHONE INSTRUCTIONS REASONABLY BELIEVED TO BE
GENUINE. IF YOU OR YOUR FINANCIAL INSTITUTION TRANSACT WITH THE FUND OVER THE
TELEPHONE, YOU WILL GENERALLY BEAR THE RISK OF ANY LOSS.
- --------------------------------------------------------------------------------
SELLING FUND SHARES
- --------------------------------------------------------------------------------
HOW TO SELL YOUR FUND SHARES
Fund shares may be sold (redeemed) on any Business day by contacting the Fund by
mail or telephone.
Redemption orders received prior to 1:00 p.m. Eastern time on any Business day
will be effective that same day. Shares redeemed will not receive the dividends
declared on that day. Redemption proceeds can be wire transferred to the
shareholder's bank account or sent by check. There is a charge for wire
transfers, currently $10.00, which may be waived by the Fund. Payments by check
of redemption proceeds will be made as promptly as possible, and no later than
seven days after the redemption order is received.
For shares recently purchased by check, redemption proceeds may not be
available until the check has cleared, which may take up to 15 days from the
date of purchase.
The purchase price per share will be the NAV next determined after receipt of
the redemption request.
7
<PAGE>
- --------------------------------------------------------------------------------
AIG Money Market Fund
- --------------------------------------------------------------------------------
REDEMPTIONS IN KIND
Redemption proceeds are generally paid in cash. However, under unusual
conditions that make the payment of cash unwise (and for the protection of the
Fund's remaining shareholders) redemption proceeds may be paid in liquid
securities with a market value equal to the redemption price (redemption in
kind). Although it is highly unlikely that Fund shares would ever be redeemed in
kind, shareholders would probably have to pay transaction costs to sell the
securities distributed, as well as taxes on any capital gains from the sale as
with any redemption.
INVOLUNTARY SALES OF SHARES
If an investor's account balance drops below $10,000,000 because of redemptions,
he or she may be required to sell shares. At least 30 days' written notice will
be given to allow sufficient time to add to the investor's account and avoid the
sale of shares.
SUSPENSION OF RIGHT TO SELL SHARES
The Fund may suspend your right to sell your shares if the New York Stock
Exchange restricts trading, the Securities and Exchange Commission declares an
emergency or for other reasons. More information about this is in the Fund's
Statement of Additional Information.
DIVIDENDS, DISTRIBUTIONS AND TAXES
- --------------------------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS
The Fund declares dividends of substantially all of its net investment income
(not including capital gains) every day and distributes this income each month.
The Fund makes distributions of capital gains, if any, at least annually.
Shareholders on a Fund's record date will be entitled to receive the
distribution.
- --------------------------------------------------------------------------------
THE "RECORD DATE"
IF YOU OWN FUND SHARES ON A FUND'S RECORD DATE, YOU WILL BE ENTITLED TO RECEIVE
THE DISTRIBUTION.
- --------------------------------------------------------------------------------
Dividends and distributions are paid in the form of additional Fund shares
unless an election is made to receive payment in cash. To elect cash payment, a
shareholder must notify the Fund in writing prior to the date of the
distribution. The election will be effective for dividends and distributions
paid after receipt of the written notice. The election can be canceled by simply
sending written notice to the Fund.
TAXES
- --------------------------------------------------------------------------------
INVESTORS SHOULD CONSULT A TAX ADVISER REGARDING SPECIFIC QUESTIONS ABOUT
FEDERAL, STATE AND LOCAL INCOME TAXES. Below is a summary of some important
tax issues that affect the Fund and its shareholders. This summary is based on
current tax laws, which may change.
The Fund will distribute substantially all of its investment income and capital
gains, if any. The dividends and distributions investors receive may be subject
to federal, state and local taxation, depending upon an investor's tax
situation. Distributions investors receive from the Fund may be taxable whether
or not an investor reinvests them.
MORE INFORMATION ABOUT TAXES IS IN THE FUND'S STATEMENT OF ADDITIONAL
INFORMATION.
- --------------------------------------------------------------------------------
FUND DISTRIBUTIONS
DISTRIBUTIONS YOU RECEIVE FROM A FUND MAY BE TAXABLE WHETHER OR NOT YOU
REINVEST THEM.
- --------------------------------------------------------------------------------
8
<PAGE>
- --------------------------------------------------------------------------------
AIG Money Market Fund
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The table that follows presents performance information about the Class A Shares
of the Fund. This information is intended to help you understand the Fund's
financial performance for the past five years, or, if shorter, the period of
the Fund's operations. Some of this information reflects financial information
for a single Fund share. The total returns in the tables represent the rate that
an investor would have earned (or lost) on an investment in the Fund, assuming
reinvestment of all dividends and distributions.
This information has been audited by Arthur Andersen LLP, independent auditors.
Their report, along with the Fund's financial statements, appears in the annual
report that accompanies the Fund's Statement of Additional Information. The
annual report, which contains more performance information, can be obtained at
no charge by calling 1-800-249-7445.
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
STUDY THESE TABLES TO SEE HOW THE FUND PERFORMED SINCE IT BEGAN INVESTMENT
OPERATIONS.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AIG MONEY MARKET FUND - CLASS A SHARES
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FOR THE PERIOD ENDED OCTOBER 31: 1999 1998 1997 1996 1995(1)
Net Asset Value, Beginning of Period ........................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income .......................................... 0.05 0.05 0.05 0.05 0.05
Net Gains or Losses on Securities (both realized and unrealized) -- -- -- -- --
Total From Investment Operations ............................... 0.05 0.05 0.05 0.05 0.05
LESS DISTRIBUTIONS
Dividends (from net investment income) ......................... (0.05) (0.05) (0.05) (0.05) (0.05)
Distributions (from capital gains) ............................. -- -- -- -- --
- ----------------------------------------------------------------------------------------------------------------------
Total Distributions ............................................ (0.05) (0.05) (0.05) (0.05) (0.05)
Net Asset Value, End of Period ................................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
TOTAL RETURN ................................................... 4.94% 5.49% 5.41% 5.26% 5.75%*
- ----------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000) ................................ $548,019 $251,090 $329,125 $253,865 $313,657
Ratio of Expenses to Average Net Assets ........................ 0.26% 0.26% 0.27% 0.39% 0.40%*
Ratio of Net Investment Income to Average Net Assets ........... 4.83% 5.37% 5.30% 5.15% 5.60%*
Ratio of Expenses to Average Net Assets
(excluding waivers) ....................................... 0.36% 0.36% 0.39% 0.41% 0.47%*
Ratio of Net Investment Income to Average
Net Assets (excluding waivers) ............................ 4.73% 5.27% 5.18% 5.13% 5.53%*
</TABLE>
- ----------
* ANNUALIZED.
(1) THE CLASS A SHARES OF THE FUND COMMENCED OPERATIONS ON DECEMBER 1, 1994.
9
<PAGE>
- --------------------------------------------------------------------------------
AIG Money Market Fund
- --------------------------------------------------------------------------------
INVESTMENT ADVISER
- --------------------------------------------------------------------------------
AIG Capital Management Corp.
70 Pine Street
New York, New York 10270
DISTRIBUTOR
- --------------------------------------------------------------------------------
SEI Investments Distribution Co.
One Freedom Valley Road
Oaks, Pennsylvania 19456
SUB-DISTRIBUTOR
- --------------------------------------------------------------------------------
AIG Equity Sales Corp.
70 Pine Street
New York, New York 10270
LEGAL COUNSEL
- --------------------------------------------------------------------------------
Morgan, Lewis & Bockius LLP
1800 M Street, N.W.
Washington, D.C. 20036
More information about the Fund is available without charge through the
following:
STATEMENT OF ADDITIONAL INFORMATION (SAI)
- --------------------------------------------------------------------------------
The Fund's SAI dated March 1, 2000, includes detailed information about The
Advisors' Inner Circle Fund and the AIG Money Market Fund. The SAI is on file
with the SEC and is incorporated by reference into this prospectus. This means
that the SAI, for legal purposes, is a part of this prospectus.
ANNUAL AND SEMI-ANNUAL REPORTS
- --------------------------------------------------------------------------------
These reports list the Funds' holdings and contain information from the Fund's
managers about strategies and recent market conditions and trends also contain
detailed financial information about the Funds.
TO OBTAIN AN SAI, ANNUAL OR SEMI-ANNUAL REPORT, OR MORE INFORMATION:
- --------------------------------------------------------------------------------
BY TELEPHONE: Call 1-800-249-7445
BY MAIL: Write to:
AIG Money Market Fund
c/o Advisors' Inner Circle Fund
P.O. Box 219009
Kansas City, Missouri 64121-9009
FROM THE SEC: You can also obtain the SAI, the Annual and Semi-Annual Reports,
as well as other information about The Advisors' Inner Circle Fund, from the
EDGAR Database on the SEC's website ("http://www.sec.gov"). You may review and
copy documents at the SEC Public Reference Room in Washington, DC (for
information on the operation of the Public Reference Room, call
1-202-942-8090). You may request documents by mail from the SEC, upon payment of
a duplicating fee, by writing to: Securities and Exchange Commission, Public
Reference Section, Washington, DC 20549-0102. You may also obtain this
information, upon payment of a duplicating fee, by e-mailing the SEC at the
following address: [email protected].
The Fund's Investment Company Act registration number is 811-6400.
10
<PAGE>
FUND:
THE ADVISORS' INNER CIRCLE FUND
PORTFOLIO:
AIG MONEY MARKET FUND
ADVISER:
AIG CAPITAL MANAGEMENT CORP.
DISTRIBUTOR:
SEI INVESTMENTS DISTRIBUTION CO.
SUB-DISTRIBUTOR:
AIG EQUITY SALES CORP.
ADMINISTRATOR:
SEI INVESTMENTS MUTUAL FUNDS SERVICES
LEGAL COUNSEL:
MORGAN, LEWIS & BOCKIUS LLP
INDEPENDENT PUBLIC ACCOUNTANTS:
ARTHUR ANDERSEN LLP
MARCH 1, 2000
For Information call: 1-800-845-3885
AIG-F-001-07
PROSPECTUS
AIG
MONEY MARKET FUND
CLASS A
AIG
ADVISED BY
AIG CAPITAL MANAGEMENT CORP.
<PAGE>
---------------------------------------------------
AIG MONEY MARKET FUND
A PORTFOLIO OF THE ADVISORS' INNER CIRCLE FUND
---------------------------------------------------
CLASS B SHARES
PROSPECTUS
March 1, 2000
INVESTMENT ADVISER:
AIG CAPITAL MANAGEMENT CORP.
These securities have not been approved or disapproved by the Securities and
Exchange Commission nor has the Commision passed upon the accuracy or adequacy
of this prospectus. Any representation to the contrary is a criminal offense.
<PAGE>
INTRODUCTION - AIG MONEY MARKET FUND - CLASS B SHARES
THE FUND
- --------------------------------------------------------------------------------
The AIG Money Market Fund (Fund) is a money market mutual fund that offers
investors a convenient and economical way to invest in a professionally managed
diversified portfolio of short-term high quality securities. The Fund is a
separate series of The Advisors' Inner Circle Fund, a Massachusetts business
trust (Trust).
The Fund consists of two classes of shares: Class A and Class B.
This prospectus offers Class B Shares of the Fund and contains important
information about the objectives, risks and policies of the Fund. Investors are
advised to read this Prospectus and keep it for future reference. This
prospectus has been arranged into different sections so that investors can
easily review this important information.
<TABLE>
FOR MORE DETAILED INFORMATION ABOUT THE FUND, PLEASE SEE:
<S> <C>
Investment Strategies and Principal Risks . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
Performance Information and Expenses . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . 4
The Fund's Other Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . 5
The Investment Adviser . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . 5
Purchasing and Selling Fund Shares . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . 6
Distribution of Fund Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
Dividends, Distributions and Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . 8
Financial Highlights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . 9
How to Obtain More Information About the AIG Money Market Fund . . . . . . . . . . . . .. . . . . 10
</TABLE>
2
<PAGE>
AIG MONEY MARKET FUND
FUND SUMMARY
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVE Preserve principal value and maintain a high degree
of liquidity while providing current income. It is
also a fundamental policy of the Fund to maintain a
stable share price of $1. There is no assurance that
the Fund will achieve its investment objective or
that it will be able to maintain a constant share
price of $1 on a continuous basis.
- --------------------------------------------------------------------------------
INVESTMENT FOCUS Money market instruments.
- --------------------------------------------------------------------------------
RISK LEVEL Conservative.
- --------------------------------------------------------------------------------
PRINCIPAL INVESTMENT Investing in a broad range of short-term, high
STRATEGY quality U.S. dollar denominated debt securities.
- --------------------------------------------------------------------------------
INVESTOR PROFILE Conservative investors who want to receive current
income through a liquid investment.
- --------------------------------------------------------------------------------
INVESTMENT STRATEGY OF THE AIG MONEY
MARKET FUND
- --------------------------------------------------------------------------------
The Fund invests in a broad range of high quality, short-term U.S. dollar
denominated money market instruments, such as obligations of the U.S. Treasury,
agencies and instrumentalities of the U.S. government, domestic and foreign
banks, domestic and foreign corporate issuers, supranational entities, and
foreign governments, as well as in repurchase agreements. The Fund's portfolio
is comprised only of short-term debt securities that are rated in the highest
category by nationally recognized ratings organizations or securities that the
Adviser determines are of equal quality. The Fund may concentrate its
investments (invest more than 25% of its assets) in obligations issued by
domestic branches of U.S. banks or U.S. branches of foreign banks that are
subject to a similar level of regulation. The Fund will maintain an average
weighted maturity of 90 days or less, and will only acquire securities that have
a remaining maturity of 397 days or less.
- --------------------------------------------------------------------------------
PRINCIPAL RISKS OF INVESTING IN
THE AIG MONEY MARKET FUND
AN INVESTMENT IN THE FUND IS NEITHER INSURED NOR GUARANTEED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY. ALTHOUGH THE
FUND SEEKS TO KEEP A CONSTANT PRICE PER SHARE OF $1.00, IT IS POSSIBLE TO
LOSE MONEY BY INVESTING IN THE FUND.
THE FUND'S INVESTMENTS ARE SUBJECT TO FLUCTUATIONS IN THE CURRENT INTEREST
RATES FOR SHORT-TERM OBLIGATIONS. ACCORDINGLY, AN INVESTMENT IN THE FUND IS
SUBJECT TO INCOME RISK, WHICH IS THE POSSIBILITY THAT THE FUND'S YIELD WILL
DECLINE DUE TO FALLING INTEREST RATES.
AN INVESTMENT IN THE FUND IS ALSO SUBJECT, TO A LIMITED EXTENT, TO CREDIT
RISK, WHICH IS THE POSSIBILITY THAT THE ISSUER OF A SECURITY OWNED BY THE
FUND WILL BE UNABLE TO REPAY INTEREST AND PRINCIPAL IN A TIMELY MANNER. AIG
CAPITAL MANAGEMENT CORP., THE FUND'S INVESTMENT ADVISER (ADVISER), ATTEMPTS
TO LESSEN THIS RISK THROUGH A CONSERVATIVE INVESTMENT POLICY FOR THE FUND,
WHICH INCLUDES DIVERSIFICATION (SPREADING FUND INVESTMENTS ACROSS A BROAD
NUMBER OF ISSUERS), AND INVESTING IN OBLIGATIONS OF HIGH CREDIT QUALITY
ISSUERS.
- --------------------------------------------------------------------------------
3
<PAGE>
AIG MONEY MARKET FUND
PERFORMANCE INFORMATION
The bar chart and the performance table below illustrate the risks and
volatility of an investment in Class B Shares of the Fund by showing changes in
the Fund's performance from year to year and comparing this performance to an
average. Of course, past performance does not necessarily indicate future
performance.
This bar chart shows changes in the performance of the Fund's Class B Shares.
<TABLE>
<CAPTION>
1996 1997 1998 1999
---- ---- ---- ----
<S> <C> <C> <C>
4.84% 5.09% 5.04% 4.53%
</TABLE>
*THE PERFORMANCE INFORMATION SHOWN ABOVE IS BASED ON A
CALENDAR YEAR.
<TABLE>
<CAPTION>
BEST QUARTER WORST QUARTER
------------- --------------
<S> <C>
1.28% 1.08%
(9/30/97) (6/30/99)
</TABLE>
This table compares the Fund's average annual total returns for the periods
ending December 31, 1999 to those of the IBC First Tier Taxable Money Market
Funds Average (IBC Fist Tier).
<TABLE>
<CAPTION>
SINCE INCEPTION
CLASS B SHARES 1 YEAR (2/16/95)
- --------------------------------------------------------------------------------
<S> <C> <C>
AIG Money Market Fund 4.63% 4.98%
IBC First Tier 4.57% 4.96%*
</TABLE>
*THE INCEPTION DATE FOR THE IBC FIRST TIER IS 2/28/95.
- --------------------------------------------------------------------------------
WHAT IS AN AVERAGE?
AN AVERAGE IS A COMPOSITE OF MUTUAL FUNDS WITH SIMILAR INVESTMENT GOALS. THE IBC
FIRST TIER AVERAGE IS A WIDELY-RECOGNIZED AVERAGE OF MONEY MARKET FUNDS WHICH
INVEST IN SECURITIES RATED PRIME-1 BY MOODY'S OR A-1 BY S&P.
- --------------------------------------------------------------------------------
FUND FEES AND EXPENSES
- --------------------------------------------------------------------------------
This table describes the fees and expense that you may
pay if you buy and hold Class B shares of the Fund.
ANNUAL FUND OPERATING EXPENSES
(EXPENSES DEDUCTED FROM FUND ASSETS)*
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS B SHARES
<S> <C>
Investment Advisory Fees . . . . . . . . . . . . . .25%
12b-1 Fees . . . . . . . . . . . . . . . . . . . . .35%
Other Expenses . . . . . . . . . . . . . . . . . . .11%
-----
Total Annual Fund Operating Expenses . . . . . . . .71%
-----
</TABLE>
* THE FUND'S TOTAL ACTUAL ANNUAL FUND OPERATING EXPENSES FOR THE MOST RECENT
FISCAL YEAR WERE LESS THAN THE AMOUNT SHOWN ABOVE BECAUSE THE ADVISER IS WAIVING
.10% OF ITS ADVISORY FEES SO THAT TOTAL OPERATING EXPENSES DO NOT EXCEED .75%.
THE ADVISER MAY DISCONTINUE ALL OR PART OF THIS VOLUNTARY WAIVER AT ANY TIME.
WITH THIS FEE WAIVER, THE FUND'S ACTUAL TOTAL OPERATING EXPENSES FOR THE MOST
RECENT FISCAL YEAR WERE AS FOLLOWS:
AIG MONEY MARKET FUND -- CLASS B .61%
For more information about these fees, see "Investment
Adviser" and "Distribution of Fund Shares."
EXAMPLE
- --------------------------------------------------------------------------------
This example is intended to help you compare the cost of investing Class B
shares of the Fund with the cost of investing in other mutual funds. The Example
assumes that you invest $10,000 in the Fund for the time periods indicated and
that you sell your shares at the end of the period.
The example also assumes that each year your investment has a 5% return and
Fund operating expenses remain the same. Although your actual costs and
returns might be different, your approximate cost of investing $10,000 in
Class B shares of the Fund would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class B Shares $73 $227 $395 $883
</TABLE>
4
<PAGE>
AIG MONEY MARKET FUND
THE FUND'S OTHER INVESTMENTS
- --------------------------------------------------------------------------------
In addition to the principal investments and strategies described in this
prospectus, the Fund may also invest in other securities, use other strategies
and engage in other investment practices within its stated investment
objec-tives. These investments and strategies, as well as those described in the
prospectus, are described in detail in the Fund's Statement of Additional
Information. Of course, there is no guarantee that the Fund will achieve its
investment goal.
INVESTMENT ADVISER
- --------------------------------------------------------------------------------
The Investment Adviser makes investment decisions for the Fund and continuously
reviews, supervises and administers the Fund's investment program. The Board of
Trustees of the Advisors' Inner Circle Fund supervises the Adviser and
establishes policies that the Adviser must follow in its management activities.
AIG Capital Management Corp. is a wholly-owned subsidiary
of American International Group, Inc. (AIG) and
is the Adviser to the Fund. For the fiscal period ended
October 31, 1999, AIG Capital Management Corp.
received advisory fees from the Fund as a percentage of
average daily net assets (after waivers) of:
AIG Money Market Fund .15%
5
<PAGE>
AIG MONEY MARKET FUND
PURCHASING FUND SHARES
- --------------------------------------------------------------------------------
Shares of the Fund may be purchased by check, wire transfer or through certain
authorized dealers or other financial institutions authorized to sell Fund
shares. For first time purchases, an application form must be completed and
submitted to the Fund to establish an account.
- --------------------------------------------------------------------------------
WHEN CAN YOU PURCHASE SHARES?
SHARES MAY BE PURCHASED ONLY ON DAYS THAT THE NEW YORK STOCK EXCHANGE AND THE
FEDERAL RESERVE ARE OPEN FOR BUSINESS (A BUSINESS DAY).
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
OPEN A NEW ACCOUNT ADD TO AN EXISTING ACCOUNT
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
MINIMUM INVESTMENT $25,000 None
- ----------------------------------------------------------------------------------------------------------------------
BY MAIL Complete and sign the Mail check with an Invest-By-Mail
application form. form detached from account
statement.
Mail to: Check should be payable to: Check should be payable to:
AIG Money Market Fund AIG Money Market Fund-Class B. AIG Money Market Fund - Class B.
P.O. Box 219009 Reference account name Reference the account name
Kansas City, Missouri 64121-9009 and number. and number.
All purchases must be in U.S. All purchases must be in U.S.
dollars, and checks must be drawn dollars, and checks must be drawn
on U.S. banks. on U.S. banks.
- ----------------------------------------------------------------------------------------------------------------------
BY WIRE Please call client services at Please call client services at
1-800-845-3885 to arrange the 1-800-845-3885 to arrange the
wire transfer. wire transfer.
Wire to:
United Missouri Bank, N.A. The shareholder's name and The shareholder's name and
ABA# 10-10-00695 account number must be account number must be
For a/c no. 9870600404 specified in the wire. specified in the wire.
Credit AIG Money Market Fund
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
For a purchase order to be eligible to receive dividends on the day of purchase,
the order must be received before 1:00 p.m. Eastern time and federal funds
(readily available funds) must be received before 3:00 p.m.
Eastern time.
Checks received by the Fund will be credited to the investor's account upon
conversion of the proceeds in federal funds (readily available funds). The Fund
cannot accept third-party checks, credit cards, credit card checks or cash.
The Fund reserves the right to reject an account application or a purchase
order if it is not in the best interest of the Fund or its shareholders, and may
accept, at its discretion, amounts smaller than the stated minimum investment
amount.
6
<PAGE>
AIG MONEY MARKET FUND
HOW WE CALCULATE NAV
- --------------------------------------------------------------------------------
The Fund calculates its Net Asset Value (NAV) per share once each Business day
at 2:00 p.m. Eastern time. The Fund generally calculates NAV using the amortized
cost method of valuation, which is described in detail in the Fund's Statement
of Additional Information. If it is determined that this method is unreliable
during certain market conditions or for other reasons, fair value prices for the
Fund's securities may be determined in good faith using procedures approved by
the Fund's Board of Trustees.
- --------------------------------------------------------------------------------
NET ASSET VALUE
NAV FOR ONE FUND SHARE IS THE VALUE OF THAT SHARE'S PORTION OF ALL OF THE NET
ASSETS IN THE FUND.
- --------------------------------------------------------------------------------
MINIMUM PURCHASES
- --------------------------------------------------------------------------------
The minimum investment in Class B Shares is generally $25,000. The Fund may
waive this minimum at its discretion.
- --------------------------------------------------------------------------------
TELEPHONE TRANSACTIONS
PURCHASING AND SELLING FUND SHARES OVER THE TELEPHONE IS EXTREMELY CONVENIENT,
BUT NOT WITHOUT RISK. ALTHOUGH THE FUND HAS ESTABLISHED CERTAIN SAFEGUARDS AND
PROCEDURES TO CONFIRM THE IDENTITY OF CALLERS AND THE AUTHENTICITY OF
INSTRUCTIONS, THE FUND AND ITS AGENTS ARE NOT RESPONSIBLE FOR ANY LOSSES OR
COSTS INCURRED BY FOLLOWING TELEPHONE INSTRUCTIONS REASONABLY BELIEVED TO BE
GENUINE. IF YOU OR YOUR FINANCIAL INSTITUTION TRANSACT WITH THE FUND OVER THE
TELEPHONE, YOU WILL GENERALLY BEAR THE RISK OF ANY LOSS.
- --------------------------------------------------------------------------------
SELLING FUND SHARES
- --------------------------------------------------------------------------------
HOW TO SELL YOUR FUND SHARES
Fund shares may be sold (redeemed) on any Business day by contacting the Fund by
mail or telephone.
Redemption orders received prior to 1:00 p.m. Eastern time on any Business
day will be effective that same day. Shares redeemed will not receive the
dividends declared on that day. Redemption proceeds can be wire transferred
to the shareholder's bank account or sent by check. There is a charge for
wire transfers, currently $10.00, which may be waived by the Fund. Payments
by check of redemption proceeds will be made as promptly as possible, and no
later than seven days after the redemption order is received.
For shares recently purchased by check, redemption proceeds may not be
available until the check has cleared, which may take up to 15 days from the
date of purchase.
The purchase price per share will be the NAV next determined after receipt of
the redemption request.
REDEMPTIONS IN KIND
Redemption proceeds are generally paid in cash. However, under unusual
conditions that make the payment of cash unwise (and for the protection of
the Fund's remaining shareholders) redemption proceeds may be paid in liquid
securities with a market value equal to the redemption price (redemption in
kind). Although it is highly unlikely that Fund shares would ever be redeemed
in kind, shareholders would probably have to pay transaction costs to sell
the securities distributed, as well as taxes on any capital gains from the
sale as with any redemption.
INVOLUNTARY SALES OF SHARES
If an investor's account balance drops below $25,000 because of redemptions, he
or she may be required to sell shares. At least 30 days' written notice will be
given to allow sufficient time to add to the investor's account and avoid the
sale of shares.
7
<PAGE>
AIG MONEY MARKET FUND
SUSPENSION OF RIGHT TO SELL SHARES
The Fund may suspend your right to sell your shares if the New York Stock
Exchange restricts trading, the Securities and Exchange Commission declares an
emergency or for other reasons. More information about this is in the Fund's
Statement of Additional Information.
DISTRIBUTION OF FUND SHARES
- --------------------------------------------------------------------------------
The Fund has adopted a distribution plan that allows the Fund to pay
distribution and service fees for the sale and distribution of its Class B
shares, and for services provided to Class B shareholders. Because these fees
are paid out of the Fund's assets continuously, over time these fees will
increase the cost of investment and may cost investors more than paying other
types of sales charges.
Distribution fees, as a percentage of average daily net assets, are 0.35% for
Class B Shares.
The Distributor or any Sub-Distributor may, from time to time in its sole
discretion, institute one or more promotional incentive programs for dealers,
which will be paid for by the Distributor or Sub-Distributor from any source
available to it.
DIVIDENDS, DISTRIBUTIONS AND TAXES
- --------------------------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS
The Fund declares dividends of substantially all of its net investment income
(not including capital gains) every day and distributes this income each month.
The Fund makes distributions of capital gains, if any, at least annually.
Shareholders on a Fund's record date will be entitled to receive the
distribution.
- --------------------------------------------------------------------------------
THE "RECORD DATE"
IF YOU OWN FUND SHARES ON A FUND'S RECORD DATE, YOU WILL BE ENTITLED TO RECEIVE
THE DISTRIBUTION.
- --------------------------------------------------------------------------------
Dividends and distributions are paid in the form of additional Fund shares
unless an election is made to receive payment in cash. To elect cash payment,
a shareholder must notify the Fund in writing prior to the date of the
distribution. The election will be effective for dividends and distributions
paid after receipt of the written notice. The election can be canceled by
simply sending written notice to the Fund.
TAXES
- --------------------------------------------------------------------------------
INVESTORS SHOULD CONSULT A TAX ADVISER REGARDING SPECIFIC QUESTIONS ABOUT
FEDERAL, STATE AND LOCAL INCOME TAXES. Below is a summary of some important
tax issues that affect the Fund and its shareholders. This summary is based
on current tax laws, which may change.
The Fund will distribute substantially all of its investment income and
capital gains, if any. The dividends and distributions investors receive may
be subject to federal, state and local taxation, depending upon an investor's
tax situation. Distributions investors receive from the Fund may be taxable
whether or not an investor reinvests them.
MORE INFORMATION ABOUT TAXES IS IN THE FUND'S
STATEMENT OF ADDITIONAL INFORMATION.
- --------------------------------------------------------------------------------
FUND DISTRIBUTIONS
DISTRIBUTIONS YOU RECEIVE FROM A FUND MAY BE TAXABLE WHETHER OR NOT YOU
REINVEST THEM.
- --------------------------------------------------------------------------------
8
<PAGE>
AIG MONEY MARKET FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The table that follows presents performance information about the Class B
Shares of the Fund. This information is intended to help you understand the
Fund's financial performance for the past five years, or, if shorter, the
period of the Fund's operations. Some of this information reflects financial
information for a single Fund share. The total returns in the tables
represent the rate that an investor would have earned (or lost) on an
investment in the Fund, assuming reinvestment of all dividends and
distributions.
This information has been audited by Arthur Andersen LLP, independent
auditors. Their report, along with the Fund's financial statements, appears
in the annual report that accompanies the Fund's Statement of Additional
Information. The annual report, which contains more performance information,
can be obtained at no charge by calling 1-800-249-7445.
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
STUDY THESE TABLES TO SEE HOW THE FUND PERFORMED SINCE IT BEGAN INVESTMENT
OPERATIONS.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AIG MONEY MARKET FUND - CLASS B SHARES
- ----------------------------------------------------------------------------------------------------------------------
FOR THE PERIOD ENDED OCTOBER 31: 1999 1998 1997 1996 1995 (1)
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period . . . . . . . . $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income . . . . . . . . . . . . . . . . 0.05 0.05 0.05 0.05 0.04
Net Gains or Losses on Securities
(both realized and unrealized). . . . . . . . . . . . -- -- -- -- --
Total From Investment Operations . . . . . . . . . . . 0.05 0.05 0.05 0.05 0.04
LESS DISTRIBUTIONS
Dividends (from net investment income) . . . . . . . (0.05) (0.05) (0.05) (0.05) (0.04)
Distributions (from capital gains) . . . . . . . . . . -- -- -- -- --
- ----------------------------------------------------------------------------------------------------------------------
Total Distributions . . . . . . . . . . . . . . . . . (0.05) (0.05) (0.05) (0.05) (0.04)
Net Asset Value, End of Period . . . . . . . . . . . $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
TOTAL RETURN . . . . . . . . . . . . . . . . .. . . 4.58% 5.12% 5.04% 4.89% 5.43%*
- ----------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000) . . . . . . . . . . $103,570 $155,078 $108,754 $135,384 $120,482
Ratio of Expenses to Average Net Assets . . . . . . . 0.61% 0.62% 0.63% 0.74% 0.75%*
Ratio of Net Investment Income to Average Net Assets . 4.46% 5.00% 4.93% 4.79% 5.18%*
Ratio of Expenses to Average Net Assets
(excluding waivers) . . . . . . . . . . . . . . . . . 0.71% 0.72% 0.74% 0.77% 0.85%*
Ratio of Net Investment Income to Average
Net Assets (excluding waivers) . . . . . . . . . . . . 4.36% 4.90% 4.82% 4.76% 5.08%*
- ------------
</TABLE>
*ANNUALIZED.
(1) THE CLASS B SHARES OF THE FUND COMMENCED OPERATIONS ON FEBRUARY 16, 1995.
9
<PAGE>
AIG MONEY MARKET FUND
INVESTMENT ADVISER
- --------------------------------------------------------------------------------
AIG Capital Management Corp.
70 Pine Street
New York, New York 10270
DISTRIBUTOR
- --------------------------------------------------------------------------------
SEI Investments Distribution Co.
One Freedom Valley Road
Oaks, Pennsylvania 19456
SUB-DISTRIBUTOR
- --------------------------------------------------------------------------------
AIG Equity Sales Corp.
70 Pine Street
New York, New York 10270
LEGAL COUNSEL
- --------------------------------------------------------------------------------
Morgan, Lewis & Bockius LLP
1800 M Street, N.W.
Washington, D.C. 20036
More information about the Fund is available without charge through the
following:
STATEMENT OF ADDITIONAL INFORMATION (SAI)
- --------------------------------------------------------------------------------
The Fund's SAI dated March 1, 2000, includes detailed information about The
Advisors' Inner Circle Fund and the AIG Money Market Fund. The SAI is on file
with the SEC and is incorporated by reference into this prospectus. This
means that the SAI, for legal purposes, is a part of this prospectus.
ANNUAL AND SEMI-ANNUAL REPORTS
- --------------------------------------------------------------------------------
These reports list the Funds' holdings and contain information from the Fund's
managers about strategies and recent market conditions and trends also contain
detailed financial information about the Funds.
TO OBTAIN AN SAI, ANNUAL OR SEMI-ANNUAL
REPORT, OR MORE INFORMATION:
- --------------------------------------------------------------------------------
BY TELEPHONE: Call 1-800-249-7445
BY MAIL: Write to:
AIG Money Market Fund
c/o Advisors' Inner Circle Fund
P.O. Box 219009
Kansas City, Missouri 64121-9009
FROM THE SEC: You can also obtain the SAI, the Annual and Semi-Annual Reports,
as well as other information about The Advisors' Inner Circle Fund, from the
EDGAR Database on the SEC's website ("http://www.sec.gov"). You may review and
copy documents at the SEC Public Reference Room in Washington, DC (for
information on the operation of the Public Reference Room, call 1-202-
942-8090). You may request documents by mail from the SEC, upon payment of a
duplicating fee, by writing to: Securities and Exchange Commission, Public
Reference Section, Washington, DC 20549-0102. You may also obtain this
information, upon payment of a duplicating fee, by e-mailing the SEC at the
following address: [email protected].
------------------
The Fund's Investment Company Act registration number is 811-6400.
10
<PAGE>
- --------------------------------------------------------------------------------
FUND:
THE ADVISORS' INNER CIRCLE FUND
PORTFOLIO:
AIG MONEY MARKET FUND
ADVISER:
AIG CAPITAL MANAGEMENT CORP.
DISTRIBUTOR:
SEI INVESTMENTS DISTRIBUTION CO.
SUB-DISTRIBUTOR:
AIG EQUITY SALES CORP.
ADMINISTRATOR:
SEI INVESTMENTS MUTUAL FUNDS SERVICES
LEGAL COUNSEL:
MORGAN, LEWIS & BOCKIUS LLP
INDEPENDENT PUBLIC ACCOUNTANTS:
ARTHUR ANDERSEN LLP
MARCH 1, 2000
For Information call: 1-800-845-3885
AIG-F-002-08
- --------------------------------------------------------------------------------
PROSPECTUS
AIG
MONEY MARKET FUND
CLASS B
AIG
ADVISED BY
AIG CAPITAL MANAGEMENT CORP.
- --------------------------------------------------------------------------------
<PAGE>
FUND:
THE ADVISORS' INNER CIRCLE FUND
PORTFOLIO:
CRA REALTY SHARES PORTFOLIO
INVESTMENT ADVISER:
CLARION CRA SECURITIES, L.P.
This STATEMENT OF ADDITIONAL INFORMATION is not a prospectus and relates only to
the CRA Realty Shares Portfolio (the "Portfolio"). It is intended to provide
additional information regarding the activities and operations of The Advisors'
Inner Circle Fund (the "Fund") and the Portfolio and should be read in
conjunction with the Portfolio's Prospectus dated March 1, 2000. The Prospectus
for the Portfolio may be obtained by calling 1-888-712-1103.
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
THE FUND................................................ S-3
INVESTMENT OBJECTIVES AND POLICIES...................... S-3
GENERAL INVESTMENT POLICIES............................. S-4
DESCRIPTION OF PERMITTED INVESTMENTS.................... S-6
INVESTMENT LIMITATIONS.................................. S-15
THE ADVISER............................................. S-17
THE ADMINISTRATOR....................................... S-19
THE DISTRIBUTOR......................................... S-20
THE TRANSFER AGENT...................................... S-21
THE CUSTODIAN........................................... S-21
INDEPENDENT PUBLIC ACCOUNTANTS.......................... S-21
LEGAL COUNSEL........................................... S-21
TRUSTEES AND OFFICERS OF THE FUND....................... S-21
PERFORMANCE INFORMATION................................. S-25
COMPUTATION OF YIELD.................................... S-25
CALCULATION OF TOTAL RETURN............................. S-25
PURCHASING SHARES....................................... S-26
REDEEMING SHARES........................................ S-26
DETERMINATION OF NET ASSET VALUE........................ S-27
TAXES................................................... S-27
PORTFOLIO TRANSACTIONS.................................. S-29
TRADING PRACTICES AND BROKERAGE......................... S-30
DESCRIPTION OF SHARES................................... S-33
SHAREHOLDER LIABILITY................................... S-33
LIMITATION OF TRUSTEES' LIABILITY....................... S-33
5% AND 25% SHAREHOLDERS................................. S-34
EXPERTS................................................. S-35
</TABLE>
<PAGE>
<TABLE>
<S> <C>
FINANCIAL STATEMENTS.................................... S-35
APPENDIX................................................ A-1
</TABLE>
March 1, 2000
CRA-F-002-04
S-2
<PAGE>
THE FUND
This Statement of Additional Information relates only to the CRA Realty Shares
Portfolio (the "Portfolio"). The Portfolio is a separate series of The Advisors'
Inner Circle Fund (the "Fund"), an open-end investment management company that
offers shares of diversified and non-diversified portfolios, established under
Massachusetts law as a Massachusetts business trust under a Declaration of Trust
dated July 18, 1991. The Declaration of Trust permits the Fund to offer separate
series ("portfolios") of shares of beneficial interest ("shares"). Each
portfolio is a separate mutual fund, and each share of each portfolio represents
an equal proportionate interest in that portfolio. See "Description of Shares."
No investment in shares of a portfolio should be made without first reading that
portfolio's prospectus. Capitalized terms not defined herein are defined in the
Prospectus offering shares of the Portfolio.
The Portfolio pays its (i) operating expenses, including fees of its service
providers, expenses of preparing prospectuses, proxy solicitation material and
reports to shareholders, costs of custodial services and registering its shares
under federal and state securities laws, pricing and insurance expenses,
brokerage costs, interest charges, taxes and organization expenses and (ii) pro
rata share of the Fund's other expenses, including audit and legal expenses. The
Portfolio's expense ratios are disclosed under "Portfolio Fees and Expenses" in
the Prospectus.
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the Portfolio is total return through investment in
real estate securities. This investment objective is fundamental and cannot be
changed without the consent of shareholders. The Portfolio seeks to achieve its
investment through a combination of above-average income and long-term growth of
capital by investing primarily in income-producing common stocks of companies
principally engaged in the U.S. real estate industry, including Real Estate
Investment Trusts ("REITs"). The Portfolio seeks to invest in equity securities
of real estate companies that provide a dividend yield that generally exceeds
the composite dividend yield of securities comprising the S&P 500 Index. There
is no assurance that the Portfolio will achieve its investment objective.
The Portfolio invests primarily in income producing equity securities of
publicly traded companies principally engaged in the real estate industry ("real
estate companies"). Under normal circumstances, at least 65% of the Portfolio's
total assets will be invested in income producing equity securities of real
estate companies. Such equity securities are common stocks (including shares or
units of beneficial interest of REITs), rights or warrants to purchase common
stocks and preferred stock. For purposes of the Portfolio's investment policies,
a company is "principally engaged" in the real estate industry if (i) it derives
at least 50% of its revenues or profits from the ownership, construction,
management, financing or sale of residential, commercial or industrial real
estate; or (ii) it has at least 50% of the fair market value of its assets
invested in residential, commercial or industrial real estate. Companies
principally engaged in the real estate industry include REITs, master limited
partnerships ("MLPs"), and real estate owners, real estate managers, real estate
brokers and real estate dealers.
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REAL ESTATE INVESTMENT TRUSTS -- It is expected that the majority of the
Portfolio's total assets will be invested in securities issued by REITs. REITs
pool investors' funds for investment primarily in income producing real estate
or real estate related loans or interests. A REIT is not taxed at the federal
level on income distributed to its shareholders or unit holders if it complies
with regulatory requirements relating to its organization, ownership, assets and
income, and with a regulatory requirement that it distribute to its shareholders
or unit holders at least 95% of its taxable income for each taxable year.
Generally, REITs can be classified as Equity REITs or Mortgage REITs. Equity
REITs invest the majority of their assets directly in ownership of real property
and derive their income primarily from rental income. Equity REITs are further
categorized according to the types of real estate properties they own, E.G.,
apartment properties, retail shopping centers, office and industrial properties,
hotels, health-care facilities, manufactured housing and mixed-property types.
Mortgage REITs invest the majority of their assets in real estate mortgages and
derive their income primarily from interest payments on the credit they have
extended. The Portfolio will invest primarily in Equity REITs. Shareholders in
the Portfolio should realize that by investing in REITs indirectly through the
Portfolio, they will bear not only their proportionate share of the expenses of
the Portfolio but also, indirectly, the management expenses of underlying REITs.
In addition to its principal investments, the Portfolio may invest any remaining
assets in debt securities issued or guaranteed by real estate companies or
secured by real estate assets and rated, at time of purchase, in one of the four
highest rating categories by a nationally recognized statistical rating
organization (an "NRSRO") or determined by the Adviser to be of comparable
quality at the time of purchase. Investment grade securities are securities that
are rated in one of the four highest rating categories by an NRSRO. Securities
rated in the lowest category of investment grade securities have speculative
characteristics. The Portfolio may also invest in debt securities rated below
investment grade (commonly known as "junk bonds") although the Portfolio will
not purchase such bonds if such investment would cause more than 5% of its net
assets to be so invested. Although there is no lower limit to the rating
assigned to a given security, in the event that a security held by the Portfolio
is downgraded below the stated rating categories, the Adviser will review and
take appropriate action with regard to the security.
The Portfolio anticipates that its annual portfolio turnover rate will not
exceed 100%, but the turnover rate will not be a limiting factor when the
Adviser deems portfolio changes appropriate. The turnover rate may vary greatly
from year to year. A high portfolio turnover rate may result in higher brokerage
commissions and higher levels of realized capital gains than if the turnover
rate was lower. The portfolio turnover rate for the Portfolio for the fiscal
period ended October 31, 1997 and the fiscal years ended October 31, 1998 and
1999 was 102.74%, 73.54% and 66.56%, respectively.
GENERAL INVESTMENT POLICIES
BORROWING
The Portfolio's fundamental investment limitations set forth the extent to which
the Portfolio may borrow money. However, the Portfolio's investment policy
further limits its borrowings as follows: (i) the Portfolio will not borrow
money except from banks for temporary or emergency purposes
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(e.g., to facilitate orderly redemption of its shares while avoiding untimely
disposition of portfolio holdings); (ii) the Portfolio will not borrow money in
excess of 10% of the value of its total assets (excluding the amount borrowed),
at the time of the borrowing; or (iii) mortgage, pledge or hypothecate any
assets except to secure permitted borrowings and then only in an amount not in
excess of 15% of the value of its total assets (excluding the amount borrowed)
at the time of such borrowings. The Portfolio will not borrow for the purpose of
leveraging its investment portfolio. The Portfolio may not purchase additional
securities while its outstanding borrowings exceed 5% of its total assets. The
Portfolio's investment policy with respect to borrowing may be changed by vote
of the Board of Trustees without a shareholder vote.
MONEY MARKET INSTRUMENTS; TEMPORARY DEFENSIVE INVESTMENTS
In order to meet liquidity needs, the Portfolio may hold cash reserves and
invest in money market instruments (including securities issued or guaranteed by
the United States Government, its agencies or instrumentalities, repurchase
agreements, certificates of deposit and bankers' acceptances issued by banks or
savings and loan associations having net assets of at least $500 million as of
the end of their most recent fiscal year and commercial paper) rated at time of
purchase in the top two categories by an NRSRO or determined to be of comparable
quality by the Adviser at the time of purchase.
For temporary defensive purposes when the Adviser determines that market
conditions warrant, the Portfolio may invest up to 100% of its assets in the
money market instruments described above and other long and short-term debt
instruments which are rated at time of purchase in the top two categories by an
NRSRO or determined to be of comparable quality by the Adviser at the time of
purchase, and may hold a portion of its assets in cash. To the extent the
Portfolio is engaged in temporary defensive investments, the Portfolio will not
be pursuing its investment objective.
NON-PUBLICLY TRADED SECURITIES AND RESTRICTED SECURITIES; RULE 144A SECURITIES
The Portfolio may invest in securities that are neither listed on a stock
exchange nor traded over-the-counter, including privately placed securities.
Such unlisted equity securities may involve a higher degree of business and
financial risk that can result in substantial losses. As a result of the absence
of a public trading market for these securities, they may be less liquid than
publicly traded securities. Although these securities may be resold in privately
negotiated transactions, the prices realized from these sales could be less than
those originally paid by the Portfolio or less than what may be considered the
fair value of such securities. Furthermore, companies whose securities are not
publicly traded may not be subject to the disclosure and other investor
protection requirements which might be applicable if their securities were
publicly traded. If such securities are required to be registered under the
securities laws of one or more jurisdictions before being resold, the Portfolio
may be required to bear the expenses of registration. The Portfolio may not
invest more than 15% of its net assets in illiquid securities, including
securities for which there is not a readily available secondary market.
The Portfolio may invest in Restricted Securities that can be offered and sold
to qualified institutional buyers under Rule 144A under that Act ("144A
Securities"). The Board of Trustees has
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adopted guidelines and delegated to the Adviser, subject to the supervision of
the Board of Trustees, the daily function of determining and monitoring the
liquidity of 144A Securities. 144A Securities may become illiquid if qualified
institutional buyers are not interested in acquiring the securities.
SECURITIES LENDING
The Portfolio may lend up to 33-1/3% of its total assets to qualified investors
for the purpose of realizing additional income; however, the Portfolio has no
present intention to lend its securities.
OPTIONS AND FUTURES
The Portfolio may purchase or write options, futures and options on futures for
the purpose of managing or hedging portfolio risks, to remain fully invested and
to reduce transaction costs. The Portfolio will not enter into futures
transactions for speculation or achieving leverage. Risks associated with
investing in options and futures may include lack of a liquid secondary market,
trading restrictions which may be imposed by an exchange, government regulations
which may restrict trading, an imperfect correlation between the prices of
securities held by the Portfolio and the price of an option or future.
DESCRIPTION OF PERMITTED INVESTMENTS
BANKERS' ACCEPTANCES -- A bankers' acceptance is a bill of exchange or time
draft drawn on and accepted by a commercial bank. It is used by corporations to
finance the shipment and storage of goods and to furnish dollar exchange.
Maturities are generally six months or less.
CERTIFICATES OF DEPOSIT -- A certificate of deposit is a negotiable,
interest-bearing instrument with a specific maturity. Certificates of deposit
are issued by banks and savings and loan institutions in exchange for the
deposit of funds, and normally can be traded in the secondary market prior to
maturity. Certificates of deposit have penalties for early withdrawal.
COMMERCIAL PAPER -- Commercial paper is the term used to designate unsecured,
short-term promissory notes issued by corporations and other entities.
Maturities on these issues vary from a day to nine months.
CONVERTIBLE SECURITIES -- Convertible securities are securities issued by
corporations that are exchangeable for a set number of another security at a
prestated price. The market value of a convertible security tends to move with
the market value of the underlying stock. The value of a convertible security is
also affected by prevailing interest rates, the credit quality of the issuer,
and any call option provisions.
EQUITY SECURITIES -- Equity securities represent ownership interests in a
company or corporation and include common stock, preferred stock, and warrants
and other rights to acquire such instruments. Investments in common stocks are
subject to market risks which may cause their prices to fluctuate over time. The
value of convertible securities is also affected by prevailing interest rates,
the credit quality of the issuer and any call provisions. Changes in the value
of portfolio securities
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will not necessarily affect cash income derived from these securities but will
affect the Portfolio's net asset value.
FIXED INCOME SECURITIES -- Fixed income securities are debt obligations issued
by corporations, municipalities and other borrowers. The market value of fixed
income investments will generally change in response to interest rate changes
and other factors. During periods of falling interest rates, the values of
outstanding fixed income securities generally rise. Conversely, during periods
of rising interest rates, the values of such securities generally decline.
Moreover, while securities with longer maturities tend to produce higher yields,
the prices of longer maturity securities are also subject to greater market
fluctuations as a result of changes in interest rates. Changes by recognized
agencies in the rating of any fixed income security and in the ability of an
issuer to make payments of interest and principal will also affect the value of
these investments. Changes in the value of portfolio securities will not affect
cash income derived from these securities but will affect the Portfolio's net
asset value.
FUTURE CONTRACTS AND OPTIONS ON FUTURE CONTRACTS -- Futures contracts provide
for the future sale by one party and purchase by another party of a specified
amount of a specific security at a specified future time and at a specified
price. An option on a futures contract gives the purchaser the right, in
exchange for a premium, to assume a position in a futures contract at a
specified exercise price during the term of the option.
The Portfolio may use futures contracts, and related options for bona fide
hedging purposes, to offset changes in the value of securities held or expected
to be acquired. They may also be used to minimize fluctuations in foreign
currencies or to gain exposure to a particular market or instrument. The
Portfolio will minimize the risk that it will be unable to close out a futures
contract by only entering into futures contracts which are traded on national
futures exchanges and for which there appears to be a liquid secondary market.
Index futures are futures contracts for various indices that are traded on
registered securities exchanges. An index futures contract obligates the seller
to deliver (and the purchaser to take) an amount of cash equal to a specific
dollar amount times the difference between the value of a specific index at the
close of the last trading day of the contract and the price at which the
agreement is made.
Although futures contracts by their terms call for actual delivery or acceptance
of the underlying securities, in most cases the contracts are closed out before
the settlement date without the making or taking of delivery. Closing out an
open futures position is done by taking an opposite position ("buying" a
contract which has previously been "sold" or "selling" a contract which has
previously been "purchased") in an identical contract to terminate the position.
Brokerage commissions are incurred when a futures contract is bought or sold.
Futures traders are required to make a good faith margin deposit in cash or
government securities with or for the account of a broker or custodian to
initiate and maintain open positions in futures contracts until a contract is
closed out. However, there is no certainty that a liquid secondary market will
exist for any particular futures contract at any specific time. Thus, it may not
be possible to close a futures position. In the event of adverse price
movements, the Portfolio would continue to
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be required to make daily cash payments to maintain its required margin. In such
situations, if the Portfolio has insufficient cash, it may have to sell
portfolio securities to meet daily margin requirements at a time when it may be
disadvantageous to do so. In addition, the Portfolio may be required to make
delivery of the instruments underlying the futures contracts they hold. The
inability to close options and futures positions also could have an adverse
impact on the ability to effectively hedge the underlying securities.
The risk of loss in trading futures contracts can be substantial, due both to
the low margin deposits required and the extremely high degree of leverage
involved in futures pricing. As a result, a relatively small price movement in a
futures contract may result in immediate and substantial loss (or gain) to the
Portfolio. For example, if at the time of purchase, 10% of the value of the
futures contract is deposited as margin, a subsequent 10% decrease in the value
of the futures contract would result in a total loss of the margin deposit,
before any deduction for the transaction costs, if the account were then closed
out. A 15% decrease would result in a loss equal to 150% of the original margin
deposit if the contract were closed out. Thus, a purchase or sale of a futures
contract may result in losses in excess of the amount invested in the contract.
However, because the Portfolio will be engaged in futures transactions only for
hedging purposes, the Adviser does not believe that the Portfolio will generally
be subject to the risks of loss frequently associated with futures transactions.
The Portfolio presumably would have sustained comparable losses if, instead of
the futures contract, they had invested in the underlying financial instrument
and sold it after the decline. The risk of loss from the purchase of options is
less as compared with the purchase or sale of futures contracts because the
maximum amount at risk is the premium paid for the option.
Utilization of futures transactions by the Portfolio does involve the risk of
imperfect or no correlation where the securities underlying futures contracts
have different maturities than the fund securities being hedged. It is also
possible that the Portfolio could both lose money on futures contracts and
experience a decline in value of its fund securities. There is also the risk of
loss by the Portfolio of margin deposits in the event of the bankruptcy of a
broker with whom the Portfolio has an open position in a futures contract or
related option.
Most futures exchanges limit the amount of fluctuation permitted in futures
contract prices during a single trading day. The daily limit establishes the
maximum amount that the price of a futures contract may vary either up or down
from the previous day's settlement price at the end of a trading session. Once
the daily limit has been reached in a particular type of contract, no trades may
be made on that day at a price beyond that limit. The daily limit governs only
price movement during a particular trading day and therefore does not limit
potential losses because the limit may prevent the liquidation of unfavorable
positions. Futures contract prices have occasionally moved to the daily limit
for several consecutive trading days with little or no trading, thereby
preventing prompt liquidation of future positions and subjecting some futures
traders to substantial losses.
ILLIQUID SECURITIES -- Illiquid securities are securities that cannot be
disposed of within seven days at approximately the price at which they are being
carried on the Fund's books. Illiquid securities include demand instruments with
a demand notice period exceeding seven days, securities for which there is no
secondary market, and repurchase agreements with durations over 7 days in
length.
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LOWER RATED SECURITIES --The Portfolio may invest in lower rated securities.
Lower rated securities (I.E., high yield securities or junk bonds) are more
likely to react to developments affecting market and credit risk than are more
highly rated securities, which primarily react to movements in the general level
of interest rates. Yields and market values of high yield securities will
fluctuate over time, reflecting not only changing interest rates but the
market's perception of credit quality and the outlook for economic growth. When
economic conditions appear to be deteriorating, medium to lower rated securities
may decline in value due to heightened concern over credit quality, regardless
of prevailing interest rates. Lower rated securities are defined as securities
below the fourth highest rating category by a nationally recognized statistical
rating organization ("NRSRO"). Such obligations are speculative and may be in
default. There is no bottom limit on the ratings of high-yield securities that
may be purchased or held by the Portfolio. Certain risk factors relating to
high-yield, high-risk securities are discussed below.
GROWTH OF HIGH-YIELD BOND, HIGH-RISK BOND MARKET. The widespread expansion
of government, consumer and corporate debt within the U.S. economy has made the
corporate sector more vulnerable to economic downturns or increased interest
rates. Further, an economic downturn could severely disrupt the market for lower
rated bonds and adversely affect the value of outstanding bonds and the ability
of the issuers to repay principal and interest.
SENSITIVITY TO INTEREST RATE AND ECONOMIC CHANGES. Lower rated bonds are
very sensitive to adverse economic changes and corporate developments. During an
economic downturn or substantial period of rising interest rates, highly
leveraged issuers may experience financial stress that would adversely affect
their ability to service their principal and interest payment obligations, to
meet projected business goals, and to obtain additional financing. If the issuer
of a bond defaulted on its obligations to pay interest or principal or entered
into bankruptcy proceedings, the Portfolio may incur losses or expenses in
seeking recovery of amounts owed to it. In addition, periods of economic
uncertainty and change can be expected to result in increased volatility of
market prices of high-yield, high-risk bonds and the Portfolio's net asset
value.
PAYMENT EXPECTATIONS. High-yield, high-risk bonds may contain redemption or
call provisions. If an issuer exercised these provisions in a declining interest
rate market, the Portfolio would have to replace the security with a lower
yielding security, resulting in a decreased return for investors. Conversely, a
high-yield, high-risk bond's value will decrease in a rising interest rate
market, as will the value of the Portfolio's assets. If the Portfolio
experiences significant unexpected net redemptions, this may force it to sell
high-yield, high-risk bonds without regard to their investment merits, thereby
decreasing the asset base upon which expenses can be spread and possibly
reducing the Portfolio's rate of return.
LIQUIDITY AND VALUATION. There may be little trading in the secondary
market for particular bonds, which may affect adversely the Portfolio's ability
to value accurately or dispose of such bonds. Adverse publicity and investor
perception, whether or not based on fundamental analysis, may decrease the
values and liquidity of high-yield, high-risk bonds, especially in a thin
market.
LEGISLATION. Federal laws require the divestiture by federally insured
savings and loan associations of their investments in lower rated bonds and
limit the deductibility of interest by
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certain corporate issuers of high-yield bonds. These laws could adversely affect
the Portfolio's net asset value and investment practices, the secondary market
for high-yield securities, the financial condition of issuers of these
securities and the value of outstanding high-yield securities.
TAXES. The Portfolio may purchase debt securities (such as zero-coupon or
pay-in-kind securities) that contain original issue discount. Original issue
discount that accrues in a taxable year is treated as earned by the Portfolio
and therefore is subject to the distribution requirements of the tax code.
Because the original issue discount earned by the Portfolio in a taxable year
may not be represented by cash income, the Portfolio may have to dispose of
other securities and use the proceeds to make distributions to shareholders.
MONEY MARKET INSTRUMENTS -- Money market securities are high-quality, U.S.
dollar-denominated, short-term debt instruments. They consist of: (i) bankers'
acceptances, certificates of deposits, notes and time deposits of highly-rated
U.S. banks and U.S. branches of foreign banks; (ii) U.S. Treasury obligations
and obligations issued or guaranteed by the agencies and instrumentalities of
the U.S. Government; (iii) high-quality commercial paper issued by U.S. and
foreign corporations; (iv) debt obligations with a maturity of one year or less
issued by corporations with outstanding high-quality commercial papers; and (v)
repurchase agreements involving any of the foregoing obligations entered into
with highly-rated banks and broker-dealers.
NON-DIVERSIFICATION -- Investment in the Portfolio, a non-diversified mutual
fund, may entail greater risk than would investment in a diversified investment
company because the concentration in securities of relatively few issuers could
result in greater fluctuation in the total market value of the Portfolio's
holdings. Any economic, political, or regulatory developments affecting the
value of the securities the Portfolio holds could have a greater impact on the
total value of the Portfolio's holdings than would be the case if the portfolio
securities were diversified among more issuers. The Portfolio intends to comply
with the diversification requirements of Subchapter M of the Internal Revenue
Code of 1986, as amended (the "Code"). In accordance with these requirements,
the Portfolio will not invest more than 5% of its total assets in any one
issuer; this limitation applies to 50% of the Portfolio's total assets.
OPTIONS --The Portfolio may write call options on a covered basis only, and will
not engage in option writing strategies for speculative purposes. A call option
gives the purchaser of such option the right to buy, and the writer, in this
case the Portfolio, the obligation to sell the underlying security at the
exercise price during the option period. The advantage to the Portfolio of
writing covered calls is that the Portfolio receives a premium that is
additional income. However, if the security rises in value, the Portfolio may
not fully participate in the market appreciation.
During the option period, a covered call option writer may be assigned an
exercise notice by the broker-dealer through whom such call option was sold
requiring the writer to deliver the underlying security against payment of the
exercise price. This obligation is terminated upon the expiration of the option
period or at such earlier time in which the writer effects a closing purchase
transaction. A closing purchase transaction is one in which the Portfolio, when
obligated as a writer of an option, terminates its obligation by purchasing an
option of the same series as the option previously written.
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A closing purchase transaction cannot be effected with respect to an option once
the option writer has received an exercise notice for such option.
Closing purchase transactions will ordinarily be effected to realize a profit on
an outstanding call option, to prevent an underlying security from being called,
to permit the sale of the underlying security or to enable the Portfolio to
write another call option on the underlying security with either a different
exercise price or expiration date or both. The Portfolio may realize a net gain
or loss from a closing purchase transaction depending upon whether the net
amount of the original premium received on the call option is more or less than
the cost of effecting the closing purchase transaction. Any loss incurred in a
closing purchase transaction may be partially or entirely offset by the premium
received from a sale of a different call option on the same underlying security.
Such a loss may also be wholly or partially offset by unrealized appreciation in
the market value of the underlying security.
If a call option expires unexercised, the Portfolio will realize a short-term
capital gain in the amount of the premium on the option, less the commission
paid. Such a gain, however, may be offset by depreciation in the market value of
the underlying security during the option period. If a call option is exercised,
the Portfolio will realize a gain or loss from the sale of the underlying
security equal to the difference between the cost of the underlying security,
and the proceeds of the sale of the security plus the amount of the premium on
the option, less the commission paid.
The market value of a call option generally reflects the market price of an
underlying security. Other principal factors affecting market value include
supply and demand, interest rates, the price volatility of the underlying
security, and the time remaining until the expiration date.
The Portfolio will write call options only on a covered basis, which means that
the Portfolio will own the underlying security subject to a call option at all
times during the option period. Unless a closing purchase transaction is
effected, the Portfolio would be required to continue to hold a security which
it might otherwise wish to sell, or deliver a security it would want to hold.
Options written by the Portfolio will normally have expiration dates between one
and nine months from the date written. The exercise price of a call option may
be below, equal to, or above the current market value of the underlying security
at the time the option is written.
REAL ESTATE INVESTMENT TRUSTS -- A REIT is a corporation or business trust (that
would otherwise be taxed as a corporation) which meets the definitional
requirements of the Code. The Code permits a qualifying REIT to deduct from
taxable income the dividends paid, thereby effectively eliminating corporate
level federal income tax and making the REIT a pass-through vehicle for federal
income tax purposes. To meet the definitional requirements of the Code, a REIT
must, among other things: invest substantially all of its assets in interests in
real estate (including mortgages and other REITs), cash and government
securities; derive most of its income from rents from real property or interest
on loans secured by mortgages on real property; and distribute annually 95% or
more of its otherwise taxable income to shareholders.
REITs are sometimes informally characterized as Equity REITs and Mortgage REITs.
An Equity REIT invests primarily in the fee ownership or leasehold ownership of
land and buildings; a
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Mortgage REIT invests primarily in mortgages on real property, which may secure
construction, development or long-term loans.
REITs in which the Portfolio invests may be affected by changes in underlying
real estate values, which may have an exaggerated effect to the extent that
REITs in which the Portfolio invests may concentrate investments in particular
geographic regions or property types. Additionally, rising interest rates may
cause investors in REITs to demand a higher annual yield from future
distributions, which may in turn decrease market prices for equity securities
issued by REITs. Rising interest rates also generally increase the costs of
obtaining financing, which could cause the value of the Portfolio's investments
to decline. During periods of declining interest rates, certain Mortgage REITs
may hold mortgages that the mortgagors elect to prepay, which prepayment may
diminish the yield on securities issued by such Mortgage REITs. In addition,
Mortgage REITs may be affected by the ability of borrowers to repay when due the
debt extended by the REIT and Equity REITs may be affected by the ability of
tenants to pay rent.
Certain REITs have relatively small market capitalization, which may tend to
increase the volatility of the market price of securities issued by such REITs.
Furthermore, REITs are dependent upon specialized management skills, have
limited diversification and are, therefore, subject to risks inherent in
operating and financing a limited number of projects. By investing in REITs
indirectly through the Portfolio, a shareholder will bear not only his
proportionate share of the expenses of the Portfolio, but also, indirectly,
similar expenses of the REITs. REITs depend generally on their ability to
generate cash flow to make distributions to shareholders.
In addition to these risks, Equity REITs may be affected by changes in the value
of the underlying property owned by the trusts, while Mortgage REITs may be
affected by the quality of any credit extended. Further, Equity and Mortgage
REITs are dependent upon management skills and generally may not be diversified.
Equity and Mortgage REITs are also subject to heavy cash flow dependency
defaults by borrowers and self-liquidation. In addition, Equity and Mortgage
REITs could possibly fail to qualify for tax free pass-through of income under
the Code or to maintain their exemptions from registration under the Investment
Company Act of 1940, as amended (the "1940 Act"). The above factors may also
adversely affect a borrower's or a lessee's ability to meet its obligations to
the REIT. In the event of a default by a borrower or lessee, the REIT may
experience delays in enforcing its rights as a mortgagee or lessor and may incur
substantial costs associated with protecting its investments.
REAL ESTATE SECURITIES --The Portfolio may be subject to the risks associated
with the direct ownership of real estate because of its policy of concentration
in the securities of companies principally engaged in the real estate industry.
For example, real estate values may fluctuate as a result of general and local
economic conditions, overbuilding and increased competition, increases in
property taxes and operating expenses, demographic trends and variations in
rental income, changes in zoning laws, casualty or condemnation losses,
regulatory limitations on rents, changes in neighborhood values, related party
risks, changes in how appealing properties are to tenants, changes in interest
rates and other real estate capital market influences. The value of securities
of companies which service the real estate business sector may also be affected
by such risks.
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Because the Portfolio may invest a substantial portion of its assets in REITs,
the Portfolio may also be subject to certain risks associated with the direct
investments of the REITs. REITs may be affected by changes in the value of their
underlying properties and by defaults by borrowers or tenants. Mortgage REITs
may be affected by the quality of the credit extended. Furthermore, REITs are
dependent on specialized management skills. Some REITs may have limited
diversification and may be subject to risks inherent in financing a limited
number of properties. REITs depend generally on their ability to generate cash
flow to make distributions to shareholders or unit holders, and may be subject
to defaults by borrowers and to self-liquidations. In addition, the performance
of a REIT may be affected by its failure to qualify for tax-free pass-through of
income under the Code or its failure to maintain exemption from registration
under the 1940 Act. Changes in prevailing interest rates may inversely affect
the value of the debt securities in which the Portfolio will invest. Changes in
the value of portfolio securities will not necessarily affect cash income
derived from these securities but will affect the Portfolio's net asset value.
Generally, increases in interest rates will increase the costs of obtaining
financing which could directly and indirectly decrease the value of the
Portfolio's investments.
REPURCHASE AGREEMENTS -- Repurchase agreements are agreements by which a person
(e.g., the Portfolio) obtains a security and simultaneously commits to return
the security to the seller (a member bank of the Federal Reserve System or
primary securities dealer as recognized by the Federal Reserve Bank of New York)
at an agreed upon price (including principal and interest) on an agreed upon
date within a number of days (usually not more than seven) from the date of
purchase. The resale price reflects the purchase price plus an agreed upon
market rate of interest which is unrelated to the coupon rate or maturity of the
underlying security. A repurchase agreement involves the obligation of the
seller to pay the agreed upon price, which obligation is in effect secured by
the value of the underlying security.
Repurchase agreements are considered to be loans by the Portfolio for purposes
of its investment limitations. The repurchase agreements entered into by the
Portfolio will provide that the underlying security at all times shall have a
value at least equal to 102% of the resale price stated in the agreement (the
Adviser monitors compliance with this requirement). Under all repurchase
agreements entered into by the Portfolio, the custodian or its agent must take
possession of the underlying collateral. However, if the seller defaults, the
Portfolio could realize a loss on the sale of the underlying security to the
extent that the proceeds of the sale, including accrued interest, are less than
the resale price provided in the agreement including interest. In addition, even
though the Bankruptcy Code provides protection for most repurchase agreements,
if the seller should be involved in bankruptcy or insolvency proceedings, the
Portfolio may incur delay and costs in selling the underlying security or may
suffer a loss of principal and interest if the Portfolio is treated as an
unsecured creditor and is required to return the underlying security to the
seller's estate.
RESTRICTED SECURITIES -- Restricted securities are securities that may not be
sold freely to the public absent registration under the Securities Act of 1933,
as amended (the "1933 Act"), or an exemption from registration. Section 4(2)
commercial paper is issued in reliance on an exemption from registration under
Section 4(2) of the 1933 Act, and is generally sold to institutional investors
who purchase for investment. Any resale of such commercial paper must be in an
exempt transaction, usually to an institutional investor through the issuer or
investment dealers who make
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a market on such commercial paper. Rule 144A securities are securities re-sold
in reliance on an exemption from registration provided by Rule 144A under the
1933 Act.
SECURITIES LENDING -- In order to generate additional income, the Portfolio may
lend its securities pursuant to agreements requiring that the loans be
continuously secured by cash, securities of the U.S. Government or its agencies,
or any combination of cash and such securities, in an amount at least equal to
the market value of the loaned securities. Loans are made only to borrowers
deemed by the Adviser to be in good standing and when, in the judgment of the
Adviser, the consideration that can be earned currently from such loaned
securities justifies the attendant risk. Any loan may be terminated by either
party upon reasonable notice to the other party. The Portfolio may use the
Distributor as a broker in these transactions.
TIME DEPOSITS -- Time deposits are non-negotiable receipts issued by a bank in
exchange for the deposit of funds. Like a certificate of deposit, it earns a
specified rate of interest over a definite period of time; however, it cannot be
traded in the secondary market. Time deposits with a withdrawal penalty or that
mature in more than seven days are considered to be illiquid securities.
VARIABLE AND FLOATING RATE INSTRUMENTS -- Variable and floating rate instruments
involve certain obligations that may carry variable or floating rates of
interest, and may involve a conditional or unconditional demand feature. Such
instruments bear interest at rates which are not fixed, but which vary with
changes in specified market rates or indices. The interest rates on these
securities may be reset daily, weekly, quarterly, or some other reset period,
and may have a set floor or ceiling on interest rate changes. There is a risk
that the current interest rate on such obligations may not accurately reflect
existing market interest rates. A demand instrument with a demand notice
exceeding seven days may be considered illiquid if there is no secondary market
for such security.
WHEN-ISSUED SECURITIES -- When-Issued securities are securities that involve the
purchase of debt obligations on a when-issued basis, in which case delivery and
payment normally take place within 45 days after the date of commitment to
purchase. The Portfolio will only make commitments to purchase obligations on a
when-issued basis with the intention of actually acquiring the securities, but
may sell them before the settlement date. The when-issued securities are subject
to market fluctuation, and no interest accrues to the purchaser during this
period. The payment obligation and the interest rate that will be received on
the securities are each fixed at the time the purchaser enters into the
commitment. Purchasing when-issued obligations results in leveraging, and can
involve a risk that the yields available in the market when the delivery takes
place may actually be higher than those obtained in the transaction itself. In
that case there could be an unrealized loss at the time of delivery. The
Portfolio will establish a segregated account with the Custodian and maintain
liquid assets in an amount at least equal in value to that Portfolio's
commitments to purchase when-issued securities. If the value of these assets
declines, the Portfolio involved will place additional liquid assets in the
account on a daily basis so that the value of the assets in the account is equal
to the amount of such commitments. Currently, the Portfolio intends to limit its
commitments to purchase when-issued securities to less than 5% of its net
assets.
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<PAGE>
OTHER INVESTMENTS
The Portfolio is not prohibited from investing in obligations of banks that are
clients of SEI Investments Company ("SEI Investments"). However, the purchase of
shares of the Portfolio by them or by their customers will not be a
consideration in determining which bank obligations the Portfolio will purchase.
The Portfolio will not purchase obligations of any of the advisers to the
Portfolio. Distributions by the Portfolio out of income from taxable securities
will generally be taxable to shareholders of such Portfolio as ordinary income.
INVESTMENT COMPANY SHARES
The Portfolio may invest in shares of other investment companies, to the extent
permitted by applicable law and subject to certain restrictions. These
investment companies typically incur fees that are separate from those fees
incurred directly by the Portfolio. The Portfolio's purchase of such investment
company securities results in the layering of expenses, such that shareholders
would indirectly bear a proportionate share of the operating expenses of such
investment companies, including advisory fees, in addition to paying Portfolio
expenses. Under applicable regulations, the Portfolio is prohibited from
acquiring the securities of another investment company if, as a result of such
acquisition: (1) the Portfolio owns more than 3% of the total voting stock of
the other company; (2) securities issued by any one investment company represent
more than 5% of the Portfolio's total assets; or (3) securities (other than
treasury stock) issued by all investment companies represent more than 10% of
the total assets of the Portfolio. Additionally, the Portfolio currently intends
to limit its investment in shares of other investment companies to less than 5%
of its net assets. See also "Investment Limitations."
INVESTMENT LIMITATIONS
FUNDAMENTAL POLICIES
The following investment limitations are fundamental policies of the Portfolio
that cannot be changed without the consent of the holders of a majority of the
Portfolio's outstanding shares. The phrase "majority of the outstanding shares"
means the vote of (i) 67% or more of the Portfolio's shares present at a
meeting, if more than 50% of the outstanding shares of the Portfolio are present
or represented by proxy, or (ii) more than 50% of the Portfolio's outstanding
shares, whichever is less. The Portfolio is classified as a "non-diversified"
investment company under the 1940 Act, which means that the Portfolio is not
limited by the 1940 Act in the proportion of its assets that may be invested in
the securities of a single issuer. However, the Portfolio intends to conduct its
operations so as to qualify as a regulated investment company for purposes of
the Code, which will relieve the Portfolio of any liability for federal income
tax to the extent its earnings are distributed to shareholders. See "Taxes" in
the Prospectus.
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<PAGE>
The Portfolio may not:
1. Purchase or sell real estate, except that the Portfolio may purchase
securities issued by companies primarily engaged in the real estate
industry and will, as a matter of fundamental policy, concentrate its
investments in such securities of companies principally engaged in the real
estate business.
2. Make short sales of securities, maintain a short position or purchase
securities on margin, except that the Portfolio may obtain short-term
credits as necessary for the clearance of security transactions.
3. Acquire more than 10% of the voting securities of any one issuer.
4. Invest in companies for the purpose of exercising control.
5. Issue any class of senior security or sell any senior security of which it
is the issuer, except that the Portfolio may borrow from any bank, provided
that immediately after any such borrowing there is asset coverage of at
least 300% for all borrowings of the Portfolio, and further provided that,
to the extent that such borrowings exceed 5% of the Portfolio's total
assets, all borrowings shall be repaid before the Portfolio makes
additional investments. The term "senior security" shall not include any
temporary borrowings that do not exceed 5% of the value of the Portfolio's
total assets at the time the Portfolio makes such temporary borrowing. In
addition, investment strategies that either obligate the Portfolio to
purchase securities or require the Portfolio to segregate assets will not
be considered borrowings or senior securities. This investment limitation
shall not preclude the Portfolio from issuing multiple classes of shares in
reliance on SEC rules or orders.
6. Make loans if, as a result, more than 33 1/3% of its total assets would be
lent to other parties, except that the Portfolio may (i) purchase or hold
debt instruments in accordance with its investment objective and policies;
(ii) enter into repurchase agreements; and (iii) lend its securities.
7. Purchase or sell real estate, physical commodities, or commodities
contracts, except that the Portfolio may purchase (i) marketable securities
issued by companies which own or invest in real estate (including real
estate investment trusts), commodities or commodities contracts, and (ii)
commodities contracts relating to financial instruments, such as financial
futures contracts and options on such contracts.
8. Act as an underwriter of securities of other issuers except as it may be
deemed an underwriter in selling a portfolio security.
9. Purchase securities of other investment companies except as permitted by
the 1940 Act and the rules and regulations thereunder.
The foregoing percentages will apply at the time of the purchase of a security.
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<PAGE>
In addition to the foregoing fundamental limitations, it is a fundamental policy
of the Portfolio to concentrate in securities issued by companies primarily
engaged in the real estate industry.
NON-FUNDAMENTAL POLICIES
The following investment limitation of the Portfolio is non-fundamental and may
be changed by the Fund's Board of Trustees without shareholder approval:
1. The Portfolio may not invest in illiquid securities in an amount exceeding,
in the aggregate, 15% of the Portfolio's net assets.
THE ADVISER
The Fund and Clarion CRA Securities, L.P. (the "Adviser") have entered into an
advisory agreement with respect to the Portfolio (the "Advisory Agreement"). The
Advisory Agreement provides that the Adviser shall not be protected against any
liability to the Fund or its shareholders by reason of willful misfeasance, bad
faith or gross negligence on its part in the performance of its duties or from
reckless disregard of its obligations or duties thereunder.
The Adviser is a registered investment adviser and through its predecessors has
been managing investments in real estate securities on behalf of institutional
investors since 1984. Clarion CRA Securities, L.P. a wholly owned subsidiary of
Nationale - Nederlanden Interfinance, B.V. and its subsidiaries (collectively,
"ING"), a member of the ING Group. ING is a multinational, integrated financial
services company based in the Netherlands . ING operates in more than 60
countries and has total assets of more than $450 billion. As of December 31,
1999, the Adviser had approximately $1.4 billion in assets under management. The
principal business address of the Adviser is Suite 205, 259 North Radnor-Chester
Road, Radnor, Pennsylvania 19087.
The Adviser uses a two part investment approach comprised of securities analysis
and portfolio allocation. For securities analysis, the Adviser employs
proprietary analytical techniques and databases to identify companies offering,
in the Adviser's view, above-average investment value. For portfolio allocation
purposes, CRA draws upon the proprietary private real estate market knowledge of
its affiliate Clarion Partners, which manages approximately $6 billion of real
estate on behalf of its pension clients. The Adviser uses systematic, top-down
research to evaluate property market conditions and trends and to make
judgements regarding which market sectors offer potentially attractive returns.
The Adviser serves as the investment adviser for the Portfolio under the
Advisory Agreement with the Fund. Under the Advisory Agreement, the Adviser
makes the investment decisions for the assets of the Portfolio and continuously
reviews, supervises and administers the investment program of the
Portfolio,subject to the supervision of, and policies established by, the
Trustees of the Fund.
For its services, the Adviser is entitled to a fee, which is calculated daily
and paid monthly, at an annual rate of 0.70% of the average daily net assets of
the Portfolio. The Adviser has voluntarily agreed to waive all or a portion of
its fee for the Portfolio and to reimburse expenses of the Portfolio
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in order to limit total operating expenses to an annual rate of not more than
1.25% of average daily net assets for Class A shares and 1.00% of average daily
net assets for Institutional shares. The Adviser reserves the right, in its sole
discretion, to terminate its voluntary fee waivers and reimbursements at any
time.
For the fiscal period ended October 31, 1997 and the fiscal years ended October
31, 1998 and October 31, 1999, the Adviser was paid $35,870, $232,000 and
$342,233 respectively, and waived fees of $84,679, $78,000 and $64,407,
respectively, with respect to the Portfolio.
The continuance of the Advisory Agreement must be specifically approved at least
annually (i) by the vote of the Trustees or by a vote of the shareholders of the
Fund, and (ii) by the vote of a majority of the Trustees who are not parties to
the Agreement or "interested persons" of any party thereto, cast in person at a
meeting called for the purpose of voting on such approval. The Advisory
Agreement will terminate automatically in the event of its assignment, and is
terminable at any time without penalty by the Trustees of the Trust or, with
respect to the Fund, by a majority of the outstanding shares of the Fund, on not
less than 30 days' nor more than 60 days' written notice to the Adviser, or by
the Adviser on 90 days' written notice to the Trust.
PORTFOLIO MANAGERS
Kenneth D. Campbell and T. Ritson Ferguson, CFA have shared primary
responsibility for managing the assets of the Portfolio since commencement of
operations.
KENNETH D. CAMPBELL is the Chairman, Co-Chief Investment Officer and
Co-Portfolio Manager of the Adviser. Mr. Campbell has been with the Adviser and
its predecessors since 1969, and has managed real estate securities portfolios
since 1980 for a select number of institutional and individual accounts. An MBA
graduate with distinction from New York University and a BA from Capital
University, Mr. Campbell founded and published REALTY STOCK REVIEW, an industry
advisory service, from 1970 until its sale in 1990. He is the editor and
principal author of several book-length investment studies of REITs, including
REAL ESTATE INVESTMENT TRUSTS: AMERICA'S NEWEST BILLIONAIRES (1971). He received
the REIT Industry Leadership Award from the National Association of Real Estate
Investment Trusts (NAREIT) in 1996. He is a member of the New York and
Philadelphia Societies of Security Analysts, the Real Estate Analyst's Group and
an associate member of NAREIT.
T. RITSON FERGUSON, CFA is President, Co-Chief Investment Officer and
Co-Portfolio Manager of the Adviser. Mr. Ferguson provides oversight of CRA's
operations and is a member of the firm's Investment Policy Committee and
Investment Committee. Mr. Ferguson has been a portfolio manager with the Adviser
and its predecessors since 1992. Before joining CRA, Mr. Ferguson gained
extensive direct real estate investment experience at Radnor Advisors and
Trammell Crow Company where he was involved in all facets of the acquisition,
development and management of commercial real estate since 1986. Mr. Ferguson
also served as a Captain in the U.S. Air Force. He received his MBA with
distinction from Wharton (University of Pennsylvania) and holds a B.S. from Duke
University (summa cum laude, Phi Beta Kappa). Mr. Ferguson studied at Oxford
University
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as an A.B. Duke Scholar. He is a member of the Financial Analysts of
Philadelphia and an associate member of NAREIT. He is a Chartered Financial
Analyst (CFA).
THE ADMINISTRATOR
SEI Investments Mutual Funds Services (the "Administrator") serves as the
administrator of the Fund. The Administrator provides the Fund with
administrative services, including regulatory reporting and all necessary office
space, equipment, personnel and facilities. For these administrative services,
the Administrator is entitled to a fee from the Portfolio, which fee is
calculated daily and paid monthly, at an annual rate of 0.15% of the first $100
million of the Portfolio's average daily net assets; 0.125% of the next $100
million of the Portfolio's average daily net assets; 0.10% of the next $100
million of the Portfolio's average daily net assets; and 0.08% of the
Portfolio's average daily net assets over $300 million. However, the Portfolio
pays the Administrator a minimum annual fee of $75,000.
The Administration Agreement provides that the Administrator shall not be liable
for any error of judgment or mistake of law or for any loss suffered by the
Portfolio in connection with the matters to which the Administration Agreement
relates, except a loss resulting from willful misfeasance, bad faith or gross
negligence on the part of the Administrator in the performance of its duties or
from reckless disregard of its duties and obligations thereunder.
For the fiscal period ended October 31, 1997 and the fiscal years ended October
31, 1998 and 1999, the Administrator received a fee of $38,014, $75,000 and
$87,875 respectively, from the Portfolio and voluntarily waived fees of $24,486,
$0 and $0, respectively.
The Administration Agreement shall remain effective for the initial term of the
Agreement and each renewal term thereof unless earlier terminated (a) by the
mutual written agreement of the parties; (b) by either party of the
Administration Agreement on 90 days' written notice, as of the end of the
initial term or the end of any renewal term; (c) by either party of the
Administration Agreement on such date as is specified in written notice given by
the terminating party, in the event of a material breach of the Administration
Agreement by the other party, provided the terminating party has notified the
other party of such breach at least 45 days prior to the specified date of
termination and the breaching party has not remedied such breach by the
specified date; (d) effective upon the liquidation of the Administrator; or (e)
as to the Portfolio or the Fund, effective upon the liquidation of the Portfolio
or the Fund, as the case may be.
The Administrator, a Delaware business trust, has its principal business offices
at Oaks, Pennsylvania 19456. SEI Investments Management Corporation ("SIMC"), a
wholly-owned subsidiary of SEI Investments Company ("SEI Investments"), is the
owner of all beneficial interest in the Administrator. SEI Investments and its
subsidiaries and affiliates, including the Administrator, are leading providers
of funds evaluation services, trust accounting systems, and brokerage and
information services to financial institutions, institutional investors, and
money managers. The Administrator and its affiliates also serve as administrator
or sub-administrator to the following other mutual funds: The Achievement Funds
Trust, Alpha Select Funds, Amerindo Funds, Inc., The Arbor Fund, ARK Funds,
Armada Funds, Bishop Street Funds, Boston 1784 Funds-Registered Trademark-,
CNI Charter Funds, CUFUND, The Expedition Funds, First American Funds, Inc.,
First
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<PAGE>
American Investment Funds, Inc., First American Strategy Funds, Inc., HighMark
Funds, Huntington Funds, The Nevis Funds, Inc., Oak Associates Funds, The
Parkstone Advantage Fund, The PBHG Funds, Inc., PBHG Insurance Series Fund,
Inc., The Pillar Funds, SEI Asset Allocation Trust, SEI Daily Income Trust, SEI
Index Funds, SEI Institutional International Trust, SEI Institutional
Investments Trust, SEI Institutional Managed Trust, SEI Liquid Asset Trust, SEI
Tax Exempt Trust, STI Classic Funds, STI Classic Variable Trust, TIP Funds, UAM
Funds Trust, UAM Funds, Inc. II, and UAM Funds, Inc.
If operating expenses of any Fund exceed limitations established by certain
states, the Administrator will pay such excess. The Administrator will not be
required to bear expenses of any Fund to an extent which would result in the
Fund's inability to qualify as a "regulated investment company" ("RIC") under
provisions of the Code. The term "expenses" is defined in such laws or
regulations, and generally excludes brokerage commissions, distribution
expenses, taxes, interest and extraordinary expenses.
THE DISTRIBUTOR
SEI Investments Distribution Co. (the "Distributor"), a wholly-owned subsidiary
of SEI Investments, and the Fund are parties to a distribution agreement (the
"Distribution Agreement"). The Distributor will not receive compensation for
distribution of shares of the Portfolio.
The Distribution Agreement shall remain in effect for a period of two years
after the effective date of the agreement and is renewable annually. The
Distribution Agreement may be terminated by the Distributor, by a majority vote
of the Trustees who are not interested persons and have no financial interest in
the Distribution Agreement or by a majority vote of the outstanding securities
of the Fund upon not more than 60 days' written notice by either party or upon
assignment by the Distributor.
CLASS A PLAN
Class A Shares of the Portfolio are subject to the terms of a distribution plan
adopted in May 1998 (the "Class A Plan"). The Class A Plan provides that the
Class A shares of the Portfolio will pay the Distributor a fee of .25% of the
average daily net assets of the Class A shares which the Distributor may make
payments pursuant to written agreements to financial institutions and
intermediaries such as banks, savings and loan associations, insurance companies
including, without limit, other subsidiaries and affiliates of Clarion CRA
Securities, investment counselors, broker-dealers and the Distributor's
affiliates and subsidiaries (collectively, "Agents") as compensation for
services, reimbursement of expenses incurred in connection with distribution
assistance or provision of shareholder services. The Class A Plan is
characterized as a compensation plan since the distribution fee will be paid to
the Distributor without regard to the distribution or shareholder service
expenses incurred by the Distributor or the amount of payments made to other
financial institutions and intermediaries. Investors should understand that some
Agents may charge their clients fees in connection with purchases of Class A
shares or the provision of shareholder services with respect to Class A shares.
The Fund intends to operate the Class A Plan in accordance with its terms and
with the Conduct Rules of the National Association of Securities Dealers, Inc.
("NASD Rules") concerning sales charges.
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<PAGE>
The Fund has adopted the Class A Plan in accordance with the provisions of Rule
12b-1 under the 1940 Act, which regulates circumstances under which an
investment company may directly or indirectly bear expenses relating to the
distribution of its shares. Continuance of the Class A Plan must be approved
annually by a majority of the Trustees of the Fund and by a majority of the
Trustees who are not parties to the Distribution Agreement or interested persons
(as defined by the 1940 Act) of any party to the Distribution Agreement
("Qualified Trustees"). The Class A Plan requires that quarterly written reports
of amounts spent under the Class A Plan and the purposes of such expenditures be
furnished to and reviewed by the Trustees. The Class A Plan may not be amended
to increase materially the amount which may be spent thereunder without approval
by a majority of the outstanding Class A shares of the Portfolio. All material
amendments of the Plan will require approval by a majority of the Trustees of
the Fund and of the Qualified Trustees.
As of the fiscal year ended October 31, 1999, Class A shares were not available
to investors.
THE TRANSFER AGENT
DST Systems, Inc., 333 W. 12th Street, Kansas City, MO 64105 serves as the
Fund's transfer agent.
THE CUSTODIAN
First Union National Bank, 123 S. Broad Street, Philadelphia, Pennsylvania 19109
acts as custodian (the "Custodian") of the Fund. The Custodian holds cash,
securities and other assets of the Fund as required by the 1940 Act.
INDEPENDENT PUBLIC ACCOUNTANTS
Arthur Andersen LLP serves as independent public accountants for the Fund.
LEGAL COUNSEL
Morgan, Lewis & Bockius LLP, serves as legal counsel to the Fund.
TRUSTEES AND OFFICERS OF THE FUND
The management and affairs of the Fund are supervised by the Trustees under the
laws of the Commonwealth of Massachusetts. The Trustees have approved contracts
under which, as described above, certain companies provide essential management
services to the Fund. The Fund pays the fees for unaffiliated Trustees.
The Trustees and Executive Officers of the Fund, their respective dates of
birth, and their principal occupations for the last five years are set forth
below. Each may have held other positions with the named companies during that
period. Unless otherwise noted, the business address of each Trustee and each
Executive Officer is SEI Investments Company, Oaks, Pennsylvania 19456. Certain
officers of the Fund also serve as officers of some or all of the following: The
Achievement Funds
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Trust, Alpha Select Funds, Amerindo Funds, Inc., The Arbor Fund, ARK Funds,
Armada Funds, Bishop Street Funds, Boston 1784 Funds-Registered Trademark-,
CNI Charter Funds, CUFUND, The Expedition Funds, First American Funds, Inc.,
First American Investment Funds, Inc., First American Strategy Funds, Inc.,
HighMark Funds, Huntington Funds, The Nevis Funds, Inc., Oak Associates
Funds, The Parkstone Advantage Fund, The PBHG Funds, Inc., PBHG Insurance
Series Fund, Inc., The Pillar Funds, SEI Asset Allocation Trust, SEI Daily
Income Trust, SEI Index Funds, SEI Institutional International Trust, SEI
Institutional Investments Trust, SEI Institutional Managed Trust, SEI Liquid
Asset Trust, SEI Tax Exempt Trust, STI Classic Funds, STI Classic Variable
Trust, TIP Funds, UAM Funds Trust, UAM Funds, Inc. II, and UAM Funds, Inc.,
each of which is an open-end management investment company managed by SEI
Investments Mutual Funds Services or its affiliates and, except for PBHG
Advisor Funds, Inc., distributed by SEI Investments Distribution Co.
ROBERT A. NESHER (DOB 08/17/46) -- Chairman of the Board of Trustees* --
Currently performs various services on behalf of SEI Investments for
which Mr. Nesher is compensated. Executive Vice President of SEI Investments,
1986-1994. Director and Executive Vice President of the Administrator and
the Distributor, 1981-1994. Trustee of The Arbor Fund, Boston 1784
Funds-Registered Trademark-, The Expedition Funds, Oak Associates Funds,
Pillar Funds, SEI Asset Allocation Trust, SEI Daily Income Trust, SEI Index
Funds, SEI Institutional Investments Trust, SEI Institutional Managed Trust,
SEI Institutional International Trust, SEI Liquid Asset Trust and SEI Tax
Exempt Trust.
JOHN T. COONEY (DOB 01/20/27) -- Trustee** -- Vice Chairman of Ameritrust Texas
N.A., 1989-1992, and MTrust Corp., 1985-1989. Trustee of The Arbor Fund, The
Expedition Funds, and Oak Associates Funds.
WILLIAM M. DORAN (DOB 05/26/40) -- Trustee* --1701 Market Street, Philadelphia,
PA 19103-2921. Partner, Morgan, Lewis & Bockius LLP (law firm), counsel to the
Trust, SEI Investments, the Administrator and the Distributor. Director and
Secretary of SEI Investments and Secretary of the Administrator and the
Distributor. Trustee of The Arbor Fund, The Expedition Funds, Oak Associates
Funds, SEI Asset Allocation Trust, SEI Daily Income Trust, SEI Index Funds, SEI
Institutional Investments Trust, SEI Institutional Managed Trust, SEI
Institutional International Trust, SEI Liquid Asset Trust and SEI Tax Exempt
Trust.
ROBERT A. PATTERSON (DOB 11/05/27) -- Trustee** -- Pennsylvania State
University, Senior Vice President, Treasurer (Emeritus). Financial and
Investment Consultant, Professor of Transportation (1984-present). Vice
President-Investments, Treasurer, Senior Vice President (Emeritus) (1982-1984).
Director, Pennsylvania Research Corp.; Member and Treasurer, Board of Trustees
of Grove City College. Trustee of The Arbor Fund, The Expedition Funds and Oak
Associates Funds.
EUGENE B. PETERS (DOB 06/03/29) -- Trustee** -- Private investor from 1987 to
present. Vice President and Chief Financial Officer, Western Company of North
America (petroleum service company) (1980-1986). President of Gene Peters and
Associates (import company) (1978-1980). President and Chief Executive Officer
of Jos. Schlitz Brewing Company before 1978. Trustee of The Arbor Fund, The
Expedition Funds and Oak Associates Funds.
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JAMES M. STOREY (DOB 04/12/31) -- Trustee** -- Partner, Dechert Price & Rhoads,
from September 1987 - December 1993; Trustee of The Arbor Fund, The Expedition
Funds, Oak Associates Funds, SEI Asset Allocation Trust, SEI Daily Income Trust,
SEI Index Funds, SEI Institutional Investments Trust, SEI Institutional Managed
Trust, SEI Institutional International Trust, SEI Liquid Asset Trust and SEI Tax
Exempt Trust.
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 Liquid Asset Trust, SEI
Institutional Investments Trust, SEI Institutional Managed Trust, SEI
Institutional International Trust, and SEI Tax Exempt Trust.
MARK E. NAGLE (DOB 10/20/59) -- Controller and Chief Financial Officer --
President of the Administrator and Senior Vice President of SEI Investments
Mutual Funds Services Operations Group since 1998. Vice President of the
Administrator and Vice President of Fund Accounting and Administration of SEI
Investments Mutual Fund Services, 1996- 1998. Vice President of the Distributor
since December 1997. Senior Vice President, Fund Administration, BISYS Fund
Services, September 1995 - November 1996. Senior Vice President and Site
Manager, Fidelity Investments 1981 - September 1995.
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 LLP (1997-1999). Associate at Richter, Miller & Finn LLP
(1994-1997).
TODD B. CIPPERMAN (DOB 02/14/66) -- Vice President and Assistant Secretary --
General Counsel of SEI Investments since 2000. Vice President and Assistant
Secretary of SEI Investments, the Administrator and the Distributor since 1995.
Associate, Dewey Ballantine (law firm), 1994-1995. Associate, Winston & Strawn
(law firm) 1991-1994.
JAMES R. FOGGO (DOB 06/30/64) -- Vice President and Assistant Secretary -- Vice
President and Assistant Secretary of SEI Investments since 1998. 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.
LYDIA A. GAVALIS (DOB 06/05/64) -- Vice President and Assistant Secretary --
Vice President and Assistant Secretary of the Administrator and the Distributor
since 1998. Assistant General Counsel and Director of Arbitration, Philadelphia
Stock Exchange, 1989-1998.
S-23
<PAGE>
KEVIN P. ROBINS (DOB 04/15/61) -- Vice President and Assistant Secretary --
Senior Vice President and General Counsel of SEI Investments, the Administrator
and the Distributor since 1994. Assistant Secretary of SEI Investments since
1992; Secretary of the Administrator since 1994. Vice President, General Counsel
and Assistant Secretary of the Administrator and the Distributor, 1992-1994.
Associate, Morgan, Lewis & Bockius LLP (law firm), 1988-1992.
LYNDA J. STRIEGEL (DOB 10/30/48) -- Vice President and Assistant Secretary --
Vice President and Assistant Secretary of the Administrator and the Distributor
since 1998. Senior Asset Management Counsel, Barnett Banks, Inc., 1997-1998.
Partner, Groom and Nordberg, Chartered, 1996-1997. Associate General Counsel,
Riggs Bank, N.A., 1991-1995.
JOHN H. GRADY, JR. (DOB 06/01/61) -- Secretary --1701 Market Street,
Philadelphia, PA 19103-2921, Partner since 1995, Morgan, Lewis & Bockius LLP
(law firm), counsel to the Trust, SEI Investments, the Administrator and the
Distributor.
RICHARD W. GRANT (DOB 10/25/45) -- Assistant Secretary -- 1701 Market Street,
Philadelphia, PA 19103. Partner, Morgan, Lewis & Bockius LLP (law firm), counsel
to the Trust, 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 Fund pays the fees for unaffiliated Trustees.
The following table exhibits Trustee compensation for the fiscal period ended
October 31, 1999.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
Total Compensation
From Registrant and
Aggregate Compensation Pension or Fund Complex* Paid
From Registrant for Retirement Benefits Estimated Annual to Trustees for the
the Fiscal Year Ended Accrued as Part of Benefits Upon Fiscal Year Ended
Name of Person, Position October 31, 1999 Fund Expenses Retirement October 31, 1999
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
John T. Cooney $9,571.48 N/A N/A $9,571.48 for
services on 1 board
- --------------------------------------------------------------------------------------------------------------------
**Frank E. Morris $2,447.81 N/A N/A $2,447.81 for
services on 1 board
- --------------------------------------------------------------------------------------------------------------------
Robert Patterson $9,571.48 N/A N/A $9,571.48 for
services on 1 board
- --------------------------------------------------------------------------------------------------------------------
Eugene B. Peters $9,571.48 N/A N/A $9,571.48 for
services on 1 board
- --------------------------------------------------------------------------------------------------------------------
James M. Storey, Esq. $9,571.48 N/A N/A $9,571.48 for
services on 1 board
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
S-24
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
George J. Sullivan $7,123.67 N/A N/A $7,123.67 for
services on 1 board
- --------------------------------------------------------------------------------------------------------------------
William M. Doran, Esq. $0 N/A N/A $0 for service on 1
board
- --------------------------------------------------------------------------------------------------------------------
Robert A. Nesher $0 N/A N/A $0 for service on 1
board
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
* For the purposes of this table, the Fund is the only investment company in the
"Fund Complex."
** Retired December 31, 1998.
PERFORMANCE INFORMATION
From time to time, the Fund may advertise total return of the Portfolio. These
figures will be based on historical earnings and are not intended to indicate
future performance. No representation can be made concerning actual future
returns.
CLASSES OF SHARES AND PERFORMANCE
The performance figures for Class A shares will generally be lower than those
for Institutional shares because of the shareholder servicing fees charged to
Class A shares.
PERFORMANCE COMPARISONS
The Portfolio may periodically compare its performance to other mutual funds
tracked by mutual fund rating services, to broad groups of comparable mutual
funds, or to unmanaged indices. These comparisons may assume reinvestment of
dividends but generally do not reflect deductions for administrative and
management costs.
COMPUTATION OF YIELD
From time to time, the Fund may advertise yield and total return of the
Portfolio. These figures will be based on historical earnings and are not
intended to indicate future performance. No representation can be made
concerning actual future yields or returns. The yield of the Portfolio refers to
the annualized income generated by an investment in that Portfolio over a
specified 30-day period. The yield is calculated by assuming that the income
generated by the investment during that 30-day period is generated in each
period over one year and is shown as a percentage of the investment. In
particular, yield will be calculated according to the following formula:
Yield = 2[((a-b)/cd+1)-1] TO THE POWER OF 6, where a = dividends and interest
earned during the period; b = expenses accrued for the period (net of
reimbursement); c = theaverage daily number of shares outstanding during the
period that were entitled to receive dividends; and d = the maximum offering
price per share on the last day of the period.
For the 30-day period ended October 31, 1999 the Portfolio's yield was 6.85%.
CALCULATION OF TOTAL RETURN
S-25
<PAGE>
The total return of the Portfolio refers to the average annual compounded rate
of return to a hypothetical investment for designated time periods (including
but not limited to, the period from which the Portfolio commenced operations
through the specified date), assuming that the entire investment is redeemed at
the end of each period. In particular, total return will be calculated according
to the following formula: P (1 + T) TO THE POWER OF N= ERV, where P = a
hypothetical initial payment of $1,000; T = average annual total return;
n = number of years; and ERV = ending redeemable value, as of the end of the
designated time period, of a hypothetical $1,000 payment made at the beginning
of the designated time period.
The average annual total returns for the Institutional shares of the Portfolio
for the fiscal year ended October 31, 1999 and for the period from January 1,
1997 (commencement of operations) through October 31, 1999, were (3.70)% and
(0.83)%, respectively.
PURCHASING SHARES
Purchases and redemptions may be made through the Transfer Agent on any day the
New York Stock Exchange is open for business. Currently, the Fund is closed for
business when the following holidays are observed: New Year's Day, Martin Luther
King Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Columbus Day, Veterans' Day, Thanksgiving and Christmas. Shares of
the Portfolio are offered on a continuous basis.
As discussed in the Prospectus, the minimum investment levels may be waived for
certain classes of investors, including "rabbi trusts." A rabbi trust is a
grantor trust established by an employer that can be used to fund certain
deferred compensation plans. The assets of such trusts are subject to the
employer's creditor's in bankruptcy.
REDEEMING SHARES
It is currently the Fund's policy to pay all redemptions in cash. The Fund
retains the right, however, to alter this policy to provide for redemptions in
whole or in part by a distribution in-kind of securities held by the Portfolio
in lieu of cash. Shareholders may incur brokerage charges on the sale of any
such securities so received in payment of redemptions. The Fund has obtained an
exemptive order from the SEC that permits the Fund to make in-kind redemptions
to those shareholders that are affiliated with the Fund solely by their
ownership of a certain percentage of the Fund's investment portfolios.
A Shareholder will at all times be entitled to aggregate cash redemptions from
all portfolios of the Fund during any 90-day period of up to the lesser of
$250,000 or 1% of the Fund's net assets.
The Fund reserves the right to suspend the right of redemption and/or to
postpone the date of payment upon redemption for any period on which trading on
the New York Stock Exchange is restricted, or during the existence of an
emergency (as determined by the SEC by rule or regulation) as a result of which
disposal or valuation of the Portfolio's securities is not reasonably
practicable, or for such other periods as the SEC has by order permitted. The
Fund also reserves the right to
S-26
<PAGE>
suspend sales of shares of the Portfolio for any period during which the New
York Stock Exchange, the Adviser, the Administrator, the Transfer Agent and/or
the custodian are not open for business.
DETERMINATION OF NET ASSET VALUE
The securities of the Portfolio are valued by the Administrator. The
Administrator will use an independent pricing service to obtain valuations of
securities. The pricing service relies primarily on prices of actual market
transactions as well as trade quotations. However, the service may also use a
matrix system to determine valuations of certain securities, which system
considers such factors as security prices, yields, maturities, call features,
ratings and developments relating to specific securities. The procedures of the
pricing service and its valuations are reviewed by the officers of the Fund
under the general supervision of the Trustees.
TAXES
The following is only a summary of certain additional federal income tax
considerations generally affecting the Portfolio and its shareholders that are
not described in the Portfolio's prospectus. No attempt is made to present a
detailed explanation of the tax treatment of the Portfolio or its shareholders,
and the discussion here and in the Portfolio's prospectus is not intended as a
substitute for careful tax planning. Shareholders are urged to consult their tax
advisors with specific reference to their own tax situations, including their
state and local tax liabilities.
FEDERAL INCOME TAX TREATMENT OF DIVIDENDS AND DISTRIBUTIONS
The following general discussion of certain federal income tax consequences is
based on the Internal Revenue Code of 1986, as amended, (the "Code") and the
regulations issued thereunder as in effect on the date of this Statement of
Additional Information. New legislation, as well as administrative changes or
court decisions, may significantly change the conclusions expressed herein, and
may have a retroactive effect with respect to the transactions contemplated
herein.
QUALIFICATION AS REGULATED INVESTMENT COMPANY
The Portfolio intends to qualify and elect to be treated as a regulated
Investment company, (a "RIC") under Subchapter M of the Code. By following such
a policy, the Portfolio expects to eliminate or reduce to a nominal amount the
federal taxes to which it may be subject.
In order to qualify as a RIC, the Portfolio must distribute at least 90% of its
net investment income (generally, dividends, taxable interest, and the excess of
net short-term capital gains over net long-term capital losses less operating
expenses) and at least 90% of its net tax exempt interest income, for each tax
year, if any, to its shareholders and also must meet several additional
requirements. Among these requirements are the following: (i) at least 90% of
the Portfolio's gross income each taxable year must be derived from dividends,
interest, payments with respect to securities loans and gains from the sale or
other disposition of stock or securities, or certain other income; (ii) at the
close of each quarter of the Portfolio's taxable year, at least 50% of the value
of its total assets must be represented by cash and cash items, U.S. Government
securities, securities of other RICs and other
S-27
<PAGE>
securities, with such other securities limited, in respect to any one issuer, to
an amount that does not exceed 5% of the value of the Portfolio's assets and
that does not represent more than 10% of the outstanding voting securities of
such issuer; and (iii) at the close of each quarter of the Portfolio's taxable
year, not more than 25% of the value of its assets may be invested in securities
(other than U.S. Government securities or the securities of other RICs) of any
one issuer or of two or more issuers that the Portfolio controls and that are
engaged in the same, similar or related trades or business. For purposes of the
90% of gross income requirement described above, investments in REITs are stock
or securities.
Although the Portfolio intends to distribute substantially all of its net
investment income and may distribute its capital gains for any taxable year, the
Portfolio will be subject to federal income taxation to the extent any such
income or gains are not distributed.
If the Portfolio fails to qualify for any taxable year as a RIC, all of its
taxable income will be subject to tax at regular corporate income tax rates
without any deduction for distributions to shareholders and such distributions
generally will be taxable to shareholders as ordinary dividends to the extent of
the Portfolio's current and accumulated earnings and profits. In this event,
distributions generally will be eligible for the dividends-received deduction
for corporate shareholders.
PORTFOLIO DISTRIBUTIONS
Distributions of investment company taxable income will be taxable to
shareholders as ordinary income, regardless of whether such distributions are
paid in cash or are reinvested in additional Shares, to the extent of the
Portfolio's earnings and profits. The Portfolio anticipates that it will
distribute substantially all of its investment company taxable income for each
taxable year.
The Portfolio may either retain or distribute to shareholders its excess of net
long-term capital gains over net short-term capital losses ("net capital
gains"). If such gains are distributed as a capital gains distribution, they are
taxable to shareholders who are individuals at a maximum rate of 20%, regardless
of the length of time the shareholder has held shares. If any such gains are
retained, the Portfolio will pay federal income tax thereon.
In the case of corporate shareholders, distributions (other than capital gains
distributions) from a RIC generally qualify for the dividends-received deduction
only to the extent of the gross amount of qualifying dividends received by the
Portfolio for the year. Generally, and subject to certain limitations, a
dividend will be treated as a qualifying dividend if it has been received from a
domestic corporation. Because REIT distributions do not qualify for the
dividends-received deduction, it is not expected that all Portfolio
distributions will qualify for the corporate dividends-received deduction.
Ordinarily, investors should include all dividends as income in the year of
payment. However, dividends declared payable to shareholders of record in
October, November, or December of one year, but paid in January of the following
year, will be deemed for tax purposes to have been received by the shareholder
and paid by the Portfolio in the year in which the dividends were declared.
S-28
<PAGE>
The Portfolio will provide a statement annually to shareholders as to the
federal tax status of distributions paid (or deemed to be paid) by the Portfolio
during the year, including the amount of dividends eligible for the corporate
dividends-received deduction.
SALE OF PORTFOLIO SHARES
Generally, gain or loss on the sale of a Share will be capital gain or loss that
will be long-term if the Share has been held for more than twelve months and
otherwise will be short-term. For individuals, long-term capital gains are
currently taxed at a maximum rate of 20% and short-term capital gains are
currently taxed at ordinary income tax rates. However, if a shareholder realizes
a loss on the sale or redemption of a Share held for six months or less and has
previously received a capital gains distribution with respect to the Share (or
any undistributed net capital gains of the Portfolio with respect to such Share
are included in determining the shareholder's long-term capital gains), the
shareholder must treat the loss as a long-term capital loss to the extent of the
amount of the prior capital gains distribution (or any undistributed net capital
gains of the Portfolio that have been included in determining such shareholder's
long-term capital gains). In addition, any loss realized on a sale or other
disposition of shares will be disallowed to the extent an investor repurchases
(or enters into a contract or option to repurchase) shares within a period of 61
days (beginning 30 days before and ending 30 days after the disposition of the
shares). This loss disallowance rule will apply to shares received through the
reinvestment of dividends during the 61-day period.
In certain cases, the Portfolio will be required to withhold, and remit to the
United States Treasury, 31% of any distributions paid to a shareholder who (1)
has failed to provide a correct taxpayer identification number; (2) is subject
to backup withholding by the Internal Revenue Service; or (3) has failed to
certify to the Portfolio that such shareholder is not subject to backup
withholding.
FEDERAL EXCISE TAX
If the Portfolio fails to distribute in a calendar year at least 98% of its
ordinary income for the year and 98% of its capital gain net income (the excess
of short and long term capital gains over short and long term capital losses)
for the one-year period ending October 31 of that year (and any retained amount
from the prior calendar year), the Portfolio will be subject to a nondeductible
4% Federal excise tax on the undistributed amounts. The Portfolio intends to
make sufficient distributions to avoid imposition of this tax, or to retain, at
most its net capital gains and pay tax thereon.
STATE AND LOCAL TAXES
The Portfolio is not liable for any income or franchise tax in Massachusetts if
it qualifies as a RIC for federal income tax purposes. Distributions by the
Portfolio to shareholders and the ownership of shares may be subject to state
and local taxes.
PORTFOLIO TRANSACTIONS
The Adviser is authorized to select brokers and dealers to effect securities
transactions for the Portfolio. The Portfolio will seek to obtain the most
favorable net results by taking into account
S-29
<PAGE>
various factors, including price, commission, if any, size of the transactions
and difficulty of executions, the firm's general execution and operational
facilities and the firm's risk in positioning the securities involved. While the
Adviser generally seeks reasonably competitive spreads or commissions, the
Portfolio will not necessarily be paying the lowest spread or commission
available. The Adviser seeks to select brokers or dealers that offer the
Portfolio best price and execution or other services which are of benefit to the
Portfolio.
The Adviser may, consistent with the interests of the Portfolio, select brokers
on the basis of the research services they provide to the Adviser. Such services
may include analyses of the business or prospects of a company, industry or
economic sector, or statistical and pricing services. Information so received by
the Adviser will be in addition to and not in lieu of the services required to
be performed by the Adviser under the Advisory Agreement. If, in the judgment of
the Adviser, the Portfolio or other accounts managed by the Adviser will be
benefitted by supplemental research services, the Adviser is authorized to pay
brokerage commissions to a broker furnishing such services which are in excess
of commissions which another broker may have charged for effecting the same
transaction. These research services include advice, either directly or through
publications or writings, as to the value of securities, the advisability of
investing in, purchasing or selling securities, and the availability of
securities or purchasers or sellers of securities; furnishing of analyses and
reports concerning issuers, securities or industries; providing information on
economic factors and trends; assisting in determining portfolio strategy;
providing computer software used in security analyses; and providing portfolio
performance evaluation and technical market analyses. The expenses of the
Adviser will not necessarily be reduced as a result of the receipt of such
supplemental information, such services may not be used exclusively with respect
to the Portfolio or account generating the brokerage, and there can be no
guarantee that the Adviser will find all of such services of value in advising
that Portfolio.
TRADING PRACTICES AND BROKERAGE
The Fund selects brokers or dealers to execute transactions for the purchase or
sale of portfolio securities on the basis of its judgment of their professional
capability to provide the service. The primary consideration is to have brokers
or dealers provide transactions at best price and execution for the Fund. Best
price and execution includes many factors, including the price paid or received
for a security, the commission charged, the promptness and reliability of
execution, the confidentiality and placement accorded the order and other
factors affecting the overall benefit obtained by the account on the
transaction. The Fund's determination of what are reasonably competitive rates
is based upon the professional knowledge of its trading department as to rates
paid and charged for similar transactions throughout the securities industry. In
some instances, the Fund pays a minimal share transaction cost when the
transaction presents no difficulty. Some trades are made on a net basis where
the Fund either buys securities directly from the dealer or sells them to the
dealer. In these instances, there is no direct commission charged but there is a
spread (the difference between the buy and sell price) which is the equivalent
of a commission.
The Fund may allocate out of all commission business generated by the fund and
accounts under management by the Adviser, brokerage business to brokers or
dealers who provide brokerage and research services. These research services
include advice, either directly or through publications or
S-30
<PAGE>
writings, as to the value of securities, the advisability of investing in,
purchasing or selling securities, and the availability of securities or
purchasers or sellers of securities; furnishing of analyses and reports
concerning issuers, securities or industries; providing information on economic
factors and trends, assisting in determining portfolio strategy, providing
computer software used in security analyses, and providing portfolio performance
evaluation and technical market analyses. Such services are used by the Adviser
in connection with its investment decision-making process with respect to one or
more funds and accounts managed by it, and may not be used exclusively with
respect to the fund or account generating the brokerage.
As provided in the Securities Exchange Act of 1934 (the "1934 Act"), higher
commissions may be paid to broker-dealers who provide brokerage and research
services than to broker-dealers who do not provide such services if such higher
commissions are deemed reasonable in relation to the value of the brokerage and
research services provided. Although transactions are directed to broker-dealers
who provide such brokerage and research services, the Fund believes that the
commissions paid to such broker-dealers are not, in general, higher than
commissions that would be paid to broker-dealers not providing such services and
that such commissions are reasonable in relation to the value of the brokerage
and research services provided. In addition, portfolio transactions which
generate commissions or their equivalent are directed to broker-dealers who
provide daily portfolio pricing services to the Fund. Subject to best price and
execution, commissions used for pricing may or may not be generated by the funds
receiving the pricing service.
The Adviser may place a combined order for two or more accounts or funds engaged
in the purchase or sale of the same security if, in its judgment, joint
execution is in the best interest of each participant and will result in best
price and execution. Transactions involving commingled orders are allocated in a
manner deemed equitable to each account or fund. It is believed that the ability
of the accounts to participate in volume transactions will generally be
beneficial to the accounts and funds. Although it is recognized that, in some
cases, the joint execution of orders could adversely affect the price or volume
of the security that a particular account or the Portfolio may obtain, it is the
opinion of the Adviser and the Trust's Board of Trustees that the advantages of
combined orders outweigh the possible disadvantages of separate transactions.
Consistent with the NASD rules, and subject to seeking best price and execution,
the Portfolio, at the request of the Distributor, give consideration to sales of
shares of the Fund as a factor in the selection of brokers and dealers to
execute Fund portfolio transactions.
It is expected that the Portfolio may execute brokerage or other agency
transactions through the Distributor, which is a registered broker-dealer, for a
commission in conformity with the 1940 Act, the 1934 Act, and rules promulgated
by the SEC. Under these provisions, the Distributor is permitted to receive and
retain compensation for effecting portfolio transactions for the Portfolio on an
exchange if a written contract is in effect between the Distributor and the
Portfolio expressly permitting the Distributor to receive and retain such
compensation. These rules further require that commissions paid to the
Distributor by the Portfolio for exchange transactions not exceed "usual and
customary" brokerage commissions. The rules define "usual and customary"
commissions to include amounts which are "reasonable and fair compared to the
commission, fee or other remuneration received or to be received by other
brokers in connection with comparable transactions involving
S-31
<PAGE>
similar securities being purchased or sold on a securities exchange during a
comparable period of time." The Trustees, including those who are not
"interested persons" of the Fund, have adopted procedures for evaluating the
reasonableness of commissions paid to the Distributor and will review these
procedures periodically.
For the fiscal year ended October 31, 1999, the following commissions were paid
on brokerage transactions, pursuant to an agreement or understanding, to brokers
because of research services provided by the brokers:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
Total Dollar Amount of Brokerage Total Dollar Amount of Transactions
Commissions for Research Services Involving Directed Brokerage
Commissions for Research Services
- ---------------------------------------------------------------------------------------
<S> <C>
$10,719 $4,578,279
- ---------------------------------------------------------------------------------------
</TABLE>
For the fiscal years ended October 31, 1997, 1998 and 1999, the Portfolio paid
the following brokerage commissions:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
Total Brokerage Commissions Amount Paid to SEI Investments(1)
- ---------------------------------------------------------------------------------------
1997 1998 1999 1997 1998 1999
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$110,005 $182,799 $223,010 $317 $942 $642
- ---------------------------------------------------------------------------------------
</TABLE>
* An asterisk indicates that the Portfolio had not commenced operations for the
period indicated.
(1) The amounts paid to SEI Investments reflect fees paid in
connection with repurchase agreement transactions.
For the fiscal years indicated, the Portfolio paid the following brokerage
commissions:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
% of Total % of Total
Total $ Amount of Brokerage Total $ Amount of Brokerage Brokerage Brokerage
Commissions Paid Commissions Paid to Commissions Paid Transactions
Affiliated Brokers to the Effected Through
Affiliated Affiliated Brokers
Brokers
- --------------------------------------------------------------------------------------------------------------------
1997 1998 1999 1997 1998 1999 1999 1999
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$110,005 $182,799 $223,010 $0 $942 $642 .003% .003%
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
* An asterisk indicates that the Portfolio had not commenced operations as of
the period indicated.
Because the Portfolio does not market its shares through intermediary brokers or
dealers, it is the Portfolio's practice to allocate brokerage or principal
business on the basis of sales of its shares
S-32
<PAGE>
which may be made through such firms. However, the Adviser may place portfolio
orders with qualified broker-dealers who recommend the Portfolio's shares to
clients, and may, when a number of brokers and dealers can provide best net
results on a particular transaction, consider such recommendations by a broker
or dealer in selecting among broker-dealers.
The Portfolio is required to identify any securities of its "regular brokers or
dealers" (such term is defined in the 1940 Act, which the Portfolio has acquired
during its most recent fiscal year). As of October 31, 1999, the Portfolio held
[repurchase agreements valued at $831,761 with Morgan Stanley Incorporated.
DESCRIPTION OF SHARES
The Declaration of Trust authorizes the issuance of an unlimited number of
portfolios and shares of each portfolio. Each share of a portfolio represents an
equal proportionate interest in that portfolio with each other share. Shares are
entitled upon liquidation to a pro rata share in the net assets of the
portfolio. Shareholders have no preemptive rights. All consideration received by
the Fund for shares of any portfolio and all assets in which such consideration
is invested would belong to that portfolio and would be subject to the
liabilities related thereto. Share certificates representing shares will not be
issued.
SHAREHOLDER LIABILITY
The Fund is an entity of the type commonly known as a "Massachusetts business
trust." Under Massachusetts law, shareholders of such a trust could, under
certain circumstances, be held personally liable as partners for the obligations
of the trust. Even if, however, the Fund were held to be a partnership, the
possibility of the shareholders incurring financial loss for that reason appears
remote because the Fund's Declaration of Trust contains an express disclaimer of
shareholder liability for obligations of the Fund and requires that notice of
such disclaimer be given in each agreement, obligation or instrument entered
into or executed by or on behalf of the Fund or the Trustees, and because the
Declaration of Trust provides for indemnification out of the Fund property for
any shareholder held personally liable for the obligations of the Fund.
LIMITATION OF TRUSTEES' LIABILITY
The Declaration of Trust provides that a Trustee shall be liable only for his or
her own willful defaults and, if reasonable care has been exercised in the
selection of officers, agents, employees or investment advisers, shall not be
liable for any neglect or wrongdoing of any such person. The Declaration of
Trust also provides that the Fund will indemnify its Trustees and officers
against liabilities and expenses incurred in connection with actual or
threatened litigation in which they may be involved because of their offices
with the Fund unless it is determined in the manner provided in the Declaration
of Trust that they have not acted in good faith in the reasonable belief that
their actions were in the best interests of the Fund. However, nothing in the
Declaration of Trust shall protect or indemnify a Trustee against any liability
for his or her willful misfeasance, bad faith, gross negligence or reckless
disregard of his or her duties.
S-33
<PAGE>
5% AND 25% SHAREHOLDERS
As of February 1, 2000, the following persons were the only persons who were
record owners (or to the knowledge of the Fund, beneficial owners) of 5% and 25%
or more of the Institutional Class of the Portfolio's shares.
<TABLE>
<CAPTION>
SHAREHOLDER NUMBER OF SHARES %
<S> <C> <C>
Dorrance H. Hamilton & 599,654 9.01%
Barbara Cobb Trustee
U/A March 15, 1996
Dorrance H. Hamilton Trust
200 Eagle Rd. Ste 316
Wayne, PA 19087-3115
Hep & Co. 357,568 5.37%
P.O. Box 9800
Calabasas, CA 91372-0800
Yasuda Fire & Marine 447,370 6.72%
Insurance Co ltd
Global Securities Investment Dept
26-1 Nishi-Shinjuku 1-Chome
Shinjuku-Ku
Tokyo 160-8338 Japan
Union Theological Seminary 530,222 7.97%
Educational Institution
3041 Broadway
New York, NY 10027-5710
Abilene Christian University 428,367 6.44%
Attn: Kent Rideout
ACU Box 29120
Abilene, TX 79699-0001
US Bank National Association Cust 379,343 5.70%
FBO Food Brands Amer Inc Master TR
U/A 10/01/1995
A/C 21707701
PO Box 64010
Saint Paul, MN 55164-0010
</TABLE>
S-34
<PAGE>
The Fund believes that most of the shares referred to above were held by the
persons indicated in accounts for their fiduciary, agency or custodial
customers.
EXPERTS
The financial statements incorporated by reference have been audited by Arthur
Andersen LLP, independent public accountants, as indicated in their report with
respect thereto, in reliance upon the authority of said firm as experts in
giving said reports.
FINANCIAL STATEMENTS
The financial statements for the fiscal year ended October 31, 1999, including
notes thereto and the report of Arthur Andersen LLP thereon, are herein
incorporated by reference in reliance upon the authority of said firm as experts
in giving said report. A copy of the 1999 Annual Report to Shareholders must
accompany the delivery of this Statement of Additional Information.
S-35
<PAGE>
APPENDIX
DESCRIPTION OF CORPORATE BOND RATINGS
The following descriptions of corporate bond ratings have been published by
Standard & Poor's Corporation ("S&P") and Moody's Investors Service, Inc.
("Moody's"), respectively.
Debt rated AAA has the highest rating S&P assigns to a debt obligation. Such a
rating indicates an extremely strong capacity to pay principal and interest.
Debt rated AA also qualifies as high-quality debt. Capacity to pay principal and
interest is very strong, and differs from AAA issues only in small degree. Debt
rated A has a strong capacity to pay interest and repay principal although it is
somewhat more susceptible to the adverse effects of changes in circumstances and
economic conditions than debt in higher rated categories.
Debt rated BBB is regarded as having an adequate capacity to pay interest and
repay principal. Whereas it normally exhibits adequate protection parameters,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity to pay interest and repay principal for debt in this
category than in higher rated categories.
Debt rated BB, B, CCC, CC and C is regarded as having predominately speculative
characteristics with respect to capacity to pay interest and repay principal in
accordance with the terms of the obligation. BB indicates the least degree of
speculation and C the highest degree of speculation. While such debt will likely
have some quality and protective characteristics, these are outweighed by large
uncertainties of major risk exposures to adverse conditions.
The rating CI is reserved for income bonds on which no interest is being paid.
Debt rated D is in default, and payment of interest and/or repayment of
principal is in arrears.
Bonds which are rated Aaa by Moody's are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edged." Interest payments are protected by a large, or an exceptionally
stable, margin and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues. Bonds rated Aa by
Moody's are judged by Moody's to be of high quality by all standards. Together
with bonds rated Aaa, they comprise what are generally known as high-grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long-term risk appear somewhat larger than in Aaa securities.
Bonds which are rated A possess many favorable investment attributes and are to
be considered as upper-medium grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future.
A-1
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Bonds rated Baa are considered as medium grade obligations (i.e., they are
neither highly protected nor poorly secured). Interest payments and principal
security appear adequate for the present but certain protective elements may be
lacking or may be characteristically unreliable over any great length of time.
Such bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.
Bonds which are rated Ba are judged to have speculative elements; their future
cannot be considered as well-assured. Often the protection of interest and
principal payments may be very moderate and thereby not well safeguarded during
both good and bad times over the future. Uncertainty of position characterizes
bonds in this class.
Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Bonds which are rated Caa are of poor standing. Such issues may be in default or
there may be present elements of danger with respect to principal or interest.
Bonds which are rated Ca represent obligations which are speculative in a high
degree. Such issues are often in default or have other marked shortcomings.
Bonds which are rated C are the lowest rated class of bonds and issues so rated
can be regarded as having extremely poor prospects of ever attaining any real
investment standing.
DESCRIPTION OF COMMERCIAL PAPER RATINGS
The following descriptions of commercial paper ratings have been published by
S&P and Moody's, respectively.
A-1 - This is S&P's highest category and indicates that the degree of safety
regarding timely payment is strong. Those issues determined to possess extremely
strong safety characteristics are denoted with a plus sign (+) designation.
PRIME-1 - Issues rated Prime-1 (or supporting institutions) by Moody's have a
superior ability for repayment of senior short-term debt obligations. Prime-1
repayment ability will often be evidenced by many of the following
characteristics:
- Leading market positions in well-established industries.
- High rates of return on funds employed.
- 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.
A-2
<PAGE>
PRIME-2 - Issuers rated Prime-2 (or supporting institutions) by Moody's have a
strong ability for repayment of senior short-term debt obligations. This will
normally be evidenced by many of the characteristics cited above but to a lesser
degree. Earnings trends and coverage ratios, while sound, may be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
A-3
<PAGE>
TRUST:
THE ADVISORS' INNER CIRCLE FUND
FUNDS:
FMC SELECT FUND
FMC STRATEGIC VALUE FUND
INVESTMENT ADVISER:
FIRST MANHATTAN CO.
This STATEMENT OF ADDITIONAL INFORMATION is not a prospectus and relates only to
the FMC Select Fund (the "Select Fund") and the FMC Strategic Value Fund (the
"Strategic Value Fund")(each a "Fund" and collectively, the "Funds"). It is
intended to provide additional information regarding the activities and
operations of The Advisors' Inner Circle Fund (the "Trust") and the Funds and
should be read in conjunction with each Fund's prospectus dated March 1, 2000. A
prospectus for a Fund may be obtained by calling 1-877-FMC-4099 (877-362-4099).
TABLE OF CONTENTS
THE TRUST AND THE FUNDS...................................................S-3
INVESTMENT OBJECTIVES.....................................................S-3
GENERAL INVESTMENT POLICIES...............................................S-3
DESCRIPTION OF PERMITTED INVESTMENTS......................................S-7
INVESTMENT LIMITATIONS...................................................S-19
THE ADVISER..............................................................S-21
THE ADMINISTRATOR........................................................S-23
THE DISTRIBUTOR..........................................................S-24
THE TRANSFER AGENT.......................................................S-25
THE CUSTODIAN............................................................S-25
INDEPENDENT PUBLIC ACCOUNTANTS...........................................S-25
LEGAL COUNSEL............................................................S-25
TRUSTEES AND OFFICERS OF THE TRUST.......................................S-25
PERFORMANCE INFORMATION..................................................S-29
COMPUTATION OF YIELD.....................................................S-29
CALCULATION OF TOTAL RETURN..............................................S-30
PURCHASING SHARES........................................................S-30
REDEEMING SHARES.........................................................S-30
DETERMINATION OF NET ASSET VALUE.........................................S-31
TAXES ................................................................S-31
FUND TRANSACTIONS........................................................S-34
TRADING PRACTICES AND BROKERAGE..........................................S-36
DESCRIPTION OF SHARES....................................................S-38
SHAREHOLDER LIABILITY....................................................S-38
LIMITATION OF TRUSTEES' LIABILITY........................................S-38
5% AND 25% SHAREHOLDERS..................................................S-39
EXPERTS ................................................................S-39
S-1
<PAGE>
FINANCIAL STATEMENTS.....................................................S-39
APPENDIX ...............................................................A - 1
March 1, 2000
FMC-F-006-02
S-2
<PAGE>
THE TRUST AND THE FUNDS
This Statement of Additional Information ("SAI") relates only to the FMC Select
Fund (the "Select Fund") and the FMC Strategic Value Fund (the "Strategic Value
Fund") (each a "Fund" and collectively, the "Funds"). Each Fund is a separate
series of The Advisors' Inner Circle Fund (the "Trust"), an open-end investment
management company established under Massachusetts law as a Massachusetts
business trust under a Declaration of Trust dated July 18, 1991. The Declaration
of Trust permits the Trust to offer separate series ("funds") of shares of
beneficial interest ("shares"). Each portfolio is a separate mutual fund, and
each share of each portfolio represents an equal proportionate interest in that
portfolio. See "Description of Shares." No investment in shares of a portfolio
should be made without first reading that portfolio's prospectus. Capitalized
terms not defined herein are defined in the Prospectuses offering shares of the
Funds.
The Funds pay their (i) operating expenses, including fees of their service
providers, expenses of preparing prospectuses, proxy solicitation material and
reports to shareholders, costs of custodial services and registering shares
under federal and state securities laws, pricing and insurance expenses,
brokerage costs, interest charges, taxes and organization expenses and (ii) pro
rata share of the Trust's other expenses, including audit and legal expenses.
Expenses not attributable to a specific fund are allocated across all of the
funds on the basis of relative net assets.
INVESTMENT OBJECTIVES
The Select Fund seeks a favorable rate of return principally through capital
appreciation and, to a limited degree, through current income. The Strategic
Value Fund seeks to obtain long-term capital appreciation by investing in a
portfolio of equity securities. The Funds' investment objectives are fundamental
and cannot be changed without the consent of shareholders. There can be no
assurance that the Funds will be able to achieve their investment objectives.
GENERAL INVESTMENT POLICIES
SELECT FUND
The Select Fund invests principally in equity securities, and to a limited
degree in fixed income securities, including money market instruments. The
Select Fund ordinarily will invest a predominant portion of its assets (75%-85%)
in equity securities and the remainder in fixed income securities, including
money market instruments. The exact percentage of the Select Fund's assets
invested in equity and fixed income securities will vary from time to time in
accordance with the Adviser's assessment of investment opportunities.
EQUITY SECURITIES. The equity securities in which the Select Fund may invest are
common stocks, preferred stocks, and convertible securities of domestic
companies, as well as
S-3
<PAGE>
warrants to purchase such securities. The Adviser may also purchase U.S.
dollar-denominated equity securities (including depositary receipts) and
preferred stocks (including preferred stocks convertible into common stocks)
issued by foreign companies, as well as debt securities convertible into common
stocks, and shares of closed-end investment companies. The Select Fund may
purchase equity securities that are traded on registered exchanges or the
over-the-counter market in the United States.
In selecting equity securities for the Select Fund, the Adviser will not attempt
to forecast either the economy or the stock market, but rather will focus its
efforts on searching out investment opportunities in equity securities of
companies with strong balance sheets, favorable returns on equity and businesses
of which the Adviser has an understanding, and in equity securities of companies
where all of these factors may not be present, but whose shares nevertheless
sell at a market valuation below their perceived intrinsic value.
FIXED INCOME SECURITIES. The fixed income securities that may be purchased by
the Select Fund include: (i) obligations issued or guaranteed as to principal
and interest by the U.S. Government, its agencies or instrumentalities ("U.S.
Government securities"); (ii) dollar denominated corporate bonds and debentures
of U.S. and foreign companies that are rated BBB- or higher by Standard & Poor's
Corporation ("S&P") or Baa3 or higher by Moody's Investors Services, Inc.
("Moody's"), or are unrated but of comparable quality as determined by the
Adviser; (iii) mortgage-backed securities that are issued or guaranteed by
governmental or non-governmental entities or that are privately-issued
collateralized mortgage obligations ("CMOs") or real estate mortgage investment
conduits ("REMICs") rated in one of the top two categories by S&P or Moody's;
(iv) high quality commercial paper; (v) securities issued by the Government of
Canada and supranational agencies such as the World Bank; (vi) asset-backed
securities rated in one of the top two categories by S&P or Moody's; (vii)
short-term debt obligations of U.S. and foreign banks; (viii) zero coupon
securities; (ix) money market instruments; (x) repurchase agreements; and (xi)
fixed income securities issued by a municipality the interest payments on which
are not exempt from U.S. federal income tax.
Debt rated BBB- by S&P is regarded as having an adequate capacity to pay
interest and repay principal. In S&P's view, whereas the issuer normally
exhibits adequate protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay interest and
repay principal for debt in this category than in higher rated categories. Bonds
rated Baa3 by Moody's are considered medium grade obligations (i.e., they are
neither highly protected nor poorly secured). Interest payments and principal
security appear adequate for the present but certain protective elements may be
lacking or may be characteristically unreliable over any great length of time.
In the view of Moody's, such bonds lack outstanding investment characteristics
and in fact have speculative characteristics as well. In the event any fixed
income security held by the Select Fund is downgraded below the applicable
rating category set forth above, the Adviser will review the security and
determine whether to retain or dispose of it.
S-4
<PAGE>
In selecting fixed income securities for the Select Fund, the Adviser will seek
added returns from the long-term compounding of incremental yields rather than
from attempting to anticipate bond market price swings. The sources of
incremental returns are (1) the higher yields on corporate and government agency
securities compared to U.S. Treasury securities and (2) mispriced prepayment
options. The fixed income component of the Select Fund ordinarily will consist
of securities with a duration of up to eight years. Interest rate forecasting
will not play a significant role in the Adviser's fixed income investment
strategy.
STRATEGIC VALUE FUND
The Strategic Value Fund invests in equity securities which the Adviser believes
offer the possibility of increase in value, primarily common stocks that meet
the criteria described below.
In selecting equity securities for the Strategic Value Fund, the Adviser will
not attempt to forecast either the economy or the stock market, but rather will
focus its efforts on searching out investment opportunities in equity securities
by carefully scrutinizing financial statements with particular attention to the
quality of cash flow and an evaluation of stocks selling at a discount to
estimated private market values. The Adviser emphasizes companies where it
perceives it has a substantial understanding of both the industry and the
business in which the company operates. In addition, the Adviser will
concentrate its efforts on companies where a catalyst has been identified which
the Adviser believes can have a significant impact on the price of the security.
Such catalysts include spin-offs, corporate restructurings, divestiture
programs, share repurchases, merger and acquisition activity and significant
changes in management or key personnel.
The Strategic Value Fund may invest in common stocks, preferred stocks and
convertible securities of domestic companies, as well as warrants to purchase
such securities that are traded on registered exchanges or the over-the-counter
market in the United States. The Strategic Value Fund may also purchase equity
securities (including depositary receipts) and preferred stocks (including
depositary stocks convertible into common stocks) issued by foreign companies,
as well as debt securities convertible into common stock of such companies.
Although the Strategic Value Fund's portfolio will normally be fully invested in
equity securities (other than as considered appropriate for cash reserves), for
temporary defensive purposes during periods when the Adviser determines that
market conditions warrant, up to 100% of the Strategic Value Fund's assets may
be held in cash or cash equivalents. In general, cash or cash equivalents will
be held in U.S. Treasury bills, high quality commercial paper, certificates of
deposit and money market instruments.
S-5
<PAGE>
AUXILIARY POLICIES OF THE FUNDS
Although not primary strategies employed by the Adviser in managing the Funds,
the Funds may engage in a number of investment practices in order to meet their
investment objectives. In this regard, the Funds may invest in variable and
floating rate obligations, enter into forward commitments, purchase securities
on a when-issued basis and sell securities short against the box. The Funds may
also purchase put and call options and write covered call options on fixed
income and equity securities, and may enter into futures contracts (including
index futures contracts), purchase options on futures contracts, and lend its
securities.
The Funds may purchase securities denominated in foreign currencies in amounts
up to 10% of its total assets. The Funds do not have a corresponding limitation
with respect to foreign securities denominated in U.S. dollars.
The Select Fund may also invest up to 5% of its total assets in convertible debt
securities rated Caa or higher by Moody's or CCC or higher by S&P, Duff & Phelps
Corporation or Fitch IBCA. While the Adviser will purchase such securities with
a view to the capital appreciation potential associated with the underlying
equity security, below investment- grade issues, otherwise known as "junk
bonds," present special risks. See the "Description of Permitted Investments."
For temporary defensive purposes during periods when the Adviser determines that
market conditions warrant, the Adviser may invest up to 100% of the Funds'
assets in cash or money market instruments.
It is anticipated that the annual portfolio turnover rate for the Funds will not
exceed 100%. For the fiscal years ended October 31, 1997, 1998 and 1999, the
portfolio turnover rate for the Select Fund was 21.71%, 29.72% and 26.23%,
respectively. For the fiscal period ended October 31, 1998, and the fiscal year
ended October 31, 1999 the portfolio turnover rate for the Strategic Value Fund
was 6.85% and 11.85%, respectively.
For a description of the permitted investments of the Funds and the associated
risk factors, see "Description of Permitted Investments." For a description of
ratings, see the "Appendix."
S-6
<PAGE>
DESCRIPTION OF PERMITTED INVESTMENTS
ASSET-BACKED SECURITIES
Asset-backed securities are securities backed by non-mortgage assets such as
company receivables, truck and auto loans, leases and credit card receivables.
Other asset-backed securities may be created in the future. These securities may
be traded over-the-counter and typically have a short-intermediate maturity
structure depending on the paydown characteristics of the underlying financial
assets which are passed through to the security holder. These securities are
generally issued as pass-through certificates which represent undivided
fractional ownership interests in the underlying pool of assets. Asset-backed
securities may also be debt obligations, which are known as collateralized
obligations and are generally issued as the debt of a special purpose entity,
such as a trust, organized solely for the purpose of owning these assets and
issuing debt obligations.
Asset-backed securities are not issued or guaranteed by the U.S. Government, its
agencies or instrumentalities; however, the payment of principal and interest on
such obligations may be guaranteed up to certain amounts and, for a certain
period, by a letter of credit issued by a financial institution (such as a bank
or insurance company) unaffiliated with the issuers of such securities. The
purchase of asset-backed securities raises risk considerations peculiar to the
financing of the instruments underlying such securities. For example, there is a
risk that another party could acquire an interest in the obligations superior to
that of the holders of the asset-backed securities. There also is the
possibility that recoveries on repossessed collateral may not, in some cases, be
available to support payments on those securities.
Asset-backed securities entail prepayment risk which may vary depending on the
type of asset, but is generally less than the prepayment risk associated with
mortgage-backed securities. In addition, credit card receivables are unsecured
obligations of the card holder.
The market for asset-backed securities is at a relatively early stage of
development. Accordingly, there may be a limited secondary market for such
securities.
BANK OBLIGATIONS
Bank obligations are short-term obligations issued by U.S. and foreign banks,
including bankers' acceptances, certificates of deposit, custodial receipts, and
time deposits. Eurodollar and Yankee Bank Obligations are U.S.
dollar-denominated certificates of deposit or time deposits issued outside the
U.S. by foreign branches of U.S. banks or by foreign banks.
S-7
<PAGE>
COMMERCIAL PAPER
Unsecured short-term promissory notes issued by corporations and other entities.
The maturities on these issues vary from a few days to nine months.
COMMON AND PREFERRED STOCKS
Common and preferred stocks represent units of ownership in a corporation.
Owners of common stock typically are entitled to vote on important matters.
Owners of preferred stock ordinarily do not have voting rights, but are entitled
to dividends at a specified rate. Preferred stock has a prior claim to common
stockholders with respect to dividends.
CONVERTIBLE SECURITIES
Convertible securities are securities issued by corporations that are
exchangeable for a set number of another security at a prestated price. The
market value of a convertible security tends to move with the market value of
the underlying stock. The value of a convertible security is also affected by
prevailing interest rates, the credit quality of the issuer, and any call option
provisions.
HIGH RISK, HIGH YIELD CONVERTIBLE SECURITIES -- Fixed income securities
(including convertible securities) rated below investment grade are often
referred to as "junk bonds." Such securities involve greater risk of default or
price declines than investment grade securities due to changes in the issuer's
creditworthiness and the outlook for economic growth. The market for these
securities may be less active, causing market price volatility and limited
liquidity in the secondary market. This may limit the Select Fund's ability to
sell such securities at their market value. In addition, the market for these
securities may also be adversely affected by legislative and regulatory
developments. Credit quality in the junk bond market can change suddenly and
unexpectedly, and even recently issued credit ratings may not fully reflect the
actual risks imposed by a particular security.
EQUITY SECURITIES
Investments in equity securities in general are subject to market risks that may
cause their prices to fluctuate over time. The value of securities, such as
warrants or convertible debt, exercisable for or convertible into equity
securities is also affected by prevailing interest rates, the credit quality of
the issuer and any call provision. Fluctuations in the value of equity
securities in which a Fund invests will cause the net asset value of the Fund to
fluctuate. An investment in a Fund may therefore be more suitable for long-term
investors.
S-8
<PAGE>
THE EURO
On January 1, 1999, the European Monetary Union (EMU) implemented a new currency
unit, the Euro. The countries initially converting or tying their currencies to
the Euro include Austria, Belgium, France, Germany, Luxembourg, the Netherlands,
Ireland, Finland, Italy, Portugal, and Spain. Financial transactions and market
information, including share quotations and company accounts, in participating
countries are denominated in Euros. Approximately 46% of the stock exchange
capitalization of the total European market is now reflected in Euros, and
participating governments now issue their bonds in Euros. Monetary policy for
participating countries is now uniformly managed by a new central bank, the
European Central Bank (ECB).
Although it is not possible to predict the impact of the Euro conversion on the
Funds, the transition to the Euro may change the economic environment and
behavior of investors, particularly in European markets. For example, investors
may begin to view those countries participating in the EMU as a single entity,
and the Adviser may need to adapt investment strategies accordingly. The process
of implementing the Euro also may adversely affect financial markets worldwide
and may result in changes in the relative strength and value of the U.S. dollar
or other major currencies, as well as possible adverse tax consequences. The
transition to the Euro is likely to have a significant impact on fiscal and
monetary policy in the participating countries and may produce unpredictable
effects on trade and commerce generally. These resulting uncertainties could
create increased volatility in financial markets world-wide.
FIXED INCOME SECURITIES
The market value of the fixed income investments in which the Funds invest will
change in response to interest rate changes and other factors. During periods of
falling interest rates, the values of outstanding fixed income securities
generally rise. Conversely, during periods of rising interest rates, the values
of such securities generally decline. Moreover, while securities with longer
maturities tend to produce higher yields, the prices of longer maturity
securities are also subject to greater market fluctuations as a result of
changes in interest rates. Changes by recognized agencies in the rating of any
fixed income security and in the ability of an issuer to make payments of
interest and principal also affect the value of these investments. Changes in
the value of these securities will not necessarily affect cash income derived
from these securities but will affect a Fund's net asset value.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
Futures contracts provide for the future sale by one party and purchase by
another party of a specified amount of a specific security at a specified future
time and at a specified price. An option on a futures contract gives the
purchaser the right, in exchange for a premium, to assume a position in a
futures contract at a specified exercise price during the term of the option.
S-9
<PAGE>
A Fund may use futures contracts, and related options for bona fide hedging
purposes, to offset changes in the value of securities held or expected to be
acquired. They may also be used to minimize fluctuations in foreign currencies
or to gain exposure to a particular market or instrument. A Fund will minimize
the risk that it will be unable to close out a futures contract by only entering
into futures contracts which are traded on national futures exchanges and for
which there appears to be a liquid secondary market.
Index futures are futures contracts for various indices that are traded on
registered securities exchanges. An index futures contract obligates the seller
to deliver (and the purchaser to take) an amount of cash equal to a specific
dollar amount times the difference between the value of a specific index at the
close of the last trading day of the contract and the price at which the
agreement is made.
Although futures contracts by their terms call for actual delivery or acceptance
of the underlying securities, in most cases the contracts are closed out before
the settlement date without the making or taking of delivery. Closing out an
open futures position is done by taking an opposite position ("buying" a
contract which has previously been "sold" or "selling" a contract which has
previously been "purchased") in an identical contract to terminate the position.
Brokerage commissions are incurred when a futures contract is bought or sold.
Futures traders are required to make a good faith margin deposit in cash or
government securities with or for the account of a broker or custodian to
initiate and maintain open positions in futures contracts until a contract is
closed out. However, there is no certainty that a liquid secondary market will
exist for any particular futures contract at any specific time. Thus, it may not
be possible to close a futures position. In the event of adverse price
movements, a Fund would continue to be required to make daily cash payments to
maintain its required margin. In such situations, if a Fund has insufficient
cash, it may have to sell portfolio securities to meet daily margin requirements
at a time when it may be disadvantageous to do so. In addition, the Funds may be
required to make delivery of the instruments underlying the futures contracts
they hold. The inability to close options and futures positions also could have
an adverse impact on the ability to effectively hedge the underlying securities.
The risk of loss in trading futures contracts can be substantial, due both to
the low margin deposits required and the extremely high degree of leverage
involved in futures pricing. As a result, a relatively small price movement in a
futures contract may result in immediate and substantial loss (or gain) to a
Fund. For example, if at the time of purchase, 10% of the value of the futures
contract is deposited as margin, a subsequent 10% decrease in the value of the
futures contract would result in a total loss of the margin deposit, before any
deduction for the transaction costs, if the account were then closed out. A 15%
decrease would result in a loss equal to 150% of the original margin deposit if
the contract were closed out. Thus, a purchase or sale of a futures contract may
result in losses in excess of the amount invested in the contract. However,
because the Funds will be engaged in futures transactions only for hedging
purposes, the Adviser does not believe
S-10
<PAGE>
that the Funds will generally be subject to the risks of loss frequently
associated with futures transactions. The Funds presumably would have sustained
comparable losses if, instead of the futures contract, they had invested in the
underlying financial instrument and sold it after the decline. The risk of loss
from the purchase of options is less as compared with the purchase or sale of
futures contracts because the maximum amount at risk is the premium paid for the
option.
Utilization of futures transactions by the Funds does involve the risk of
imperfect or no correlation where the securities underlying futures contracts
have different maturities than the fund securities being hedged. It is also
possible that the Funds could both lose money on futures contracts and
experience a decline in value of its fund securities. There is also the risk of
loss by the Funds of margin deposits in the event of the bankruptcy of a broker
with whom the Funds have an open position in a futures contract or related
option.
Most futures exchanges limit the amount of fluctuation permitted in futures
contract prices during a single trading day. The daily limit establishes the
maximum amount that the price of a futures contract may vary either up or down
from the previous day's settlement price at the end of a trading session. Once
the daily limit has been reached in a particular type of contract, no trades may
be made on that day at a price beyond that limit. The daily limit governs only
price movement during a particular trading day and therefore does not limit
potential losses because the limit may prevent the liquidation of unfavorable
positions. Futures contract prices have occasionally moved to the daily limit
for several consecutive trading days with little or no trading, thereby
preventing prompt liquidation of future positions and subjecting some futures
traders to substantial losses.
INVESTMENT COMPANY SECURITIES
A Fund's purchase of investment company securities will result in the layering
of expenses. The Funds are prohibited from acquiring the securities of other
investment companies if, as a result of such acquisition, a Fund owns in the
aggregate (1) more than 3% of the total outstanding voting stock of the acquired
company, (2) securities issued by the acquired company having an aggregate value
of 5% of the value of the total assets of the Fund, or (3) securities issued by
the acquired company and all other investment companies having an aggregate
value in excess of 10% of the value of the total assets of the Fund.
S-11
<PAGE>
MONEY MARKET INSTRUMENTS
These high quality, short-term debt instruments consist of U.S. Government
securities; certificates of deposit, time deposits and bankers' acceptances
issued by high quality banks or savings & loan associations; commercial paper
rated A-1 or A-2 by S&P or Prime-1 or Prime-2 by Moody's, or, if not rated,
determined by the Adviser to be of comparable quality; repurchase agreements
involving any of the foregoing securities; and, to the extent permitted by
applicable law, shares of other investment companies investing solely in money
market instruments.
MORTGAGE-BACKED SECURITIES
Mortgage-backed securities are instruments that entitle the holder to a share of
all interest and principal payments from mortgages underlying the security. The
mortgages backing these securities include conventional thirty-year fixed rate
mortgages, graduated payment mortgages, adjustable rate mortgages, and floating
mortgages.
GOVERNMENT PASS-THROUGH SECURITIES
These are securities that are issued or guaranteed by a U.S. Government
agency representing an interest in a pool of mortgage loans. The
primary issuers or guarantors of these mortgage-backed securities are
the Government National Mortgage Association ("GNMA"), Fannie Mae, and
the Federal Home Loan Mortgage Corporation ("FHLMC"). Fannie Mae and
FHLMC obligations are not backed by the full faith and credit of the
U.S. Government as GNMA certificates are, but Fannie Mae and FHLMC
securities are supported by the instrumentalities' right to borrow from
the U.S. Treasury. GNMA, Fannie Mae, and FHLMC each guarantees timely
distributions of interest to certificate holders. GNMA and Fannie Mae
also guarantee timely distributions of scheduled principal. In the
past, FHLMC has only guaranteed the ultimate collection of principal of
the underlying mortgage loan; however, FHLMC now issues mortgage-backed
securities (FHLMC Gold PCS) which also guarantee timely payment of
monthly principal reductions. Government and private guarantees do not
extend to the securities' value, which is likely to vary inversely with
fluctuations in interest rates.
Obligations of GNMA are backed by the full faith and credit of the
United States Government. Obligations of Fannie Mae and FHLMC are not
backed by the full faith and credit of the United States Government but
are considered to be of high quality since they are considered to be
instrumentalities of the United States. The market value and interest
yield of these mortgage-backed securities can vary due to market
interest rate fluctuations and early prepayments of underlying
mortgages. These securities represent ownership in a pool of federally
insured mortgage loans with a maximum maturity of 30 years. However,
due to scheduled and unscheduled principal payments on the underlying
loans, these securities have a shorter average
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maturity and, therefore, less principal volatility than a comparable
30-year bond. Since prepayment rates vary widely, it is not possible to
accurately predict the average maturity of a particular mortgage-backed
security. The scheduled monthly interest and principal payments
relating to mortgages in the pool will be "passed through" to
investors. Government mortgage-backed securities differ from
conventional bonds in that principal is paid back to the certificate
holders over the life of the loan rather than at maturity. As a result,
there will be monthly scheduled payments of principal and interest. In
addition, there may be unscheduled principal payments representing
prepayments on the underlying mortgages. Although these securities may
offer yields higher than those available from other types of U.S.
Government securities, mortgage-backed securities may be less effective
than other types of securities as a means of "locking in" attractive
long-term rates because of the prepayment feature. For instance, when
interest rates decline, the value of these securities likely will not
rise as much as comparable debt securities due to the prepayment
feature. In addition, these prepayments can cause the price of a
mortgage-backed security originally purchased at a premium to decline
in price to its par value, which may result in a loss.
PRIVATE PASS-THROUGH SECURITIES
Private pass-through securities are mortgage-backed securities issued
by a non-governmental agency, such as a trust. While they are generally
structured with one or more types of credit enhancement, private
pass-through securities generally lack a guarantee by an entity having
the credit status of a governmental agency or instrumentality. The two
principal types of private mortgage-backed securities are
collateralized mortgage obligations ("CMOs") and real estate mortgage
investment conduits ("REMICs").
CMOs
CMOs are securities collateralized by mortgages, mortgage
pass-throughs, mortgage pay-through bonds (bonds representing an
interest in a pool of mortgages where the cash flow generated from the
mortgage collateral pool is dedicated to bond repayment), and
mortgage-backed bonds (general obligations of the issuers payable out
of the issuers' general funds and additionally secured by a first lien
on a pool of single family detached properties). CMOs are rated in one
of the two highest categories by S&P or Moody's. Many CMOs are issued
with a number of classes or series which have different expected
maturities. Investors purchasing such CMOs are credited with their
portion of the scheduled payments of interest and principal on the
underlying mortgages plus all unscheduled prepayments of principal
based on a predetermined priority schedule. Accordingly, the CMOs in
the longer maturity series are less likely than other mortgage
pass-throughs to be prepaid prior to their stated maturity. Although
some of the mortgages underlying CMOs may be supported by various types
of insurance, and some CMOs may be backed by GNMA certificates or other
mortgage pass-throughs issued or guaranteed by U.S.
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Government agencies or instrumentalities, the CMOs themselves are not
generally guaranteed.
REMICs
REMICs are private entities formed for the purpose of holding a fixed
pool of mortgages secured by an interest in real property. REMICs are
similar to CMOs in that they issue multiple classes of securities and
are rated in one of the two highest categories by S&P or Moody's.
Investors may purchase beneficial interests in REMICs, which are known
as "regular" interests, or "residual" interests. Guaranteed REMIC
pass-through certificates ("REMIC Certificates") issued by Fannie Mae
or FHLMC represent beneficial ownership interests in a REMIC trust
consisting principally of mortgage loans or Fannie Mae, FHLMC or
GNMA-guaranteed mortgage pass-through certificates. For FHLMC REMIC
Certificates, FHLMC guarantees the timely payment of interest. GNMA
REMIC Certificates are backed by the full faith and credit of the U.S.
Government.
STRIPPED MORTGAGE-BACKED SECURITIES
Stripped mortgage-backed securities are securities that are created
when a U.S. Government agency or a financial institution separates the
interest and principal components of a mortgage-backed security and
sells them as individual securities. The holder of the "principal-only"
security (PO) receives the principal payments made by the underlying
mortgage-backed security, while the holder of the "interest-only"
security (IO) receives interest payments from the same underlying
security.
The prices of stripped mortgage-backed securities may be particularly
affected by changes in interest rates. As interest rates fall,
prepayment rates tend to increase, which tends to reduce prices of IOs
and increase prices of POs. Rising interest rates can have the opposite
effect.
DETERMINING MATURITIES OF MORTGAGE-BACKED SECURITIES
Due to prepayments of the underlying mortgage instruments,
mortgage-backed securities do not have a known actual maturity. In the
absence of a known maturity, market participants generally refer to an
estimated average life. The Adviser believes that the estimated average
life is the most appropriate measure of the maturity of a
mortgage-backed security. Accordingly, in order to determine whether
such security is a permissible investment for a Fund, it will be deemed
to have a remaining maturity equal to its average life as estimated by
that Fund's Adviser. An average life estimate is a function of an
assumption regarding anticipated prepayment patterns. The assumption is
based upon current interest rates, current
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conditions in the relevant housing markets and other factors. The
assumption is necessarily subjective, and thus different market
participants could produce somewhat different average life estimates
with regard to the same security. There can be no assurance that the
average life as estimated by an Advisor will be the actual average
life.
OPTIONS
A Fund may write call options on a covered basis only, and will not engage in
option writing strategies for speculative purposes. A call option gives the
purchaser of such option the right to buy, and the writer, in this case the
Fund, the obligation to sell the underlying security at the exercise price
during the option period. The advantage to the Funds of writing covered calls is
that the Funds receive a premium which is additional income. However, if the
security rises in value, the Funds may not fully participate in the market
appreciation.
During the option period, a covered call option writer may be assigned an
exercise notice by the broker-dealer through whom such call option was sold
requiring the writer to deliver the underlying security against payment of the
exercise price. This obligation is terminated upon the expiration of the option
period or at such earlier time in which the writer effects a closing purchase
transaction. A closing purchase transaction is one in which the Fund, when
obligated as a writer of an option, terminates its obligation by purchasing an
option of the same series as the option previously written.
A closing purchase transaction cannot be effected with respect to an option once
the option writer has received an exercise notice for such option.
Closing purchase transactions will ordinarily be effected to realize a profit on
an outstanding call option, to prevent an underlying security from being called,
to permit the sale of the underlying security or to enable a Fund to write
another call option on the underlying security with either a different exercise
price or expiration date or both. A Fund may realize a net gain or loss from a
closing purchase transaction depending upon whether the net amount of the
original premium received on the call option is more or less than the cost of
effecting the closing purchase transaction. Any loss incurred in a closing
purchase transaction may be partially or entirely offset by the premium received
from a sale of a different call option on the same underlying security. Such a
loss may also be wholly or partially offset by unrealized appreciation in the
market value of the underlying security.
If a call option expires unexercised, a Fund will realize a short-term capital
gain in the amount of the premium on the option, less the commission paid. Such
a gain, however, may be offset by depreciation in the market value of the
underlying security during the option period. If a call option is exercised, a
Fund will realize a gain or loss from the sale of the underlying security equal
to the difference between the cost of the underlying security, and the proceeds
of the sale of the security plus the amount of the premium on the option, less
the commission paid.
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The market value of a call option generally reflects the market price of an
underlying security. Other principal factors affecting market value include
supply and demand, interest rates, the price volatility of the underlying
security, and the time remaining until the expiration date.
The Funds will write call options only on a covered basis, which means that a
Fund will own the underlying security subject to a call option at all times
during the option period. Unless a closing purchase transaction is effected, a
Fund would be required to continue to hold a security which it might otherwise
wish to sell, or deliver a security it would want to hold. Options written by
the Funds will normally have expiration dates between one and nine months from
the date written. The exercise price of a call option may be below, equal to, or
above the current market value of the underlying security at the time the option
is written.
REPURCHASE AGREEMENTS
Repurchase agreements are agreements by which a person (E.G., a Fund) obtains a
security and simultaneously commits to return the security to the seller (a
primary securities dealer as recognized by the Federal Reserve Bank of New York
or a national member bank as defined in Section 3(d)(1) of the Federal Deposit
Insurance Act, as amended) at an agreed upon price (including principal and
interest) on an agreed upon date within a number of days (usually not more than
seven) from the date of purchase. The resale price reflects the purchase price
plus an agreed upon market rate of interest which is unrelated to the coupon
rate or maturity of the underlying security. A repurchase agreement involves the
obligation of the seller to pay the agreed upon price, which obligation is, in
effect, secured by the value of the underlying security.
Repurchase agreements are considered to be loans by a Fund for purposes of its
investment limitations. The repurchase agreements entered into by a Fund will
provide that the underlying security at all times shall have a value at least
equal to 102% of the resale price stated in the agreement (the Adviser monitors
compliance with this requirement). Under all repurchase agreements entered into
by a Fund, the appropriate Custodian or its agent must take possession of the
underlying collateral. However, if the seller defaults, a Fund could realize a
loss on the sale of the underlying security to the extent that the proceeds of
the sale including accrued interest are less than the resale price provided in
the agreement including interest. In addition, even though the Bankruptcy Code
provides protection for most repurchase agreements, if the seller should be
involved in bankruptcy or insolvency proceedings, a Fund may incur delay and
costs in selling the underlying security or may suffer a loss of principal and
interest if the Fund is treated as an unsecured creditor and required to return
the underlying security to the seller's estate.
SECURITIES OF FOREIGN ISSUERS -- A Fund may purchase securities of foreign
issuers (including American Depositary Receipts or "ADRs") that are traded on
registered exchanges or the over-the-counter market in the United States, and
may purchase securities denominated in foreign securities in amounts up to 10%
of its total net assets.
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ADRs are typically issued by a U.S. financial institution and evidence ownership
of underlying securities issued by a foreign issuer. Investments in securities
of foreign issuers are subject to special risks such as future adverse political
and economic developments, possible seizure, nationalization or expropriation of
foreign investments, less stringent disclosure requirements, the possible
establishment of exchange controls or taxation at the source, greater
fluctuation in value due to changes in exchange rates, or the adoption of other
foreign governmental restrictions. Foreign securities issuers are often subject
to accounting treatment and engage in business practices different from those
respecting domestic securities issuers.
SECURITIES LENDING
Each Fund may lend securities pursuant to agreements which require that the
loans be continuously secured by collateral at all times equal to 100% of the
market value of the loaned securities which consists of: cash, securities of the
U.S. Government or its agencies, or any combination of cash and such securities.
Such loans will not be made if, as a result, the aggregate amount of all
outstanding securities loans for a Fund exceed one-third of the value of the
Fund's total assets taken at fair market value. A Fund will continue to receive
interest and dividends on the securities lent while simultaneously earning
interest on the investment of the cash collateral in U.S. Government securities.
However, a Fund will normally pay lending fees to such broker-dealers and
related expenses from the interest earned on invested collateral. There may be
risks of delay in receiving additional collateral or risks of delay in recovery
of the securities or even loss of rights in the collateral should the borrower
of the securities fail financially. However, loans are made only to borrowers
deemed by the appropriate Adviser to be of good standing and when, in the
judgment of that Adviser, the consideration which can be earned currently from
such securities loans justifies the attendant risk. Any loan may be terminated
by either party upon reasonable notice to the other party. The Funds may use the
Distributor or a broker-dealer affiliate of an Adviser as a broker in these
transactions.
U.S. GOVERNMENT AGENCY OBLIGATIONS
U.S. Government agency obligations are obligations issued or guaranteed by
agencies or instrumentalities of the U.S. Government. Agencies of the United
States Government which issue obligations consist of, among others, the Export
Import Bank of the United States, Farmers Home Administration, Federal Farm
Credit Bank, Federal Housing Administration, GNMA, Maritime Administration,
Small Business Administration and The Tennessee Valley Authority. Obligations of
instrumentalities of the United States Government include securities issued by,
among others, Federal Home Loan Banks, FHLMC, Federal Intermediate Credit Banks,
Federal Land Banks, Fannie Mae and the United States Postal Service as well as
government trust certificates. Some of these securities are supported by the
full faith and credit of the United States Treasury, others are supported by the
right of the issuer to borrow from the Treasury and still others are supported
only by the credit of the instrumentality. Guarantees of principal by agencies
or instrumentalities of the U.S. Government may be a guarantee of payment at the
maturity
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of the obligation so that in the event of a default prior to maturity there
might not be a market and thus no means of realizing the value of the obligation
prior to maturity.
U.S. TREASURY OBLIGATIONS
U.S. Treasury obligations consist of bills, notes and bonds issued by the U.S.
Treasury. They also consist of separately traded interest and principal
component parts of these obligations that are transferable through the Federal
book-entry system known as Separately Traded Registered Interest and Principal
Securities ("STRIPS").
VARIABLE AND FLOATING RATE SECURITIES
Variable and floating rate instruments involve certain obligations that may
carry variable or floating rates of interest, and may involve a conditional or
unconditional demand feature. Such instruments bear interest at rates which are
not fixed, but which vary with changes in specified market rates or indices. The
interest rates on these securities may be reset daily, weekly, quarterly, or
some other reset period, and may have a set floor or ceiling on interest rate
changes. There is a risk that the current interest rate on such obligations may
not accurately reflect existing market interest rates. A demand instrument with
a demand notice exceeding seven days may be considered illiquid if there is no
secondary market for such security.
VARIABLE RATE MASTER DEMAND NOTES
Variable rate master demand notes permit the investment of fluctuating amounts
at varying market rates of interest pursuant to direct arrangements between a
Fund, as lender, and a borrower. Such notes provide that the interest rate on
the amount outstanding varies on a daily, weekly or monthly basis depending upon
a stated short-term interest rate index. Both the lender and the borrower have
the right to reduce the amount of outstanding indebtedness at any time. There is
no secondary market for the notes and it is not generally contemplated that such
instruments will be traded. The quality of the note or the underlying credit
must, in the opinion of the appropriate Adviser, be equivalent to the ratings
applicable to permitted investments for the particular Fund. The appropriate
Adviser will monitor on an ongoing basis the earning power, cash flow and
liquidity ratios of the issuers of such instruments and will similarly monitor
the ability of an issuer of a demand instrument to pay principal and interest on
demand. Variable rate master demand notes may or may not be backed by bank
letters of credit.
WARRANTS
Warrants give holders the right, but not the obligation, to buy shares of a
company at a given price, usually higher than the market price, during a
specified period.
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WHEN-ISSUED SECURITIES
When-issued securities are securities that are delivered and paid for normally
within 45 days after the date of commitment to purchase.
Although a Fund will only make commitments to purchase when-issued securities
with the intention of actually acquiring the securities, a Fund may sell them
before the settlement date. When-issued securities are subject to market
fluctuation, and accrue no interest to the purchaser during this pre-settlement
period. The payment obligation and the interest rate that will be received on
the securities are each fixed at the time the purchaser enters into the
commitment. Purchasing when-issued securities entails leveraging and can involve
a risk that the yields available in the market when the delivery takes place may
actually be higher than those obtained in the transaction itself. In that case,
there could be an unrealized loss at the time of delivery.
Segregated accounts will be established with the appropriate custodian, and a
Fund will maintain high quality, liquid assets in an amount at least equal in
value to its commitments to purchase when-issued securities. If the value of
these assets declines, the Fund will place additional liquid assets in the
account on a daily basis so that the value of the assets in the account is equal
to the amount of such commitments.
ZERO COUPON OBLIGATIONS
Zero coupon obligations are debt obligations that do not bear any interest, but
instead are issued at a deep discount from face value or par. The value of a
zero coupon obligation increases over time to reflect the interest accumulated.
Such obligations will not result in the payment of interest until maturity, and
will have greater price volatility than similar securities that are issued at
face value or par and pay interest periodically.
INVESTMENT COMPANY SHARES
The Funds may invest in shares of other investment companies to the extent
permitted by applicable law and subject to certain restrictions. These
investment companies typically incur fees that are separate from those fees
incurred directly by a Fund. A Fund's purchase of such investment company
securities results in the layering of expenses, such that shareholders would
indirectly bear a proportionate share of the operating expenses of such
investment companies, including advisory fees, in addition to paying the Fund's
usual expenses. See also "Investment Limitations."
INVESTMENT LIMITATIONS
The following policies, except for policies 1, 2, 5, 8, 10 and 12, are
non-fundamental policies of each Fund. Non-fundamental polices may be changed or
eliminated by the Trust's Board of Trustees without a vote of a Fund's
shareholders. Policies 3, 4, 6, 7, 9,
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11, and 13 are fundamental policies of the Fund that cannot be changed without
the consent of the holders of a majority of the Fund's outstanding shares. The
term "majority of the outstanding shares" of a Fund or the Trust, respectively,
means the vote of (i) 67% or more of a Fund's or the Trust's shares present at a
meeting, if more than 50% of the outstanding shares of a Fund or the Trust are
present or represented by proxy; or (ii) more than 50% of a Fund's or the
Trust's outstanding shares, whichever is less.
No Fund may:
1. Purchase securities of any issuer (except securities issued or
guaranteed as to principal and interest by the United States, its
agencies or instrumentalities and repurchase agreements involving such
securities) if as a result more than 5% of the total assets of the Fund
would be invested in the securities of such issuer. This restriction
applies to 75% of the Fund's total assets.
2. Purchase any securities which would cause 25% or more of the total
assets of the Fund to be invested in the securities of one or more
issuers conducting their principal business activities in the same
industry, provided that this limitation does not apply to investments
in U.S. Government securities and repurchase agreements involving such
securities. For purposes of this limitation (i) utility companies will
be classified according to their services, for example, gas, gas
transmission, electric and telephone will each be considered a separate
industry, (ii) financial service companies will be classified according
to the end users of their services, for example, automobile finance,
bank finance and diversified finance will each be considered a separate
industry, and (iii) supranational entities will be considered to
represent one industry.
3. Acquire more than 10% of the voting securities of any one issuer.
4. Invest in companies for the purpose of exercising control.
5. Borrow money except for temporary or emergency purposes and then only
in an amount not exceeding 10% of the value of total assets. Borrowings
from a bank require asset coverage of at least 300%. In the event that
such asset coverage shall at any time fall below 300%, a Fund shall,
within three days thereafter or such longer period as the Securities
and Exchange Commission (the "SEC") may prescribe by rules and
regulations, reduce the amount of its borrowings to such an extent that
the asset coverage of such borrowings shall be at least 300%. All
borrowings in excess of 5% of total assets will be repaid before making
additional investments and any interest paid on such borrowings will
reduce income.
6. Make loans, except that a Fund may purchase or hold debt instruments in
accordance with its investment objective and policies, may lend its
portfolio securities, and may enter into repurchase agreements, as
described in the Prospectus and in this Statement of Additional
Information.
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7. Pledge, mortgage or hypothecate assets except to secure borrowings
permitted by (3) above in aggregate amounts not to exceed 10% of total
assets taken at current value at the time of the incurrence of such
loan.
8. Purchase or sell real estate, real estate limited partnership interests
or commodities provided that this shall not prevent a Fund from
investing in readily marketable securities of issuers which can invest
in real estate or commodities, institutions that issue mortgages, and
real estate investment trusts which deal in real estate or interests
therein, and provided further that this shall not prevent a Fund from
investing in commodities contracts relating to financial instruments.
9. Make short sales of securities, maintain a short position or purchase
securities on margin, except that a Fund may obtain short-term credits
as necessary for the clearance of security transactions and may sell
securities short "against the box."
10. Act as an underwriter of securities of other issuers except as it may
be deemed an underwriter in selling a portfolio security.
11. Invest its assets in securities of any investment company, except as
permitted by the Investment Company Act of 1940, as amended (the "1940
Act") or pursuant to an order of exemption therefrom.
12. Issue senior securities (as defined in the 1940 Act) except as
permitted by rule, regulation or order of the SEC.
13. Invest in interests in oil, gas or other mineral exploration or
development programs and oil, gas or mineral leases.
In addition, the following are non-fundamental limitations. Each Fund may not
invest more than 15% of its net assets in illiquid securities. An illiquid
security is a security which cannot be disposed of in the usual course of
business within seven days, at approximately the value at which a Fund has
valued the instrument. Illiquid securities include repurchase agreements
maturing in excess of seven days, time deposits with a withdrawal penalty,
non-negotiable instruments and instruments for which no market exists.
The foregoing percentages will apply at the time of the purchase of a security.
THE ADVISER
The Trust and First Manhattan Co. (the "Adviser") have entered into an advisory
agreement (the "Advisory Agreement"). The Advisory Agreement provides that the
Adviser shall not be protected against any liability to the Trust or its
shareholders by reason of willful misfeasance, bad faith or gross negligence on
its part in the performance of its duties or from reckless disregard of its
obligations or duties thereunder.
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The Adviser is a professional investment management firm organized as a limited
partnership that was founded in 1964. Because of the amount of his ownership of
the firm's outstanding partnership interests, Mr. David S. Gottesman is deemed
to control the Adviser. As of January 1, 2000, the Adviser had management
authority with respect to approximately $8 billion of assets. The principal
business address of the Adviser is 437 Madison Avenue, New York, New York 10022.
The Adviser serves as the investment adviser to each Fund pursuant to the
Advisory Agreement. Under the terms of the Advisory Agreement, the Adviser makes
the investment decisions for the assets of the Fund and continuously reviews,
supervises and administers the Funds' investment program, subject to the
supervision of, and policies established by, the Trustees of the Trust. In
addition to advising the Funds, the Adviser provides advisory services to
individuals, partnerships, trusts, pension and other employee benefit plans, and
eleemosynary and other institutions.
Bernard C. Groveman, CFA, and A. Byron Nimocks, general partners of the Adviser
since 1994 and 1990, respectively, have managed the equity component of the
Select Fund since the Select Fund commenced operations. From 1990-1993, Mr.
Groveman was a Managing Director of the Adviser.
William K. McElroy, a Managing Director of the Adviser, has managed the fixed
income component of the Select Fund since the Select Fund commenced operations.
Mr. McElroy has been a portfolio manager with the Adviser since 1987.
Edward I. Lefferman, CFA, a Managing Director of the Adviser, manages the
Strategic Value Fund. Mr. Lefferman has been a portfolio manager with the
Adviser since 1986.
For its services, the Adviser is entitled to a fee, which is calculated daily
and paid monthly, at an annual rate of .80% of the average daily net assets of
the Select Fund and 1.00% of the average daily net assets of the Strategic Value
Fund. The Adviser has voluntarily agreed to waive a portion of its advisory fee
and reimburse the Funds in order to limit total operating expenses of the Select
Fund to not more than 1.10% and the Strategic Value Fund to not more than 1.30%
of their average daily net assets. The Adviser reserves the right, in its sole
discretion, to terminate its fee waiver and reimbursement agreements at any
time.
For the fiscal years ended October 31, 1997, 1998 and 1999, the Select Fund paid
the Adviser $458,786, $759,767 and $906,000, respectively, and for the fiscal
years ended October 31, 1997, 1998 and 1999, the Adviser waived fees of $46,194,
$13,436 and $0, respectively. For the fiscal period ended October 31, 1998, and
fiscal year ended October 31, 1999, the Strategic Value Fund paid the Adviser $0
and $0, respectively, and the Adviser waived fees of $10,032 and $94,437,
respectively. For the fiscal year ended October 31, 1999, the Adviser reimbursed
fees of $0 to the Select Fund and for the fiscal year ended October 31, 1999,
the Adviser reimbursed $34,000 to the Strategic Value Fund.
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The continuance of the Advisory Agreement must be specifically approved at least
annually (i) by the vote of the Trustees or by a vote of the shareholders of the
Fund, and (ii) by the vote of a majority of the Trustees who are not parties to
the Agreement or "interested persons" of any party thereto, cast in person at a
meeting called for the purpose of voting on such approval. The Advisory
Agreement will terminate automatically in the event of its assignment, and is
terminable at any time without penalty by the Trustees of the Trust or, with
respect to the Fund, by a majority of the outstanding shares of the Fund, on not
less than 30 days' nor more than 60 days' written notice to the Adviser, or by
the Adviser on 90 days' written notice to the Trust.
THE ADMINISTRATOR
SEI Investments Mutual Funds Services (the "Administrator") serves as the
Administrator of the Trust. The Administrator provides the Trust with
administrative services, including regulatory reporting and all necessary office
space, equipment, personnel and facilities. For these administrative services,
the Administrator is entitled to a fee, which is calculated daily and paid
monthly, at an annual rate of .15% of the average daily net assets for each
Fund. The Administrator's fee is subject to an annual minimum of $75,000 per
Fund. The Administrator voluntarily agreed to reduce this minimum to $27,500 for
the Strategic Value Fund for the fiscal year ending October 31, 2000.
The Trust and the Administrator have entered into an administration agreement
(the "Administration Agreement"). The Administration Agreement provides that the
Administrator shall not be liable for any error of judgment or mistake of law or
for any loss suffered by the Trust in connection with the matters to which the
Administration Agreement relates, except a loss resulting from willful
misfeasance, bad faith or gross negligence on the part of the Administrator in
the performance of its duties or from reckless disregard by it of its duties and
obligations thereunder. The Administration Agreement shall remain in effect for
a period of five years after the effective date of the agreement and shall
continue in effect for successive periods of two years unless terminated by
either party on not less than 90 days' prior written notice to the other party.
For the fiscal years ended October 31, 1997, 1998 and 1999, the Select Fund paid
to the Administrator fees of $126,246, $167,411 and $170,000, respectively. For
the fiscal period ended October 31, 1998, and the fiscal year ended October 31,
1999, the Strategic Value Fund paid to the Administrator fees of $5,726 and
$27,500, respectively, and the Administrator waived fees of $9,891 and $49,835,
respectively.
The Trust and the Administrator have also entered into a shareholder servicing
agreement pursuant to which the Administrator provides certain shareholder
services in addition to those set forth in the Administration Agreement.
The Administrator, a Delaware business trust, has its principal business offices
at Oaks, Pennsylvania 19456. SEI Investments Management Corporation ("SIMC"), a
wholly-owned subsidiary of SEI Investments Company ("SEI Investments"), is the
owner of all beneficial
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interest in the Administrator. SEI Investments and its subsidiaries and
affiliates, including the Administrator, are leading providers of funds
evaluation services, trust accounting systems, and brokerage and information
services to financial institutions, institutional investors, and money
managers. The Administrator and its affiliates also serve as administrator or
sub-administrator to the following other mutual funds: The Achievement Funds
Trust, Alpha Select Funds, Amerindo Funds, Inc., The Arbor Fund, ARK Funds,
Armada Funds, Bishop Street Funds, Boston 1784 Funds-Registered Trademark-,
CNI Charter Funds, CUFUND, The Expedition Funds, First American Funds, Inc.,
First American Investment Funds, Inc., First American Strategy Funds, Inc.,
HighMark Funds, Huntington Funds, The Nevis Funds, Inc., Oak Associates
Funds, The Parkstone Advantage Fund, The PBHG Funds, Inc., PBHG Insurance
Series Fund, Inc., The Pillar Funds, SEI Asset Allocation Trust, SEI Daily
Income Trust, SEI Index Funds, SEI Institutional International Trust, SEI
Institutional Investments Trust, SEI Institutional Managed Trust, SEI Liquid
Asset Trust, SEI Tax Exempt Trust, STI Classic Funds, STI Classic Variable
Trust, TIP Funds, UAM Funds Trust, UAM Funds, Inc. II, and UAM Funds, Inc.
THE DISTRIBUTOR
SEI Investments Distribution Co. (the "Distributor"), a wholly owned subsidiary
of SEI Investments, and the Trust are parties to a distribution agreement (the
"Distribution Agreement"). The Distributor will not receive compensation for the
distribution of shares of the Funds.
The Distribution Agreement is renewable annually. The Distribution Agreement may
be terminated by the Distributor, by a majority vote of the Trustees who are not
interested persons and have no financial interest in the Distribution Agreement
or by a majority vote of the outstanding securities of the Trust upon not more
than 60 days' written notice by either party or upon assignment by the
Distributor.
The Strategic Value Fund has adopted a shareholder servicing plan for shares
(the "Service Plan") under which a shareholder servicing fee of up to .25% of
average daily net assets attributable to shares will be paid to the Distributor.
Under the Service Plan, the Distributor may perform, or may compensate other
service providers for performing the following shareholder services:
subaccounting; providing information on share positions to clients; forwarding
shareholder communications to clients; processing purchase and redemption
orders; and processing dividend payments. Under the Service Plan, the
Distributor may retain as a profit any difference between the fees it receives
and the amount it pays to third parties. The Distributor may utilize any
sub-distributor to perform any of the services under the Service Plan.
Services under the Service Plan may include establishing and maintaining
customer accounts and records; aggregating and processing purchase and
redemption requests from customers; placing net purchase and redemption orders
with the Distributor; automatically investing customer account cash balances;
providing periodic statements to customers; arranging for wires; answering
customer inquiries concerning their investments;
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<PAGE>
assisting customers in changing dividend options, account designations, and
addresses; performing sub-accounting functions; processing dividend payments
from the Trust on behalf of customers; and forwarding shareholder communications
from the Trust (such as proxies, shareholder reports, and dividend distribution
and tax notices) to these customers with respect to investments in the Trust.
Certain state securities laws may require those financial institutions providing
such distribution services to register as dealers pursuant to state law.
No compensation is paid to the Distributor for distribution services or
shareholder services for the Select Fund. The Strategic Value Fund paid $0 under
the Service Plan for the fiscal period ended October 31, 1999.
THE TRANSFER AGENT
DST Systems, Inc., 333 West 12th Street, Kansas City, MO 64105 serves as the
Trust's transfer agent.
THE CUSTODIAN
First Union National Bank, 123 South Broad Street, Philadelphia, Pennsylvania
19109 acts as custodian (the "Custodian") of the Trust. The Custodian holds
cash, securities and other assets of the Trust as required by the 1940 Act.
INDEPENDENT PUBLIC ACCOUNTANTS
Arthur Andersen LLP serves as independent public accountants for the Trust.
LEGAL COUNSEL
Morgan, Lewis & Bockius LLP serves as legal counsel to the Trust.
TRUSTEES AND OFFICERS OF THE FUND
The management and affairs of the Fund are supervised by the Trustees under the
laws of the Commonwealth of Massachusetts. The Trustees have approved contracts
under which, as described above, certain companies provide essential management
services to the Fund. The Fund pays the fees for unaffiliated Trustees.
The Trustees and Executive Officers of the Fund, their respective dates of
birth, and their principal occupations for the last five years are set forth
below. Each may have held other positions with the named companies during that
period. Unless otherwise noted, the business address of each Trustee and each
Executive Officer is SEI Investments Company, Oaks, Pennsylvania 19456. Certain
officers of the Fund also serve as officers
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<PAGE>
of some or all of the following: The Achievement Funds Trust, Alpha Select
Funds, Amerindo Funds, Inc., The Arbor Fund, ARK Funds, Armada Funds, Bishop
Street Funds, Boston 1784 Funds-Registered Trademark-, CNI Charter Funds,
CUFUND, The Expedition Funds, First American Funds, Inc., First American
Investment Funds, Inc., First American Strategy Funds, Inc., HighMark Funds,
Huntington Funds, The Nevis Funds, Inc., Oak Associates Funds, The Parkstone
Advantage Fund, The PBHG Funds, Inc., PBHG Insurance Series Fund, Inc., The
Pillar Funds, SEI Asset Allocation Trust, SEI Daily Income Trust, SEI Index
Funds, SEI Institutional International Trust, SEI Institutional Investments
Trust, SEI Institutional Managed Trust, SEI Liquid Asset Trust, SEI Tax
Exempt Trust, STI Classic Funds, STI Classic Variable Trust, TIP Funds, UAM
Funds Trust, UAM Funds, Inc. II, and UAM Funds, Inc., each of which is an
open-end management investment company managed by SEI Investments Mutual
Funds Services or its affiliates and, except for PBHG Advisor Funds, Inc.,
distributed by SEI Investments Distribution Co.
ROBERT A. NESHER (DOB 08/17/46) -- Chairman of the Board of Trustees*
- -- Currently performs various services on behalf of SEI Investments for which
Mr. Nesher is compensated. Executive Vice President of SEI Investments,
1986-1994. Director and Executive Vice President of the Administrator and the
Distributor, 1981-1994. Trustee of The Arbor Fund, Boston 1784
Funds-Registered Trademark-, The Expedition Funds, Oak Associates Funds,
Pillar Funds, SEI Asset Allocation Trust, SEI Daily Income Trust, SEI Index
Funds, SEI Institutional Investments Trust, SEI Institutional Managed Trust,
SEI Institutional International Trust, SEI Liquid Asset Trust and SEI Tax
Exempt Trust.
JOHN T. COONEY (DOB 01/20/27) -- Trustee** -- Vice Chairman of Ameritrust Texas
N.A., 1989-1992, and MTrust Corp., 1985-1989. Trustee of The Arbor Fund, The
Expedition Funds, and Oak Associates Funds.
WILLIAM M. DORAN (DOB 05/26/40) -- Trustee* --1701 Market Street, Philadelphia,
PA 19103-2921. Partner, Morgan, Lewis & Bockius LLP (law firm), counsel to the
Trust, SEI Investments, the Administrator and the Distributor. Director and
Secretary of SEI Investments and Secretary of the Administrator and the
Distributor. Trustee of The Arbor Fund, The Expedition Funds, Oak Associates
Funds, SEI Asset Allocation Trust, SEI Daily Income Trust, SEI Index Funds, SEI
Institutional Investments Trust, SEI Institutional Managed Trust, SEI
Institutional International Trust, SEI Liquid Asset Trust and SEI Tax Exempt
Trust.
ROBERT A. PATTERSON (DOB 11/05/27) -- Trustee** -- Pennsylvania State
University, Senior Vice President, Treasurer (Emeritus). Financial and
Investment Consultant, Professor of Transportation (1984-present). Vice
President-Investments, Treasurer, Senior Vice President (Emeritus) (1982-1984).
Director, Pennsylvania Research Corp.; Member and Treasurer, Board of Trustees
of Grove City College. Trustee of The Arbor Fund, The Expedition Funds and Oak
Associates Funds.
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<PAGE>
EUGENE B. PETERS (DOB 06/03/29) -- Trustee** -- Private investor from 1987 to
present. Vice President and Chief Financial Officer, Western Company of North
America (petroleum service company) (1980-1986). President of Gene Peters and
Associates (import company) (1978-1980). President and Chief Executive Officer
of Jos. Schlitz Brewing Company before 1978. Trustee of The Arbor Fund, The
Expedition Funds and Oak Associates Funds.
JAMES M. STOREY (DOB 04/12/31) -- Trustee** -- Partner, Dechert Price & Rhoads,
from September 1987 - December 1993; Trustee of The Arbor Fund, The Expedition
Funds, Oak Associates Funds, SEI Asset Allocation Trust, SEI Daily Income Trust,
SEI Index Funds, SEI Institutional Investments Trust, SEI Institutional Managed
Trust, SEI Institutional International Trust, SEI Liquid Asset Trust and SEI Tax
Exempt Trust.
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 Liquid Asset Trust, SEI
Institutional Investments Trust, SEI Institutional Managed Trust, SEI
Institutional International Trust, and SEI Tax Exempt Trust.
MARK E. NAGLE (DOB 10/20/59) -- Controller and Chief Financial Officer --
President of the Administrator and Senior Vice President of SEI Investments
Mutual Funds Services Operations Group since 1998. Vice President of the
Administrator and Vice President of Fund Accounting and Administration of SEI
Investments Mutual Fund Services, 1996- 1998. Vice President of the Distributor
since December 1997. Senior Vice President, Fund Administration, BISYS Fund
Services, September 1995 - November 1996. Senior Vice President and Site
Manager, Fidelity Investments 1981 - September 1995.
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 LLP (1997-1999). Associate at Richter, Miller & Finn LLP
(1994-1997).
TODD B. CIPPERMAN (DOB 02/14/66) -- Vice President and Assistant Secretary --
General Counsel of SEI Investments since 2000. Vice President and Assistant
Secretary of SEI Investments, the Administrator and the Distributor since 1995.
Associate, Dewey Ballantine (law firm), 1994-1995. Associate, Winston & Strawn
(law firm) 1991-1994.
JAMES R. FOGGO (DOB 06/30/64) -- Vice President and Assistant Secretary -- Vice
President and Assistant Secretary of SEI Investments since 1998. Vice President
and Assistant Secretary of the Administrator and the Distributor since May 1999.
Associate,
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Paul Weiss, Rifkind, Wharton & Garrison (law firm), 1998. Associate, Baker &
McKenzie (law firm), 1995-1998. Associate, Battle Fowler L.L.P. (law firm),
1993-1995. Operations Manager, The Shareholder Services Group, Inc., 1986-1990.
LYDIA A. GAVALIS (DOB 06/05/64) -- Vice President and Assistant Secretary --
Vice President and Assistant Secretary of the Administrator and the Distributor
since 1998. Assistant General Counsel and Director of Arbitration, Philadelphia
Stock Exchange, 1989-1998.
KEVIN P. ROBINS (DOB 04/15/61) -- Vice President and Assistant Secretary --
Senior Vice President and General Counsel of SEI Investments, the Administrator
and the Distributor since 1994. Assistant Secretary of SEI Investments since
1992; Secretary of the Administrator since 1994. Vice President, General Counsel
and Assistant Secretary of the Administrator and the Distributor, 1992-1994.
Associate, Morgan, Lewis & Bockius LLP (law firm), 1988-1992.
LYNDA J. STRIEGEL (DOB 10/30/48) -- Vice President and Assistant Secretary --
Vice President and Assistant Secretary of the Administrator and the Distributor
since 1998. Senior Asset Management Counsel, Barnett Banks, Inc., 1997-1998.
Partner, Groom and Nordberg, Chartered, 1996-1997. Associate General Counsel,
Riggs Bank, N.A., 1991-1995.
JOHN H. GRADY, JR. (DOB 06/01/61) -- Secretary --1701 Market Street,
Philadelphia, PA 19103-2921, Partner since 1995, Morgan, Lewis & Bockius LLP
(law firm), counsel to the Trust, SEI Investments, the Administrator and the
Distributor.
RICHARD W. GRANT (DOB 10/25/45) -- Assistant Secretary -- 1701 Market Street,
Philadelphia, PA 19103. Partner, Morgan, Lewis & Bockius LLP (law firm), counsel
to the Trust, 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 Fund pays the fees for unaffiliated Trustees.
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<PAGE>
The following table exhibits Trustee compensation for the fiscal period ended
October 31, 1999:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
Total Compensation
Aggregate From Registrant and
Compensation From Pension or Retirement Fund Complex* Paid
Registrant for the Fiscal Benefits Accrued as Estimated Annual to Trustees for the
Name of Person, Year Ended October 31, Part of Fund Benefits Upon Fiscal Year Ended
Position 1999 Expenses Retirement October 31, 1999
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
John T. Cooney $9,571.48 N/A N/A $9,571.48 for
services on 1 board
**Frank E. Morris $2,447.81 N/A N/A $2,447.81 for
services on 1 board
Robert Patterson $9,571.48 N/A N/A $9,571.48 for
services on 1 board
Eugene B. Peters $9,571.48 N/A N/A $9,571.48 for
services on 1 board
James M. Storey, Esq. $9,571.48 N/A N/A $9,571.48 for
services on 1 board
George J. Sullivan $7,123.67 N/A N/A $7,123.67 for
services on 1 board
William M. Doran, Esq. $0 N/A N/A $0 for service on 1
board
Robert A. Nesher $0 N/A N/A $0 for service on 1
board
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
* For the purposes of this table, the Fund is the only investment company in the
"Fund Complex."
** Retired December 31, 1998.
PERFORMANCE INFORMATION
From time to time, the Trust may advertise the yield and total return of the
Select Fund and the Total return of the Strategic Value Fund. These figures will
be based on historical earnings and are not intended to indicate future
performance. No representation can be made concerning actual future yields or
returns.
PERFORMANCE COMPARISONS
The Funds may periodically compare its performance to other mutual funds tracked
by mutual fund rating services, to broad groups of comparable mutual funds, or
to unmanaged indices. These comparisons may assume reinvestment of dividends but
generally do not reflect deductions for administrative and management costs.
COMPUTATION OF YIELD
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<PAGE>
The yield of a Fund refers to the annualized income generated by an investment
in such Fund over a specified 30-day period. The yield is calculated by assuming
that the income generated by the investment during that 30-day period is
generated in each period over one year and is shown as a percentage of the
investment. In particular, yield will be calculated according to the following
formula:
Yield = 2 [((a-b)/cd + 1) to the power of 6 - 1] where a = dividends and
interest earned during the period; b = expenses accrued for the period (net of
reimbursement); c = the average daily number of shares outstanding during the
period that were entitled to receive dividends; and d = the maximum offering
price per share on the last day of the period.
For the 30-day period ended October 31, 1999, the yield for the Select Fund was
.65%, and the yield for the Strategic Value Fund was .43%.
CALCULATION OF TOTAL RETURN
The total return of a Fund refers to the average compounded rate of return to a
hypothetical investment for designated time periods (including but not limited
to, the period from which that Fund commenced operations through the specified
date), assuming that the entire investment is redeemed at the end of each
period. In particular, total return will be calculated according to the
following formula: P (1 + T)n = ERV, where P = a hypothetical initial payment of
$1,000; T = average annual total return; n = number of years; and ERV = ending
redeemable value, as of the end of the designated time period, of a hypothetical
$1,000 payment made at the beginning of the designated time period.
For the fiscal year ended October 31, 1999, the three year period ended October
31, 1999 and for the period from May 8, 1995 (commencement of operations)
through October 31, 1999, the average annual total return for the Select Fund
was 18.18%, 19.20% and 20.73%, respectively. The cumulative total return for the
Select Fund from May 8, 1995 through October 31, 1999 was 132.25%. For the
fiscal year ended October 31, 1999 and for the period commencing August 17, 1998
(commencement of operations) and ending October 31, 1999, the average annual
total return of the Strategic Value Fund was .26% and 3.73%, respectively. The
cumulative total return for the Strategic Value Fund from August 17, 1998
through October 31, 1999 was 4.52.
PURCHASING SHARES
Purchases and redemptions may be made through the Transfer Agent on any Business
Day. Shares of each Fund are offered on a continuous basis. Currently, the Funds
are closed for business when the following holidays are observed: New Year's
Day, Martin Luther King Jr. Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving and Christmas.
REDEEMING SHARES
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<PAGE>
It is currently the Trust's policy to pay all redemptions in cash. The Trust
retains the right, however, to alter this policy to provide for redemptions in
whole or in part by a distribution in-kind, readily marketable securities held
by a Fund in lieu of cash. Shareholders may incur brokerage charges on the sale
of any such securities so received in payment of redemptions. The Trust has
obtained an exemptive order from the SEC that permits the Trust to make in-kind
redemptions to those Shareholders that are affiliated with the Trust solely by
their ownership of a certain percentage of the Trust's investment portfolios.
A Shareholder will at all times be entitled to aggregate cash redemptions from
all portfolios of the Trust during any 90-day period of up to the lesser of
$250,000 or 1% of the Trust's net assets.
The Trust reserves the right to suspend the right of redemption and/or to
postpone the date of payment upon redemption for any period during which trading
on the New York Stock Exchange is restricted, or during the existence of an
emergency (as determined by the SEC by rule or regulation) as a result of which
disposal or valuation of a Fund's securities is not reasonably practicable, or
for such other periods as the SEC has by order permitted. The Trust also
reserves the right to suspend sales of shares of any Fund for any period during
which the New York Stock Exchange, the Adviser, the Administrator, the Transfer
Agent and/or the Custodian are not open for business.
DETERMINATION OF NET ASSET VALUE
The securities of the Funds are valued by the Administrator. The Administrator
uses an independent pricing service to obtain valuations of securities. The
pricing service relies primarily on prices of actual market transactions as well
as trader quotations. However, the service may also use a matrix system to
determine valuations of fixed income securities, which system considers such
factors as security prices, yields, maturities, call features, ratings and
developments relating to specific securities in arriving at valuations. The
procedures of the pricing service and its valuations are reviewed by the
officers of the Trust under the general supervision of the Trustees.
TAXES
The following is only a summary of certain additional federal income tax
considerations generally affecting the Funds and its shareholders that are not
described in the Funds' prospectus. No attempt is made to present a detailed
explanation of the tax treatment of the Funds or its shareholders, and the
discussion here and in the Funds' prospectus is not intended as a substitute for
careful tax planning. Shareholders are urged to consult their tax advisors with
specific reference to their own tax situations, including their state and local
tax liabilities.
S-31
<PAGE>
FEDERAL INCOME TAX TREATMENT OF DIVIDENDS AND DISTRIBUTIONS
The following general discussion of certain federal income tax consequences is
based on the Internal Revenue Code of 1986, as amended (the "Code") and the
regulations issued thereunder as in effect on the date of this Statement of
Additional Information. New legislation, as well as administrative changes or
court decisions, may significantly change the conclusions expressed herein, and
may have a retroactive effect with respect to the transactions contemplated
herein.
QUALIFICATION AS REGULATED INVESTMENT COMPANY
Each Fund intends to qualify and elect to be treated as a "regulated investment
company" ("RIC") as defined under Subchapter M of the Code. By following such a
policy, each Fund expects to eliminate or reduce to a nominal amount the federal
taxes to which it may be subject.
In order to qualify as a RIC, a Fund must distribute at least 90% of its net
investment income (generally, includes dividends, taxable interest, and the
excess of net short-term capital gains over net long-term capital losses less
operating expenses) and at least 90% of its net tax exempt interest income, for
each tax year, if any, to its shareholders and also must meet several additional
requirements. Among these requirements are the following: (i) at least 90% of a
Fund's gross income each taxable year must be derived from dividends, interest,
payments with respect to securities loans and gains from the sale or other
disposition of stock or securities, or certain other income; (ii) at the close
of each quarter of each Fund's taxable year, at least 50% of the value of its
total assets must be represented by cash and cash items, U.S. Government
securities, securities of other RICs and other securities, with such other
securities limited, in respect to any one issuer, to an amount that does not
exceed 5% of the value of the Fund's assets and that does not represent more
than 10% of the outstanding voting securities of such issuer; and (iii) at the
close of each quarter of each Fund's taxable year, not more than 25% of the
value of its assets may be invested in securities (other than U.S. Government
securities or the securities of other RICs) of any one issuer or of two or more
issuers that each Fund controls or that are engaged in the same, similar or
related trades or business. For purposes of the 90% gross income requirement
described above, foreign currency gains that are not directly related to the
Fund's principal business of investing in stock or securities (or options or
futures with respect to stock or securities) may be excluded from income that
qualifies under the 90% requirement.
Although the Funds intend to distribute substantially all of its net investment
income and may distribute its capital gains for any taxable year, the a Fund
will be subject to federal income taxation to the extent any such income or
gains are not distributed.
If a Fund fails to qualify for any taxable year as a RIC, all of its taxable
income will be subject to tax at regular corporate income tax rates without any
deduction for distributions
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<PAGE>
to shareholders and such distributions generally will be taxable to shareholders
as ordinary dividends to the extent of a Fund's current and accumulated earnings
and profits. In this event, distributions generally will be eligible for the
dividends-received deduction for corporate shareholders.
FUND DISTRIBUTIONS
Distributions of investment company taxable income will be taxable to
shareholders as ordinary income, regardless of whether such distributions are
paid in cash or are reinvested in additional shares, to the extent of the Fund's
earnings and profits. The Funds anticipate that it will distribute substantially
all of its investment company taxable income for each taxable year.
A Fund may either retain or distribute to shareholders its excess of net
long-term capital gains over net short-term capital losses ("net capital
gains"). If such gains are distributed as a capital gains distribution, they are
taxable to shareholders who are individuals at a maximum rate of 20%, regardless
of the length of time the shareholder has held shares. If any such gains are
retained, a Fund will pay federal income tax thereon.
In the case of corporate shareholders, distributions (other than capital gains
distributions) from a RIC generally qualify for the dividends-received deduction
only to the extent of the gross amount of qualifying dividends received by the
Fund for the year. Generally, and subject to certain limitations, a dividend
will be treated as a qualifying dividend if it has been received from a domestic
corporation. Accordingly, such distributions will generally qualify for the
corporate dividends-received deduction.
Ordinarily, investors should include all dividends as income in the year of
payment. However, dividends declared payable to shareholders of record in
December of one year, but paid in January of the following year, will be deemed
for tax purposes to have been received by the shareholder and paid by a Fund in
the year in which the dividends were declared.
The Funds will provide a statement annually to shareholders as to the federal
tax status of distributions paid (or deemed to be paid) by a Fund during the
year, including the amount of dividends eligible for the corporate
dividends-received deduction.
SALE OR EXCHANGE OF FUND SHARES
Generally, gain or loss on the sale or exchange of a Share will be capital gain
or loss that will be long-term if the Share has been held for more than twelve
months and otherwise will be short-term. For individuals, long-term capital
gains are currently taxed at a maximum rate of 20% and short-term capital gains
are currently taxed at ordinary income tax rates. However, if a shareholder
realizes a loss on the sale, exchange or redemption of a Share held for six
months or less and has previously received a capital gains
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<PAGE>
distribution with respect to the Share (or any undistributed net capital gains
of a Fund with respect to such Share are included in determining the
shareholder's long-term capital gains), the shareholder must treat the loss as a
long-term capital loss to the extent of the amount of the prior capital gains
distribution (or any undistributed net capital gains of a Fund that have been
included in determining such shareholder's long-term capital gains). In
addition, any loss realized on a sale or other disposition of shares will be
disallowed to the extent an investor repurchases (or enters into a contract or
option to repurchase) shares within a period of 61 days (beginning 30 days
before and ending 30 days after the disposition of the shares). This loss
disallowance rule will apply to shares received through the reinvestment of
dividends during the 61-day period.
In certain cases, a Fund will be required to withhold, and remit to the United
States Treasury, 31% of any distributions paid to a shareholder who (1) has
failed to provide a correct taxpayer identification number; (2) is subject to
backup withholding by the Internal Revenue Service; or (3) has failed to certify
to that Fund that such shareholder is not subject to backup withholding.
FEDERAL EXCISE TAX
If a Fund fails to distribute in a calendar year at least 98% of its ordinary
income for the year and 98% of its capital gain net income (the excess of short
and long term capital gains over short and long term capital losses) for the
one-year period ending October 31 of that year (and any retained amount from the
prior calendar year), a Fund will be subject to a nondeductible 4% Federal
excise tax on the undistributed amounts. The Funds intend to make sufficient
distributions to avoid imposition of this tax, or to retain, at most, its net
capital gains and pay tax thereon.
STATE AND LOCAL TAXES
No Fund is liable for any income or franchise tax in Massachusetts if it
qualifies as a RIC for federal income tax purposes. Distributions by any Fund to
shareholders and the ownership of shares may be subject to state and local
taxes.
FUND TRANSACTIONS
The Funds have no obligation to deal with any broker-dealer or group of
broker-dealers in the execution of transactions in portfolio securities. Subject
to policies established by the Trustees of the Trust, the Adviser is responsible
for placing the orders to execute transactions for the Funds. In placing orders,
it is the policy of the Trust to seek to obtain the best net results taking into
account such factors as price (including the applicable dealer spread), the
size, type and difficulty of the transaction involved, the firm's general
execution and operational facilities, and the firm's risk in positioning the
securities involved. While the Adviser generally seeks reasonably competitive
spreads or commissions, the Funds will not necessarily be paying the lowest
spread or commission available.
S-34
<PAGE>
The money market instruments in which each Fund may invest are traded primarily
in the over-the-counter market. Bonds and debentures are usually traded
over-the-counter, but may be traded on an exchange. Where possible, the Adviser
will deal directly with the dealers who make a market in the securities involved
except in those circumstances where better prices and execution are available
elsewhere. Such dealers usually are acting as principal for their own account.
On occasion, securities may be purchased directly from the issuer. Fixed income
securities are generally traded on a net basis and do not normally involve
either brokerage commissions or transfer taxes. The cost of executing fixed
income portfolio securities transactions of the Funds will primarily consist of
dealer spreads and underwriting commissions.
The Adviser may, consistent with the interests of the Funds, select brokers on
the basis of the research services they provide to the Adviser. Such services
may include analyses of the business or prospects of a company, industry or
economic sector, or statistical and pricing services. Information so received by
the Adviser will be in addition to and not in lieu of the services required to
be performed by the Adviser under the Advisory Agreement. If, in the judgment of
the Adviser, a Fund or other accounts managed by the Adviser will be benefitted
by supplemental research services, the Adviser is authorized to pay brokerage
commissions to a broker furnishing such services which are in excess of
commissions which another broker may have charged for effecting the same
transaction. These research services include advice, either directly or through
publications or writings, as to the value of securities, the advisability of
investing in, purchasing or selling securities, and the availability of
securities or purchasers or sellers of securities; furnishing of analyses and
reports concerning issuers, securities or industries; providing information on
economic factors and trends; assisting in determining portfolio strategy;
providing computer software used in security analyses; and providing portfolio
performance evaluation and technical market analyses. The expenses of the
Adviser will not necessarily be reduced as a result of the receipt of such
supplemental information, such services may not be used exclusively, or at all,
with respect to a Fund or account generating the brokerage, and there can be no
guarantee that the Adviser will find all of such services of value in advising a
Fund. For the fiscal year ended October 31, 1999, the Select Fund directed all
of its brokerage to the Adviser, and for the fiscal period ended October 31,
1999, the Strategic Value Fund directed all of its brokerage to the Adviser.
S-35
<PAGE>
TRADING PRACTICES AND BROKERAGE
The Trust selects brokers or dealers to execute transactions for the purchase or
sale of portfolio securities on the basis of its judgment of their professional
capability to provide the service. The primary consideration is to have brokers
or dealers provide transactions at best price and execution for the Trust. Best
price and execution includes many factors, including the price paid or received
for a security, the commission charged, the promptness and reliability of
execution, the confidentiality and placement accorded the order and other
factors affecting the overall benefit obtained by the account on the
transaction. The Trust's determination of what are reasonably competitive rates
is based upon the professional knowledge of its trading department as to rates
paid and charged for similar transactions throughout the securities industry. In
some instances, the Trust pays a minimal share transaction cost when the
transaction presents no difficulty. Some trades are made on a net basis where
the Trust either buys securities directly from the dealer or sells them to the
dealer. In these instances, there is no direct commission charged but there is a
spread (the difference between the buy and sell price) which is the equivalent
of a commission.
The Trust may allocate out of all commission business generated by the funds and
accounts under management by the Adviser, brokerage business to brokers or
dealers who provide brokerage and research services. These research services
include advice, either directly or through publications or writings, as to the
value of securities, the advisability of investing in, purchasing or selling
securities, and the availability of securities or purchasers or sellers of
securities; furnishing of analyses and reports concerning issuers, securities or
industries; providing information on economic factors and trends, assisting in
determining portfolio strategy, providing computer software used in security
analyses, and providing portfolio performance evaluation and technical market
analyses. Such services are used by the Adviser in connection with its
investment decision-making process with respect to one or more funds and
accounts managed by it, and may not be used exclusively with respect to the fund
or account generating the brokerage.
As provided in the Securities Exchange Act of 1934 (the "1934 Act") higher
commissions may be paid to broker-dealers who provide brokerage and research
services than to broker-dealers who do not provide such services if such higher
commissions are deemed reasonable in relation to the value of the brokerage and
research services provided. Although transactions are directed to broker-dealers
who provide such brokerage and research services, the Trust believes that the
commissions paid to such broker-dealers are not, in general, higher than
commissions that would be paid to broker-dealers not providing such services and
that such commissions are reasonable in relation to the value of the brokerage
and research services provided. In addition, portfolio transactions which
generate commissions or their equivalent are directed to broker-dealers who
provide daily portfolio pricing services to the Trust. Subject to best price and
execution, commissions used for pricing may or may not be generated by the funds
receiving the pricing service.
The Adviser may place a combined order for two or more accounts or funds engaged
in the purchase or sale of the same security if, in its judgment, joint
execution is in the best
S-36
<PAGE>
interest of each participant and will result in best price and execution.
Transactions involving commingled orders are allocated in a manner deemed
equitable to each account or fund. It is believed that the ability of the
accounts to participate in volume transactions will generally be beneficial to
the accounts and funds. Although it is recognized that, in some cases, the joint
execution of orders could adversely affect the price or volume of the security
that a particular account or the Funds may obtain, it is the opinion of the
Adviser and the Trust's Board of Trustees that the advantages of combined orders
outweigh the possible disadvantages of separate transactions.
Each Fund may execute brokerage or other agency transactions through the
Adviser, and may execute agency transactions through the Distributor, for a
commission in conformity with the Investment Company Act of 1940, the 1934 Act
and rules promulgated by the SEC. Under these provisions, the Adviser and the
Distributor are permitted to receive and retain compensation for effecting
portfolio transactions for a Fund on an exchange. These rules further require
that commissions paid to the Adviser or the Distributor by a Fund for exchange
transactions not exceed "usual and customary" brokerage commissions. The rules
define "usual and customary" commissions to include amounts which are
"reasonable and fair compared to the commission, fee or other remuneration
received or to be received by other brokers in connection with comparable
transactions involving similar securities being purchased or sold on a
securities exchange during a comparable period of time." The Trustees, including
those who are not "interested persons" of a Fund, have adopted procedures for
evaluating the reasonableness of commissions paid to the Adviser and the
Distributor and will review these procedures periodically.
For the fiscal year and the fiscal period ended October 31, 1998, and the fiscal
year ended October 31, 1999 the Select Fund and the Strategic Value Fund,
respectively, paid no brokerage commissions to the Distributor. For the fiscal
years ended October 31, 1998 and October 31, 1999, all securities transactions
for the Select Fund were directed to the Adviser. For the fiscal years ended
October 31, 1997, 1998 and 1999, the Select Fund paid $60,672, $97,874 and
$91,347, respectively, in commissions to the Adviser. For the fiscal period
ended October 31, 1998, and the fiscal year ended October 31,1999, the Strategic
Value Fund paid $12,304 and $21,512, respectively, in commissions to the
Adviser.
For the fiscal year ended October 31, 1999, no commissions were paid on
brokerage transactions, pursuant to an agreement or understanding, to brokers in
return for research services provided by the brokers.
For the fiscal period and years indicated, the Funds paid the following
brokerage commissions:
S-37
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
% of Total % of Total
Total $ Amount of Total $ Amount of Brokerage Brokerage
Fund Brokerage Commissions Brokerage Commissions Commissions Transactions
Paid Paid to Affiliated Brokers(1) Paid to the Effected
Affiliated Through
Brokers(1) Affiliated
Brokers(1)
--------------------------------------------------------------------------------------------------------
1997 1998 1999 1997 1998 1999 1999 1998
---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Select Fund $60,672 $97,874 $91,346 $60,672 $97,874 $91,346 100% 100%
Strategic * $12,304 $21,512 * $12,304 $21,512 100% 100%
Value Fund
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
* An asterisk indicates that the Fund had not commenced operations as of the
period indicated. (1) The Funds effected all Fund transactions through the
brokerage facilities of FMC, a registered broker-dealer.
DESCRIPTION OF SHARES
The Declaration of Trust authorizes the issuance of an unlimited number of
portfolios and shares of each portfolio. Each share of a portfolio represents an
equal proportionate interest in that portfolio with each other share. Shares are
entitled upon liquidation to a pro rata share in the net assets of the
portfolio. Shareholders have no preemptive rights. All consideration received by
the Trust for shares of any portfolio and all assets in which such consideration
is invested would belong to that portfolio and would be subject to the
liabilities related thereto. Share certificates representing shares will not be
issued.
SHAREHOLDER LIABILITY
The Trust is an entity of the type commonly known as a "Massachusetts business
trust." Under Massachusetts law, shareholders of such a trust could, under
certain circumstances, be held personally liable as partners for the obligations
of the trust. Even if, however, the Trust were held to be a partnership, the
possibility of the shareholders incurring financial loss for that reason appears
remote because the Trust's Declaration of Trust contains an express disclaimer
of shareholder liability for obligations of the Trust and requires that notice
of such disclaimer be given in each agreement, obligation or instrument entered
into or executed by or on behalf of the Trust or the Trustees, and because the
Declaration of Trust provides for indemnification out of the Trust property for
any shareholder held personally liable for the obligations of the Trust.
LIMITATION OF TRUSTEES' LIABILITY
The Declaration of Trust provides that a Trustee shall be liable only for his or
her own willful defaults and, if reasonable care has been exercised in the
selection of officers,
S-38
<PAGE>
agents, employees or investment advisers, shall not be liable for any neglect or
wrongdoing of any such person. The Declaration of Trust also provides that the
Trust will indemnify its Trustees and officers against liabilities and expenses
incurred in connection with actual or threatened litigation in which they may be
involved because of their offices with the Trust unless it is determined in the
manner provided in the Declaration of Trust that they have not acted in good
faith in the reasonable belief that their actions were in the best interests of
the Trust. However, nothing in the Declaration of Trust shall protect or
indemnify a Trustee against any liability for his or her willful misfeasance,
bad faith, gross negligence or reckless disregard of his or her duties.
5% AND 25% SHAREHOLDERS
As of January 31, 2000, the following persons were the only persons who were
record owners (or to the knowledge of the Trust, beneficial owners) of 5% and
25% or more of the Funds' shares. Persons who owned of record or beneficially
more than 25% of a Fund's outstanding shares may be deemed to control the Fund
within the meaning of the Act.
<TABLE>
<CAPTION>
Fund Shareholder Number of Shares %
- ---- ----------- ---------------- -
<S> <C> <C> <C>
FMC SELECT FUND
First Manhattan Co. 1,272,460 19.58%
Thrift Plan and Trust
Attn: Neal K. Stearns
437 Madison Avenue
New York, NY 10022-7001
FMC STRATEGIC VALUE FUND
First Manhattan Co. 466,781 47.30%
Thrift Plan and Trust
Attn: Neal K. Stearns
437 Madison Avenue
New York, NY 10022-7001
</TABLE>
EXPERTS
The financial statements of the Trust have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their report with respect
thereto, and are incorporated by reference hereto in reliance upon the authority
of said firm as experts in giving said report.
FINANCIAL STATEMENTS
The financial statements of the Select Fund and Strategic Value Fund for the
fiscal year ended October 31, 1999,including notes thereto and the report of
Arthur Andersen LLP
S-39
<PAGE>
thereon, are herein incorporated by reference. A copy of the Annual Report to
Shareholders of the relevant Fund must accompany the delivery of this Statement
of Additional Information.
S-40
<PAGE>
APPENDIX
DESCRIPTION OF COMMERCIAL PAPER RATINGS
The following descriptions of commercial paper ratings have been published by
Standard & Poor's Corporation ("S&P") and Moody's Investors Service, Inc.
("Moody's"), respectively.
A-1 - This is S&P's highest category and indicates that the degree of safety
regarding timely payment is strong. Those issues determined to possess extremely
strong safety characteristics are denoted with a plus sign (+) designation.
PRIME-1 - Issues rated Prime-1 (or supporting institutions) by Moody's have a
superior ability for repayment of senior short-term debt obligations. Prime-1
repayment ability will often be evidenced by many of the following
characteristics:
- Leading market positions in well-established industries.
- High rates of return on funds employed.
- Conservative capitalization structure with moderate reliance on debt
and ample asset protection.
- Broad margins in earnings coverage of fixed financial charges and high
internal cash generation.
- Well-established access to a range of financial markets and assured
sources of alternate liquidity.
DESCRIPTION OF CORPORATE BOND RATINGS
The following descriptions of corporate bond ratings have been published by S&P
and Moody's, respectively.
Debt rated AAA has the highest rating S&P assigns to a debt obligation. Such a
rating indicates an extremely strong capacity to pay principal and interest.
Debt rated AA also qualifies as high-quality debt. Capacity to pay principal and
interest is very strong, and differs from AAA issues only in small degree. Debt
rated A has a strong capacity to pay interest and repay principal although it is
somewhat more susceptible to the adverse effects of changes in circumstances and
economic conditions than debt in higher rated categories.
Debt rated BBB by S&P is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
Debt rated BB has less near-term vulnerability to default than other speculative
grade debt. However, it faces major ongoing uncertainties or exposure to adverse
business, financial,
A-1
<PAGE>
or economic conditions that could lead to inadequate capacity to meet timely
interest and principal payments. The BB rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied BBB rating.
Debt rate B has greater vulnerability to default but presently has the capacity
to meet interest payments and principal repayments. Adverse business, financial,
or economic conditions would likely impair capacity or willingness to pay
interest and repay principal. The B rating category also is used for debt
subordinated to senior debt that is assigned an actual or implied BB rating.
Debt rated CCC has a current identifiable vulnerability to default, and is
dependent on favorable business, financial, and/or economic conditions to meet
timely payment of interest and repayment of principal. In the event of adverse
business, financial, or economic conditions, it is not likely to have the
capacity to pay interest and repay principal. The CCC rating category also is
used for debt subordinated to senior debt that is assigned an actual or implied
B rating.
Bonds which are rated Aaa by Moody's are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edged." Interest payments are protected by a large, or an exceptionally
stable, margin and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues. Bonds rated Aa by
Moody's are judged by Moody's to be of high quality by all standards. Together
with bonds rated Aaa, they comprise what are generally known as high-grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long-term risks appear somewhat larger than in Aaa securities.
Bonds which are rated A possess many favorable investment attributes and are to
be considered as upper-medium grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment some time in the future.
Bonds rated Baa by Moody's are considered as medium grade obligations (i.e.,
they are neither highly protected nor poorly secured). Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Bonds which are rated Ba are judged to have speculative elements; their future
cannot be considered as well-assured. Often the protection of interest and
principal payments may be very moderate and thereby not well safeguarded during
both good and bad times over the future. Uncertainty of position characterizes
bonds in this class.
A-2
<PAGE>
Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Bonds which are rated Caa are of poor standing. Such issues may be in default or
there may be present elements of danger with respect to principal or interest.
A-3
<PAGE>
FUND:
THE ADVISORS' INNER CIRCLE FUND
PORTFOLIOS:
HGK FIXED INCOME FUND
HGK EQUITY VALUE FUND
HGK MID CAP VALUE FUND
INVESTMENT ADVISER:
HGK ASSET MANAGEMENT, INC.
This STATEMENT OF ADDITIONAL INFORMATION is not a prospectus and relates only to
the HGK Fixed Income Fund, HGK Equity Value Fund and the HGK Mid Cap Value Fund
(each a "Portfolio" and collectively, the "Portfolios"). It is intended to
provide additional information regarding the activities and operations of The
Advisors' Inner Circle Fund (the "Fund") and the Portfolios and should be read
in conjunction with the Portfolios' Prospectus dated March 1, 2000. The
Prospectus for the Portfolios may be obtained by calling 1-800-932-7781.
TABLE OF CONTENTS
THE FUND ................................................................ S-1
INVESTMENT OBJECTIVES AND POLICIES....................................... S-1
DESCRIPTION OF PERMITTED INVESTMENTS..................................... S-5
INVESTMENT LIMITATIONS................................................... S-17
THE ADVISER.............................................................. S-19
HGK FIXED INCOME FUNDS .................................................. S-19
THE ADMINISTRATOR........................................................ S-20
THE DISTRIBUTOR.......................................................... S-21
THE TRANSFER AGENT....................................................... S-22
THE CUSTODIAN............................................................ S-22
INDEPENDENT PUBLIC ACCOUNTANTS........................................... S-23
LEGAL COUNSEL............................................................ S-23
TRUSTEES AND OFFICERS OF THE FUND........................................ S-23
PERFORMANCE INFORMATION.................................................. S-27
COMPUTATION OF YIELD..................................................... S-27
CALCULATION OF TOTAL RETURN.............................................. S-27
PURCHASING SHARES........................................................ S-28
REDEEMING SHARES......................................................... S-28
<PAGE>
DETERMINATION OF NET ASSET VALUE......................................... S-28
TAXES.................................................................... S-29
PORTFOLIO TRANSACTIONS................................................... S-31
TRADING PRACTICES AND BROKERAGE.......................................... S-32
DESCRIPTION OF SHARES.................................................... S-35
SHAREHOLDER LIABILITY.................................................... S-35
LIMITATION OF TRUSTEES' LIABILITY........................................ S-35
5% AND 25% SHAREHOLDERS.................................................. S-36
EXPERTS.................................................................. S-37
FINANCIAL STATEMENTS..................................................... S-37
May 24, 2000
HGK-F-007-01
<PAGE>
THE FUND
This Statement of Additional Information relates only to the HGK Fixed Income
Fund, HGK Equity Value Fund and the HGK Mid Cap Value Fund (each a "Portfolio"
and collectively, the "Portfolios"). Each Portfolio is a diversified investment
management company. As of the date of this Statement of Additional Information,
the HGK Mid Cap Value Fund had not yet commenced the continuous offering of its
shares. The Portfolios are separate series of The Advisors' Inner Circle Fund
(the "Fund"), an open-end investment management company, established under
Massachusetts law as a Massachusetts business trust under a Declaration of Trust
dated July 18, 1991. The Declaration of Trust permits the Fund to offer separate
series ("portfolios") of shares of beneficial interest ("shares"). Each
portfolio is a separate mutual fund, and each share of each portfolio represents
an equal proportionate interest in that portfolio. See "Description of Shares."
No investment in shares of a portfolio should be made without first reading that
portfolio's prospectus. Capitalized terms not defined herein are defined in the
Prospectus offering shares of the Portfolios.
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. Expenses not attributable to a specific portfolio are
allocated across all of the portfolios on the basis of relative net assets.
INVESTMENT OBJECTIVES AND POLICIES
HGK FIXED INCOME FUND
The Portfolio seeks total return through current income and capital
appreciation, consistent with the preservation of capital. This investment
objective is fundamental and cannot be changed without the consent of
shareholders. There can be no assurance that the Portfolio will be able to
achieve this investment objective.
The Portfolio will normally invest at least 65% of its total assets in the
following U.S. dollar denominated fixed income securities: (i) U.S. Treasury
obligations, including Separately Traded Registered Interest and Principal
Securities ("STRIPS"); (ii) obligations issued or guaranteed as to principal and
interest by the U.S. Government, its agencies or instrumentalities; (iii)
corporate bonds and debentures issued by U.S. issuers and, at the time of
purchase, rated in one of the four highest rating categories assigned by a
nationally recognized statistical rating organization (an "NRSRO") such as
Moody's Investors Service, Inc. ("Moody's"), Standard & Poor's Corporation
("S&P"), Duff & Phelps, Inc. ("Duff") or Fitch IBCA. ("Fitch IBCA"), or, if not
rated, determined to be of comparable quality by the Adviser.
S - 1
<PAGE>
The Portfolio may also invest up to 35% of its total assets in corporate bonds
and debentures issued by foreign issuers, securities of the government of Canada
and its provincial and local governments, and securities of foreign governments,
collateralized mortgage obligations ("CMOs"), real estate mortgage investment
conduits ("REMICs") and asset-backed securities meeting the rating quality
criteria described above. Under normal conditions, the Portfolio may also hold
up to 20% of its total assets in cash or invest in repurchase agreements or
money market instruments, described below under "In General," in order to
maintain liquidity, or in the event that the Adviser determines that securities
meeting the Portfolio's investment objective and policies are not otherwise
readily available for purchase. The Portfolio may also invest up to 5% of its
net assets in stripped mortgage-backed securities, including securities that
receive interest-only payments and other securities that receive principal-only
payments.
The Portfolio may purchase zero coupon obligations and securities that pay
interest on a variable or floating rate basis. The Portfolio may invest up to
15% of its net assets in restricted securities.
The Adviser may purchase securities with any stated remaining maturity. However,
under normal circumstances, the Portfolio expects to maintain an average
duration of approximately 5 years. In determining the maturity of
mortgage-backed securities, the Portfolio will use the expected life of such
securities, which is based upon the anticipated prepayment patterns of the
underlying mortgages.
For temporary defensive purposes during periods when the Adviser determines that
conditions warrant, the Portfolio may invest up to 100% of its assets in cash
and money market instruments, consisting of securities issued or guaranteed by
the U.S. Government, its agencies or instrumentalities; certificates of deposit,
time deposits, and bankers' acceptances issued by banks or savings and loans
associations having net assets of at least $500 million as of the end of their
most recent fiscal year; commercial paper rated at the time of purchase at least
A-1 by S&P or P-1 by Moody's, or unrated commercial paper determined by the
Adviser to be of comparable quality; repurchase agreements involving any of the
foregoing; and, to the extent permitted by applicable law, shares of other
investment companies.
The Adviser seeks to achieve the Portfolio's investment objective by
outperforming the Lehman Government Corporate Bond Index while taking less risk
and protecting the Portfolio's principal. The Adviser attempts to maintain a
relatively duration-neutral posture versus the Lehman Government Corporate Bond
Index (that is, maintaining a maximum 10% over- or under-weighting relative to
the duration of such Index), while adding value through the overweighting of
particular sectors or areas of the yield curve. The Adviser believes that by not
including large interest rate bets or sizable duration shifts in its strategy,
it can reduce the volatility of returns and limit the loss of principal.
Debt rated BBB or Baa is regarded as having an adequate capacity to pay interest
and repay principal. (Whereas such debt normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest
S - 2
<PAGE>
and repay principal for debt in this category than in higher rated categories.
Such bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.)
In the event any security held by the Portfolio is downgraded below the rating
categories set forth above, the Adviser will review the security and determine
whether to retain or dispose of that security.
A portfolio turnover rate in excess of 100% may result from the Adviser's
investment strategy of finding market pricing inefficiencies rather than
forecasting interest rates. The Adviser may sell securities held for a short
time in order to take advantage of what the Adviser believes to be temporary
disparities in normal yield relationships between securities. A portfolio
turnover rate in excess of 100% may result in higher transaction costs to the
Portfolio and may increase the amount of taxes payable by the Portfolio's
shareholders. For the fiscal years ended October 31 1997, 1998 and 1999, the
portfolio turnover rate for the Portfolio was 256.52%, 173.93% and 322.36%,
respectively.
HGK EQUITY VALUE FUND
The Portfolio seeks long-term capital appreciation. This goal is fundamental,
and may not be changed without the consent of shareholders. There can be no
assurance that the Portfolio will be able to achieve its investment objectives.
The Portfolio will normally invest at least 65% of its assets in common stocks
of established U.S. companies with large market capitalizations (in excess of $5
billion). The Portfolio may also invest in preferred stocks and convertible
securities of domestic companies, as well as warrants to purchase such
securities that are traded on registered exchanges or the over-the-counter
market in the United States, as well as equity securities (including depositary
receipts) and preferred stocks (including depositary stocks convertible into
common stocks) issued by foreign companies, as well as debt securities
convertible into common stock of such companies.
Although the Portfolio will normally be fully invested in equity securities
(other than as considered appropriate for cash reserves), for temporary
defensive purposes during periods when the Adviser determines that market
conditions warrant, up to 100% of the Portfolio's assets may be held from time
to time in cash or cash equivalents. In general, cash or cash equivalents will
be held in U.S. Treasury bills, high quality commercial paper, certificates of
deposit and money market instruments, consisting of securities issued or
guaranteed by the U.S. government, its agencies or instrumentalities;
certificates of deposit, time deposits, and bankers' acceptances issued by banks
or savings and loans associations having net assets of at least $500 million as
of the end of their most recent fiscal year; commercial paper rated at the time
of purchase at least A-1 by S&P or P-1 by Moody's, or unrated commercial paper
determined by the Adviser to be of comparable quality; repurchase agreements
involving any of the foregoing; and, to the extent permitted by applicable law,
shares of other investment companies.
S - 3
<PAGE>
AUXILIARY POLICIES OF THE HGK EQUITY VALUE FUND
Although not primary strategies employed by the Adviser in managing the
Portfolio, the Portfolio may engage in a number of investment practices in order
to meet their investment objectives. In this regard, the Portfolio may invest in
variable and floating rate obligations, enter into forward commitments, purchase
securities on a when-issued basis and sell securities short against the box. The
Portfolio may also purchase put and call options and write covered call options
on fixed income and equity securities, and may enter into futures contracts
(including index futures contracts), purchase options on futures contracts, and
lend its securities.
The Portfolio may purchase securities denominated in foreign currencies in
amounts up to 10% of its total assets. The Portfolio does not have a
corresponding limitation with respect to foreign securities denominated in U.S.
dollars.
For a description of the permitted investments of the Portfolio and the
associated risk factors, see "Description of Permitted Investments."
MID CAP VALUE FUND
The Portfolio seeks long-term capital appreciation. This goal is fundamental,
and may not be changed without the consent of shareholders. There can be no
assurance that the Portfolio will be able to achieve its investment objectives.
The Portfolio will normally invest at least 65% of its assets in common stocks
of established U.S. companies with medium market capitalizations (between $1
billion and $5 billion). The Portfolio may also invest in preferred stocks and
convertible securities of domestic companies, as well as warrants to purchase
such securities that are traded on registered exchanges or the over-the-counter
market in the United States, as well as equity securities (including depositary
receipts) and preferred stocks (including depositary stocks convertible into
common stocks) issued by foreign companies, as well as debt securities
convertible into common stock of such companies.
Although the Portfolio will normally be fully invested in equity securities
(other than as considered appropriate for cash reserves), for temporary
defensive purposes during periods when the Adviser determines that market
conditions warrant, up to 100% of the Portfolio's assets may be held from time
to time in cash or cash equivalents. In general, cash or cash equivalents will
be held in U.S. Treasury bills, high quality commercial paper, certificates of
deposit and money market instruments, consisting of securities issued or
guaranteed by the U.S. government, its agencies or instrumentalities;
certificates of deposit, time deposits, and bankers' acceptances issued by banks
or savings and loans associations having net assets of at least $500 million as
of the end of their most recent fiscal year; commercial paper rated at the time
of purchase at least A-1 by S&P or P-1 by Moody's, or unrated commercial paper
determined by the Adviser to be of comparable quality; repurchase agreements
involving any of the foregoing; and, to the extent permitted by applicable law,
shares of other investment companies.
S - 4
<PAGE>
AUXILIARY POLICIES OF THE HGK MIDCAP VALUE FUND
Although not primary strategies employed by the Adviser in managing the
Portfolio, the Portfolio may engage in a number of investment practices in order
to meet their investment objectives. In this regard, the Portfolio may invest in
variable and floating rate obligations, enter into forward commitments, purchase
securities on a when-issued basis and sell securities short against the box. The
Portfolio may also purchase put and call options and write covered call options
on fixed income and equity securities, and may enter into futures contracts
(including index futures contracts), purchase options on futures contracts, and
lend its securities.
The Portfolio may purchase securities denominated in foreign currencies in
amounts up to 10% of its total assets. The Portfolio does not have a
corresponding limitation with respect to foreign securities denominated in U.S.
dollars.
For a description of the permitted investments of the Portfolio and the
associated risk factors, see "Description of Permitted Investments."
DESCRIPTION OF PERMITTED INVESTMENTS
ASSET-BACKED SECURITIES -- Asset-backed securities are securities backed by
non-mortgage assets such as company receivables, truck and auto loans, leases
and credit card receivables. Other asset- backed securities may be created in
the future. These securities may be traded over-the-counter and typically have a
short-intermediate maturity structure depending on the paydown characteristics
of the underlying financial assets which are passed through to the security
holder. These securities are generally issued as pass-through certificates,
which represent undivided fractional ownership interests in the underlying pool
of assets. Asset-backed securities may also be debt obligations, which are known
as collateralized obligations and are generally issued as the debt of a special
purpose entity, such as a trust, organized solely for the purpose of owning
these assets and issuing debt obligations.
Asset-backed securities are not issued or guaranteed by the U.S. Government, its
agencies or instrumentalities; however, the payment of principal and interest on
such obligations may be guaranteed up to certain amounts and, for a certain
period, by a letter of credit issued by a financial institution (such as a bank
or insurance company) unaffiliated with the issuers of such securities. The
purchase of asset-backed securities raises risk considerations peculiar to the
financing of the instruments underlying such securities. For example, there is a
risk that another party could acquire an interest in the obligations superior to
that of the holders of the asset-backed securities. There also is the
possibility that recoveries on repossessed collateral may not, in some cases, be
available to support payments on those securities.
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Asset-backed securities entail prepayment risk, which may vary depending on the
type of asset, but is generally less than the prepayment risk associated with
mortgage-backed securities. In addition, credit card receivables are unsecured
obligations of the card holder.
The market for asset-backed securities is at a relatively early stage of
development. Accordingly, there may be a limited secondary market for such
securities.
BANK OBLIGATIONS - Bank obligations are short-term obligations issued by U.S.
and foreign banks, including bankers' acceptances, certificates of deposit,
custodial receipts, and time deposits. Eurodollar and Yankee Bank Obligations
are U.S. dollar-denominated certificates of deposit or time deposits issued
outside the U.S. by foreign branches of U.S. banks or by foreign banks.
BANKERS' ACCEPTANCES - Bankers' acceptances are bills of exchange or time drafts
drawn on and accepted by a commercial bank. Bankers' acceptances are used by
corporations to finance the shipment and storage of goods. Maturities are
generally six months or less.
CERTIFICATES OF DEPOSIT - Certificates of deposit are interest bearing
instruments with a specific maturity. They are issued by banks and savings and
loan institutions in exchange for the deposit of funds and normally can be
traded in the secondary market prior to maturity. Certificates of deposit with
penalties for early withdrawal will be considered illiquid.
COMMERCIAL PAPER - Commercial paper is a term used to describe unsecured
short-term promissory notes issued by banks, municipalities, corporations and
other entities. Maturities on these issues vary from a few to 270 days.
COMMON AND PREFERRED STOCKS - Common and preferred stocks represent units of
ownership in a corporation. Owners of common stock typically are entitled to
vote on important matters. Owners of preferred stock ordinarily do not have
voting rights, but are entitled to dividends at a specified rate. Preferred
stock has a prior claim to common stockholders with respect to dividends.
CONVERTIBLE SECURITIES - Convertible securities are securities issued by
corporations that are exchangeable for a set number of another security at a
prestated price. The market value of a convertible security tends to move with
the market value of the underlying stock. The value of a convertible security is
also affected by prevailing interest rates, the credit quality of the issuer,
and any call option provisions.
HIGH RISK, HIGH YIELD CONVERTIBLE SECURITIES -- Fixed income securities
(including convertible securities) rated below investment grade are often
referred to as "junk bonds." Such securities involve greater risk of
default or price declines than investment grade securities due to changes
in the issuer's creditworthiness and the outlook for economic growth. The
market for these securities may be less active, causing market price
volatility and limited liquidity in the secondary market. This may limit a
Portfolio's ability to sell such securities at their market value. In
addition, the market for these securities may also be
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adversely affected by legislative and regulatory developments. Credit
quality in the junk bond market can change suddenly and unexpectedly, and
even recently issued credit ratings may not fully reflect the actual risks
imposed by a particular security.
CORPORATE BONDS - Debt instruments issued by a private corporation, as distinct
from one issued by a governmental agency or municipality. Corporate bonds
generally have the following features: (1) they are taxable; (2) they have a par
value of $1,000; and (3) they have a term maturity. They are sometimes traded on
major exchanges.
EQUITY SECURITIES - Investments in equity securities in general are subject to
market risks that may cause their prices to fluctuate over time. The value of
securities, such as warrants or convertible debt, exercisable for or convertible
into equity securities is also affected by prevailing interest rates, the credit
quality of the issuer and any call provision. Fluctuations in the value of
equity securities in which a Portfolio invests will cause the net asset value of
that Portfolio to fluctuate. An investment in a Portfolio may therefore be more
suitable for long-term investors.
THE EURO - On January 1, 1999, the European Monetary Union (EMU) implemented a
new currency unit, the Euro. The countries initially converting or tieing their
currencies to the Euro include Austria, Belgium, France, Germany, Luxembourg,
the Netherlands, Ireland, Finland, Italy, Portugal, and Spain. Financial
transactions and market information, including share quotations and company
accounts, in participating countries are denominated in Euros. Approximately 46%
of the stock exchange capitalization of the total European market is now
reflected in Euros, and participating governments now issue their bonds in
Euros. Monetary policy for participating countries is now uniformly managed by a
new central bank, the European Central Bank (ECB).
Although it is not possible to predict the impact of the Euro conversion on the
Portfolios, the transition to the Euro may change the economic environment and
behavior of investors, particularly in European markets. For example, investors
may begin to view those countries participating in the EMU as a single entity,
and the Adviser may need to adapt investment strategies accordingly. The process
of implementing the Euro also may adversely affect financial markets worldwide
and may result in changes in the relative strength and value of the U.S. dollar
or other major currencies, as well as possible adverse tax consequences. The
transition to the Euro is likely to have a significant impact on fiscal and
monetary policy in the participating countries and may produce unpredictable
effects on trade and commerce generally. These resulting uncertainties could
create increased volatility in financial markets world-wide.
FIXED INCOME SECURITIES - Fixed income securities are debt obligations issued by
corporations, municipalities and other borrowers. The market value of fixed
income investments will change in response to interest rate changes and other
factors. During periods of falling interest rates, the values of outstanding
fixed income securities generally rise. Conversely, during periods of rising
interest rates, the values of such securities generally decline. Moreover, while
securities with longer maturities tend to produce higher yields, the prices of
longer maturity securities are also subject to greater market fluctuations as a
result of changes in interest rates. Changes by recognized agencies
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in the rating of any fixed income security and in the ability of an issuer to
make payments of interest and principal will also affect the value of these
investments. Changes in the value of portfolio securities will not affect cash
income derived from these securities but will affect the Portfolios' net asset
value.
FLOATING RATE INSTRUMENTS - have a rate of interest that is set as a specific
percentage of a designated base rate (such as the prime rate) at a major
commercial bank. The Portfolios can demand payment of the obligation at all
times or at stipulated dates on short notice (not to exceed 30 days) at par plus
accrued interest. The Portfolios may use the longer of the period required
before the Portfolios are entitled to prepayment under such obligations or the
period remaining until the next interest rate adjustment date for purposes of
determining the maturity of the instrument. Such obligations are frequently
secured by letters of credit or other credit support arrangements provided by
banks. The quality of the underlying credit or of the bank, as the case may be,
must, in the Adviser's opinion be equivalent to the long-term bond or commercial
paper ratings stated in the Prospectus. The Adviser will monitor the earning
power, cash flow and liquidity ratios of the issuers of such instruments and the
ability of an issuer of a demand instrument to pay principal and interest on
demand.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS - Futures contracts provide
for the future sale by one party and purchase by another party of a specified
amount of a specific security at a specified future time and at a specified
price. An option on a futures contract gives the purchase the right, in exchange
for a premium, to assume a position in a futures contract at a specified
exercise price during the term of the option.
A Portfolio may use futures contracts, and related options for bona fide hedging
purposes, to offset changes in the value of securities held or expected to be
acquired. They may also be used to minimize fluctuations in foreign currencies
or to gain exposure to a particular market or instrument. A Portfolio will
minimize the risk that it will be unable to close out a futures contract by only
entering into futures contracts which are traded on national futures exchanges
and for which there appears to be a liquid secondary market.
Index futures are futures contracts for various indices that are traded on
registered securities exchanges. An index futures contract obligates the seller
to deliver (and the purchaser to take) an amount of cash equal to a specific
dollar amount times the difference between the value of a specific index at the
close of the last trading day of the contract and the price at which the
agreement is made.
Although futures contracts by their terms call for actual delivery or acceptance
of the underlying securities, in most cases the contracts are closed out before
the settlement date without the making or taking of delivery. Closing out an
open futures position is done by taking an opposite position ("buying" a
contract which has previously been "sold" or "selling" a contract which has
previously been "purchased") in an identical contract to terminate the position.
Brokerage commissions are incurred when a futures contract is bought or sold.
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Futures traders are required to make a good faith margin deposit in cash or
government securities with or for the account of a broker or custodian to
initiate and maintain open secondary market will exist for any particular
futures contract at any specific time. Thus, it may not be possible to close a
futures position. In the event of adverse price movements, a Portfolio would
continue to be required to make daily cash payments to maintain its required
margin. In such situations, if a Portfolio has insufficient cash, it may have to
sell portfolio securities to meet daily margin requirements at a time when it
may be disadvantageous to do so. In addition, the Portfolios may be required to
make delivery of the instruments underlying the futures contracts they hold. The
inability to close options and futures positions also could have an adverse
impact on the ability to effectively hedge the underlying securities.
The risk of loss in trading futures contracts can be substantial, due both to
the low margin deposits required and the extremely high degree of leverage
involved in futures pricing. As a result, a relatively small price movement in a
futures contract may result in immediate and substantial loss (or gain) to a
Portfolio. For example, if at the time of purchase, 10% of the value of the
futures contract is deposited as margin, a subsequent 10% decrease in the value
of the futures contract would result in a total loss of the margin deposit,
before any deduction for the transaction costs, if the account were then closed
out. A 15% decrease would result in a loss equal to 150% of the original margin
deposit if the contract were closed out. Thus, a purchase or sale of a futures
contract may result in losses in excess of the amount invested in the contract.
However, because the Portfolios will be engaged in futures transactions only for
hedging purposes, the Adviser does not believe that the Portfolios will
generally be subject to the risks of loss frequently associated with futures
transactions. The Portfolios presumably would have sustained comparable losses
if, instead of the futures contract, they had invested in the underlying
financial instrument and sold it after the decline. The risk of loss from the
purchase of options is less as compared with the purchase or sale of futures
contracts because the maximum amount at risk is the premium paid for the option.
Utilization of futures transactions by the Portfolios does involve the risk of
imperfect or no correlation where the securities underlying futures contracts
have different maturities than the fund securities being hedged. It is also
possible that the Portfolios could both lose money on futures contracts and
experience a decline in value of its fund securities. There is also the risk of
loss by the Portfolios of margin deposits in the event of the bankruptcy of a
broker with whom the Portfolios have an open position in a futures contract or
related option.
Most futures exchanges limit the amount of fluctuation permitted in futures
contract prices during a single trading day. The daily limit establishes the
maximum amount that the price of a futures contract may vary either up or down
from the previous day's settlement price at the end of a trading session. Once
the daily limit has been reached in a particular type of contract, no trades may
be made on that day at a price beyond that limit. The daily limit governs only
price movement during a particular trading day and therefore does not limit
potential losses because the limit may prevent the liquidation of unfavorable
positions. Futures contract prices have occasionally moved to the daily limit
for several consecutive trading days with little or no trading, thereby
preventing prompt liquidation of future positions and subjecting some futures
traders to substantial losses.
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INVESTMENT COMPANY SECURITIES - A Portfolio's purchase of investment company
securities will result in the layering of expenses. A Portfolio is prohibited
from acquiring the securities of other investment companies if, as a result of
such acquisition, the Portfolio owns in the aggregate (1) more than 3% of the
total outstanding voting stock of the acquired company, (2) securities issued by
the acquired company having an aggregate value of 5% of the value of the total
assets of the Portfolio, or (3) securities issued by the acquired company and
all other investment companies having an aggregate value in excess of 10% of the
value of the total assets of the Portfolio.
ILLIQUID SECURITIES - Illiquid securities are securities that cannot be disposed
of within seven business days at approximately the price at which they are being
carried on the Portfolios' books. An illiquid security includes a demand
instrument with a demand notice period exceeding seven days, where there is no
secondary market for such security, and repurchase agreements with a remaining
term to maturity in excess of seven days.
MORTGAGE-BACKED SECURITIES - Mortgage-backed securities are instruments that
entitle the holder to a share of all interest and principal payments from
mortgages underlying the security. The mortgages backing these securities
include conventional thirty-year fixed rate mortgages, graduated payment
mortgages, and adjustable rate mortgages. During periods of declining interest
rates, prepayment of mortgages underlying mortgage-backed securities can be
expected to accelerate. Prepayment of mortgages which underlie securities
purchased at a premium often results in capital losses, while prepayment of
mortgages purchased at a discount often results in capital gains. Because of
these unpredictable prepayment characteristics, it is often not possible to
predict accurately the average life or realized yield of a particular issue.
GOVERNMENT PASS-THROUGH SECURITIES - These are securities that are issued
or guaranteed by a U.S. Government agency representing an interest in a
pool of mortgage loans. The primary issuers or guarantors of these
mortgage-backed securities are the Government National Mortgage Association
("GNMA"), Fannie Mae and the Federal Home Loan Mortgage Corporation
("FHLMC"). Fannie Mae and FHLMC obligations are not backed by the full
faith and credit of the U.S. Government as GNMA certificates are, but
Fannie Mae and FHLMC securities are supported by the instrumentalities'
right to borrow from the U.S. Treasury. GNMA, Fannie Mae and FHLMC each
guarantees timely distributions of interest to certificate holders. GNMA
and Fannie Mae also each guarantees timely distributions of scheduled
principal. FHLMC has in the past guaranteed only the ultimate collection of
principal of the underlying mortgage loan; however, FHLMC now issues
mortgage-backed securities (FHLMC Gold PCS) which also guarantee timely
payment of monthly principal reductions. Government and private guarantees
do not extend to the securities' value, which is likely to vary inversely
with fluctuations in interest rates.
Obligations of GNMA are backed by the full faith and credit of the United
States Government. Obligations of Fannie Mae and FHLMC are not backed by
the full faith and credit of the United States Government but are
considered to be of high quality since they are considered to be
instrumentalities of the United States. The market value and interest
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yield of these mortgage-backed securities can vary due to market interest
rate fluctuations and early prepayments of underlying mortgages. These
securities represent ownership in a pool of federally insured mortgage
loans with a maximum maturity of 30 years. However, due to scheduled and
unscheduled principal payments on the underlying loans, these securities
have a shorter average maturity and, therefore, less principal volatility
than a comparable 30-year bond. Since prepayment rates vary widely, it is
not possible to accurately predict the average maturity of a particular
mortgage-backed security. The scheduled monthly interest and principal
payments relating to mortgages in the pool will be "passed through" to
investors. Government mortgage-backed securities differ from conventional
bonds in that principal is paid back to the certificate holders over the
life of the loan rather than at maturity. As a result, there will be
monthly scheduled payments of principal and interest. In addition, there
may be unscheduled principal payments representing prepayments on the
underlying mortgages. Although these securities may offer yields higher
than those available from other types of U.S. Government securities,
mortgage-backed securities may be less effective than other types of
securities as a means of "locking in" attractive long-term rates because of
the prepayment feature. For instance, when interest rates decline, the
value of these securities likely will not rise as much as comparable debt
securities due to the prepayment feature. In addition, these prepayments
can cause the price of a mortgage-backed security originally purchased at a
premium to decline in price to its par value, which may result in a loss.
PRIVATE PASS-THROUGH SECURITIES - These are mortgage-backed securities
issued by a non-governmental entity, such as a trust. These securities
include CMOs and REMICS that are rated in one of the top four rating
categories. While they are generally structured with one or more types of
credit enhancement, private pass-through securities typically lack a
guarantee by an entity having the credit status of a governmental agency or
instrumentality. The two principal types of private mortgage-backed
securities are CMOs and REMICs.
CMOS - CMOs are securities collateralized by mortgages, mortgage
pass-throughs, mortgage pay-through bonds (bonds representing an interest
in a pool of mortgages where the cash flow generated from the mortgage
collateral pool is dedicated to bond repayment), and mortgage-backed bonds
(general obligations of the issuers payable out of the issuers' general
funds and additionally secured by a first lien on a pool of single family
detached properties). CMOs are rated in one of the two highest categories
by S&P or Moody's. Many CMOs are issued with a number of classes or series
which have different expected maturities. Investors purchasing such CMOs
are credited with their portion of the scheduled payments of interest and
principal on the underlying mortgages plus all unscheduled prepayments of
principal based on a predetermined priority schedule. Accordingly, the CMOs
in the longer maturity series are less likely than other mortgage
pass-throughs to be prepaid prior to their stated maturity. Although some
of the mortgages underlying CMOs may be supported by various types of
insurance, and some CMOs may be backed by GNMA certificates or other
mortgage pass-throughs issued or guaranteed by U.S. Government agencies or
instrumentalities, the CMOs themselves are not generally guaranteed.
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REMICS - REMICs are private entities formed for the purpose of holding a
fixed pool of mortgages secured by an interest in real property. REMICs are
similar to CMOs in that they issue multiple classes of securities and are
rated in one of the two highest categories by S&P or Moody's.
Investors may purchase beneficial interests in REMICs, which are known as
"regular" interests, or "residual" interests. Guaranteed REMIC pass-through
certificates ("REMIC Cer/tificates") issued by Fannie Mae or FHLMC
represent beneficial ownership interests in a REMIC trust consisting
principally of mortgage loans or Fannie Mae, FHLMC or GNMA-guaranteed
mortgage pass-through certificates. For FHLMC REMIC Certificates, FHLMC
guarantees the timely payment of interest. GNMA REMIC Certificates are
backed by the full faith and credit of the U.S. Government.
RISK FACTORS - Due to the possibility of prepayments of the underlying
mortgage instruments, mortgage-backed securities generally do not have a
known maturity. In the absence of a known maturity, market participants
generally refer to an estimated average life. An average life estimate is a
function of an assumption regarding anticipated prepayment patterns, based
upon current interest rates, current conditions in the relevant housing
markets and other factors. The assumption is necessarily subjective, and
thus different market participants can produce different average life
estimates with regard to the same security. There can be no assurance that
estimated average life will be a security's actual average life.
OPTIONS - A Portfolio may write call options on a covered basis only, and will
not engage in option writing strategies for speculative purposes. A call option
gives the purchaser of such option the right to buy, and the writer, in this
case the Portfolio, the obligation to sell the underlying security at the
exercise price during the option period. The advantage to the Portfolios of
writing covered calls is that the Portfolios receive a premium which is
additional income. However, if the security rises in value, the Portfolios may
not fully participate in the market appreciation.
During the option period, a covered call option writer may be assigned an
exercise notice by the broker-dealer through whom such call option was sold
requiring the writer to deliver the underlying security against payment of the
exercise price. This obligation is terminated upon the expiration of the option
period or at such earlier time in which the writer effects a closing purchase
transaction. A closing purchase transaction is one in which the Portfolio, when
obligated as a writer of an option, terminates its obligation by purchasing an
option of the same series as the option previously written.
A closing purchase transaction cannot be effected with respect to an option once
the option writer has received an exercise notice for such option.
Closing purchase transactions will ordinarily be effected to realize a profit on
an outstanding call option, to prevent an underlying security from being called,
to permit the sale of the underlying security or to enable a Portfolio to write
another call option on the underlying security with either a different exercise
price or expiration date or both. A Portfolio may realize a net gain or loss
from
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a closing purchase transaction depending upon whether the net amount of the
original premium received on the call option is more or less than the cost of
effecting the closing purchase transaction. Any loss incurred in a closing
purchase transaction may be partially or entirely offset by the premium received
from a sale of a different call option on the same underlying security. Such a
loss may also be wholly or partially offset by unrealized appreciation in the
market value of the underlying security.
If a call option expires unexercised, a Portfolio will realize a short-term
capital gain in the amount of the premium on the option, less the commission
paid. Such a gain, however, may be offset by depreciation in the market value of
the underlying security during the option period. If a call option is exercised,
a Portfolio will realize a gain or loss from the sale of the underlying security
equal to the difference between the cost of the underlying security, and the
proceeds of the sale of the security plus the amount of the premium on the
option, less the commission paid.
The market value of a call option generally reflects the market price of an
underlying security. Other principal factors affecting market value include
supply and demand, interest rates, the price volatility of the underlying
security, and the time remaining until the expiration date.
The Portfolios will write call options only on a covered basis, which means that
a Portfolio will own the underlying security subject to a call option at all
times during the option period. Unless a closing purchase transaction is
effected, a Portfolio would be required to continue to hold a security which it
might otherwise wish to sell, or deliver a security it would want to hold.
Options written by the Portfolios will normally have expiration dates between
one and nine months from the date written. The exercise price of a call option
may be below, equal to, or above the current market value of the underlying
security at the time the option is written.
REPURCHASE AGREEMENTS - Repurchase agreements are agreements by which a person
(E.G., the Portfolios) obtains a security and simultaneously commits to return
the security to the seller (a primary securities dealer as recognized by the
Federal Reserve Bank of New York or a national member bank as defined in Section
3(d)(1) of the Federal Deposit Insurance Act, as amended) at an agreed upon
price (including principal and interest) on an agreed upon date within a number
of days (usually not more than seven) from the date of purchase. The resale
price reflects the purchase price plus an agreed upon market rate of interest
which is unrelated to the coupon rate or maturity of the underlying security. A
repurchase agreement involves the obligation of the seller to pay the agreed
upon price, which obligation is, in effect, secured by the value of the
underlying security.
Repurchase agreements are considered to be loans by the Portfolios for purposes
of their investment limitations. The repurchase agreements entered into by the
Portfolios will provide that the underlying security at all times shall have a
value at least equal to 102% of the resale price stated in the agreement (the
Adviser monitors compliance with this requirement). Under all repurchase
agreements entered into by the Portfolios, the appropriate Custodian or its
agent must take possession of the underlying collateral. However, if the seller
defaults, the Portfolios could realize a loss on the sale of the underlying
security to the extent that the proceeds of the sale including
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accrued interest are less than the resale price provided in the agreement
including interest. In addition, even though the Bankruptcy Code provides
protection for most repurchase agreements, if the seller should be involved in
bankruptcy or insolvency proceedings, the Portfolios may incur delay and costs
in selling the underlying security or may suffer a loss of principal and
interest if the Portfolios is treated as an unsecured creditor and required to
return the underlying security to the seller's estate.
RESTRICTED SECURITIES - Restricted securities are securities that may not be
sold to the public without registration under the Securities Act of 1933 (the
"1933 Act") or an exemption from registration. Permitted investments for the
Portfolios includes restricted securities. Restricted securities, including
securities eligible for re-sale under 1933 Act Rule 144A, that are determined to
be liquid are not subject to this limitation. This determination is to be made
by the Portfolios' Adviser pursuant to guidelines adopted by the Board of
Trustees. Under these guidelines, the Adviser will consider the frequency of
trades and quotes for the security, the number of dealers in, and potential
purchasers for, the securities, dealer undertakings to make a market in the
security, and the nature of the security and of the marketplace trades. In
purchasing such Restricted Securities, each Adviser intends to purchase
securities that are exempt from registration under Rule 144A under the 1933 Act.
SECURITIES OF FOREIGN GOVERNMENTS - The Portfolios may invest in U.S. dollar
denominated obligations or securities of the Government of Canada and its
provincial and local governments and U.S. dollar denominated securities issued
or guaranteed by foreign governments, their political subdivisions, agencies or
instrumentalities. Permissible investments may consist of obligations of foreign
branches of U.S. Banks and of foreign banks, including Yankee Certificates of
Deposit. In addition, the Portfolios may invest in American Depositary Receipts.
These instruments may subject the Portfolios to investment risks that differ in
some respects from those related to investments in obligations of U.S. domestic
issuers. Such risks include future adverse political and economic developments,
the possible imposition of withholding taxes on interest or other income,
possible seizure, nationalization, or expropriation of foreign deposits, the
possible establishment of exchange controls or taxation at the source, or the
adoption of other foreign governmental restrictions which might adversely affect
the payment of principal and interest on such obligations. Such investments may
also entail higher custodial fees and sales commissions than domestic
investments. Foreign issuers of securities or obligations are often subject to
accounting treatment and engage in business practices different from those
respecting domestic issuers of similar securities or obligations. Foreign
branches of U.S. banks and foreign banks may be subject to less stringent
reserve requirements than those applicable to domestic branches of U.S. banks.
SECURITIES OF FOREIGN ISSUERS - There are certain risks connected with investing
in foreign securities. These include risks of adverse political and economic
developments (including possible governmental seizure or nationalization of
assets), the possible imposition of exchange controls or other governmental
restrictions, less uniformity in accounting and reporting requirements, the
possibility that there will be less information on such securities and their
issuers available to the public, the difficulty of obtaining or enforcing court
judgments abroad, restrictions on foreign investments in other jurisdictions,
difficulties in effecting repatriation of capital invested abroad, and
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difficulties in transaction settlements and the effect of delay on shareholder
equity. Foreign securities may be subject to foreign taxes, and may be less
marketable than comparable U.S. securities. The value of the Portfolios'
investments denominated in foreign currencies will depend on the relative
strengths of those currencies and the U.S. dollar, and the Portfolios may be
affected favorably or unfavorably by changes in the exchange rates or exchange
control regulations between foreign currencies and the U.S. dollar. Changes in
foreign currency exchange rates also may affect the value of dividends and
interest earned, gains and losses realized on the sale of securities and net
investment income and gains, if any, to be distributed to shareholders by the
Portfolios.
SECURITIES LENDING - Each Portfolio may lend securities pursuant to agreements
which require that the loans be continuously secured by collateral at all times
equal to 100% of the market value of the loaned securities which consists of:
cash, securities of the U.S. Government or its agencies, or any combination of
cash and such securities. Such loans will not be made if, as a result, the
aggregate amount of all outstanding securities loans for a Portfolio exceed
one-third of the value of the Portfolio's total assets taken at fair market
value. A Portfolio will continue to receive interest on the securities lent
while simultaneously earning interest on the investment of the cash collateral
in U.S. Government securities. However, a Portfolio will normally pay lending
fees to such broker-dealers and related expenses from the interest earned on
invested collateral. There may be risks of delay in receiving additional
collateral or risks of delay in recovery of the securities or even loss of
rights in the collateral should the borrower of the securities fail financially.
However, loans are made only to borrowers deemed by the appropriate Adviser to
be of good standing and when, in the judgment of that Adviser, the consideration
which can be earned currently from such securities loans justifies the attendant
risk. Any loan may be terminated by either party upon reasonable notice to the
other party. The Portfolios may use the Distributor or a broker-dealer affiliate
of an Adviser as a broker in these transactions.
TIME DEPOSITS - Time deposits are non-negotiable receipts issued by a bank in
exchange for the deposit of funds. Like a certificate of deposit, it earns a
specified rate of interest over a definite period of time; however, it cannot be
traded in the secondary market. Time deposits with a withdrawal penalty or that
mature in more than seven days are considered to be illiquid securities.
U.S. GOVERNMENT AGENCY OBLIGATIONS - U.S. Government agency obligations are
obligations issued or guaranteed by agencies or instrumentalities of the U.S.
Government. Agencies of the United States Government which issue obligations
consist of, among others, the Export Import Bank of the United States, Farmers
Home Administration, Federal Farm Credit Bank, Federal Housing Administration,
Government National Mortgage Association ("GNMA"), Maritime Administration,
Small Business Administration and The Tennessee Valley Authority. Obligations of
instrumentalities of the United States Government include securities issued by,
among others, Federal Home Loan Banks, Federal Home Loan Mortgage Corporation
("FHLMC"), Federal Intermediate Credit Banks, Federal Land Banks, Fannie Mae and
the United States Postal Service as well as government trust certificates. Some
of these securities are supported by the full faith and credit of the United
States Treasury, others are supported by the right of the issuer to borrow from
the Treasury and still others are supported only by the credit of the
instrumentality. Guarantees of
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principal by agencies or instrumentalities of the U.S. Government may be a
guarantee of payment at the maturity of the obligation so that in the event of a
default prior to maturity there might not be a market and thus no means of
realizing the value of the obligation prior to maturity.
U.S. TREASURY OBLIGATIONS - U.S. Treasury obligations consist of bills, notes
and bonds issued by the U.S. Treasury and separately traded interest and
principal component parts of such obligations that are transferable through the
federal book-entry system known as Separately Traded Interest and Principal Risk
Securities.
VARIABLE AND FLOATING RATE SECURITIES - Variable and floating rate instruments
involve certain obligations that may carry variable or floating rates of
interest, and may involve a conditional or unconditional demand feature. Such
instruments bear interest at rates which are not fixed, but which vary with
changes in specified market rates or indices. The interest rates on these
securities may be reset daily, weekly, quarterly, or some other reset period,
and may have a set floor or ceiling on interest rate changes. There is a risk
that the current interest rate on such obligations may not accurately reflect
existing market interest rates. A demand instrument with a demand notice
exceeding seven days may be considered illiquid if there is no secondary market
for such security.
VARIABLE RATE MASTER DEMAND NOTES - Variable rate master demand notes permit the
investment of fluctuating amounts at varying market rates of interest pursuant
to direct arrangements between a Portfolio, as lender, and a borrower. Such
notes provide that the interest rate on the amount outstanding varies on a
daily, weekly or monthly basis depending upon a stated short-term interest rate
index. Both the lender and the borrower have the right to reduce the amount of
outstanding indebtedness at any time. There is no secondary market for the notes
and it is not generally contemplated that such instruments will be traded. The
quality of the note or the underlying credit must, in the opinion of the
appropriate Adviser, be equivalent to the ratings applicable to permitted
investments for the particular Portfolio. The appropriate Adviser will monitor
on an ongoing basis the earning power, cash flow and liquidity ratios of the
issuers of such instruments and will similarly monitor the ability of an issuer
of a demand instrument to pay principal and interest on demand. Variable rate
master demand notes may or may not be backed by bank letters of credit.
WARRANTS - Warrants give holders the right, but not the obligation, to buy
shares of a company at a given price, usually higher than the market price,
during a specified period.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES - When-issued or delayed delivery
basis transactions involve the purchase of an instrument with payment and
delivery taking place in the future. Delivery of and payment for these
securities may occur a month or more after the date of the purchase commitment.
The Portfolios will maintain with the Custodian a separate account with liquid
assets in an amount at least equal to these commitments. The interest rate
realized on these securities is fixed as of the purchase date and no interest
accrues to the Portfolios before settlement. These securities are subject to
market fluctuation due to changes in market interest rates and it is possible
that the market value at the time of settlement could be higher or lower than
the purchase price if the general level of interest rates has changed. Although
the Portfolios generally purchase
S - 16
<PAGE>
securities on a when-issued or forward commitment basis with the intention of
actually acquiring securities for their portfolio, the Portfolios may dispose of
a when-issued security or forward commitment prior to settlement if it deems
appropriate.
ZERO COUPON OBLIGATIONS - Zero coupon obligations are debt obligations that do
not bear any interest, but instead are issued at a deep discount from face value
or par. The value of a zero coupon obligation increases over time to reflect the
interest accumulated. Such obligations will not result in the payment of
interest until maturity, and will have greater price volatility than similar
securities that are issued at face value or par and pay interest periodically.
INVESTMENT LIMITATIONS
The following are fundamental policies of the Portfolios and cannot be changed
with respect to a Portfolio without the consent of the holders of a majority of
a Portfolio's outstanding shares. The term "majority of the outstanding shares"
means the vote of (i) 67% or more of a Portfolio's shares present at a meeting,
if more than 50% of the outstanding shares of the Portfolio are present or
represented by proxy, or (ii) more than 50% of a Portfolio's outstanding shares,
whichever is less.
Each Portfolio may not:
1. Purchase securities of any issuer (except securities issued or guaranteed
by the U.S. Government, its agencies or instrumentalities and repurchase
agreements involving such securities) if as a result more than 5% of the
total assets of a Portfolio would be invested in the securities of such
issuer. This restriction applies to 75% of a Portfolio's total assets.
2. Purchase any securities which would cause 25% or more of the total assets
of a Portfolio to be invested in the securities of one or more issuers
conducting their principal business activities in the same industry,
provided that this limitation does not apply to investments in the
obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities and repurchase agreements involving such securities. For
purposes of this limitation, (i) utility companies will be classified
according to their services, for example, gas, gas transmission, electric
and telephone will each be considered a separate industry; and (ii)
financial service companies will be classified according to the end users
of their services, for example, automobile finance, bank finance and
diversified finance will each be considered a separate industry.
3. Acquire more than 10% of the voting securities of any one issuer.
4. Invest in companies for the purpose of exercising control.
5. Borrow money except for temporary or emergency purposes and then only in an
amount not exceeding 33 1/3% of the value of total assets. Any borrowing
will be done from a bank and to the extent that such borrowing exceeds 5%
of the value of a Portfolios' assets, asset
S - 17
<PAGE>
coverage of at least 300% is required. In the event that such asset
coverage shall at any time fall below 300%, a Portfolio shall, within three
days thereafter or such longer period as the Securities and Exchange
Commission ("SEC") may prescribe by rules and regulations, reduce the
amount of its borrowings to such an extent that the asset coverage of such
borrowings shall be at least 300%. This borrowing provision is included for
temporary liquidity or emergency purposes. All borrowings will be repaid
before making investments and any interest paid on such borrowings will
reduce income.
6. Make loans, except that a Portfolio may purchase or hold debt instruments
in accordance with its investment objective and policies and may enter into
repurchase agreements.
7. Pledge, mortgage or hypothecate assets except to secure temporary
borrowings permitted by (5) above in aggregate amounts not to exceed 10% of
total assets taken at current value at the time of the incurrence of such
loan.
8. Purchase or sell real estate, real estate limited partnership interests,
futures contracts, commodities or commodities contracts and interests in a
pool of securities that are secured by interests in real estate. However,
subject to the permitted investments of each Portfolio, it may invest in
municipal securities or other marketable obligations secured by real estate
or interests therein.
9. Make short sales of securities, maintain a short position or purchase
securities on margin, except that each Portfolio may obtain short-term
credits as necessary for the clearance of security transactions.
10. Act as an underwriter of securities of other issuers except as it may be
deemed an underwriter in selling a Portfolio security.
11. Purchase securities of other investment companies except as permitted by
the Investment Company Act of 1940, as amended (the "1940 Act") and the
rules and regulations thereunder.
12. Issue senior securities (as defined in the 1940 Act) except in connection
with permitted borrowings as described above or as permitted by rule,
regulation or order of the SEC.
13. Purchase or retain securities of an issuer if, to the knowledge of the
Fund, an officer, trustee, partner or director of the Fund or any
investment adviser of the Fund owns beneficially more than 0.5% of the
shares or securities of such issuer and all such officers, trustees,
partners and directors owning more than 0.5% of such shares or securities
together own more than 5% of such shares or securities.
14. Invest in interests in oil, gas or other mineral exploration or development
programs and oil, gas or mineral leases.
S - 18
<PAGE>
15. Write or purchase puts, calls, options or combinations thereof or invest in
warrants.
The foregoing percentages will apply at the time of the purchase of a security.
THE ADVISER
The Fund and HGK Asset Management Inc. (the "Adviser") have entered into an
advisory agreement dated August 15, 1994 (the "Advisory Agreement"). The
Advisory Agreement provides that the Adviser shall not be protected against any
liability to the Fund or its shareholders by reason of willful misfeasance, bad
faith or gross negligence on its part in the performance of its duties or from
reckless disregard of its obligations or duties thereunder.
The Adviser was incorporated in 1983 by three principals, Jeffrey T. Harris,
Warren A. Greenhouse and Joseph E. Kutzel. The Adviser has provided equity,
fixed income and balanced fund management of individually structured portfolios
since its inception. As of December 31, 1999, total assets under management were
approximately $2.1 billion. The principal business address of the Adviser is
Newport Tower, 525 Washington Boulevard, Jersey City, New Jersey, 07310.
The Adviser makes the investment decisions for the assets of each Portfolio and
continuously reviews, supervises and administers each Portfolio's investment
program, subject to the supervision of, and policies established by, the
Trustees of the Fund.
To the extent a Portfolio purchases securities of open end investment companies,
the Adviser will waive its advisory fee on that portion of the Portfolio's
assets invested in such securities.
The continuance of the Advisory Agreement, after the first two years, must be
specifically approved at least annually (i) by the vote of the Trustees or by a
vote of the shareholders of the Portfolios, and (ii) by the vote of a majority
of the Trustees who are not parties to the Agreement or "interested persons" of
any party thereto, cast in person at a meeting called for the purpose of voting
on such approval. The Advisory Agreement will terminate automatically in the
event of its assignment, and is terminable at any time without penalty by the
Trustees of the Fund or, with respect to a Portfolio, by a majority of the
outstanding shares of a Portfolio, on not less than 30 days' nor more than 60
days' written notice to the Adviser, or by the Adviser on 90 days' written
notice to the Fund.
HGK FIXED INCOME FUND
Gregory W. Lobo, Vice President, Senior Portfolio Manager of Fixed Income
Securities, Anthony Santoliquido, Portfolio Manager of Fixed Income Securities
and Patricia Bernabeo, Portfolio Manager of Fixed Income Securities have managed
the HGK Fixed Income Fund since its inception. Mr. Lobo has been with the
Adviser since 1990. Mr. Santoliquido has been with the Adviser since 1993 and
prior to that he was at Hilliard Farber and Co. Brokerage. Ms. Bernabeo has been
with the Adviser since 1992 and prior to that was at New York University.
S - 19
<PAGE>
The Adviser is entitled to a fee, which is calculated daily and paid monthly, at
an annual rate of .50% of the average daily net assets of the Portfolio. The
Adviser has voluntarily agreed to waive all or a portion of its fees for, and
reimburse expenses of, the Portfolio to the extent necessary in order to limit
total operating expenses to an annual rate of not more than 1.00% of the
Portfolio's average daily net assets. The Adviser may, from its own resources,
compensate broker-dealers whose clients purchase shares of the Portfolio.
For the fiscal years ended October 31, 1997, October 31, 1998 and October 31,
1999, the Adviser was paid $0, $0, and $0 respectively, waived fees of $65,793,
$70,308 and $83,300, respectively, and reimbursed expenses of $18,783, $28,429
and $34,889, respectively.
HGK EQUITY VALUE AND HGK MIDCAP FUNDS
The Adviser is entitled to a fee, which is calculated daily and paid monthly, at
an annual rate of .90% of the average daily net assets of the HGK Equity Value
Fund and the HGK Mid Cap Value Fund, respectively. The Adviser has contractually
agreed to waive all or a portion of its fees for, and reimburse expenses of, a
Portfolio to the extent necessary in order to limit total operating expenses to
an annual rate of not more than 1.50% of the Portfolio's average daily net
assets for a period of one year from the date of the Prospectus. The Adviser
may, from its own resources, compensate broker-dealers whose clients purchase
shares of a Portfolio.
For the fiscal period ended October 31, 1999, the HGK Equity Value Fund paid the
Adviser $0 and the Adviser waived fees of $16,885. For the fiscal period ended
October 31, 1999, the Adviser reimbursed fees of $62,510 to the HGK Equity Value
Fund. As of the effective date of the Prospectus, the HGK Mid Cap Value Fund had
not commenced operations and therefore did not pay advisory fees.
THE ADMINISTRATOR
SEI Investments Mutual Funds Services (the "Administrator") serves as the
administrator of the Fund. The Administrator provides the Fund with
administrative services, including regulatory reporting and all necessary office
space, equipment, personnel and facilities. For these administrative services,
the Administrator is entitled to a fee, which is calculated daily and paid
monthly, at an annual rate of .20% of each Portfolio's average daily net assets.
However, each Portfolio pays the Administrator a minimum annual fee of $75,000,
and consequently the annual administration fee each Portfolio pays will exceed
.20% of the Portfolio's average daily net assets at low asset levels.
For the fiscal period ended October 31, 1999 the Administrator received a fee of
$75,000 from the HGK Fixed Income Fund and $29,384 from the HGK Equity Value
Portfolio. Prior to the effective date of the Prospectus, the HGK Mid Cap Value
Portfolio had not commenced operations and therefore did not pay administrative
fees.
S - 20
<PAGE>
The Administration Agreement provides that the Administrator shall not be liable
for any error of judgment or mistake of law or for any loss suffered by the Fund
in connection with the matters to which the Administration Agreement relates,
except a loss resulting from willful misfeasance, bad faith or gross negligence
on the part of the Administrator in the performance of its duties or from
reckless disregard by it of its duties and obligations thereunder. The
Administration Agreement shall remain in effect with respect to the Portfolios
until [August 15, 1999] and shall continue in effect for successive periods of
two years unless terminated by either party on not less than 90 days' written
notice to the other party.
The Fund and the Administrator have also entered into a shareholder servicing
agreement pursuant to which the Administrator provides certain shareholder
services in addition to those set forth in the Administration Agreement.
The Administrator, a Delaware business trust, has its principal business
offices at Oaks, Pennsylvania 19456. SEI Investments Management Corporation
("SIMC"), a wholly-owned subsidiary of SEI Investments Company ("SEI
Investments"), is the owner of all beneficial interest in the Administrator.
SEI Investments and its subsidiaries and affiliates, including the
Administrator, are leading providers of funds evaluation services, trust
accounting systems, and brokerage and information services to financial
institutions, institutional investors, and money managers. The Administrator
and its affiliates also serve as administrator or sub-administrator to the
following other mutual funds: The Achievement Funds Trust, Alpha Select
Funds, Amerindo Funds, Inc., The Arbor Fund, ARK Funds, Armada Funds, Bishop
Street Funds, Boston 1784 Funds-Registered Trademark-, CNI Charter Funds,
CUFUND, The Expedition Funds, First American Funds, Inc., First American
Investment Funds, Inc., First American Strategy Funds, Inc., HighMark Funds,
Huntington Funds, The Nevis Funds, Inc., Oak Associates Funds, The Parkstone
Advantage Fund, The PBHG Funds, Inc., PBHG Insurance Series Fund, Inc., The
Pillar Funds, SEI Asset Allocation Trust, SEI Daily Income Trust, SEI Index
Funds, SEI Institutional International Trust, SEI Institutional Investments
Trust, SEI Institutional Managed Trust, SEI Liquid Asset Trust, SEI Tax
Exempt Trust, STI Classic Funds, STI Classic Variable Trust, TIP Funds, UAM
Funds Trust, UAM Funds, Inc. II, and UAM Funds, Inc.
THE DISTRIBUTOR
SEI Investments Distribution Co. (the "Distributor"), a wholly-owned subsidiary
of SEI, and the Fund are parties to a distribution agreement dated November 14,
1991 ("Distribution Agreement").
The Distribution Agreement is renewable annually. The Distribution Agreement may
be terminated by the Distributor, by a majority vote of the Trustees who are not
interested persons and have no financial interest in the Distribution Agreement
or by a majority of the outstanding shares of the Fund upon not more than 60
days' written notice by either party or upon assignment by the Distributor.
S - 21
<PAGE>
No compensation is paid to the Distributor for distribution services for the
shares of the HGK Fixed Income Fund.
DISTRIBUTION PLAN
The Distribution Plan (the "Plan") provides that the shares of the Equity Value
and Mid Cap Value Funds will pay the Distributor a fee of .25% of the average
daily net assets of the shares which the Distributor may make payments pursuant
to written agreements to financial institutions and intermediaries such as
banks, savings and loan associations, insurance companies including, without
limit, investment counselors, broker-dealers and the Distributor's affiliates
and subsidiaries (collectively, "Agents") as compensation for services,
reimbursement of expenses incurred in connection with distribution assistance or
provision of shareholder services. The Plan is characterized as a compensation
plan since the distribution fee will be paid to the Distributor without regard
to the distribution or shareholder service expenses incurred by the Distributor
or the amount of payments made to other financial institutions and
intermediaries. Investors should understand that some Agents may charge their
clients fees in connection with purchases of shares or the provision of
shareholder services with respect to shares. The Trust intends to operate the
Plan in accordance with its terms and with the NASD rules concerning sales
charges.
The Trust has adopted the Plan in accordance with the provisions of Rule 12b-1
under the 1940 Act, which regulates circumstances under which an investment
company may directly or indirectly bear expenses relating to the distribution of
its shares. Continuance of the Plan must be approved annually by a majority of
the Trustees of the Trust and by a majority of the Trustees who are not parties
to the Distribution Agreement or interested persons (as defined by the 1940 Act)
of any party to the Distribution Agreement ("Qualified Trustees"). The Plan
requires that quarterly written reports of amounts spent under the Plan and the
purposes of such expenditures be furnished to and reviewed by the Trustees. The
Plan may not be amended to increase materially the amount which may be spent
thereunder without approval by a majority of the outstanding shares of the Fund.
All material amendments of the Plan will require approval by a majority of the
Trustees of the Trust and of the Qualified Trustees.
For the fiscal year ended October 31, 1999, the Distributor received from the
Fund, pursuant to the Plan, distribution fees in the amount of $4,690.
THE TRANSFER AGENT
DST Systems, Inc., 333 W. 12th Street, Kansas City, MO 64105 serves as the
Fund's transfer agent.
THE CUSTODIAN
First Union National Bank, 123 Broad Street, Philadelphia, Pennsylvania 19109
acts as custodian (the "Custodian") of the Fund. The Custodian holds cash,
securities and other assets of the Fund as required by the 1940 Act.
S - 22
<PAGE>
INDEPENDENT PUBLIC ACCOUNTANTS
Arthur Andersen LLP serves as independent public accountants for the Fund.
LEGAL COUNSEL
Morgan, Lewis & Bockius LLP serves as legal counsel to the Fund.
TRUSTEES AND OFFICERS OF THE FUND
The management and affairs of the Fund are supervised by the Trustees under the
laws of the Commonwealth of Massachusetts. The Trustees have approved contracts
under which, as described above, certain companies provide essential management
services to the Fund. The Fund pays the fees for unaffiliated Trustees.
The Trustees and Executive Officers of the Fund, their respective dates of
birth, and their principal occupations for the last five years are set forth
below. Each may have held other positions with the named companies during
that period. Unless otherwise noted, the business address of each Trustee and
each Executive Officer is SEI Investments Company, Oaks, Pennsylvania 19456.
Certain officers of the Fund also serve as officers of some or all of the
following: The Achievement Funds Trust, Alpha Select Funds, Amerindo Funds,
Inc., The Arbor Fund, ARK Funds, Armada Funds, Bishop Street Funds, Boston
1784 Funds-Registered Trademark-, CNI Charter Funds, CUFUND, The Expedition
Funds, First American Funds, Inc., First American Investment Funds, Inc.,
First American Strategy Funds, Inc., HighMark Funds, Huntington Funds, The
Nevis Funds, Inc., Oak Associates Funds, The Parkstone Advantage Fund, The
PBHG Funds, Inc., PBHG Insurance Series Fund, Inc., The Pillar Funds, SEI
Asset Allocation Trust, SEI Daily Income Trust, SEI Index Funds, SEI
Institutional International Trust, SEI Institutional Investments Trust, SEI
Institutional Managed Trust, SEI Liquid Asset Trust, SEI Tax Exempt Trust,
STI Classic Funds, STI Classic Variable Trust, TIP Funds, UAM Funds Trust,
UAM Funds, Inc. II, and UAM Funds, Inc., each of which is an open-end
management investment company managed by SEI Investments Mutual Funds
Services or its affiliates and, except for PBHG Advisor Funds, Inc.,
distributed by SEI Investments Distribution Co.
ROBERT A. NESHER (DOB 08/17/46) -- Chairman of the Board of Trustees*
- --Currently performs various services on behalf of SEI Investments for which
Mr. Nesher is compensated. Executive Vice President of SEI Investments,
1986-1994. Director and Executive Vice President of the Administrator and the
Distributor, 1981-1994. Trustee of The Arbor Fund, Boston 1784
Funds-Registered Trademark-, The Expedition Funds, Oak Associates Funds,
Pillar Funds, SEI Asset Allocation Trust, SEI Daily Income Trust, SEI Index
Funds, SEI Institutional Investments Trust, SEI Institutional Managed Trust,
SEI Institutional International Trust, SEI Liquid Asset Trust and SEI Tax
Exempt Trust.
S - 23
<PAGE>
JOHN T. COONEY (DOB 01/20/27) -- Trustee** -- Vice Chairman of Ameritrust Texas
N.A., 1989-1992, and MTrust Corp., 1985-1989. Trustee of The Arbor Fund, The
Expedition Funds, and Oak Associates Funds.
WILLIAM M. DORAN (DOB 05/26/40) -- Trustee* --1701 Market Street, Philadelphia,
PA 19103-2921. Partner, Morgan, Lewis & Bockius LLP (law firm), counsel to the
Trust, SEI Investments, the Administrator and the Distributor. Director and
Secretary of SEI Investments and Secretary of the Administrator and the
Distributor. Trustee of The Arbor Fund, The Expedition Funds, Oak Associates
Funds, SEI Asset Allocation Trust, SEI Daily Income Trust, SEI Index Funds, SEI
Institutional Investments Trust, SEI Institutional Managed Trust, SEI
Institutional International Trust, SEI Liquid Asset Trust and SEI Tax Exempt
Trust.
ROBERT A. PATTERSON (DOB 11/05/27) -- Trustee** -- Pennsylvania State
University, Senior Vice President, Treasurer (Emeritus). Financial and
Investment Consultant, Professor of Transportation (1984-present). Vice
President-Investments, Treasurer, Senior Vice President (Emeritus) (1982-1984).
Director, Pennsylvania Research Corp.; Member and Treasurer, Board of Trustees
of Grove City College. Trustee of The Arbor Fund, The Expedition Funds and Oak
Associates Funds.
EUGENE B. PETERS (DOB 06/03/29) -- Trustee** -- Private investor from 1987 to
present. Vice President and Chief Financial Officer, Western Company of North
America (petroleum service company) (1980-1986). President of Gene Peters and
Associates (import company) (1978-1980). President and Chief Executive Officer
of Jos. Schlitz Brewing Company before 1978. Trustee of The Arbor Fund, The
Expedition Funds and Oak Associates Funds.
JAMES M. STOREY (DOB 04/12/31) -- Trustee** -- Partner, Dechert Price & Rhoads,
from September 1987 - December 1993; Trustee of The Arbor Fund, The Expedition
Funds, Oak Associates Funds, SEI Asset Allocation Trust, SEI Daily Income Trust,
SEI Index Funds, SEI Institutional Investments Trust, SEI Institutional Managed
Trust, SEI Institutional International Trust, SEI Liquid Asset Trust and SEI Tax
Exempt Trust.
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 Liquid Asset Trust, SEI
Institutional Investments Trust, SEI Institutional Managed Trust, SEI
Institutional International Trust, and SEI Tax Exempt Trust.
MARK E. NAGLE (DOB 10/20/59) -- Controller and Chief Financial Officer --
President of the Administrator and Senior Vice President of SEI Investments
Mutual Funds Services Operations Group since 1998. Vice President of the
Administrator and Vice President of Fund Accounting and Administration of SEI
Investments Mutual Fund Services, 1996- 1998. Vice President of the
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<PAGE>
Distributor since December 1997. Senior Vice President, Fund Administration,
BISYS Fund Services, September 1995 - November 1996. Senior Vice President and
Site Manager, Fidelity Investments 1981 - September 1995.
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 LLP (1997-1999). Associate at Richter, Miller & Finn LLP
(1994-1997).
TODD B. CIPPERMAN (DOB 02/14/66) -- Vice President and Assistant Secretary --
General Counsel of SEI Investments since 2000. Vice President and Assistant
Secretary of SEI Investments, the Administrator and the Distributor since 1995.
Associate, Dewey Ballantine (law firm), 1994-1995. Associate, Winston & Strawn
(law firm) 1991-1994.
JAMES R. FOGGO (DOB 06/30/64) -- Vice President and Assistant Secretary -- Vice
President and Assistant Secretary of SEI Investments since 1998. 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.
LYDIA A. GAVALIS (DOB 06/05/64) -- Vice President and Assistant Secretary --
Vice President and Assistant Secretary of the Administrator and the Distributor
since 1998. Assistant General Counsel and Director of Arbitration, Philadelphia
Stock Exchange, 1989-1998.
KEVIN P. ROBINS (DOB 04/15/61) -- Vice President and Assistant Secretary --
Senior Vice President and General Counsel of SEI Investments, the Administrator
and the Distributor since 1994. Assistant Secretary of SEI Investments since
1992; Secretary of the Administrator since 1994. Vice President, General Counsel
and Assistant Secretary of the Administrator and the Distributor, 1992-1994.
Associate, Morgan, Lewis & Bockius LLP (law firm), 1988-1992.
LYNDA J. STRIEGEL (DOB 10/30/48) -- Vice President and Assistant Secretary --
Vice President and Assistant Secretary of the Administrator and the Distributor
since 1998. Senior Asset Management Counsel, Barnett Banks, Inc., 1997-1998.
Partner, Groom and Nordberg, Chartered, 1996-1997. Associate General Counsel,
Riggs Bank, N.A., 1991-1995.
JOHN H. GRADY, JR. (DOB 06/01/61) -- Secretary --1701 Market Street,
Philadelphia, PA 19103-2921, Partner since 1995, Morgan, Lewis & Bockius LLP
(law firm), counsel to the Trust, SEI Investments, the Administrator and the
Distributor.
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<PAGE>
RICHARD W. GRANT (DOB 10/25/45) -- Assistant Secretary -- 1701 Market Street,
Philadelphia, PA 19103. Partner, Morgan, Lewis & Bockius LLP (law firm), counsel
to the Trust, 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 Fund pays the fees for unaffiliated Trustees.
The following table exhibits Trustee compensation for the fiscal period ended
October 31, 1999.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
Total Compensation
Aggregate Compensation From Registrant and
From Registrant for the Pension or Retirement Fund Complex* Paid
Fiscal Year Ended October Benefits Accrued as Part Estimated Annual to Trustees for the
Name of Person, Position 31, 1999 of Fund Expenses Benefits Upon Fiscal Year Ended
Retirement October 31, 1999
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
John T. Cooney $9,571.48 N/A N/A $9,571.48 for
services on 1 board
- ------------------------------------------------------------------------------------------------------------------------
**Frank E. Morris $2,447.81 N/A N/A $2,447.81 for
services on 1 board
- ------------------------------------------------------------------------------------------------------------------------
Robert Patterson $9,571.48 N/A N/A $9,571.48 for
services on 1 board
- ------------------------------------------------------------------------------------------------------------------------
Eugene B. Peters $9,571.48 N/A N/A $9,571.48 for
services on 1 board
- ------------------------------------------------------------------------------------------------------------------------
James M. Storey, Esq. $9,571.48 N/A N/A $9,571.48 for
services on 1 board
- ------------------------------------------------------------------------------------------------------------------------
George J. Sullivan $7,123.67 N/A N/A $7,123.67 for
services on 1 board
- ------------------------------------------------------------------------------------------------------------------------
William M. Doran, Esq. $0 N/A N/A $0 for service on 1
board
- ------------------------------------------------------------------------------------------------------------------------
Robert A. Nesher $0 N/A N/A $0 for service on 1
board
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
* For the purposes of this table, the Fund is the only investment company in the
"Fund Complex."
** Retired December 31, 1998.
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<PAGE>
PERFORMANCE INFORMATION
From time to time, the Fund may advertise yield, effective yield and total
return of the Portfolios. These figures will be based on historical earnings and
are not intended to indicate future performance. No representation can be made
concerning actual future yields.
PERFORMANCE COMPARISONS
The Portfolios may periodically compare their performance to other mutual funds
tracked by mutual fund rating services, to broad groups of comparable mutual
funds, or to unmanaged indices. These comparisons may assume reinvestment of
dividends but generally do not reflect deductions for administrative and
management costs.
COMPUTATION OF YIELD
From time to time, the Fund may advertise yield and total return of the
Portfolios. These figures will be based on historical earnings and are not
intended to indicate future performance. No representation can be made
concerning actual future yields or returns. The yield of the Portfolios refer to
the annualized income generated by an investment in that Portfolio over a
specified 30-day period. The yield is calculated by assuming that the income
generated by the investment during that 30-day period is generated in each
period over one year and is shown as a percentage of the investment. In
particular, yield will be calculated according to the following formula:
Yield = 2[((a-b)/cd+1)to the power of 6-1], where a = dividends and interest
earned during the period; b = expenses accrued for the period (net of
reimbursement); c = the average daily number of shares outstanding during the
period that were entitled to receive dividends; and d = the maximum offering
price per share on the last day of the period.
For the 30-day period ended October 31, 1999 HGK Fixed Income Fund's yield was
5.98% and the HGK Equity Value Fund's yield was 0.78%.
CALCULATION OF TOTAL RETURN
The total return of the Portfolios refer to the average compounded rate of
return to a hypothetical investment for designated time periods (including,
but not limited to, the period from which that Portfolio commenced operations
through the specified date), assuming that the entire investment is redeemed
at the end of each period. In particular, total return will be calculated
according to the following formula: P (1 + T) TO THE POWER OF n = ERV, where
P = a hypothetical initial payment of $1,000; T = average annual total
return; n = number of years; and ERV = ending redeemable value, as of the end
of the designated time period, of a hypothetical $1,000 payment made at the
beginning of the designated time period.
S - 27
<PAGE>
For the fiscal year ended October 31, 1999, for the three year period ended
October 31, 1999 and for the period from November 3, 1994 (commencement of
operations) through October 31, 1999, the average annual total return was 0.48%,
4.93% and 6.92%, respectively.
For the fiscal period commencing June 9, 1999 (commencement of operations) and
ending October 31, 1999, the total cumulative return of the HGK Equity Value
Fund was 6.46%.
PURCHASING SHARES
Purchases and redemptions may be made through the Distributor on a day on which
the New York Stock Exchange is open for business. Shares of the Portfolios are
offered on a continuous basis. Currently, the Fund is closed for business when
the following holidays are observed: New Year's Day, Martin Luther King Jr. Day,
President's Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving and Christmas.
REDEEMING SHARES
It is currently the Fund's policy to pay all redemptions in cash. The Fund
retains the right, however, to alter this policy to provide for redemptions in
whole or in part by a distribution in-kind of securities held by a Portfolio in
lieu of cash. Shareholders may incur brokerage charges on the sale of any such
securities so received in payment of redemptions. The Fund has obtained an
exemptive order from the SEC that permits the Fund to make in-kind redemptions
to those shareholders of the Fund that are affiliated with the Fund solely by
their ownership of a certain percentage of the Fund's investment portfolios.
A Shareholder will at all times be entitled to aggregate cash redemptions from
all portfolios of the Fund during any 90-day period of up to the lesser of
$250,000 or 1% of the Fund's net assets.
The Fund reserves the right to suspend the right of redemption and/or to
postpone the date of payment upon redemption for any period on which trading on
the New York Stock Exchange is restricted, or during the existence of an
emergency (as determined by the SEC by rule or regulation) as a result of which
the disposal or valuation of a Portfolio's securities is not reasonably
practicable, or for such other periods as the SEC has by order permitted. The
Fund also reserves the right to suspend sales of shares of any Portfolio for any
period during which the New York Stock Exchange, the Adviser, the Administrator,
the Transfer Agent and/or the Custodian are not open for business.
DETERMINATION OF NET ASSET VALUE
The securities of the Portfolios are valued by the Administrator. The
Administrator will use an independent pricing service to obtain valuations of
securities. The pricing service relies primarily on prices of actual market
transactions as well as trader quotations. However, the service may also use a
matrix system to determine valuations, which system considers such factors as
security prices, yields, maturities, call features, ratings and developments
relating to specific securities in arriving
S - 28
<PAGE>
at valuations. The procedures of the pricing service and its valuations are
reviewed by the officers of the Fund under the general supervision of the
Trustees.
TAXES
The following is only a summary of certain additional federal income tax
considerations generally affecting the Portfolios and their shareholders that
are not described 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 Portfolios prospectuses is not
intended as a substitute for careful tax planning. Shareholders are urged to
consult their tax advisors with specific reference to their own tax situations,
including their state and local tax liabilities.
FEDERAL INCOME TAX TREATMENT OF DIVIDENDS AND DISTRIBUTIONS
The following general discussion of certain federal income tax consequences is
based on the Internal Revenue Code of 1986, as amended (the "Code") and the
regulations issued thereunder as in effect on the date of this Statement of
Additional Information. New legislation, as well as administrative changes or
court decisions, may significantly change the conclusions expressed herein, and
may have a retroactive effect with respect to the transactions contemplated
herein.
QUALIFICATION AS REGULATED INVESTMENT COMPANY
Each Portfolio intends to qualify and elect to be treated as a "regulated
investment company" ("RIC") as defined under Subchapter M of the Code. By
following such a policy, the Portfolios expect to eliminate or reduce to a
nominal amount the federal taxes to which it may be subject.
In order to qualify as a RIC, a Portfolio must distribute at least 90% of its
net investment income (which includes dividends, taxable interest, and the
excess of net short-term capital gains over net long-term capital losses less
operating expenses) and at least 90% of its net tax exempt interest income, for
each tax year, if any, to its shareholders and also must meet several additional
requirements. Among these requirements are the following: (i) at least 90% of a
Portfolio's gross income each taxable year must be derived from dividends,
interest, payments with respect to securities loans and gains from the sale or
other disposition of stock or securities, or certain other income; (ii) at the
close of each quarter of the Portfolio's taxable year, at least 50% of the value
of its total assets must be represented by cash and cash items, U.S. Government
securities, securities of other RICs and other securities, with such other
securities limited, in respect to any one issuer, to an amount that does not
exceed 5% of the value of the Portfolio's assets and that does not represent
more than 10% of the outstanding voting securities of such issuer; and (iii) at
the close of each quarter of the Portfolio's taxable year, not more than 25% of
the value of its assets may be invested in securities (other than U.S.
Government securities or the securities of other RICs) of any one issuer or of
two or more issuers that the Portfolio controls and that are engaged in the
same, similar or related trades or business.
S - 29
<PAGE>
Although the Portfolios intend to distribute substantially all of its net
investment income and may distribute its capital gains for any taxable year,
Portfolio will be subject to federal income taxation to the extent any such
income or gains are not distributed.
If a Portfolio fails to qualify for any taxable year as a RIC, all of its
taxable income will be subject to tax at regular corporate income tax rates
without any deduction for distributions to shareholders, and such distributions
generally will be taxable to shareholders as ordinary dividends to the extent of
a Portfolio's current and accumulated earnings and profits. In this event,
distributions generally will be eligible for the dividends-received deduction
for corporate shareholders.
PORTFOLIO DISTRIBUTIONS
Distributions of investment company taxable income will be taxable to
shareholders as ordinary income, regardless of whether such distributions are
paid in cash or are reinvested in additional shares, to the extent of a
Portfolio's earnings and profits. The Portfolios anticipate that they will
distribute substantially all of their investment company taxable income for each
taxable year.
A Portfolio may either retain or distribute to shareholders its excess of net
long-term capital gains over net short-term capital losses ("net capital
gains"). If such gains are distributed as a capital gains distribution, they are
taxable to shareholders who are individuals at a maximum rate of 20%, regardless
of the length of time the shareholder has held shares. If any such gains are
retained, a Portfolio will pay federal income tax thereon.
In the case of corporate shareholders, distributions (other than capital gains
distributions) from a RIC, generally qualify for the dividends-received
deduction only to the extent of the gross amount of qualifying dividends
received by a portfolio for the year. Generally, and subject to certain
limitations, a dividend will be treated as a qualifying dividend if it has been
received from a domestic corporation. Accordingly, such distributions will
generally qualify for the corporate dividends-received deduction.
Ordinarily, investors should include all dividends as income in the year of
payment. However, dividends declared payable to shareholders of record in
October, November or December of one year, but paid in January of the following
year, will be deemed for tax purposes to have been received by the shareholder
and paid by a Portfolio in the year in which the dividends were declared.
A Portfolio will provide a statement annually to shareholders as to the federal
tax status of distributions paid (or deemed to be paid) by a Portfolio during
the year, including the amount of dividends eligible for the corporate
dividends-received deduction.
SALE OR EXCHANGE OF PORTFOLIO SHARES
Generally, gain or loss on the sale or exchange of a share will be capital gain
or loss that will be long-term if the share has been held for more than twelve
months and otherwise will be short-term. For individuals, long-term capital
gains are currently taxed at a maximum rate of 20% and short-term
S - 30
<PAGE>
capital gains are currently taxed at ordinary income tax rates. However, if a
shareholder realizes a loss on the sale, exchange or redemption of a share held
for six months or less and has previously received a capital gains distribution
with respect to the share (or any undistributed net capital gains of a Portfolio
with respect to such share are included in determining the shareholder's
long-term capital gains), the shareholder must treat the loss as a long-term
capital loss to the extent of the amount of the prior capital gains distribution
(or any undistributed net capital gains of a Portfolio that have been included
in determining such shareholder's long-term capital gains). In addition, any
loss realized on a sale or other disposition of shares will be disallowed to the
extent an investor repurchases (or enters into a contract or option to
repurchase) shares within a period of 61 days (beginning 30 days before and
ending 30 days after the disposition of the shares). This loss disallowance rule
will apply to shares received through the reinvestment of dividends during the
61- day period.
In certain cases, a Portfolio will be required to withhold, and remit to the
United States Treasury, 31% of any distributions paid to a shareholder who (1)
has failed to provide a correct taxpayer identification number, (2) is subject
to backup withholding by the Internal Revenue Service, or (3) has failed to
certify to a Portfolio that such shareholder is not subject to backup
withholding.
FEDERAL EXCISE TAX
If a Portfolio fails to distribute in a calendar year at least 98% of its
ordinary income for the year and 98% of its capital gain net income (the excess
of short and long term capital gains over short and long term capital losses)
for the one-year period ending October 31 of that year (and any retained amount
from the prior calendar year), a Portfolio will be subject to a nondeductible 4%
Federal excise tax on the undistributed amounts. A Portfolio intends to make
sufficient distributions to avoid imposition of this tax, or to retain, at most
its net capital gains and pay tax thereon.
STATE AND LOCAL TAXES
A Portfolio is not liable for any income or franchise tax in Massachusetts if it
qualifies as a RIC for federal income tax purposes. Distributions by a Portfolio
to shareholders and the ownership of shares may be subject to state and local
taxes.
PORTFOLIO TRANSACTIONS
A Portfolio has no obligation to deal with any broker-dealer or group of
broker-dealers in the execution of transactions in portfolio securities. Subject
to policies established by the Trustees of the Fund, the Adviser is responsible
for placing the orders to execute transactions for the Portfolio. In placing
orders, it is the policy of the Fund to seek to obtain the best net results
taking into account such factors as price (including the applicable dealer
spread), the size, type and difficulty of the transaction involved, the firm's
general execution and operational facilities and the firm's risk in positioning
the securities involved. While the Adviser generally seeks reasonably
competitive spreads or commissions, a Portfolio will not necessarily be paying
the lowest spread or commission available.
S - 31
<PAGE>
The money market instruments in which a Portfolio invests are traded primarily
in the over-the-counter market. Bonds and debentures are usually traded
over-the-counter, but may be traded on an exchange. Where possible, the Adviser
will deal directly with the dealers who make a market in the securities involved
except in those circumstances where better prices and execution are available
elsewhere. Such dealers usually are acting as principal for their own account.
On occasion, securities may be purchased directly from the issuer. Money market
instruments are generally traded on a net basis and do not normally involve
either brokerage commissions or transfer taxes. The cost of executing portfolio
securities transactions of a Portfolio will primarily consist of dealer spreads
and underwriting commissions.
TRADING PRACTICES AND BROKERAGE
The Fund selects brokers or dealers to execute transactions for the purchase or
sale of portfolio securities on the basis of its judgment of their professional
capability to provide the service. The primary consideration is to have brokers
or dealers provide transactions at best price and execution for the Fund. Best
price and execution includes many factors, including the price paid or received
for a security, the commission charged, the promptness and reliability of
execution, the confidentiality and placement accorded the order and other
factors affecting the overall benefit obtained by the account on the
transaction. The Fund's determination of what are reasonably competitive rates
is based upon the professional knowledge of its trading department as to rates
paid and charged for similar transactions throughout the securities industry. In
some instances, the Fund pays a minimal share transaction cost when the
transaction presents no difficulty. Some trades are made on a net basis where
the Fund either buys securities directly from the dealer or sells them to the
dealer. In these instances, there is no direct commission charged but there is a
spread (the difference between the buy and sell price) which is the equivalent
of a commission.
The Fund may allocate out of all commission business generated by the fund and
accounts under management by the Adviser, brokerage business to brokers or
dealers who provide brokerage and research services. These research services
include advice, either directly or through publications or writings, as to the
value of securities, the advisability of investing in, purchasing or selling
securities, and the availability of securities or purchasers or sellers of
securities; furnishing of analyses and reports concerning issuers, securities or
industries; providing information on economic factors and trends, assisting in
determining portfolio strategy, providing computer software used in security
analyses, and providing portfolio performance evaluation and technical market
analyses. Such services are used by the Adviser in connection with its
investment decision-making process with respect to one or more funds and
accounts managed by it, and may not be used exclusively with respect to the fund
or account generating the brokerage.
As provided in the Securities Exchange Act of 1934 (the "1934 Act"), higher
commissions may be paid to broker-dealers who provide brokerage and research
services than to broker-dealers who do not provide such services if such higher
commissions are deemed reasonable in relation to the value of the brokerage and
research services provided. Although transactions are directed to broker-dealers
who provide such brokerage and research services, the Fund believes that the
commissions paid to such broker-dealers are not, in general, higher than
commissions that would be paid to
S - 32
<PAGE>
broker-dealers not providing such services and that such commissions are
reasonable in relation to the value of the brokerage and research services
provided. In addition, portfolio transactions which generate commissions or
their equivalent are directed to broker-dealers who provide daily portfolio
pricing services to the Fund. Subject to best price and execution, commissions
used for pricing may or may not be generated by the funds receiving the pricing
service.
The Adviser may place a combined order for two or more accounts or funds engaged
in the purchase or sale of the same security if, in its judgment, joint
execution is in the best interest of each participant and will result in best
price and execution. Transactions involving commingled orders are allocated in a
manner deemed equitable to each account or fund. It is believed that the ability
of the accounts to participate in volume transactions will generally be
beneficial to the accounts and funds. Although it is recognized that, in some
cases, the joint execution of orders could adversely affect the price or volume
of the security that a particular account or the Portfolio may obtain, it is the
opinion of the Adviser and the Fund's Board of Trustees that the advantages of
combined orders outweigh the possible disadvantages of separate transactions.
Consistent with the Conduct Rules of the National Association of Securities
Dealers, Inc., and subject to seeking best price and execution, a Portfolio, at
the request of the Distributor, gives consideration to sales of shares of the
Fund as a factor in the selection of brokers and dealers to execute Fund
portfolio transactions.
The Adviser may, consistent with the interest of the Portfolios, select brokers
on the basis of the research services they provide to the Adviser. Such services
may include analyses of the business or prospects of a company, industry or
economic sector, or statistical and pricing services. Information so received by
the Adviser will be in addition to and not in lieu of the services required to
be performed by the Adviser under the Advisory Agreement. If, in the judgment of
the Adviser, a Portfolio or other accounts managed by the Adviser will be
benefitted by supplemental research services, the Adviser is authorized to pay
brokerage commissions to a broker furnishing such services which are in excess
of commissions which another broker may have charged for effecting the same
transaction. These research services include advice, either directly or through
publications or writings, as to the value of securities, the advisability of
investing in, purchasing or selling securities, and the availability of
securities or purchasers or sellers of securities; furnishing of analyses and
reports concerning issuers, securities or industries; providing information on
economic factors and trends; assisting in determining portfolio strategy;
providing computer software used in security analyses; and providing portfolio
performance evaluation and technical market analyses. The expenses of the
Adviser will not necessarily be reduced as a result of the receipt of such
supplemental information, such services may not be used exclusively, or at all,
with respect to a Portfolio or account generating the brokerage, and there can
be no guarantee that the Adviser will find all of such services of value in
advising the Portfolio.
It is expected that a Portfolio may execute brokerage or other agency
transactions through the Distributor, which is a registered broker-dealer, for a
commission in conformity with the 1940 Act, the 1934 Act and rules promulgated
by the SEC. Under these provisions, the Distributor is permitted to receive and
retain compensation for effecting portfolio transactions for the Portfolio on an
S - 33
<PAGE>
exchange if a written contract is in effect between the Distributor and the Fund
expressly permitting the Distributor to receive and retain such compensation.
These rules further require that commissions paid to the Distributor by the
Portfolio for exchange transactions not exceed "usual and customary" brokerage
commissions. The rules define "usual and customary" commissions to include
amounts which are "reasonable and fair compared to the commission, fee or other
remuneration received or to be received by other brokers in connection with
comparable transactions involving similar securities being purchased or sold on
a securities exchange during a comparable period of time." The Trustees,
including those who are not "interested persons" of the Fund, have adopted
procedures for evaluating the reasonableness of commissions paid to the
Distributor and will review these procedures periodically.
Since the Fund does not market its shares through intermediary brokers or
dealers, it is not the Fund's practice to allocate brokerage or principal
business on the basis of sales of its shares which may be made through such
firms. However, the Adviser may place portfolio orders with qualified
broker-dealers who recommend a Portfolio' shares to clients, and may, when a
number of brokers and dealers can provide best net results on a particular
transaction, consider such recommendations by a broker or dealer in selecting
among broker-dealers.
HGK FIXED INCOME FUND
For the fiscal year ended October 31, 1999, the following commissions were paid
on brokerage transactions, pursuant to an agreement or understanding, to brokers
because of research services provided by the brokers:
<TABLE>
<CAPTION>
-------------------------------------------------------------------
Total Dollar Total Dollar Amount of Transactions
Amount of Involving Directed Brokerage
Brokerage Commissions for Research Services
Commissions for
Research Services
-------------------------------------------------------------------
<S> <C> <C>
Fixed Income Fund $ 59 $ 134,835
-------------------------------------------------------------------
Equity Value Fund $222 $ 163,951
-------------------------------------------------------------------
</TABLE>
For the fiscal years ended October 31, 1997, 1998 and 1999, the Portfolio paid
the following brokerage commissions:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
Total Brokerage Amount Paid to SEI Investments(1)
Commissions
- -------------------------------------------------------------------------------
1997 1998 1999 1997 1998 1999
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Fixed Income Fund $0 $192 $ 664 $113 $0 $211
- -------------------------------------------------------------------------------
Equity Value Fund * * $9,184 * * $ 65
- -------------------------------------------------------------------------------
</TABLE>
(1) The amounts paid to SEI Investments reflect fees paid in connection with
repurchase agreement transactions.
S - 34
<PAGE>
For the fiscal years indicated, the Portfolio paid the following brokerage
commissions:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
% of Total % of Total
Total $ Amount of Total $ Amount of Brokerage Brokerage
Brokerage Brokerage Commissions Commissions Paid Transactions
Commissions Paid Paid to Affiliated Brokers to the Affiliated Effected Through
Brokers Affiliated Brokers
- ----------------------------------------------------------------------------------------------------------------------------------
1997 1998 1999 1997 1998 1999 1999 1999
<S> <C> <C> <C> <C> <C> <C> <C>
Fixed Income Fund $0 $192 $ 664 $0 $0 $185 .28% 0%
- ----------------------------------------------------------------------------------------------------------------------------------
Equity Value Fund * * $9,184 * * $ 65 .01% 0%
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
DESCRIPTION OF SHARES
The Declaration of Trust authorizes the issuance of an unlimited number of
portfolios and shares of each portfolio, each of which represents an equal
proportionate interest in the portfolio with each other share. Shares are
entitled upon liquidation to a pro rata share in the net assets of the
portfolio. Shareholders have no preemptive rights. The Declaration of Trust
provides that the Trustees of the Fund may create additional series of shares.
All consideration received by the Fund for shares of any additional series and
all assets in which such consideration is invested would belong to that series
and would be subject to the liabilities related thereto. Share certificates
representing shares will not be issued.
SHAREHOLDER LIABILITY
The Fund is an entity of the type commonly known as a "Massachusetts business
trust." Under Massachusetts law, shareholders of such a trust could, under
certain circumstances, be held personally liable as partners for the obligations
of the trust. Even if, however, the Fund were held to be a partnership, the
possibility of the shareholders incurring financial loss for that reason appears
remote because the Fund's Declaration of Trust contains an express disclaimer of
shareholder liability for obligations of the Fund and requires that notice of
such disclaimer be given in each agreement, obligation or instrument entered
into or executed by or on behalf of the Fund or the Trustees, and because the
Declaration of Trust provides for indemnification out of the Fund property for
any shareholder held personally liable for the obligations of the Fund.
LIMITATION OF TRUSTEES' LIABILITY
The Declaration of Trust provides that a Trustee shall be liable only for his or
her own willful defaults and, if reasonable care has been exercised in the
selection of officers, agents, employees or investment advisers, shall not be
liable for any neglect or wrongdoing of any such person. The Declaration of
Trust also provides that the Fund will indemnify its Trustees and officers
against liabilities and expenses incurred in connection with actual or
threatened litigation in which they may be involved because of their offices
with the Fund unless it is determined in the manner provided
S - 35
<PAGE>
in the Declaration of Trust that they have not acted in good faith in the
reasonable belief that their actions were in the best interests of the Fund.
However, nothing in the Declaration of Trust shall protect or indemnify a
Trustee against any liability for his or her willful misfeasance, bad faith,
gross negligence or reckless disregard of his or her duties.
5% AND 25% SHAREHOLDERS
As of February 16, 2000, the following persons were the only persons who were
record owners (or to the knowledge of the Fund, beneficial owners) of 5% and 25%
or more of the shares of the Portfolios. Persons who owned of record or
beneficially more than 25% of the Portfolio's outstanding shares may be deemed
to control the Portfolio within the meaning of the Act.
HGK FIXED INCOME FUND
Shareholder Number of Shares %
Sam Agati Trustee 167,923 10.21%
Laborers Local #322 General Fund
P.O. Box 361
Massena, NY 13662-0361
WestChester Heavy Construction 142,844 8.69%
Local 60 General Fund
c/o Mr. Joseph Dominick
140 Broadway
Hawthorne, NY 10532-1100
International Association of Bridges 84,687 5.15%
Structural & Ornamental Ironworkers
Local 417 General Fund
c/o Gary Gaydos
One Lafayette Street
Newburgh, NY 12550-5607
The Fund believes that most of the shares referred to above were held by the
persons indicated in accounts for their fiduciary, agency or custodial
customers.
HGK EQUITY VALUE FUND
Shareholder Number of Shares %
Thomas & Johanna Vandermark Tr 90,518.6260 13.11%
U/A 5/18/1999
The Vandermark Trust
S - 36
<PAGE>
23 Williams Ave.
Newburgh, NY 12550-7227
Ronald E. Treser & Richard L. Ryan & 52,689,3150 7.63%
Erick T. Ryan Tr
U/A 3/21/1961
Ryan Moving & Storage P/S Plan
Box U Colonial Dr.
Irwin, PA 15642-0578
SEI Trust Co. Cust. 37,120.1380 5.38%
IRA R/O Thomas A. Vandermark
23 Williams Ave.
Newburgh, NY 12550-7227
SEI Trust Company Cust. 85,091.5780 12.33%
IRA R/O Johanna M. Vandermark
23 Williams Ave.
Newburgh, NY 12550-7227
SEI Trust Company Cust. 59,364.2330 8.60%
IRA R/O Eleanor Perreca
150 Dogwood Lane
Newburgh, NY 12550-2026
The Fund believes that most of the shares referred to above were held by the
persons indicated in accounts for their fiduciary, agency or custodial
customers.
EXPERTS
The financial statements of the Fund have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their report with respect
thereto, and are incorporated by reference hereto in reliance upon the authority
of said firm as experts in giving said report.
FINANCIAL STATEMENTS
The financial statements for the fiscal year ended October 31, 1999, including
notes thereto and the report of Arthur Andersen LLP thereon, are herein
incorporated by reference. A copy of the 1999 Annual Report to Shareholders must
accompany the delivery of this Statement of Additional Information.
S - 37
<PAGE>
TRUST:
THE ADVISORS' INNER CIRCLE FUND
FUND:
LSV VALUE EQUITY FUND
INVESTMENT ADVISER:
LSV ASSET MANAGEMENT
This STATEMENT OF ADDITIONAL INFORMATION is not a prospectus and relates only to
the LSV Value Equity Fund (the "Fund"). It is intended to provide additional
information regarding the activities and operations of The Advisors' Inner
Circle Fund (the "Trust") and the Fund and should be read in conjunction with
the Fund's Prospectus dated March 1, 2000. The Prospectus for the Fund may be
obtained by calling 1-888-FUND-LSV.
TABLE OF CONTENTS
THE TRUST...............................................................S - 2
INVESTMENT OBJECTIVE AND POLICIES.......................................S - 2
DESCRIPTION OF ADDITIONAL INVESTMENTS...................................S - 2
INVESTMENT LIMITATIONS..................................................S - 6
THE ADVISER.............................................................S - 8
THE ADMINISTRATOR.......................................................S - 9
THE DISTRIBUTOR........................................................S - 11
THE TRANSFER AGENT.....................................................S - 11
THE CUSTODIAN..........................................................S - 11
INDEPENDENT PUBLIC ACCOUNTANTS.........................................S - 11
LEGAL COUNSEL..........................................................S - 11
TRUSTEES AND OFFICERS OF THE TRUST.....................................S - 11
PERFORMANCE INFORMATION................................................S - 15
COMPUTATION OF YIELD...................................................S - 15
CALCULATION OF TOTAL RETURN............................................S - 16
PURCHASING SHARES......................................................S - 16
REDEEMING SHARES.......................................................S - 16
DETERMINATION OF NET ASSET VALUE.......................................S - 17
TAXES ..............................................................S - 17
FUND TRANSACTIONS......................................................S - 20
TRADING PRACTICES AND BROKERAGE........................................S - 21
DESCRIPTION OF SHARES..................................................S - 22
SHAREHOLDER LIABILITY..................................................S - 22
LIMITATION OF TRUSTEES' LIABILITY......................................S - 22
5% AND 25% SHAREHOLDERS ...............................................S - 23
EXPERTS................................................................S - 23
FINANCIAL STATEMENTS...................................................S - 23
March 1, 2000
S - 1
LSV-F-002-01
<PAGE>
THE TRUST
This Statement of Additional Information ("SAI") relates only to the LSV Value
Equity Fund (the "Fund"). The Fund is a separate series of The Advisors' Inner
Circle Fund (the "Trust"), an open-end investment management company established
under Massachusetts law as a Massachusetts business trust under a Declaration of
Trust dated July 18, 1991. The Declaration of Trust permits the Trust to offer
separate series ("portfolios") of shares of beneficial interest ("shares"). Each
portfolio is a separate mutual fund, and each share of each portfolio represents
an equal proportionate interest in that portfolio. See "Description of Shares."
No investment in shares of a portfolio should be made without first reading that
portfolio's prospectus. Capitalized terms not defined herein are defined in the
Prospectus offering shares of the Fund.
The Fund pays its (i) operating expenses, including fees of its service
providers, expenses of preparing prospectuses, proxy solicitation material and
reports to shareholders, costs of custodial services and registering its shares
under federal and state securities laws, pricing and insurance expenses and pays
additional expenses, brokerage costs, interest charges, taxes and organization
expenses and (ii) pro rata share of the Trust's other expenses, including audit
and legal expenses. The Fund's expense ratios are disclosed under "Fund Fees and
Expenses" in the Prospectus.
INVESTMENT OBJECTIVE AND POLICIES
The Fund seeks long term growth of capital. This investment objective is
fundamental and cannot be changed without the consent of shareholders.
The Fund intends to be as fully invested as practicable (at least 65% of its
total assets under normal conditions) in common stocks as described in the
Prospectus. However, the Fund may also invest in warrants, rights to purchase
common stocks, debt securities convertible into common stocks and preferred
stocks. A portion of the Fund may also be invested in investment grade fixed
income securities, cash and money market securities. Investment grade fixed
income securities are debt securities rated in one of the four highest rating
categories ("investment grade") by a nationally recognized statistical rating
organization (an "NRSRO") or that the Adviser determines are of comparable
quality. The Fund may also make limited use of equity index futures contracts
for liquidity purposes.
In order to generate additional income, the Fund may lend securities which it
owns. The Fund may also invest in repurchase agreements.
DESCRIPTION OF ADDITIONAL INVESTMENTS
The Fund may invest in any of the following instruments for temporary cash
management purposes:
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BANKERS' ACCEPTANCES -- A bankers' acceptance is a bill of exchange or time
draft drawn on and accepted by a commercial bank. It is used by corporations to
finance the shipment and storage of goods and to furnish dollar exchange.
Maturities are generally six months or less.
CERTIFICATES OF DEPOSIT -- A certificate of deposit is a negotiable,
interest-bearing instrument with a specific maturity. Certificates of deposit
are issued by banks and savings and loan institutions in exchange for the
deposit of funds, and normally can be traded in the secondary market prior to
maturity. Certificates of deposit have penalties for early withdrawal.
COMMERCIAL PAPER -- Commercial paper is the term used to designate unsecured,
short-term promissory notes issued by corporations and other entities.
Maturities on these issues vary from a day to nine months.
FUTURES CONTRACTS -- Futures contracts provide for the future sale by one party
and purchase by another party of a specified amount of a specific security at a
specified future time and at a specified price.
The Fund may use futures contracts for bona fide hedging purposes or to gain
exposure to a particular portion of the equity market or instrument. The Fund
will minimize the risk that it will be unable to close out a futures contract by
only entering into futures contracts which are traded on national futures
exchanges and for which there appears to be a liquid secondary market.
Index futures are futures contracts for various indices that are traded on
registered securities exchanges. An index futures contract obligates the seller
to deliver (and the purchaser to take) an amount of cash equal to a specific
dollar amount times the difference between the value of a specific index at the
close of the last trading day of the contract and the price at which the
agreement is made.
Although futures contracts by their terms call for actual delivery or acceptance
of the underlying securities, in most cases the contracts are closed out before
the settlement date without the making or taking of delivery. Closing out an
open futures position is done by taking an opposite position ("buying" a
contract which has previously been "sold" or "selling" a contract which has
previously been "purchased") in an identical contract to terminate the position.
Brokerage commissions are incurred when a futures contract is bought or sold.
Futures traders are required to make a good faith margin deposit in cash or
government securities with or for the account of a broker or custodian to
initiate and maintain open positions in futures contracts until a contract is
closed out. However, there is no certainty that a liquid secondary market will
exist for any particular futures contract at any specific time. Thus, it may not
be possible to close a futures position. In the event of adverse price
movements, the Fund would continue to be required to make daily cash payments to
maintain its required margin. In such situations, if the Fund has insufficient
cash, it may have to sell portfolio securities to meet daily margin requirements
at a time when it may be disadvantageous to do so. In addition, the Fund
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may be required to make delivery of the instruments underlying the futures
contracts they hold. The inability to close futures positions also could have an
adverse impact on the ability to effectively gain exposure to the portion of the
equity market represented by the underlying index.
The risk of loss in trading futures contracts can be substantial, due both to
the low margin deposits required and the extremely high degree of leverage
involved in futures pricing. As a result, a relatively small price movement in a
futures contract may result in immediate and substantial loss (or gain) to the
Fund. For example, if at the time of purchase, 10% of the value of the futures
contract is deposited as margin, a subsequent 10% decrease in the value of the
futures contract would result in a total loss of the margin deposit, before any
deduction for the transaction costs, if the account were then closed out. A 15%
decrease would result in a loss equal to 150% of the original margin deposit if
the contract were closed out. Thus, a purchase or sale of a futures contract may
result in losses in excess of the amount invested in the contract. However, the
Adviser will not use futures contracts for leverage purposes and, does not
believe that the Fund will generally be subject to the risks of loss frequently
associated with futures transactions. The Fund presumably would have sustained
comparable losses if, instead of the futures contract, they had invested in the
underlying financial instrument and sold it after the decline.
Most futures exchanges limit the amount of fluctuation permitted in futures
contract prices during a single trading day. The daily limit establishes the
maximum amount that the price of a futures contract may vary either up or down
from the previous day's settlement price at the end of a trading session. Once
the daily limit has been reached in a particular type of contract, no trades may
be made on that day at a price beyond that limit. The daily limit governs only
price movement during a particular trading day and therefore does not limit
potential losses because the limit may prevent the liquidation of unfavorable
positions. Futures contract prices have occasionally moved to the daily limit
for several consecutive trading days with little or no trading, thereby
preventing prompt liquidation of future positions and subjecting some futures
traders to substantial losses.
ILLIQUID SECURITIES - Illiquid securities are securities that cannot be disposed
of within seven days at approximately the price at which they are being carried
on the Fund's books. Illiquid securities include demand instruments with a
demand notice period exceeding seven days, when there is no secondary market for
such security and repurchase agreements with durations over seven days in
length.
INVESTMENT COMPANY SHARES -- The Fund may invest up to 10% of its total assets
in shares of other investment companies that invest exclusively in those
securities in which the Fund may invest directly. These investment companies
typically incur fees that are separate from those fees incurred directly by the
Fund. The Fund's purchase of such investment company securities results in the
layering of expenses, such that shareholders would indirectly bear a
proportionate share of the operating expenses of such investment companies,
including advisory fees, in addition to paying Fund expenses. Under applicable
regulations, the Fund is prohibited from
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acquiring the securities of another investment company if, as a result of such
acquisition: (1) the Fund owns more than 3% of the total voting stock of the
other company; (2) securities issued by any one investment company represent
more than 5% of the Fund's total assets; or (3) securities (other than treasury
stock) issued by all investment companies represent more than 10% of the total
assets of the Fund.
MONEY MARKET INSTRUMENTS - Money market securities are high-quality,
dollar-denominated, short-term debt instruments. They consist of: (i) bankers'
acceptances, certificates of deposits, notes and time deposits of U.S. banks and
U.S. branches of foreign banks; (ii) U.S. Treasury obligations and obligations
of agencies and instrumentalities of the U.S. Government; (iii) commercial paper
issued by U.S. and foreign corporations rated in one of the two highest ratings
categories by an NRSRO; (iv) debt obligations with a maturity of one year or
less issued by corporations that issue commercial paper rated in one of the two
highest ratings categories by an NRSRO; and (v) repurchase agreements involving
any of the foregoing obligations entered into with highly-rated banks and
broker-dealers.
REPURCHASE AGREEMENTS -- Repurchase agreements are agreements by which a person
(E.G., the Fund) obtains a security and simultaneously commits to return the
security to the seller (a primary securities dealer as recognized by the Federal
Reserve Bank of New York or a national member bank as defined in Section 3(d)(1)
of the Federal Deposit Insurance Act, as amended) at an agreed upon price
(including principal and interest) on an agreed upon date within a number of
days (usually not more than seven) from the date of purchase. The resale price
reflects the purchase price plus an agreed upon market rate of interest which is
unrelated to the coupon rate or maturity of the underlying security. A
repurchase agreement involves the obligation of the seller to pay the agreed
upon price, which obligation is, in effect, secured by the value of the
underlying security.
Repurchase agreements are considered to be loans by the Fund for purposes of its
investment limitations. The repurchase agreements entered into by the Fund will
provide that the underlying security at all times shall have a value at least
equal to 102% of the resale price stated in the agreement (the Adviser monitors
compliance with this requirement). Under all repurchase agreements entered into
by the Fund, the appropriate custodian or its agent must take possession of the
underlying collateral. However, if the seller defaults, the Fund could realize a
loss on the sale of the underlying security to the extent that the proceeds of
the sale including accrued interest are less than the resale price provided in
the agreement including interest. In addition, even though the Bankruptcy Code
provides protection for most repurchase agreements, if the seller should be
involved in bankruptcy or insolvency proceedings, the Fund may incur delay and
costs in selling the underlying security or may suffer a loss of principal and
interest if the Fund is treated as an unsecured creditor and required to return
the underlying security to the seller's estate.
SECURITIES LENDING --The Fund may lend securities pursuant to agreements which
require that the loans be continuously secured by collateral at all times equal
to 100% of the market value of
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the loaned securities which consists of: cash, securities of the U.S. Government
or its agencies, or any combination of cash and such securities. Such loans will
not be made if, as a result, the aggregate amount of all outstanding securities
loans for the Fund exceed one-third of the value of the Fund's total assets
taken at fair market value. The Fund will continue to receive interest on the
securities lent while simultaneously earning interest on the investment of the
cash collateral in U.S. Government securities. However, the Fund will normally
pay lending fees to such broker-dealers and related expenses from the interest
earned on invested collateral. There may be risks of delay in receiving
additional collateral or risks of delay in recovery of the securities or even
loss of rights in the collateral should the borrower of the securities fail
financially. However, loans are made only to borrowers deemed by the appropriate
Adviser to be of good standing and when, in the judgment of that Adviser, the
consideration which can be earned currently from such securities loans justifies
the attendant risk. Any loan may be terminated by either party upon reasonable
notice to the other party. The Fund may use the Distributor or a broker-dealer
affiliate of an Adviser as a broker in these transactions.
U.S. GOVERNMENT AGENCY OBLIGATIONS -- U.S. Government agency obligations are
obligations issued or guaranteed by agencies or instrumentalities of the U.S.
Government. Agencies of the United States Government which issue obligations
consist of, among others, the Export Import Bank of the United States, Farmers
Home Administration, Federal Farm Credit Bank, Federal Housing Administration,
Government National Mortgage Association ("GNMA"), Maritime Administration,
Small Business Administration and The Tennessee Valley Authority. Obligations of
instrumentalities of the United States Government include securities issued by,
among others, Federal Home Loan Banks, Federal Home Loan Mortgage Corporation
("FHLMC"), Federal Intermediate Credit Banks, Federal Land Banks, Fannie Mae and
the United States Postal Service as well as government trust certificates. Some
of these securities are supported by the full faith and credit of the United
States Treasury, others are supported by the right of the issuer to borrow from
the Treasury and still others are supported only by the credit of the
instrumentality. Guarantees of principal by agencies or instrumentalities of the
U.S. Government may be a guarantee of payment at the maturity of the obligation
so that in the event of a default prior to maturity there might not be a market
and thus no means of realizing the value of the obligation prior to maturity.
INVESTMENT LIMITATIONS
FUNDAMENTAL POLICIES
The following investment limitations are fundamental policies of the Fund that
cannot be changed without the consent of the holders of a majority of the Fund's
outstanding shares. The phrase "majority of the outstanding shares" means the
vote of (i) 67% or more of the Fund's shares present at a meeting, if more than
50% of the outstanding shares of the Fund are present or represented by proxy,
or (ii) more than 50% of the Fund's outstanding shares, whichever is less.
The Fund may not:
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1. Purchase securities of any issuer (except securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities
and repurchase agreements involving such securities) if as a result
more than 5% of the total assets of the Fund would be invested in the
securities of such issuer. This restriction applies to 75% of the
Fund's total assets.
2. Purchase any securities which would cause 25% or more of the total
assets of the Fund to be invested in the securities of one or more
issuers conducting their principal business activities in the same
industry, provided that this limitation does not apply to investments
in obligations issued or guaranteed by the U.S. Government, its
agencies or instrumentalities and repurchase agreements involving such
securities. For purposes of this limitation, (i) utility companies will
be classified according to their services, for example, gas
distribution, gas transmission, electric and telephone will each be
considered a separate industry; and (ii) financial service companies
will be classified according to the end users of their services, for
example, automobile finance, bank finance and diversified finance will
each be considered a separate industry.
3. Acquire more than 10% of the voting securities of any one issuer.
4. Invest in companies for the purpose of exercising control.
5. Issue any class of senior security or sell any senior security of which
it is the issuer, except that the Fund may borrow from any bank,
provided that immediately after any such borrowing there is asset
coverage of at least 300% for all borrowings of the Fund, and further
provided that, to the extent that such borrowings exceed 5% of the
Fund's total assets, all borrowings shall be repaid before the Fund
makes additional investments. The term "senior security" shall not
include any temporary borrowings that do not exceed 5% of the value of
the Fund's total assets at the time the Fund makes such temporary
borrowing. In addition, investment strategies that either obligate the
Fund to purchase securities or require the Fund to segregate assets
will not be considered borrowings or senior securities. This investment
limitation shall not preclude the Fund from issuing multiple classes of
shares in reliance on SEC rules or orders.
6. Make loans if, as a result, more than 33 1/3% of its total assets would
be lent to other parties, except that the Fund may (i) purchase or hold
debt instruments in accordance with its investment objective and
policies; (ii) enter into repurchase agreements; and (iii) lend its
securities.
7. Purchase or sell real estate, real estate limited partnership
interests, physical commodities or commodities contracts except that
the Fund may purchase commodities contracts relating to financial
instruments, such as financial futures contracts and options on such
contracts.
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8. Make short sales of securities, maintain a short position or purchase
securities on margin, except that the Fund may obtain short-term
credits as necessary for the clearance of security transactions and
sell securities short "against the box."
9. Act as an underwriter of securities of other issuers except as it may
be deemed an underwriter in selling the Fund security.
10. Purchase securities of other investment companies except as permitted
by the Investment Company Act of 1940, as amended (the "1940 Act") and
the rules and regulations thereunder.
The foregoing percentages apply at the time of the purchase of a security.
NON-FUNDAMENTAL POLICIES
The following investment limitation of the Fund is non-fundamental and may be
changed by the Trust's Board of Trustees without shareholder approval:
1. The Fund may not invest in illiquid securities in an amount exceeding,
in the aggregate, 15% of the Fund's net assets.
Except with respect to the Fund's policy concerning borrowing and illiquid
securities, if a percentage restriction is adhered to at the time of an
investment, a later increase or decrease in percentage resulting from changes in
values or assets will not constitute a violation of such restriction.
THE ADVISER
LSV Asset Management (the "Adviser") and the Trust have entered into an advisory
agreement dated March 15, 1999 (the "Advisory Agreement"). The Advisory
Agreement provides that the Adviser shall not be protected against any liability
to the Trust or its shareholders by reason of willful misfeasance, bad faith or
gross negligence on its part in the performance of its duties or from reckless
disregard of its obligations or duties thereunder.
Formed in 1994, the Adviser is a quantitative value equity manager providing
active management through the application of proprietary models. The principals
of this Delaware general partnership are Josef Lakonishok, Andrei Shleifer,
Robert Vishny, Menno Vermuelen and Christopher LaCroix. The general partners of
the partnership are Lakonishok Corporation, Shleifer Corporation, Vishny
Corporation, Menno LLC, LaCroix LLC, and SEI Funds, Inc. SEI Investment Company
is the parent of SEI Funds, Inc. As of December 31, 1999 LSV had approximately
$6 billion in assets under management. The principal business address of the
Adviser is 200 W. Madison Street, 27th Floor, Chicago, Illinois 60606.
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Under the Advisory Agreement, the Adviser makes the investment decisions for the
assets of the Fund and continuously reviews, supervises and administers the
Fund's investment program, subject to the supervision of, and policies
established by, the Trustees of the Trust. In addition to advising the Funds,
the Adviser provides advisory services to institutional investors and serves as
a sub-adviser to registered investment companies.
For its services, the Adviser is entitled to a fee, which is calculated daily
and paid monthly, at an annual rate of .55% of the average daily net assets of
the Fund. The Adviser has voluntarily agreed to waive a portion of its advisory
fees in order to limit total operating expenses of the Fund to not more than
.90% of average daily net assets. The Adviser reserves the right, in its sole
discretion, to terminate its fee waiver at any time.
For the fiscal period ended October 31, 1999, the Fund paid the Adviser $0, and
Adviser waived fees of $38,585. For the fiscal period ended October 31, 1999,
the Adviser reimbursed fees of $36,724 to the Fund.
The continuance of the Advisory Agreement, after the first two years, must be
specifically approved at least annually (i) by the vote of the Trustees or by
a vote of the shareholders of the Fund, and (ii) by the vote of a majority of
the Trustees who are not parties to the Agreement or "interested persons" of
any party thereto, cast in person at a meeting called for the purpose of
voting on such approval. The Advisory Agreement will terminate automatically
in the event of its assignment, and is terminable at any time without penalty
by the Trustees of the Trust or, with respect to the Fund, by a majority of
the outstanding shares of that Fund, on not less than 30 days' nor more than
60 days' written notice to the Adviser, or by the Adviser on 90 days' written
notice to the Trust.
PORTFOLIO MANAGEMENT
Messrs. Lakonishok, Shleifer and Vishny have developed proprietary computer
models based on their research of investor behavior and the performance of
contrarian investment strategies. The portfolio decision making process is
strictly quantitative and driven by (i) a proprietary computer model which ranks
securities based on fundamental measures of value and indicators of near-term
appreciation potential and, (ii) a risk control process that controls for
residual benchmark risk while attempting to maximize the expected return of the
portfolios. Refinements to the model are made as suggested by advances in the
Adviser's research and these refinements are generally incremental in nature.
The Adviser may modify the investment model used to manage the Fund at any time
without notice.
THE ADMINISTRATOR
SEI Investments Mutual Funds Services (the "Administrator"), serves as the
administrator of the Trust. The Administrator provides the Trust with
administrative services, including regulatory reporting and all necessary office
space, equipment, personnel and facilities. For these
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administrative services, the Administrator is entitled to a fee from the Fund,
which is calculated daily and paid monthly, at an annual rate of 0.10% of the
Fund's first $100 million of average daily net assets; 0.08% of the next $100
million of average daily net assets; and 0.07% of the Fund's average daily net
assets over $200 million. However, the Fund pays the Administrator a minimum
annual fee of $75,000.
The Administration Agreement provides that the Administrator shall not be liable
for any error of judgment or mistake of law or for any loss suffered by the Fund
in connection with the matters to which the Administration Agreement relates,
except a loss resulting from willful misfeasance, bad faith or gross negligence
on the part of the Administrator in the performance of its duties or from
reckless disregard of its duties and obligations thereunder.
For the fiscal period ended October 31, 1999 the Fund paid the Administrator a
fee of $43,973.
The Administration Agreement shall remain effective for the initial term of the
Agreement and each renewal term thereof unless earlier terminated (a) by the
mutual written agreement of the parties; (b) by either party of the
Administration Agreement on 90 days' written notice, as of the end of the
initial term or the end of any renewal term; (c) by either party of the
Administration Agreement on such date as is specified in written notice given by
the terminating party, in the event of a material breach of the Administration
Agreement by the other party, provided the terminating party has notified the
other party of such breach at least 45 days' prior to the specified date of
termination and the breaching party has not remedied such breach by the
specified date; (d) effective upon the liquidation of the Administrator; or (e)
as to the Fund or the Trust, effective upon the liquidation of the Fund or the
Trust, as the case may be.
The Administrator, a Delaware business trust, has its principal business
offices at Oaks, Pennsylvania 19456. SEI Investments Management Corporation
("SIMC"), a wholly-owned subsidiary of SEI Investments Company ("SEI
Investments"), is the owner of all beneficial interest in the Administrator.
SEI Investments and its subsidiaries and affiliates, including the
Administrator, are leading providers of funds evaluation services, trust
accounting systems, and brokerage and information services to financial
institutions, institutional investors, and money managers. The Administrator
and its affiliates also serve as administrator or sub-administrator to the
following other mutual funds: The Achievement Funds Trust, Alpha Select
Funds, Amerindo Funds, Inc., The Arbor Fund, ARK Funds, Armada Funds, Bishop
Street Funds, Boston 1784 Funds-Registered Trademark-, CNI Charter Funds,
CUFUND, The Expedition Funds, First American Funds, Inc., First American
Investment Funds, Inc., First American Strategy Funds, Inc., HighMark Funds,
Huntington Funds, The Nevis Funds, Inc., Oak Associates Funds, The Parkstone
Advantage Fund, The PBHG Funds, Inc., PBHG Insurance Series Fund, Inc., The
Pillar Funds, SEI Asset Allocation Trust, SEI Daily Income Trust, SEI Index
Funds, SEI Institutional International Trust, SEI Institutional Investments
Trust, SEI Institutional Managed Trust, SEI Liquid Asset Trust, SEI Tax
Exempt Trust, STI Classic Funds, STI Classic Variable Trust, TIP Funds, UAM
Funds Trust, UAM Funds, Inc. II, and UAM Funds, Inc.
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The Administrator will not be required to bear expenses of the Fund to an extent
which would result in the Fund's inability to qualify as a regulated investment
company under provisions of the Code. The term "expenses" is defined in such
laws or regulations, and generally excludes brokerage commissions, distribution
expenses, taxes, interest and extraordinary expenses.
THE DISTRIBUTOR
SEI Investments Distribution Co. (the "Distributor"), a wholly-owned subsidiary
of SEI Investments, and the Trust are parties to a distribution agreement (the
"Distribution Agreement"). The Distributor will not receive compensation for
distribution of shares of the Fund.
The Distribution Agreement shall remain in effect for a period of two years
after the effective date of the agreement and is renewable annually. The
Distribution Agreement may be terminated by the Distributor, by a majority vote
of the Trustees who are not interested persons and have no financial interest in
the Distribution Agreement or by a majority vote of the outstanding securities
of the Trust upon not more than 60 days' written notice by either party or upon
assignment by the Distributor.
THE TRANSFER AGENT
DST Systems, Inc., 333 West 12th Street, Kansas City, MO 64105 serves as the
Trust's transfer agent.
THE CUSTODIAN
First Union National Bank, 123 South Broad Street, Philadelphia, Pennsylvania
19109 acts as custodian (the "Custodian") of the Fund. The Custodian holds cash,
securities and other assets of the Fund as required by the 1940 Act.
INDEPENDENT PUBLIC ACCOUNTANTS
Arthur Andersen LLP serves as independent public accountants for the Trust.
LEGAL COUNSEL
Morgan, Lewis & Bockius LLP serves as legal counsel to the Trust.
TRUSTEES AND OFFICERS OF THE FUND
The management and affairs of the Fund are supervised by the Trustees under the
laws of the Commonwealth of Massachusetts. The Trustees have approved contracts
under which, as
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described above, certain companies provide essential management services to the
Fund. The Fund pays the fees for unaffiliated Trustees.
The Trustees and Executive Officers of the Fund, their respective dates of
birth, and their principal occupations for the last five years are set forth
below. Each may have held other positions with the named companies during
that period. Unless otherwise noted, the business address of each Trustee and
each Executive Officer is SEI Investments Company, Oaks, Pennsylvania 19456.
Certain officers of the Fund also serve as officers of some or all of the
following: The Achievement Funds Trust, Alpha Select Funds, Amerindo Funds,
Inc., The Arbor Fund, ARK Funds, Armada Funds, Bishop Street Funds, Boston
1784 Funds-Registered Trademark-, CNI Charter Funds, CUFUND, The Expedition
Funds, First American Funds, Inc., First American Investment Funds, Inc.,
First American Strategy Funds, Inc., HighMark Funds, Huntington Funds, The
Nevis Funds, Inc., Oak Associates Funds, The Parkstone Advantage Fund, The
PBHG Funds, Inc., PBHG Insurance Series Fund, Inc., The Pillar Funds, SEI
Asset Allocation Trust, SEI Daily Income Trust, SEI Index Funds, SEI
Institutional International Trust, SEI Institutional Investments Trust, SEI
Institutional Managed Trust, SEI Liquid Asset Trust, SEI Tax Exempt Trust,
STI Classic Funds, STI Classic Variable Trust, TIP Funds, UAM Funds Trust,
UAM Funds, Inc. II, and UAM Funds, Inc., each of which is an open-end
management investment company managed by SEI Investments Mutual Funds
Services or its affiliates and, except for PBHG Advisor Funds, Inc.,
distributed by SEI Investments Distribution Co.
ROBERT A. NESHER (DOB 08/17/46) -- Chairman of the Board of Trustees* --
Currently performs various services on behalf of SEI Investments for which
Mr. Nesher is compensated. Executive Vice President of SEI Investments,
1986-1994. Director and Executive Vice President of the Administrator and the
Distributor, 1981-1994. Trustee of The Arbor Fund, Boston 1784
Funds-Registered Trademark-, The Expedition Funds, Oak Associates Funds,
Pillar Funds, SEI Asset Allocation Trust, SEI Daily Income Trust, SEI Index
Funds, SEI Institutional Investments Trust, SEI Institutional Managed Trust,
SEI Institutional International Trust, SEI Liquid Asset Trust and SEI Tax
Exempt Trust.
JOHN T. COONEY (DOB 01/20/27) -- Trustee** -- Vice Chairman of Ameritrust Texas
N.A., 1989-1992, and MTrust Corp., 1985-1989. Trustee of The Arbor Fund, The
Expedition Funds, and Oak Associates Funds.
WILLIAM M. DORAN (DOB 05/26/40) -- Trustee* -- 1701 Market Street, Philadelphia,
PA 19103-2921. Partner, Morgan, Lewis & Bockius LLP (law firm), counsel to the
Trust, SEI Investments, the Administrator and the Distributor. Director and
Secretary of SEI Investments and Secretary of the Administrator and the
Distributor. Trustee of The Arbor Fund, The Expedition Funds, Oak Associates
Funds, SEI Asset Allocation Trust, SEI Daily Income Trust, SEI Index Funds, SEI
Institutional Investments Trust, SEI Institutional Managed Trust, SEI
Institutional International Trust, SEI Liquid Asset Trust and SEI Tax Exempt
Trust.
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ROBERT A. PATTERSON (DOB 11/05/27) -- Trustee** -- Pennsylvania State
University, Senior Vice President, Treasurer (Emeritus). Financial and
Investment Consultant, Professor of Transportation (1984-present). Vice
President-Investments, Treasurer, Senior Vice President (Emeritus) (1982-1984).
Director, Pennsylvania Research Corp.; Member and Treasurer, Board of Trustees
of Grove City College. Trustee of The Arbor Fund, The Expedition Funds and Oak
Associates Funds.
EUGENE B. PETERS (DOB 06/03/29) -- Trustee** -- Private investor from 1987 to
present. Vice President and Chief Financial Officer, Western Company of North
America (petroleum service company) (1980-1986). President of Gene Peters and
Associates (import company) (1978-1980). President and Chief Executive Officer
of Jos. Schlitz Brewing Company before 1978. Trustee of The Arbor Fund, The
Expedition Funds and Oak Associates Funds.
JAMES M. STOREY (DOB 04/12/31) -- Trustee** -- Partner, Dechert Price & Rhoads,
from September 1987 - December 1993; Trustee of The Arbor Fund, The Expedition
Funds, Oak Associates Funds, SEI Asset Allocation Trust, SEI Daily Income Trust,
SEI Index Funds, SEI Institutional Investments Trust, SEI Institutional Managed
Trust, SEI Institutional International Trust, SEI Liquid Asset Trust and SEI Tax
Exempt Trust.
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 Liquid Asset Trust, SEI
Institutional Investments Trust, SEI Institutional Managed Trust, SEI
Institutional International Trust, and SEI Tax Exempt Trust.
MARK E. NAGLE (DOB 10/20/59) -- Controller and Chief Financial Officer
- -- President of the Administrator and Senior Vice President of SEI Investments
Mutual Funds Services Operations Group since 1998. Vice President of the
Administrator and Vice President of Fund Accounting and Administration of SEI
Investments Mutual Fund Services, 1996- 1998. Vice President of the Distributor
since December 1997. Senior Vice President, Fund Administration, BISYS Fund
Services, September 1995 - November 1996. Senior Vice President and Site
Manager, Fidelity Investments 1981 - September 1995.
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 LLP (1997-1999). Associate at Richter, Miller & Finn LLP
(1994-1997).
TODD B. CIPPERMAN (DOB 02/14/66) -- Vice President and Assistant Secretary
- -- General Counsel of SEI Investments since 2000. Vice President and Assistant
Secretary of SEI
S - 13
<PAGE>
Investments, the Administrator and the Distributor since 1995. Associate, Dewey
Ballantine (law firm), 1994-1995. Associate, Winston & Strawn (law firm)
1991-1994.
JAMES R. FOGGO (DOB 06/30/64) -- Vice President and Assistant Secretary -- Vice
President and Assistant Secretary of SEI Investments since 1998. 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.
LYDIA A. GAVALIS (DOB 06/05/64) -- Vice President and Assistant Secretary --
Vice President and Assistant Secretary of the Administrator and the Distributor
since 1998. Assistant General Counsel and Director of Arbitration, Philadelphia
Stock Exchange, 1989-1998.
KEVIN P. ROBINS (DOB 04/15/61) -- Vice President and Assistant Secretary
- -- Senior Vice President and General Counsel of SEI Investments, the
Administrator and the Distributor since 1994. Assistant Secretary of SEI
Investments since 1992; Secretary of the Administrator since 1994. Vice
President, General Counsel and Assistant Secretary of the Administrator and the
Distributor, 1992-1994. Associate, Morgan, Lewis & Bockius LLP (law firm),
1988-1992.
LYNDA J. STRIEGEL (DOB 10/30/48) -- Vice President and Assistant Secretary --
Vice President and Assistant Secretary of the Administrator and the Distributor
since 1998. Senior Asset Management Counsel, Barnett Banks, Inc., 1997-1998.
Partner, Groom and Nordberg, Chartered, 1996-1997. Associate General Counsel,
Riggs Bank, N.A., 1991-1995.
JOHN H. GRADY, JR. (DOB 06/01/61) -- Secretary --1701 Market Street,
Philadelphia, PA 19103-2921, Partner since 1995, Morgan, Lewis & Bockius LLP
(law firm), counsel to the Trust, SEI Investments, the Administrator and the
Distributor.
RICHARD W. GRANT (DOB 10/25/45) -- Assistant Secretary -- 1701 Market Street,
Philadelphia, PA 19103. Partner, Morgan, Lewis & Bockius LLP (law firm), counsel
to the Trust, 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 Fund pays the fees for unaffiliated Trustees.
The following table exhibits Trustee compensation for the fiscal period ended
October 31, 1999.
S - 14
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
Total Compensation
From Registrant and
Aggregate Compensation Fund Complex* Paid
From Registrant for the Pension or Retirement Estimated Annual to Trustees for the
Fiscal Year Ended October Benefits Accrued as Part Benefits Upon Fiscal Year Ended
Name of Person, Position 31, 1999 of Fund Expenses Retirement October 31, 1999
- -------------------------- -------------------------- ----------------------- ------------------- ----------------------
<S> <C> <C> <C> <C>
John T. Cooney $9,571.48 N/A N/A $9,571.48 for services
on 1 board
**Frank E. Morris $2,447.81 N/A N/A $2,447.81 for services
on 1 board
Robert Patterson $9,571.48 N/A N/A $9,571.48 for services
on 1 board
Eugene B. Peters $9,571.48 N/A N/A $9,571.48 for services
on 1 board
James M. Storey, Esq. $9,571.48 N/A N/A $9,571.48 for services
on 1 board
George J. Sullivan $7,123.67 N/A N/A $7,123.67 for services
on 1 board
William M. Doran, Esq. $0 N/A N/A $0 for service on 1
board
Robert A. Nesher $0 N/A N/A $0 for service on 1
board
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
* For the purposes of this table, the Fund is the only investment company in the
"Fund Complex."
** Retired December 31, 1998.
PERFORMANCE INFORMATION
From time to time, the Trust may advertise total return of the Fund. These
figures will be based on the Fund's historical earnings and are not intended to
indicate future performance. No representation can be made concerning actual
future returns.
PERFORMANCE COMPARISONS
The Fund may periodically compare its performance to other mutual funds tracked
by mutual fund rating services, to broad groups of comparable mutual funds, or
to unmanaged indices. These comparisons to unmanaged indices may assume
reinvestment of dividends but generally do not reflect deductions for
administrative and management costs.
COMPUTATION OF YIELD
The yield of a Fund refers to the annualized income generated by an investment
in the Fund over a specified 30-day period. The yield is calculated by assuming
that the income generated by the investment during that 30-day period is
generated in each period over one year and is shown as a percentage of the
investment. In particular, yield will be calculated according to the following
formula:
S - 15
<PAGE>
Yield = 2 [((a-b)/cd + 1) TO THE POWER OF 6 - 1] where a = dividends and
interest earned during the period; b = expenses accrued for the period (net of
reimbursement); c = the average daily number of shares outstanding during the
period that were entitled to receive dividends; and d = the maximum offering
price per share on the last day of the period.
For the 30-day period ended October 31, 1999, the yield for the Fund was 1.15.
CALCULATION OF TOTAL RETURN
The total return of the Fund refers to the average compounded rate of return
to a hypothetical investment for designated time periods (including, but not
limited to, the period from which that Fund commenced operations through the
specified date), assuming that the entire investment is redeemed at the end
of each period. In particular, total return will be calculated according to
the following formula: P (1 + T) TO THE POWER OF n = ERV, where P = a
hypothetical initial payment of $1,000; T = average annual total return; n =
number of years; and ERV = ending redeemable value, as of the end of the
designated time period, of a hypothetical $1,000 payment made at the
beginning of the designated time period.
For the period from March 31, 1999 (commencement of operations) through October
31, 1999 the Fund's cumulative total return was 3.30%.
PURCHASING SHARES
Purchases and redemptions may be made through the Distributor on a day on which
the New York Stock Exchange is open for business, except Good Friday. Shares of
the Fund are offered on a continuous basis. Currently, the holidays observed by
the New York Stock Exchange are as follows: New Year's Day, Presidents' Day,
Martin Luther King Jr. Day, Memorial Day, Independence Day, Labor Day, Columbus
Day, Veterans' Day, Thanksgiving and Christmas.
REDEEMING SHARES
It is currently the Trust's policy to pay all redemptions in cash. The Trust
retains the right, however, to alter this policy to provide for redemptions in
whole or in part by a distribution in-kind of securities held by the Fund in
lieu of cash. Shareholders may incur brokerage charges on the sale of any such
securities so received in payment of redemptions. The Trust has received
exemptive relief from the Securities and Exchange Commission (the "SEC"), which
permits the Trust to make in-kind redemptions to those shareholders that are
affiliated with the Fund solely by their ownership of a certain percentage of
the Fund.
A Shareholder will at all times be entitled to aggregate cash redemptions from
all portfolios of the Trust during any 90-day period of up to the lesser of
$250,000 or 1% of the Trust's net assets.
The Trust reserves the right to suspend the right of redemption and/or to
postpone the date of payment upon redemption for any period on which trading on
the New York Stock Exchange is
S - 16
<PAGE>
restricted, or during the existence of an emergency (as determined by the SEC by
rule or regulation) as a result of which the disposal or valuation of the Fund's
securities is not reasonably practicable, or for such other periods as the SEC
has by order permitted. The Trust also reserves the right to suspend sales of
shares of any Fund for any period during which the New York Stock Exchange, the
Federal Reserve Banks, the Adviser, the Administrator, the Transfer Agent and/or
the Custodian are not open for business.
DETERMINATION OF NET ASSET VALUE
The securities of the Fund are valued by the Administrator. The Administrator
will use an independent pricing service to obtain valuations of securities. The
pricing service relies primarily on prices of actual market transactions as well
as trader quotations. However, the service may also use a matrix system to
determine valuations of fixed income securities, which system considers such
factors as security prices, yields, maturities, call features, ratings and
developments relating to specific securities in arriving at valuations. The
procedures of the pricing service and its valuations are reviewed by the
officers of the Trust under the general supervision of the Trustees.
TAXES
The following is only a summary of certain additional federal income tax
considerations generally affecting the Fund and its shareholders that are not
described in the Fund's prospectus. No attempt is made to present a detailed
explanation of the tax treatment of the Fund or its shareholders, and the
discussion here and in the Fund's prospectus is not intended as a substitute for
careful tax planning. Shareholders are urged to consult their tax advisors with
specific reference to their own tax situations, including their state and local
tax liabilities.
FEDERAL INCOME TAX TREATMENT OF DIVIDENDS AND DISTRIBUTIONS
The following general discussion of certain federal income tax consequences is
based on the Internal Revenue Code of 1986, as amended (the "Code") and the
regulations issued thereunder as in effect on the date of this SAI. New
legislation, as well as administrative changes or court decisions, may
significantly change the conclusions expressed herein, and may have a
retroactive effect with respect to the transactions contemplated herein.
QUALIFICATION AS REGULATED INVESTMENT COMPANY
The Fund intends to qualify and elect to be treated as a "regulated investment
company" ("RIC") as defined under Subchapter M of the Code. By following such a
policy, the Fund expects to eliminate or reduce to a nominal amount the federal
taxes to which it may be subject.
In order to qualify as a RIC, the Fund must distribute at least 90% of its net
investment income (generally, includes dividends, taxable interest, and the
excess of net short-term capital gains over net long-term capital losses less
operating expenses) and at least 90% of its net tax exempt interest income, for
each tax year, if any, to its shareholders and also must meet several
S - 17
<PAGE>
additional requirements. Among these requirements are the following: (i) at
least 90% of the Fund's gross income each taxable year must be derived from
dividends, interest, payments with respect to securities loans and gains from
the sale or other disposition of stock or securities, or certain other income;
(ii) at the close of each quarter of the Fund's taxable year, at least 50% of
the value of its total assets must be represented by cash and cash items, U.S.
Government securities, securities of other RICs and other securities, with such
other securities limited, in respect to any one issuer, to an amount that does
not exceed 5% of the value of the Fund's assets and that does not represent more
than 10% of the outstanding voting securities of such issuer; and (iii) at the
close of each quarter of the Fund's taxable year, not more than 25% of the value
of its assets may be invested in securities (other than U.S. Government
securities or the securities of other RICs) of any one issuer or of two or more
issuers that the Fund controls or that are engaged in the same, similar or
related trades or business.
Although the Fund intends to distribute substantially all of its net investment
income and may distribute its capital gains for any taxable year, the Fund will
be subject to federal income taxation to the extent any such income or gains are
not distributed.
If the Fund fails to qualify for any taxable year as a RIC, all of its taxable
income will be subject to tax at regular corporate income tax rates without any
deduction for distributions to shareholders and such distributions generally
will be taxable to shareholders as ordinary dividends to the extent of the
Fund's current and accumulated earnings and profits. In this event,
distributions generally will be eligible for the dividends-received deduction
for corporate shareholders.
FUND DISTRIBUTIONS
Distributions of investment company taxable income will be taxable to
shareholders as ordinary income, regardless of whether such distributions are
paid in cash or are reinvested in additional shares, to the extent of the Fund's
earnings and profits. The Fund anticipates that it will distribute substantially
all of its investment company taxable income for each taxable year.
The Fund may either retain or distribute to shareholders its excess of net
long-term capital gains over net short-term capital losses ("net capital
gains"). If such gains are distributed as a capital gains distribution, they are
taxable to shareholders who are individuals at a maximum rate of 20%, regardless
of the length of time the shareholder has held shares. If any such gains are
retained, the Fund will pay federal income tax thereon.
In the case of corporate shareholders, distributions (other than capital gains
distributions) from a RIC, generally qualify for the dividends-received
deduction only to the extent of the gross amount of qualifying dividends
received by the Fund for the year. Generally, and subject to certain
limitations, a dividend will be treated as a qualifying dividend if it has been
received from a domestic corporation. Accordingly, such distributions will
generally qualify for the corporate dividends-received deduction.
S - 18
<PAGE>
Ordinarily, investors should include all dividends as income in the year of
payment. However, dividends declared payable to shareholders of record in
December of one year, but paid in January of the following year, will be deemed
for tax purposes to have been received by the shareholder and paid by the Fund
in the year in which the dividends were declared.
The Fund will provide a statement annually to shareholders as to the federal tax
status of distributions paid (or deemed to be paid) by the Fund during the year,
including the amount of dividends eligible for the corporate dividends-received
deduction.
SALE OF FUND SHARES
Generally, gain or loss on the sale of a share will be capital gain or loss that
will be long-term if the share has been held for more than twelve months and
otherwise will be short-term. For individuals, long-term capital gains are
currently taxed at a maximum rate of 20% and short-term capital gains are
currently taxed at ordinary income tax rates. However, if a shareholder realizes
a loss on the sale or redemption of a share held for six months or less and has
previously received a capital gains distribution with respect to the share (or
any undistributed net capital gains of the Fund with respect to such share are
included in determining the shareholder's long-term capital gains), the
shareholder must treat the loss as a long-term capital loss to the extent of the
amount of the prior capital gains distribution (or any undistributed net capital
gains of the Fund that have been included in determining such shareholder's
long-term capital gains). In addition, any loss realized on a sale or other
disposition of shares will be disallowed to the extent an investor repurchases
(or enters into a contract or option to repurchase) shares within a period of 61
days (beginning 30 days before and ending 30 days after the disposition of the
shares). This loss disallowance rule will apply to shares received through the
reinvestment of dividends during the 61-day period.
In certain cases, the Fund will be required to withhold, and remit to the United
States Treasury, 31% of any distributions paid to a shareholder who (1) has
failed to provide a correct taxpayer identification number, (2) is subject to
backup withholding by the Internal Revenue Service, or (3) has failed to certify
to the Fund that such shareholder is not subject to backup withholding.
IN-KIND PURCHASES
The Fund may, in certain circumstances involving tax-free reorganizations and
certain other transactions, accept securities that are appropriate investments
as payment for Fund shares (an "In-Kind Purchase"). An In-Kind Purchase may
result in adverse tax consequences under certain circumstances to: (1) investors
transferring securities for shares ("In-Kind Investors"), (2) investors who
acquire shares of the Fund after a transfer ("new shareholders") or (3)
investors who own shares at the time of transfer ("current shareholders"). As a
result of an In-Kind Purchase, the Fund may acquire securities that have
appreciated in value or depreciated in value from the date they were acquired.
If appreciated securities were to be sold after an In-Kind Purchase, the amount
of the gain would be taxable to new shareholders, current shareholders and
In-Kind Investors. The effect of this for current shareholders or new
shareholders would be to tax them on a distribution that represents an increase
in the value of their investment. The effect on In-Kind Investors would be to
reduce their
S - 19
<PAGE>
potential liability for tax on capital gains by spreading it over a larger asset
base. The opposite may occur if the Fund acquire securities having an unrealized
capital loss. In that case, In-Kind Investors will be unable to utilize the loss
to offset gains, but, because an In-Kind Purchase will not result in any gains,
the inability of In-Kind Investors to utilize unrealized losses will have no
immediate tax effect. For new shareholders or current shareholders, to the
extent that unrealized losses are realized by the Fund, new shareholders or
current shareholders may benefit by any reduction in net tax liability
attributable to the losses. The Adviser cannot predict whether securities
acquired in any InKind Purchase will have unrealized gains or losses on the date
of the In-Kind Purchase. Consistent with its duties as investment adviser, the
Adviser will, however, take tax consequences to investors into account when
making decisions to sell portfolio assets, including the impact of realized
capital gains on shareholders of the Fund.
FEDERAL EXCISE TAX
If the Fund fails to distribute in a calendar year at least 98% of its ordinary
income for the year and 98% of its capital gain net income (the excess of short
and long term capital gains over short and long term capital losses) for the
one-year period ending October 31 of that year (and any retained amount from the
prior calendar year), the Fund will be subject to a nondeductible 4% Federal
excise tax on the undistributed amounts. The Fund intends to make sufficient
distributions to avoid imposition of this tax, or to retain, at most its net
capital gains and pay tax thereon.
STATE AND LOCAL TAXES
The Fund is not liable for any income or franchise tax in Massachusetts if it
qualifies as a RIC for federal income tax purposes. Distributions by the Fund to
shareholders and the ownership of shares may be subject to state and local
taxes.
FUND TRANSACTIONS
The Fund has no obligation to deal with any broker-dealer or group of
broker-dealers in the execution of transactions in portfolio securities. Subject
to policies established by the Trustees of the Trust, the Adviser is responsible
for placing the orders to execute transactions for the Fund. In placing orders,
it is the policy of the Trust to seek to obtain the best net results taking into
account such factors as price (including the applicable dealer spread), the
size, type and difficulty of the transaction involved, the firm's general
execution and operational facilities and the firm's risk in positioning the
securities involved. While the Adviser generally seeks reasonably competitive
spreads or commissions, the Fund will not necessarily be paying the lowest
spread or commission available.
The money market instruments in which the Fund invests are traded primarily in
the over-the-counter market. Bonds and debentures are usually traded
over-the-counter, but may be traded on an exchange. Where possible, the Adviser
will deal directly with the dealers who make a market in the securities involved
except in those circumstances where better prices and execution are available
elsewhere. Such dealers usually are acting as principal for their own account.
On occasion, securities may be purchased directly from the issuer. Money market
instruments are generally traded
S - 20
<PAGE>
on a net basis and do not normally involve either brokerage commissions or
transfer taxes. The cost of executing portfolio securities transactions of the
Fund will primarily consist of dealer spreads and underwriting commissions.
TRADING PRACTICES AND BROKERAGE
The Adviser selects brokers or dealers to execute transactions for the purchase
or sale of portfolio securities on the basis of its judgment of their
professional capability to provide the service. The primary consideration is to
have brokers or dealers provide transactions at best price and execution for the
Adviser. Best price and execution includes many factors, including the price
paid or received for a security, the commission charged, the promptness and
reliability of execution, the confidentiality and placement accorded the order
and other factors affecting the overall benefit obtained by the account on the
transaction. The Adviser's determination of what are reasonably competitive
rates is based upon the professional knowledge of its trading department as to
rates paid and charged for similar transactions throughout the securities
industry. In some instances, the Adviser pays a minimal share transaction cost
when the transaction presents no difficulty. Some trades are made on a net basis
where the Adviser either buys securities directly from the dealer or sells them
to the dealer. In these instances, there is no direct commission charged but
there is a spread (the difference between the buy and sell price) which is the
equivalent of a commission.
The Adviser may place a combined order for two or more accounts or funds engaged
in the purchase or sale of the same security if, in its judgment, joint
execution is in the best interest of each participant and will result in best
price and execution. Transactions involving commingled orders are allocated in a
manner deemed equitable to each account or fund. It is believed that the ability
of the accounts to participate in volume transactions will generally be
beneficial to the accounts and funds. Although it is recognized that, in some
cases, the joint execution of orders could adversely affect the price or volume
of the security that a particular account or the Fund may obtain, it is the
opinion of the Adviser and the Trust's Board of Trustees that the advantages of
combined orders outweigh the possible disadvantages of separate transactions.
It is expected that the Fund may execute brokerage or other agency transactions
through the Distributor, which is a registered broker-dealer, for a commission
in conformity with the 1940 Act, the Securities Exchange Act of 1934 and rules
promulgated by the SEC. Under these provisions, the Distributor is permitted to
receive and retain compensation for effecting portfolio transactions for the
Fund on an exchange if a written contract is in effect between the Distributor
and the Trust expressly permitting the Distributor to receive and retain such
compensation. These rules further require that commissions paid to the
Distributor by the Fund for exchange transactions not exceed "usual and
customary" brokerage commissions. The rules define "usual and customary"
commissions to include amounts which are "reasonable and fair compared to the
commission, fee or other remuneration received or to be received by other
brokers in connection with comparable transactions involving similar securities
being purchased or sold on a securities exchange during a comparable period of
time." The Trustees, including those who are not "interested persons" of the
Trust, have adopted procedures for evaluating the reasonableness of commissions
paid to the Distributor and will review these procedures periodically.
S - 21
<PAGE>
Since the Trust does not market its shares through intermediary brokers or
dealers, it is not the Trust's practice to allocate brokerage or principal
business on the basis of sales of its shares which may be made through such
firms. However, the Adviser may place portfolio orders with qualified
broker-dealers who recommend the Fund's shares to clients, and may, when a
number of brokers and dealers can provide best net results on a particular
transaction, consider such recommendations by a broker or dealer in selecting
among broker-dealers.
DESCRIPTION OF SHARES
The Declaration of Trust authorizes the issuance of an unlimited number of
portfolios and shares of each portfolio, each of which represents an equal
proportionate interest in the portfolio with each other share. Shares are
entitled upon liquidation to a pro rata share in the net assets of the
portfolio. Shareholders have no preemptive rights. The Declaration of Trust
provides that the Trustees of the Trust may create additional series of shares.
All consideration received by the Trust for shares of any additional series and
all assets in which such consideration is invested would belong to that series
and would be subject to the liabilities related thereto. Share certificates
representing shares will not be issued.
SHAREHOLDER LIABILITY
The Trust is an entity of the type commonly known as a "Massachusetts business
trust." Under Massachusetts law, shareholders of such a trust could, under
certain circumstances, be held personally liable as partners for the obligations
of the trust. Even if, however, the Trust were held to be a partnership, the
possibility of the shareholders incurring financial loss for that reason appears
remote because the Trust's Declaration of Trust contains an express disclaimer
of shareholder liability for obligations of the Trust and requires that notice
of such disclaimer be given in each agreement, obligation or instrument entered
into or executed by or on behalf of the Trust or the Trustees, and because the
Declaration of Trust provides for indemnification out of the Trust property for
any shareholder held personally liable for the obligations of the Trust.
LIMITATION OF TRUSTEES' LIABILITY
The Declaration of Trust provides that a Trustee shall be liable only for his or
her own willful defaults and, if reasonable care has been exercised in the
selection of officers, agents, employees or investment advisers, shall not be
liable for any neglect or wrongdoing of any such person. The Declaration of
Trust also provides that the Trust will indemnify its Trustees and officers
against liabilities and expenses incurred in connection with actual or
threatened litigation in which they may be involved because of their offices
with the Trust unless it is determined in the manner provided in the Declaration
of Trust that they have not acted in good faith in the reasonable belief that
their actions were in the best interests of the Trust. However, nothing in the
Declaration of Trust shall protect or indemnify a Trustee against any liability
for his or her willful misfeasance, bad faith, gross negligence or reckless
disregard of his or her duties.
S - 22
<PAGE>
5% AND 25% SHAREHOLDERS
As of January 31, 2000, the following persons were the only persons who were
record owners (or to the knowledge of the Trust, beneficial owners) of 5% and
25% or more of the Funds' shares. Persons who owned of record or beneficially
more than 25% of a Fund's outstanding shares may be deemed to control the Fund
within the meaning of the Act.
<TABLE>
<CAPTION>
FUND SHAREHOLDER NUMBER OF SHARES %
<S> <C> <C> <C>
LSV Value Equity Nashville Memorial Hospital 524,459.5460 31.88
Retirement Plan
1000 Northchase Dr., Ste. 320
Goodlettsvlle, TN 37072-2165
FTC & Co. 392,394.4180 23.85
Attn: Datalynx #074
P.O. Box 173736
Denver, CO 80217-3736
Wilmington Trust Co. Cust. 464,006.4710 28.21
FBO Barra Foundation
U/A 3/22/71 A/C 11113-0
c/o Mutual Funds
P.O. Box 8882
Wilmington, DE 19899-8882
Tidewater Jewish Foundation, Inc 144,892.4090 8.81
5029 Corporate Woods Dr.
Ste. 225
Virginia Beach, VA 23462-4376
</TABLE>
EXPERTS
The financial statements of the Trust have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their report with respect
thereto, and are incorporated by reference hereto in reliance upon the authority
of said firm as experts in giving said report.
FINANCIAL STATEMENTS
The financial statements of the Fund for the fiscal year ended October 31, 1999,
including notes thereto and the report of Arthur Andersen LLP thereon, are
herein incorporated by reference. A copy of the Annual Report to Shareholders of
the Fund must accompany the delivery of this Statement of Additional
Information.
S - 23
<PAGE>
TRUST:
THE ADVISORS' INNER CIRCLE FUND
FUNDS:
MDL BROAD MARKET FIXED INCOME FUND
MDL LARGE CAP GROWTH EQUITY FUND
INVESTMENT ADVISER:
MDL CAPITAL MANAGEMENT, INC.
This STATEMENT OF ADDITIONAL INFORMATION is not a prospectus and relates only to
the MDL Broad Market Fixed Income Fund (the "Fixed Income Fund") and MDL Large
Cap Growth Equity Fund (the "Equity Fund" and together with the Fixed Income
Fund, the "MDL Funds"). It is intended to provide additional information
regarding the activities and operations of The Advisors' Inner Circle Fund (the
"Trust") and the MDL Funds and should be read in conjunction with the MDL Funds'
Prospectus dated March 1, 2000. The Prospectus for the MDL Funds may be obtained
by calling 1-877-MDL-Funds.
TABLE OF CONTENTS
THE TRUST.................................................................S-3
INVESTMENT OBJECTIVES AND POLICIES........................................S-3
DESCRIPTION OF PERMITTED INVESTMENTS..................................... S-5
INVESTMENT LIMITATIONS...................................................S-16
THE ADVISER..............................................................S-18
THE ADMINISTRATOR........................................................S-20
THE DISTRIBUTOR..........................................................S-21
THE TRANSFER AGENT.......................................................S-22
THE CUSTODIAN............................................................S-22
INDEPENDENT PUBLIC ACCOUNTANTS...........................................S-22
LEGAL COUNSEL............................................................S-22
TRUSTEES AND OFFICERS OF THE TRUST.......................................S-22
PERFORMANCE INFORMATION..................................................S-26
COMPUTATION OF YIELD.....................................................S-26
CALCULATION OF TOTAL RETURN..............................................S-26
PURCHASING SHARES........................................................S-27
REDEEMING SHARES.........................................................S-27
DETERMINATION OF NET ASSET VALUE.........................................S-27
TAXES ................................................................S-28
FUND TRANSACTIONS........................................................S-31
TRADING PRACTICES AND BROKERAGE..........................................S-31
DESCRIPTION OF SHARES....................................................S-34
SHAREHOLDER LIABILITY....................................................S-34
LIMITATION OF TRUSTEES' LIABILITY........................................S-35
5% AND 25% SHAREHOLDERS..................................................S-35
S - 1
<PAGE>
EXPERTS ................................................................S-36
FINANCIAL STATEMENTS.....................................................S-36
March 1, 2000
MDL-F-002-02
S - 2
<PAGE>
THE TRUST
This Statement of Additional Information relates only to the MDL Broad Market
Fixed Income Fund (the "Fixed Income Fund") and MDL Large Cap Growth Equity Fund
(the "Equity Fund" and together with the Fixed Income Fund, the "MDL Funds"),
each a diversified portfolio. Each Fund is a separate series of The Advisors'
Inner Circle Fund (the "Trust"), an open-end investment management company
established under Massachusetts law as a Massachusetts business trust under a
Declaration of Trust dated July 18, 1991. The Declaration of Trust permits the
Trust to offer separate series ("portfolios") of shares of beneficial interest
("shares"). Each portfolio is a separate mutual fund, and each share of each
portfolio represents an equal proportionate interest in that portfolio. See
"Description of Shares." No investment in shares of a portfolio should be made
without first reading that portfolio's prospectus. Capitalized terms not defined
herein are defined in the Prospectus offering shares of the MDL Funds.
Each Fund pays its (i) operating expenses, including fees of its service
providers, expenses of preparing prospectuses, proxy solicitation material and
reports to shareholders, costs of custodial services, and registering its shares
under federal and state securities laws, pricing and insurance expenses and pays
additional expenses, brokerage costs, interest charges, taxes and organization
expenses and (ii) pro rata share of the Trust's other expenses, including audit
and legal expenses. The MDL Funds' expense ratios are disclosed under "Fund Fees
and Expenses" in the Prospectus.
INVESTMENT OBJECTIVES AND POLICIES
The investment objective of the Fixed Income Fund is to seek total return
consistent with preservation of capital. The investment objective of the Equity
Fund is to seek long-term growth of capital with a secondary objective of
income. The MDL Funds' investment objectives are fundamental and cannot be
changed without the consent of shareholders. There can be no assurance that an
MDL Fund will be able to achieve its investment objective. In addition to the
investments and strategies described below, the MDL Funds may invest in certain
securities and obligations as set forth in "Description of Permitted
Investments" herein.
MDL BROAD MARKET FIXED INCOME FUND
Under normal conditions the Fixed Income Fund will principally invest (at least
80% of its net assets) in U.S. Treasury bills, notes and bonds and other fixed
income securities issued or guaranteed by the United States Government, its
agencies or instrumentalities ("U.S. Government Securities"), and corporate
fixed income securities rated A- or higher by Standard & Poor's Corporation
("S&P"), A or higher by Moody's Investors Services, Inc. ("Moody's") or of
comparable quality as determined by the Adviser. The U.S. Government Securities
in which the Fund may invest include mortgage-backed securities ("MBSs"), and
mortgage-related securities such as pass-through securities and collateralized
mortgage obligations. The Fund intends to
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invest less than 25% of its total assets in corporate fixed income securities
and less than 30% of its total assets in MBSs. The Fund's duration ordinarily
will range between 4 and 7 years.
In addition to its principal investments, the Fund may also invest in the
following securities which are not part of its principal investment strategy:
(i) short-term U.S. bank obligations; (ii) shares of other investment companies;
and (iii) repurchase agreements.
The Fixed Income Fund may purchase or sell securities on a when-issued or
forward commitment basis and sell securities short "against the box." The Fund
may engage in reverse repurchase agreements with banks and dealers in amounts up
to 33 1/3% of the Fund's total assets at the time the Fund enters into the
agreements. In order to remain fully invested and to reduce transaction costs,
up to 15% of the Fund's total assets may be invested in futures contracts and
options on futures contracts, including securities index futures contracts and
options on securities index futures contracts.
For temporary defensive purposes when the Adviser determines that market
conditions warrant, the Fixed Income Fund may also invest up to 100% of its
assets in money market securities or hold cash.
Securities rated A- by S&P or A by Moody's possess many favorable investment
attributes and are to be considered as upper-medium grade obligations. They have
a strong capacity to pay interest and repay principal although they are somewhat
more susceptible to the adverse effects of changes in circumstances and economic
conditions than debt in higher rated categories.
The portfolio turnover rate for the Fixed Income Fund for the fiscal years ended
October 31, 1998 and October 31, 1999 was 72.82% and 198.83%, respectively.
MDL LARGE CAP GROWTH EQUITY FUND
The Equity Fund intends to be as fully invested as practicable in common stocks
and other equity securities. Under normal circumstances the Fund will
principally invest (at least 80% of its net assets) in the securities described
in the Prospectus.
The Equity Fund will invest primarily in the common stocks of large cap
companies, that is, those established companies with equity-market
capitalizations in excess of $3 billion. The Fund may also invest in common
stocks of smaller companies with equity market capitalizations in excess of $500
million.
In addition to its principal investments, the Fund may also invest in other
equity securities of large cap companies, which may include warrants, rights to
purchase common stocks, debt securities convertible into common stocks, and
preferred stocks. The Fund may invest in equity securities of foreign issuers
traded in the United States in the form of American Depositary Receipts.
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The Equity Fund may also engage in repurchase agreements. The Fund may engage in
reverse repurchase agreements with banks and dealers in amounts up to 33 1/3% of
the Fund's total assets at the time the Fund enters into the agreements. Up to
15% of the Fund's total assets may be invested in futures contracts and options
on futures contracts, including securities index futures contracts and options
on securities index futures contracts.
For temporary defensive purposes when the Adviser determines that market
conditions warrant, the Equity Fund may also invest up to 100% of its assets in
money market securities or hold cash.
The portfolio turnover rate for the Equity Fund for the fiscal years ended
October 31, 1998 and October 31, 1999 was 127.68% and 75.29%, respectively.
DESCRIPTION OF PERMITTED INVESTMENTS
AMERICAN DEPOSITARY RECEIPTS
The Equity Fund may invest in American Depositary Receipts ("ADRs"). ADRs are
securities, typically issued by a U.S. financial institution (a "depositary"),
that evidence ownership interests in a security or a pool of securities issued
by a foreign issuer and deposited with the depositary. ADRs may be available
through "sponsored" or "unsponsored" facilities. A sponsored facility is
established jointly by the issuer of the security underlying the receipt and a
depositary, whereas, an unsponsored facility may be established by a depositary
without participation by the issuer of the underlying security. Holders of
unsponsored depositary receipts generally bear all the costs of the unsponsored
facility. The depositary of an unsponsored facility frequently is under no
obligation to distribute shareholder communications received from the issuer of
the deposited security or to pass through, to the holders of the receipts,
voting rights with respect to the deposited securities.
CONVERTIBLE SECURITIES
Convertible securities are securities issued by corporations that are
exchangeable for a set number of another security at a prestated price. The
market value of a convertible security tends to move with the market value of
the underlying stock. The value of a convertible security is also affected by
prevailing interest rates, the credit quality of the issuer, and any call option
provisions.
DURATION
Duration is a measure of the expected change in value of a fixed income security
for a given change in interest rates. For example, if interest rates changed by
one percent, the value of a security having an effective duration of two years
generally would vary by two percent. Duration takes the length of the time
intervals between the present time and time that the interest and
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principal payments are scheduled, or in the case of a callable bond, expected to
be received, and weighs them by the present values of the cash to be received at
each future point in time.
EQUITY SECURITIES
Investments in equity securities in general are subject to market risks that may
cause their prices to fluctuate over time. The value of securities, such as
warrants or convertible debt, exercisable for or convertible into equity
securities is also affected by prevailing interest rates, the credit quality of
the issuer and any call provision. Fluctuations in the value of equity
securities in which the Equity Fund invests will cause the net asset value of
the Fund to fluctuate. An investment in the Equity Fund may therefore be more
suitable for long-term investors.
THE EURO
On January 1, 1999, the European Monetary Union (EMU) implemented a new currency
unit, the Euro. The countries initially converting or tying their currencies to
the Euro include Austria, Belgium, France, Germany, Luxembourg, the Netherlands,
Ireland, Finland, Italy, Portugal, and Spain. Financial transactions and market
information, including share quotations and company accounts, in participating
countries are denominated in Euros. Approximately 46% of the stock exchange
capitalization of the total European market is now reflected in Euros, and
participating governments now issue their bonds in Euros. Monetary policy for
participating countries is now uniformly managed by a new central bank, the
European Central Bank (ECB).
Although it is not possible to predict the impact of the Euro conversion on the
MDL Funds, the transition to the Euro may change the economic environment and
behavior of investors, particularly in European markets. For example, investors
may begin to view those countries participating in the EMU as a single entity,
and the Adviser may need to adapt investment strategies accordingly. The process
of implementing the Euro also may adversely affect financial markets worldwide
and may result in changes in the relative strength and value of the U.S. dollar
or other major currencies, as well as possible adverse tax consequences. The
transition to the Euro is likely to have a significant impact on fiscal and
monetary policy in the participating countries and may produce unpredictable
effects on trade and commerce generally. These resulting uncertainties could
create increased volatility in financial markets world-wide.
FIXED INCOME SECURITIES
The market value of the fixed income investments in which the MDL Funds invest
will change in response to interest rate changes and other factors. During
periods of falling interest rates, the values of outstanding fixed income
securities generally rise. Conversely, during periods of rising interest rates,
the values of such securities generally decline. Moreover, while securities with
longer maturities tend to produce higher yields, the prices of longer maturity
securities are also subject to greater market fluctuations as a result of
changes in interest rates. Changes by recognized agencies in the rating of any
fixed income security and in the ability of an issuer to
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make payments of interest and principal also affect the value of these
investments. Changes in the value of these securities will not necessarily
affect cash income derived from these securities but will affect a Fund's net
asset value.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
Futures contracts provide for the future sale by one party and purchase by
another party of a specified amount of a specific security at a specified future
time and at a specified price. An option on a futures contract gives the
purchase the right, in exchange for a premium, to assume a position in a futures
contract at a specified exercise price during the term of the option.
A Fund may use futures contracts, and related options for bona fide hedging
purposes, to offset changes in the value of securities held or expected to be
acquired. They may also be used to minimize fluctuations in foreign currencies
or to gain exposure to a particular market or instrument. A Fund will minimize
the risk that it will be unable to close out a futures contract by only entering
into futures contracts which are traded on national futures exchanges and for
which there appears to be a liquid secondary market.
Index futures are futures contracts for various indices that are traded on
registered securities exchanges. An index futures contract obligates the seller
to deliver (and the purchaser to take) an amount of cash equal to a specific
dollar amount times the difference between the value of a specific index at the
close of the last trading day of the contract and the price at which the
agreement is made.
Although futures contracts by their terms call for actual delivery or acceptance
of the underlying securities, in most cases the contracts are closed out before
the settlement date without the making or taking of delivery. Closing out an
open futures position is done by taking an opposite position ("buying" a
contract which has previously been "sold" or "selling" a contract which has
previously been "purchased") in an identical contract to terminate the position.
Brokerage commissions are incurred when a futures contract is bought or sold.
Futures traders are required to make a good faith margin deposit in cash or
government securities with or for the account of a broker or custodian to
initiate and maintain open positions in futures contracts until a contract is
closed out. However, there is no certainty that a liquid secondary market will
exist for any particular futures contract at any specific time. Thus, it may not
be possible to close a futures position. In the event of adverse price
movements, a Fund would continue to be required to make daily cash payments to
maintain its required margin. In such situations, if a Fund has insufficient
cash, it may have to sell portfolio securities to meet daily margin requirements
at a time when it may be disadvantageous to do so. In addition, the MDL Funds
may be required to make delivery of the instruments underlying the futures
contracts they hold. The inability to close options and futures positions also
could have an adverse impact on the ability to effectively hedge the underlying
securities.
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The risk of loss in trading futures contracts can be substantial, due both to
the low margin deposits required and the extremely high degree of leverage
involved in futures pricing. As a result, a relatively small price movement in a
futures contract may result in immediate and substantial loss (or gain) to a
Fund. For example, if at the time of purchase, 10% of the value of the futures
contract is deposited as margin, a subsequent 10% decrease in the value of the
futures contract would result in a total loss of the margin deposit, before any
deduction for the transaction costs, if the account were then closed out. A 15%
decrease would result in a loss equal to 150% of the original margin deposit if
the contract were closed out. Thus, a purchase or sale of a futures contract may
result in losses in excess of the amount invested in the contract. However,
because the MDL Funds will be engaged in futures transactions only for hedging
purposes, the Adviser does not believe that the MDL Funds will generally be
subject to the risks of loss frequently associated with futures transactions.
The MDL Funds presumably would have sustained comparable losses if, instead of
the futures contract, they had invested in the underlying financial instrument
and sold it after the decline. The risk of loss from the purchase of options is
less as compared with the purchase or sale of futures contracts because the
maximum amount at risk is the premium paid for the option.
Utilization of futures transactions by the MDL Funds does involve the risk of
imperfect or no correlation where the securities underlying futures contracts
have different maturities than the fund securities being hedged. It is also
possible that the MDL Funds could both lose money on futures contracts and
experience a decline in value of its fund securities. There is also the risk of
loss by the MDL Funds of margin deposits in the event of the bankruptcy of a
broker with whom the MDL Funds have an open position in a futures contract or
related option.
Most futures exchanges limit the amount of fluctuation permitted in futures
contract prices during a single trading day. The daily limit establishes the
maximum amount that the price of a futures contract may vary either up or down
from the previous day's settlement price at the end of a trading session. Once
the daily limit has been reached in a particular type of contract, no trades may
be made on that day at a price beyond that limit. The daily limit governs only
price movement during a particular trading day and therefore does not limit
potential losses because the limit may prevent the liquidation of unfavorable
positions. Futures contract prices have occasionally moved to the daily limit
for several consecutive trading days with little or no trading, thereby
preventing prompt liquidation of future positions and subjecting some futures
traders to substantial losses.
ILLIQUID SECURITIES
Illiquid securities are securities that cannot be disposed of within seven days
at approximately the price at which they are being carried on a Fund's books. An
illiquid security includes a demand instrument with a demand notice period
exceeding seven days, where there is no secondary market for such security, and
repurchase agreements with a remaining term to maturity in excess of seven days.
INVESTMENT COMPANY SHARES
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Each MDL Fund may invest up to 10% of its total assets in shares of other
investment companies that invest exclusively in those securities in which the
appropriate Fund may invest directly. Investing in shares of other investment
companies is not a principal investment strategy of either Fund. These
investment companies typically incur fees that are separate from those fees
incurred directly by the Fund. A Fund's purchase of such investment company
securities results in the layering of expenses, such that shareholders would
indirectly bear a proportionate share of the operating expenses of such
investment companies, including advisory fees, in addition to paying Fund
expenses. Under applicable regulations, a Fund is prohibited from acquiring the
securities of another investment company if, as a result of such acquisition:
(1) the Fund owns more than 3% of the total voting stock of the other company;
(2) securities issued by any one investment company represent more than 5% of
the Fund's total assets; or (3) securities (other than treasury stock) issued by
all investment companies represent more than 10% of the total assets of the
Fund.
MONEY MARKET INSTRUMENTS -- Money market instruments include short-term U.S.
Government Securities; custodial receipts evidencing separately traded interest
and principal components of securities issued by the U.S. Treasury; commercial
paper rated in the highest short-term rating category by a nationally recognized
statistical rating organization or determined by the Adviser to be of comparable
quality at the time of purchase; short-term bank obligations (certificates of
deposit, time deposits and bankers' acceptances) of U.S. commercial banks with
assets of at least $1 billion as of the end of their most recent fiscal year;
and repurchase agreements involving such securities.
BANKERS' ACCEPTANCES
Bankers' acceptances are bills of exchange or time drafts drawn on and
accepted by a commercial bank. Bankers' acceptances are used by
corporations to finance the shipment and storage of goods. Maturities
are generally six months or less.
CERTIFICATES OF DEPOSIT
Certificates of deposit are interest bearing instruments with a
specific maturity. They are issued by banks and savings and loan
institutions in exchange for the deposit of funds and normally can be
traded in the secondary market prior to maturity. Certificates of
deposit with penalties for early withdrawal will be considered
illiquid.
COMMERCIAL PAPER
Commercial paper is a term used to describe unsecured short-term
promissory notes issued by banks, municipalities, corporations and
other entities. Maturities on these issues vary from a few to 270 days.
TIME DEPOSITS
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Time deposits are non-negotiable receipts issued by a bank in exchange
for the deposit of funds. Like a certificate of deposit, it earns a
specified rate of interest over a definite period of time; however, it
cannot be traded in the secondary market. Time deposits with a
withdrawal penalty or that mature in more than seven days are
considered to be illiquid securities.
MORTGAGE-BACKED SECURITIES
Mortgage-backed securities are instruments that entitle the holder to a share of
all interest and principal payments from mortgages underlying the security. The
mortgages backing these securities include conventional thirty-year fixed rate
mortgages, graduated payment mortgages, adjustable rate mortgages, and floating
mortgages.
GOVERNMENT PASS-THROUGH SECURITIES
These are securities that are issued or guaranteed by a U.S. Government
agency representing an interest in a pool of mortgage loans. The
primary issuers or guarantors of these mortgage-backed securities are
the Government National Mortgage Association ("GNMA"), Fannie Mae, and
the Federal Home Loan Mortgage Corporation ("FHLMC"). Fannie Mae and
FHLMC obligations are not backed by the full faith and credit of the
U.S. Government as GNMA certificates are, but Fannie Mae and FHLMC
securities are supported by the instrumentalities' right to borrow from
the U.S. Treasury. GNMA, Fannie Mae, and FHLMC each guarantees timely
distributions of interest to certificate holders. GNMA and Fannie Mae
also guarantee timely distributions of scheduled principal. In the
past, FHLMC has only guaranteed the ultimate collection of principal of
the underlying mortgage loan; however, FHLMC now issues mortgage-backed
securities (FHLMC Gold PCS) which also guarantee timely payment of
monthly principal reductions. Government and private guarantees do not
extend to the securities' value, which is likely to vary inversely with
fluctuations in interest rates.
Obligations of GNMA are backed by the full faith and credit of the
United States Government. Obligations of Fannie Mae and FHLMC are not
backed by the full faith and credit of the United States Government but
are considered to be of high quality since they are considered to be
instrumentalities of the United States. The market value and interest
yield of these mortgage-backed securities can vary due to market
interest rate fluctuations and early prepayments of underlying
mortgages. These securities represent ownership in a pool of federally
insured mortgage loans with a maximum maturity of 30 years. However,
due to scheduled and unscheduled principal payments on the underlying
loans, these securities have a shorter average maturity and, therefore,
less principal volatility than a comparable 30-year bond. Since
prepayment rates vary widely, it is not possible to accurately predict
the average maturity of a particular mortgage-backed security. The
scheduled monthly interest and principal payments relating to mortgages
in the pool will be "passed through" to investors. Government
mortgage-backed securities differ from
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conventional bonds in that principal is paid back to the certificate
holders over the life of the loan rather than at maturity. As a result,
there will be monthly scheduled payments of principal and interest. In
addition, there may be unscheduled principal payments representing
prepayments on the underlying mortgages. Although these securities may
offer yields higher than those available from other types of U.S.
Government securities, mortgage-backed securities may be less effective
than other types of securities as a means of "locking in" attractive
long-term rates because of the prepayment feature. For instance, when
interest rates decline, the value of these securities likely will not
rise as much as comparable debt securities due to the prepayment
feature. In addition, these prepayments can cause the price of a
mortgage-backed security originally purchased at a premium to decline
in price to its par value, which may result in a loss.
PRIVATE PASS-THROUGH SECURITIES
Private pass-through securities are mortgage-backed securities issued
by a non-governmental agency, such as a trust. While they are generally
structured with one or more types of credit enhancement, private
pass-through securities generally lack a guarantee by an entity having
the credit status of a governmental agency or instrumentality. The two
principal types of private mortgage-backed securities are
collateralized mortgage obligations ("CMOs") and real estate mortgage
investment conduits ("REMICs").
CMOs
CMOs are securities collateralized by mortgages, mortgage
pass-throughs, mortgage pay-through bonds (bonds representing an
interest in a pool of mortgages where the cash flow generated from the
mortgage collateral pool is dedicated to bond repayment), and
mortgage-backed bonds (general obligations of the issuers payable out
of the issuers' general funds and additionally secured by a first lien
on a pool of single family detached properties). CMOs are rated in one
of the two highest categories by S&P or Moody's. Many CMOs are issued
with a number of classes or series which have different expected
maturities. Investors purchasing such CMOs are credited with their
portion of the scheduled payments of interest and principal on the
underlying mortgages plus all unscheduled prepayments of principal
based on a predetermined priority schedule. Accordingly, the CMOs in
the longer maturity series are less likely than other mortgage
pass-throughs to be prepaid prior to their stated maturity. Although
some of the mortgages underlying CMOs may be supported by various types
of insurance, and some CMOs may be backed by GNMA certificates or other
mortgage pass-throughs issued or guaranteed by U.S. Government agencies
or instrumentalities, the CMOs themselves are not generally guaranteed.
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REMICs
REMICs are private entities formed for the purpose of holding a fixed
pool of mortgages secured by an interest in real property. REMICs are
similar to CMOs in that they issue multiple classes of securities and
are rated in one of the two highest categories by S&P or Moody's.
Investors may purchase beneficial interests in REMICs, which are known
as "regular" interests, or "residual" interests. Guaranteed REMIC
pass-through certificates ("REMIC Certificates") issued by Fannie Mae
or FHLMC represent beneficial ownership interests in a REMIC trust
consisting principally of mortgage loans or Fannie Mae, FHLMC or
GNMA-guaranteed mortgage pass-through certificates. For FHLMC REMIC
Certificates, FHLMC guarantees the timely payment of interest. GNMA
REMIC Certificates are backed by the full faith and credit of the U.S.
Government.
ADJUSTABLE RATE MORTGAGE SECURITIES ("ARMS")
ARMS are a form of pass-through security representing interests in
pools of mortgage loans whose interest rates are adjusted from time to
time. The adjustments usually are determined in accordance with a
predetermined interest rate index and may be subject to certain limits.
While the value of ARMS, like other debt securities, generally varies
inversely with changes in market interest rates (increasing in value
during periods of declining interest rates and decreasing in value
during periods of increasing interest rates), the value of ARMS should
generally be more resistant to price swings than other debt securities
because the interest rates of ARMS move with market interest rates. The
adjustable rate feature of ARMS will not, however, eliminate
fluctuations in the prices of ARMS, particularly during periods of
extreme fluctuations in interest rates. Also, since many adjustable
rate mortgages only reset on an annual basis, it can be expected that
the prices of ARMS will fluctuate to the extent that changes in
prevailing interests rates are not immediately reflected in the
interest rates payable on the underlying adjustable rate mortgages.
STRIPPED MORTGAGE-BACKED SECURITIES
Stripped mortgage-backed securities are securities that are created
when a U.S. Government agency or a financial institution separates the
interest and principal components of a mortgage-backed security and
sells them as individual securities. The holder of the "principal-only"
security (PO) receives the principal payments made by the underlying
mortgage-backed security, while the holder of the "interest-only"
security (IO) receives interest payments from the same underlying
security.
The prices of stripped mortgage-backed securities may be particularly
affected by changes in interest rates. As interest rates fall,
prepayment rates tend to increase, which tends to
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reduce prices of IOs and increase prices of POs. Rising interest rates
can have the opposite effect.
ESTIMATED AVERAGE LIFE
Due to the possibility of prepayments of the underlying mortgage
instruments, mortgage-backed securities generally do not have a known
maturity. In the absence of a known maturity, market participants
generally refer to an estimated average life. An average life estimate
is a function of an assumption regarding anticipated prepayment
patterns, based upon current interest rates, current conditions in the
relevant housing markets and other factors. The assumption is
necessarily subjective, and thus different market participants can
produce different average life estimates with regard to the same
security. There can be no assurance that estimated average life will be
a security's actual average life.
OPTIONS
A Fund may write call options on a covered basis only, and will not engage in
option writing strategies for speculative purposes. A call option gives the
purchaser of such option the right to buy, and the writer, in this case the
Fund, the obligation to sell the underlying security at the exercise price
during the option period. The advantage to the MDL Funds of writing covered
calls is that the MDL Funds receive a premium which is additional income.
However, if the security rises in value, the MDL Funds may not fully participate
in the market appreciation.
During the option period, a covered call option writer may be assigned an
exercise notice by the broker-dealer through whom such call option was sold
requiring the writer to deliver the underlying security against payment of the
exercise price. This obligation is terminated upon the expiration of the option
period or at such earlier time in which the writer effects a closing purchase
transaction. A closing purchase transaction is one in which the Fund, when
obligated as a writer of an option, terminates its obligation by purchasing an
option of the same series as the option previously written.
A closing purchase transaction cannot be effected with respect to an option once
the option writer has received an exercise notice for such option.
Closing purchase transactions will ordinarily be effected to realize a profit on
an outstanding call option, to prevent an underlying security from being called,
to permit the sale of the underlying security or to enable a Fund to write
another call option on the underlying security with either a different exercise
price or expiration date or both. A Fund may realize a net gain or loss from a
closing purchase transaction depending upon whether the net amount of the
original premium received on the call option is more or less than the cost of
effecting the closing purchase transaction. Any loss incurred in a closing
purchase transaction may be partially or entirely offset by the premium received
from a sale of a different call option on the same underlying
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security. Such a loss may also be wholly or partially offset by unrealized
appreciation in the market value of the underlying security.
If a call option expires unexercised, a Fund will realize a short-term capital
gain in the amount of the premium on the option, less the commission paid. Such
a gain, however, may be offset by depreciation in the market value of the
underlying security during the option period. If a call option is exercised, a
Fund will realize a gain or loss from the sale of the underlying security equal
to the difference between the cost of the underlying security, and the proceeds
of the sale of the security plus the amount of the premium on the option, less
the commission paid.
The market value of a call option generally reflects the market price of an
underlying security. Other principal factors affecting market value include
supply and demand, interest rates, the price volatility of the underlying
security, and the time remaining until the expiration date.
The MDL Funds will write call options only on a covered basis, which means that
a Fund will own the underlying security subject to a call option at all times
during the option period. Unless a closing purchase transaction is effected, a
Fund would be required to continue to hold a security which it might otherwise
wish to sell, or deliver a security it would want to hold. Options written by
the MDL Funds will normally have expiration dates between one and nine months
from the date written. The exercise price of a call option may be below, equal
to, or above the current market value of the underlying security at the time the
option is written.
REPURCHASE AGREEMENTS
Repurchase agreements are agreements by which a person (E.G., a Fund) obtains a
security and simultaneously commits to return the security to the seller (a
primary securities dealer as recognized by the Federal Reserve Bank of New York
or a national member bank as defined in Section 3(d)(1) of the Federal Deposit
Insurance Act, as amended) at an agreed upon price (including principal and
interest) on an agreed upon date within a number of days (usually not more than
seven) from the date of purchase. The resale price reflects the purchase price
plus an agreed upon market rate of interest which is unrelated to the coupon
rate or maturity of the underlying security. A repurchase agreement involves the
obligation of the seller to pay the agreed upon price, which obligation is, in
effect, secured by the value of the underlying security.
Repurchase agreements are considered to be loans by a Fund for purposes of its
investment limitations. The repurchase agreements entered into by a Fund will
provide that the underlying security at all times shall have a value at least
equal to 102% of the resale price stated in the agreement (the Adviser monitors
compliance with this requirement). Under all repurchase agreements entered into
by a Fund, the appropriate Custodian or its agent must take possession of the
underlying collateral. However, if the seller defaults, a Fund could realize a
loss on the sale of the underlying security to the extent that the proceeds of
the sale including accrued interest are less than the resale price provided in
the agreement including interest. In addition, even though the Bankruptcy Code
provides protection for most repurchase agreements, if the seller should be
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involved in bankruptcy or insolvency proceedings, a Fund may incur delay and
costs in selling the underlying security or may suffer a loss of principal
and interest if the Fund is treated as an unsecured creditor and required to
return the underlying security to the seller's estate.
REVERSE REPURCHASE AGREEMENTS
Reverse repurchase agreements are agreements by which a Fund sells securities to
financial institutions and simultaneously agrees to repurchase those securities
at a mutually agreed-upon date and price. At the time a Fund enters into a
reverse repurchase agreement, the Fund will place liquid assets having a value
equal to the repurchase price in a segregated custodial account and monitor this
account to ensure equivalent value is maintained. Reverse repurchase agreements
involve the risk that the market value of securities sold by the Fund may
decline below the price at which the Fund is obligated to repurchase the
securities. Reverse repurchase agreements may be considered to be borrowings by
the MDL Funds under the Investment Company Act of 1940, as amended (the "1940
Act").
SHORT SALES AGAINST-THE-BOX
The MDL Funds may make short sales "against-the-box" for the purpose of
deferring realization of gain or loss for federal income tax purposes and for
the purpose of hedging against an anticipated decline in the value of the
underlying securities. A short sale "against-the-box" is a short sale in which a
Fund owns, or has the right to obtain without payment of additional
consideration, an equal amount of the same type of securities sold short.
U.S. GOVERNMENT AGENCY OBLIGATIONS
U.S. Government agency obligations are obligations issued or guaranteed by
agencies or instrumentalities of the U.S. Government. Agencies of the United
States Government which issue obligations consist of, among others, the Export
Import Bank of the United States, Farmers Home Administration, Federal Farm
Credit Bank, Federal Housing Administration, GNMA, Maritime Administration,
Small Business Administration and The Tennessee Valley Authority. Obligations of
instrumentalities of the United States Government include securities issued by,
among others, Federal Home Loan Banks, FHLMC, Federal Intermediate Credit Banks,
Federal Land Banks, Fannie Mae and the United States Postal Service as well as
government trust certificates. Some of these securities are supported by the
full faith and credit of the United States Treasury, others are supported by the
right of the issuer to borrow from the Treasury and still others are supported
only by the credit of the instrumentality. Guarantees of principal by agencies
or instrumentalities of the U.S. Government may be a guarantee of payment at the
maturity of the obligation so that in the event of a default prior to maturity
there might not be a market and thus no means of realizing the value of the
obligation prior to maturity.
S - 15
<PAGE>
VARIABLE AND FLOATING RATE SECURITIES
Variable and floating rate instruments involve certain obligations that may
carry variable or floating rates of interest, and may involve a conditional or
unconditional demand feature. Such instruments bear interest at rates which are
not fixed, but which vary with changes in specified market rates or indices. The
interest rates on these securities may be reset daily, weekly, quarterly, or
some other reset period, and may have a set floor or ceiling on interest rate
changes. There is a risk that the current interest rate on such obligations may
not accurately reflect existing market interest rates. A demand instrument with
a demand notice exceeding seven days may be considered illiquid if there is no
secondary market for such security.
WHEN-ISSUED SECURITIES
Each Fund may purchase debt obligations on a when-issued basis, in which case
delivery and payment normally take place on a future date. The MDL Funds will
make commitments to purchase obligations on a when-issued basis only with the
intention of actually acquiring the securities, but may sell them before the
settlement date. During the period prior to the settlement date, the securities
are subject to market fluctuation, and no interest accrues on the securities to
the purchaser. The payment obligation and the interest rate that will be
received on the securities at settlement are each fixed at the time the
purchaser enters into the commitment. Purchasing obligations on a when-issued
basis may be used as a form of leveraging because the purchaser may accept the
market risk prior to payment for the securities. The MDL Funds, however, will
not use such purchases for leveraging; instead, as disclosed in the Prospectus,
a Fund will set aside assets to cover its commitments. If the value of these
assets declines, the Fund will place additional liquid assets aside on a daily
basis so that the value of the assets set aside is equal to the amount of the
commitment.
INVESTMENT LIMITATIONS
FUNDAMENTAL POLICIES
The following investment limitations are fundamental policies of each Fund that
cannot be changed without the consent of the holders of a majority of that
Fund's outstanding shares. The phrase "majority of the outstanding shares" means
the vote of (i) 67% or more of a Fund's shares present at a meeting, if more
than 50% of the outstanding shares of a Fund are present or represented by
proxy; or (ii) more than 50% of a Fund's outstanding shares, whichever is less.
S - 16
<PAGE>
Each Fund may not:
1. Purchase securities of any issuer (except securities issued or
guaranteed by the United States, its agencies or instrumentalities and
repurchase agreements involving such securities) if as a result more
than 5% of the total assets of the Fund would be invested in the
securities of such issuer. This restriction applies to 75% of each
Fund's total assets.
2. Purchase any securities which would cause 25% or more of the total
assets of a Fund to be invested in the securities of one or more
issuers conducting their principal business activities in the same
industry, provided that this limitation does not apply to investments
in obligations issued or guaranteed by the U.S. Government, its
agencies or instrumentalities and repurchase agreements involving such
securities. For purposes of this limitation, (i) utility companies will
be divided according to their services, for example, gas distribution,
gas transmission, electric and telephone will each be considered a
separate industry; and (ii) financial service companies will be
classified according to the end users of their services, for example,
automobile finance, bank finance and diversified finance will each be
considered a separate industry.
3. Acquire more than 10% of the voting securities of any one issuer.
4. Invest in companies for the purpose of exercising control.
5. Issue any class of senior security or sell any senior security of which
it is the issuer, except that the Fund may borrow from any bank,
provided that immediately after any such borrowing there is asset
coverage of at least 300% for all borrowings of the Fund, and further
provided that, to the extent that such borrowings exceed 5% of the
Fund's total assets, all borrowings shall be repaid before the Fund
makes additional investments. The term "senior security" shall not
include any temporary borrowings that do not exceed 5% of the value of
the Fund's total assets at the time the Fund makes such temporary
borrowing. In addition, investment strategies that either obligate the
Fund to purchase securities or require the Fund to segregate assets
will not be considered borrowings or senior securities. This investment
limitation shall not preclude the Fund from issuing multiple classes of
shares in reliance on SEC rules or orders.
6. Make loans if, as a result, more than 33 1/3% of its total assets would
be lent to other parties, except that the Fund may (i) purchase or hold
debt instruments in accordance with its investment objective and
policies; (ii) enter into repurchase agreements; and (iii) lend its
securities.
7. Purchase or sell real estate, real estate limited partnership
interests, physical commodities or commodities contracts except that
the Fund may purchase commodities contracts relating to financial
instruments, such as financial futures contracts and options on such
contracts.
S - 17
<PAGE>
8. Make short sales of securities, maintain a short position or purchase
securities on margin, except that a Fund may obtain short-term credits
as necessary for the clearance of security transactions and sell
securities short "against the box."
9. Act as an underwriter of securities of other issuers except as it may
be deemed an underwriter in selling the Fund security.
10. Purchase securities of other investment companies except as permitted
by the 1940 Act and the rules and regulations thereunder.
The foregoing percentages will apply at the time of the purchase of a security.
NON-FUNDAMENTAL POLICIES
The following investment limitation of each Fund is non-fundamental and may be
changed by the Trust's Board of Trustees without shareholder approval:
1. A Fund may not invest in illiquid securities in an amount exceeding, in
the aggregate, 15% of the Fund's net assets.
Except with respect to each Fund's policy concerning borrowing and illiquid
securities, if a percentage restriction is adhered to at the time of an
investment, a later increase or decrease in percentage resulting from changes in
values or assets will not constitute a violation of such restriction.
Additionally, it is a non-fundamental policy of each MDL Fund to limit
borrowings to no more than 5% of its net assets. Fully collateralized reverse
repurchase agreements are not considered borrowings for purposes of the
foregoing limitation.
THE ADVISER
MDL Capital Management, Inc. (the "Adviser") and the Trust have entered into an
advisory agreement dated October 31, 1997 (the "Advisory Agreement"). The
Advisory Agreement provides that the Adviser shall not be protected against any
liability to the Trust or its shareholders by reason of willful misfeasance, bad
faith or gross negligence on its part in the performance of its duties or from
reckless disregard of its obligations or duties thereunder. Under the Advisory
Agreement, the Adviser makes the investment decisions for the assets of each
Fund and continuously reviews, supervises and administers each Fund's investment
program, subject to the supervision of, and policies established by, the
Trustees of the Trust.
The Adviser's principal business address is 225 Ross Street, Pittsburgh,
Pennsylvania 15219. As of December 31, 1999, the Adviser had approximately 1.6
billion of assets under management for institutional clients such as
Taft-Hartley plans, hospitals, public sector funds, foundations and ERISA plans.
S - 18
<PAGE>
Messrs. Mark D. Lay and Edward Adatepe have served as co-portfolio managers of
both the Fixed Income and Equity Funds, since their commencement of operations.
Mr. Lay has served as the Chairman and Chief Executive Officer of the Adviser
since 1993. Prior thereto, Mr. Lay was an account executive at Dean Witter
Reynolds, Inc. Mr. Lay received a B.A. degree in Economics from Columbia
University. Mr. Adatepe has been the Chief Investment Officer of the Adviser
since 1994. Prior thereto, Mr. Adatepe was the Managing Director of RRZ
Investment Management, Inc., where he was responsible for managing both fixed
income and equity portfolios for various public and private pension funds. Mr.
Adatepe received a B.S. degree in Physics from Allegheny College and a M.S.
degree in Industrial Administration from Carnegie-Mellon University.
In addition to the co-portfolio managers, the Adviser employs a team of highly
qualified investment professionals to provide advice and input regarding the
management of the MDL Funds. Included within this team is Steven Sanders. Mr.
Sanders serves as the Adviser's President and Economist. He also appears weekly
as an investment specialist on the CNBC International Business Television
Network.
Under the Advisory Agreement, the Adviser receives a monthly management fee
computed separately for each Fund. Such fees are payable at an annual rate of
.45% and .74% of the average daily net assets of the Fixed Income and Equity
Funds, respectively. The Adviser has voluntarily agreed to waive all or a
portion of its fee for each Fund and to reimburse expenses of each Fund in order
to limit total operating expenses for the Fixed Income and Equity Funds to an
annual rate of not more than .90% and 1.26% of average daily net assets,
respectively. The Adviser reserves the right, in its sole discretion, to
terminate its voluntary fee waivers and reimbursements at any time, however, the
advisory fee waivers are expected to be in effect for the current fiscal year.
The Adviser may, from its own resources, compensate broker-dealers whose clients
purchase shares of the MDL Funds.
The Adviser's fixed income decision making process begins with a "top down"
analysis of the factors that drive interest rates: economic growth, inflation,
the level of the dollar, monetary policy and fiscal policy. Based on this
process, the Adviser develops several interest rate projections and determines
an appropriate duration target and maturity structure.
The Adviser then apportions the Fixed Income Fund's portfolio among the
following sectors: (i) U.S. Government Securities; (ii) corporate fixed income
securities; and (iii) MBSs. This allocation is based on an analysis of the
relative attractiveness of these sectors, on a total return basis, given the
Adviser's interest rate projections. The Adviser then selects approximately 15-
20 individual securities that in the aggregate produce the desired portfolio
duration, maturity structure and sector allocation.
In the case of U.S. Government Securities, individual securities are selected
for purchase that offer better total return potential than other U.S. Government
Securities with similar durations. In the case of corporate fixed income
securities, the Adviser's selection process seeks to identify issues where
credit quality has recently been improving as evidenced by rating increases by
S&P or Moody's. In addition, the Adviser seeks corporate fixed income securities
that generally are
S - 19
<PAGE>
non-callable and have an issue size of $250 million or greater. In the case of
MBSs, the Adviser seeks to purchase individual securities that offer the best
total return potential, given the Adviser's interest rate projections, as
compared to similar securities.
With respect to the Equity Fund, the Adviser evaluates these companies through a
multi-step screening process which begins with a universe of approximately 700
stocks, including those in the S&P 500 index. The Adviser seeks to purchase the
securities of companies with (i) high absolute and relative earnings momentum;
(ii) positive earnings surprise; (iii) positive price momentum; and (iv) low
absolute and relative valuations. The Adviser then performs a fundamental
analysis of those companies that meet the foregoing criteria and selects from
those companies approximately 100 securities across 12 identified economic
sectors.
For the fiscal period ended October 31, 1998 and fiscal year ended October 31,
1999, the Fixed Income Fund paid the Adviser $0 and $0, respectively, and for
the fiscal period ended October 31, 1998 and fiscal year ended October 31, 1999,
the Adviser waived fees of $7,119 and $79,540, respectively. For the fiscal
period ended October 31, 1998, and fiscal year ended October 31, 1999, the
Equity Fund paid the Adviser $0 and $93,934, respectively, and the Adviser
waived fees of $9,636 and $67,085, respectively. For the fiscal period ended
October 31, 1998 and the fiscal year ended October 31, 1999, the Adviser
reimbursed fees of $156,459 and $26,175, respectively, to the Fixed Income Fund
and for the fiscal period ended October 31, 1998, and the fiscal year ended
October 31, 1999, the Adviser reimbursed $141,746 and $0, respectively, to the
Equity Fund.
THE ADMINISTRATOR
SEI Investments Mutual Funds Services (the "Administrator"), provides the Trust
with administrative services, including regulatory reporting and all necessary
office space, equipment, personnel and facilities.
For these administrative services, the Administrator is entitled to a fee from
each Fund, which is calculated daily and paid monthly based on the respective
Fund's asset level, at an annual rate of: .15% on the first $50 million of
average daily net assets; .125% on the next $50 million of average daily net
assets; and .10% on average daily net assets over $100 million. However, each
Fund pays a minimum annual administration fee of $80,000, which would be
increased by $15,000 per additional class. Due to the minimum annual
administration fee, the administration fee that a Fund pays will decline
according to the administration fee schedule described above, only after a
Fund's net asset level reaches $54 million.
For the fiscal period ended October 31, 1998, and the fiscal year ended October
31, 1999, the MDL Funds each paid administration fees of $80,000 and $80,000,
respectively. The Administration Agreement provides that the Administrator shall
not be liable for any error of judgment or mistake of law or for any loss
suffered by the MDL Funds in connection with the matters to which the
Administration Agreement relates, except a loss resulting from willful
misfeasance, bad faith or gross negligence on the part of the Administrator in
the performance of its duties or from reckless disregard of its duties and
obligations thereunder.
S - 20
<PAGE>
The Administration Agreement shall remain effective for the initial term of the
Agreement and each renewal term thereof unless earlier terminated (a) by the
mutual written agreement of the parties; (b) by either party of the
Administration Agreement on 90 days' written notice, as of the end of the
initial term or the end of any renewal term; (c) by either party of the
Administration Agreement on such date as is specified in written notice given by
the terminating party, in the event of a material breach of the Administration
Agreement by the other party, provided the terminating party has notified the
other party of such breach at least 45 days' prior to the specified date of
termination and the breaching party has not remedied such breach by the
specified date; (d) effective upon the liquidation of the Administrator; or (e)
as to a Fund or the Trust, effective upon the liquidation of the Fund or the
Trust, as the case may be.
The Administrator, a Delaware business trust, has its principal business
offices at Oaks, Pennsylvania 19456. SEI Investments Management Corporation
("SIMC"), a wholly-owned subsidiary of SEI Investments Company ("SEI
Investments"), is the owner of all beneficial interest in the Administrator.
SEI Investments and its subsidiaries and affiliates, including the
Administrator, are leading providers of funds evaluation services, trust
accounting systems, and brokerage and information services to financial
institutions, institutional investors, and money managers. The Administrator
and its affiliates also serve as administrator or sub-administrator to the
following other mutual funds: The Achievement Funds Trust, Alpha Select
Funds, Amerindo Funds, Inc., The Arbor Fund, ARK Funds, Armada Funds, Bishop
Street Funds, Boston 1784 Funds-Registered Trademark-, CNI Charter Funds,
CUFUND, The Expedition Funds, First American Funds, Inc., First American
Investment Funds, Inc., First American Strategy Funds, Inc., HighMark Funds,
Huntington Funds, The Nevis Funds, Inc., Oak Associates Funds, The Parkstone
Advantage Fund, The PBHG Funds, Inc., PBHG Insurance Series Fund, Inc., The
Pillar Funds, SEI Asset Allocation Trust, SEI Daily Income Trust, SEI Index
Funds, SEI Institutional International Trust, SEI Institutional Investments
Trust, SEI Institutional Managed Trust, SEI Liquid Asset Trust, SEI Tax
Exempt Trust, STI Classic Funds, STI Classic Variable Trust, TIP Funds, UAM
Funds Trust, UAM Funds, Inc. II, and UAM Funds, Inc.
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.
THE DISTRIBUTOR
SEI Investments Distribution Co. (the "Distributor"), a wholly-owned subsidiary
of SEI Investments, and the Trust are parties to a distribution agreement (the
"Distribution Agreement"). The Distributor will not receive compensation for
distribution of shares of the Fund.
The Distribution Agreement shall remain in effect for a period of two years
after the effective date of the agreement and is renewable annually. The
Distribution Agreement may be terminated by the Distributor, by a majority vote
of the Trustees who are not interested persons and have no financial interest in
the Distribution Agreement or by a majority vote of the outstanding securities
S - 21
<PAGE>
of the Trust upon not more than 60 days' written notice by either party or upon
assignment by the Distributor.
No compensation is paid to the Distributor for distribution services for the
shares of the Fund.
THE TRANSFER AGENT
DST Systems, Inc., 333 West 12th Street, Kansas City, MO 64105 serves as the
Trust's transfer agent.
THE CUSTODIAN
First Union National Bank, 123 South Broad Street, Philadelphia, Pennsylvania
19109 acts as custodian (the "Custodian") of the Trust. The Custodian holds
cash, securities and other assets of the Trust as required by the 1940 Act.
INDEPENDENT PUBLIC ACCOUNTANTS
Arthur Andersen LLP serves as independent public accountants for the Trust.
LEGAL COUNSEL
Morgan, Lewis & Bockius serves as legal counsel to the Trust.
TRUSTEES AND OFFICERS OF THE FUND
The management and affairs of the Fund are supervised by the Trustees under the
laws of the Commonwealth of Massachusetts. The Trustees have approved contracts
under which, as described above, certain companies provide essential management
services to the Fund. The Fund pays the fees for unaffiliated Trustees.
The Trustees and Executive Officers of the Fund, their respective dates of
birth, and their principal occupations for the last five years are set forth
below. Each may have held other positions with the named companies during
that period. Unless otherwise noted, the business address of each Trustee and
each Executive Officer is SEI Investments Company, Oaks, Pennsylvania 19456.
Certain officers of the Fund also serve as officers of some or all of the
following: The Achievement Funds Trust, Alpha Select Funds, Amerindo Funds,
Inc., The Arbor Fund, ARK Funds, Armada Funds, Bishop Street Funds, Boston
1784 Funds-Registered Trademark-, CNI Charter Funds, CUFUND, The Expedition
Funds, First American Funds, Inc., First American Investment Funds, Inc.,
First American Strategy Funds, Inc., HighMark Funds, Huntington Funds, The
Nevis Funds, Inc., Oak Associates Funds, The Parkstone Advantage Fund, The
PBHG Funds, Inc., PBHG Insurance Series Fund, Inc., The Pillar Funds, SEI
Asset Allocation
S - 22
<PAGE>
Trust, SEI Daily Income Trust, SEI Index Funds, SEI Institutional International
Trust, SEI Institutional Investments Trust, SEI Institutional Managed Trust, SEI
Liquid Asset Trust, SEI Tax Exempt Trust, STI Classic Funds, STI Classic
Variable Trust, TIP Funds, UAM Funds Trust, UAM Funds, Inc. II, and UAM Funds,
Inc., each of which is an open-end management investment company managed by SEI
Investments Mutual Funds Services or its affiliates and, except for PBHG Advisor
Funds, Inc., distributed by SEI Investments Distribution Co.
ROBERT A. NESHER (DOB 08/17/46) -- Chairman of the Board of Trustees*
- --Currently performs various services on behalf of SEI Investments for which
Mr. Nesher is compensated. Executive Vice President of SEI Investments,
1986-1994. Director and Executive Vice President of the Administrator and the
Distributor, 1981-1994. Trustee of The Arbor Fund, Boston 1784 Funds
- -Registered Trademark-, The Expedition Funds, Oak Associates Funds, Pillar
Funds, SEI Asset Allocation Trust, SEI Daily Income Trust, SEI Index Funds,
SEI Institutional Investments Trust, SEI Institutional Managed Trust, SEI
Institutional International Trust, SEI Liquid Asset Trust and SEI Tax Exempt
Trust.
JOHN T. COONEY (DOB 01/20/27) -- Trustee** -- Vice Chairman of Ameritrust Texas
N.A., 1989-1992, and MTrust Corp., 1985-1989. Trustee of The Arbor Fund, The
Expedition Funds, and Oak Associates Funds.
WILLIAM M. DORAN (DOB 05/26/40) -- Trustee* --1701 Market Street, Philadelphia,
PA 19103-2921. Partner, Morgan, Lewis & Bockius LLP (law firm), counsel to the
Trust, SEI Investments, the Administrator and the Distributor. Director and
Secretary of SEI Investments and Secretary of the Administrator and the
Distributor. Trustee of The Arbor Fund, The Expedition Funds, Oak Associates
Funds, SEI Asset Allocation Trust, SEI Daily Income Trust, SEI Index Funds, SEI
Institutional Investments Trust, SEI Institutional Managed Trust, SEI
Institutional International Trust, SEI Liquid Asset Trust and SEI Tax Exempt
Trust.
ROBERT A. PATTERSON (DOB 11/05/27) -- Trustee** -- Pennsylvania State
University, Senior Vice President, Treasurer (Emeritus). Financial and
Investment Consultant, Professor of Transportation (1984-present). Vice
President-Investments, Treasurer, Senior Vice President (Emeritus) (1982-1984).
Director, Pennsylvania Research Corp.; Member and Treasurer, Board of Trustees
of Grove City College. Trustee of The Arbor Fund, The Expedition Funds and Oak
Associates Funds.
EUGENE B. PETERS (DOB 06/03/29) -- Trustee** -- Private investor from 1987 to
present. Vice President and Chief Financial Officer, Western Company of North
America (petroleum service company) (1980-1986). President of Gene Peters and
Associates (import company) (1978-1980). President and Chief Executive Officer
of Jos. Schlitz Brewing Company before 1978. Trustee of The Arbor Fund, The
Expedition Funds and Oak Associates Funds.
JAMES M. STOREY (DOB 04/12/31) -- Trustee** -- Partner, Dechert Price & Rhoads,
from September 1987 - December 1993; Trustee of The Arbor Fund, The Expedition
Funds, Oak
S - 23
<PAGE>
Associates Funds, SEI Asset Allocation Trust, SEI Daily Income Trust, SEI Index
Funds, SEI Institutional Investments Trust, SEI Institutional Managed Trust, SEI
Institutional International Trust, SEI Liquid Asset Trust and SEI Tax Exempt
Trust.
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 Liquid Asset Trust, SEI
Institutional Investments Trust, SEI Institutional Managed Trust, SEI
Institutional International Trust, and SEI Tax Exempt Trust.
MARK E. NAGLE (DOB 10/20/59) -- Controller and Chief Financial Officer --
President of the Administrator and Senior Vice President of SEI Investments
Mutual Funds Services Operations Group since 1998. Vice President of the
Administrator and Vice President of Fund Accounting and Administration of SEI
Investments Mutual Fund Services, 1996- 1998. Vice President of the Distributor
since December 1997. Senior Vice President, Fund Administration, BISYS Fund
Services, September 1995 - November 1996. Senior Vice President and Site
Manager, Fidelity Investments 1981 - September 1995.
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 LLP (1997-1999). Associate at Richter, Miller & Finn LLP
(1994-1997).
TODD B. CIPPERMAN (DOB 02/14/66) -- Vice President and Assistant Secretary --
General Counsel of SEI Investments since 2000. Vice President and Assistant
Secretary of SEI Investments, the Administrator and the Distributor since 1995.
Associate, Dewey Ballantine (law firm), 1994-1995. Associate, Winston & Strawn
(law firm) 1991-1994.
JAMES R. FOGGO (DOB 06/30/64) -- Vice President and Assistant Secretary -- Vice
President and Assistant Secretary of SEI Investments since 1998. 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.
LYDIA A. GAVALIS (DOB 06/05/64) -- Vice President and Assistant Secretary --
Vice President and Assistant Secretary of the Administrator and the Distributor
since 1998. Assistant General Counsel and Director of Arbitration, Philadelphia
Stock Exchange, 1989-1998.
S - 24
<PAGE>
KEVIN P. ROBINS (DOB 04/15/61) -- Vice President and Assistant Secretary --
Senior Vice President and General Counsel of SEI Investments, the Administrator
and the Distributor since 1994. Assistant Secretary of SEI Investments since
1992; Secretary of the Administrator since 1994. Vice President, General Counsel
and Assistant Secretary of the Administrator and the Distributor, 1992-1994.
Associate, Morgan, Lewis & Bockius LLP (law firm), 1988-1992.
LYNDA J. STRIEGEL (DOB 10/30/48) -- Vice President and Assistant Secretary --
Vice President and Assistant Secretary of the Administrator and the Distributor
since 1998. Senior Asset Management Counsel, Barnett Banks, Inc., 1997-1998.
Partner, Groom and Nordberg, Chartered, 1996-1997. Associate General Counsel,
Riggs Bank, N.A., 1991-1995.
JOHN H. GRADY, JR. (DOB 06/01/61) -- Secretary --1701 Market Street,
Philadelphia, PA 19103-2921, Partner since 1995, Morgan, Lewis & Bockius LLP
(law firm), counsel to the Trust, SEI Investments, the Administrator and the
Distributor.
RICHARD W. GRANT (DOB 10/25/45) -- Assistant Secretary -- 1701 Market Street,
Philadelphia, PA 19103. Partner, Morgan, Lewis & Bockius LLP (law firm), counsel
to the Trust, 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 Fund pays the fees for unaffiliated Trustees.
The following table exhibits Trustee compensation for the fiscal period ended
October 31, 1999.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
Total Compensation
Aggregate From Registrant and
Compensation From Pension or Retirement Fund Complex* Paid
Registrant for the Fiscal Benefits Accrued as Estimated Annual to Trustees for the
Name of Person, Year Ended October 31, Part of Fund Benefits Upon Fiscal Year Ended
Position 1999 Expenses Retirement October 31, 1999
- -------------------------- -------------------------- ----------------------- ------------------- ----------------------
<S> <C> <C> <C> <C>
John T. Cooney $9,722.81 N/A N/A $9,722.81 for
services on 1 board
**Frank E. Morris $0 N/A N/A $0 for services on 1
board
Robert Patterson $9,722.81 N/A N/A $9,722.81 for
services on 1 board
Eugene B. Peters $9,722.81 N/A N/A $9,722.81 for
services on 1 board
S - 25
<PAGE>
James M. Storey, Esq. $9,722.81 N/A N/A $9,722.81 for
services on 1 board
George J. Sullivan $9,722.81 N/A N/A $9,722.81 for
services on 1 board
William M. Doran, Esq. $0 N/A N/A $0 for service on 1
board
Robert A. Nesher $0 N/A N/A $0 for service on 1
board
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
* For the purposes of this table, the Fund is the only investment company in
the "Fund Complex."
** Retired December 31, 1998.
PERFORMANCE INFORMATION
From time to time, the Trust may advertise yield and total return of the Fixed
Income Fund and the total return of the Equity Fund. These figures will be based
on historical earnings and are not intended to indicate future performance. No
representation can be made concerning actual future yields or returns.
PERFORMANCE COMPARISONS
The MDL Funds may periodically compare its performance to other mutual funds
tracked by mutual fund rating services, to broad groups of comparable mutual
funds, or to unmanaged indices. These comparisons may assume reinvestment of
dividends but generally do not reflect deductions for administrative and
management costs.
COMPUTATION OF YIELD
The yield of the Fixed Income Fund refers to the annualized income generated by
an investment in that Fund over a specified 30-day period. The yield is
calculated by assuming that the income generated by the investment during that
30-day period is generated in each period over one year and is shown as a
percentage of the investment. In particular, yield will be calculated according
to the following formula:
Yield = 2[((a-b)/cd+1)6-1], where a = dividends and interest earned during the
period; b = expenses accrued for the period (net of reimbursement); c = the
average daily number of shares outstanding during the period that were entitled
to receive dividends; and d = the maximum offering price per share on the last
day of the period.
For the 30-day period ended October 31, 1999, the Fixed Income Fund's yield was
5.25%.
CALCULATION OF TOTAL RETURN
The total return of a Fund refers to the average compounded rate of return to a
hypothetical investment for designated time periods (including, but not limited
to, the period from which that
S - 26
<PAGE>
Fund commenced operations through the specified date), assuming that the entire
investment is redeemed at the end of each period. In particular, total return
will be calculated according to the following formula: P (1 + T)n = ERV, where P
= a hypothetical initial payment of $1,000; T = average annual total return; n =
number of years; and ERV = ending redeemable value, as of the end of the
designated time period, of a hypothetical $1,000 payment made at the beginning
of the designated time period. For the fiscal year ended October 31, 1999 and
the period from November 1, 1997 (commencement of operations) through October
31, 1999, the Fixed Income Fund's average annual total return was (2.80%) and
2.98%, respectively, and the Equity Fund's average annual total return was
26.40% and 22.50%, respectively.
PURCHASING SHARES
Purchases and redemptions may be made through the Distributor on a day on which
the New York Stock Exchange is open for business. Shares of the MDL Funds are
offered on a continuous basis. Currently, the holidays observed by the Trust and
the New York Stock Exchange are as follows: New Year's Day, Presidents' Day,
Martin Luther King Jr. Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving and Christmas.
REDEEMING SHARES
It is currently the Trust's policy to pay all redemptions in cash. The Trust
retains the right, however, to alter this policy to provide for redemptions in
whole or in part by a distribution in-kind of securities held by a Fund in lieu
of cash. Shareholders may incur brokerage charges on the sale of any such
securities so received in payment of redemptions. The Trust has received
exemptive relief from the Securities and Exchange Commission (the "SEC"), which
permits the Trust to make in-kind redemptions to those shareholders that are
affiliated with the MDL Funds solely by their ownership of a certain percentage
of the MDL Funds.
A Shareholder will at all times be entitled to aggregate cash redemptions from
all portfolios of the Trust during any 90-day period of up to the lesser of
$250,000 or 1% of the Trust's net assets.
The Trust reserves the right to suspend the right of redemption and/or to
postpone the date of payment upon redemption for any period on which trading on
the New York Stock Exchange is restricted, or during the existence of an
emergency (as determined by the SEC by rule or regulation) as a result of which
the disposal or valuation of the Fund's securities is not reasonably
practicable, or for such other periods as the SEC has by order permitted. The
Trust also reserves the right to suspend sales of shares of any Fund for any
period during which the New York Stock Exchange, the Adviser, the Administrator,
the Transfer Agent and/or the Custodian are not open for business.
DETERMINATION OF NET ASSET VALUE
S - 27
<PAGE>
The securities of the MDL Funds are valued by the Administrator. The
Administrator will use an independent pricing service to obtain valuations of
securities. The pricing service relies primarily on prices of actual market
transactions as well as trader quotations. However, the service may also use a
matrix system to determine valuations of fixed income securities, which system
considers such factors as security prices, yields, maturities, call features,
ratings and developments relating to specific securities in arriving at
valuations. The procedures of the pricing service and its valuations are
reviewed by the officers of the Trust under the general supervision of the
Trustees.
TAXES
The following is only a summary of certain additional federal income tax
considerations generally affecting the MDL Funds and their shareholders that are
not described in the MDL Funds' prospectus. No attempt is made to present a
detailed explanation of the tax treatment of the MDL Funds or their
shareholders, and the discussion here and in the MDL Funds' prospectus is not
intended as a substitute for careful tax planning. Shareholders are to consult
with their tax advisors with specific reference to their own tax situation,
including their state and local tax liabilities.
FEDERAL INCOME TAX TREATMENT OF DIVIDENDS AND DISTRIBUTIONS
The following general discussion of certain federal income tax consequences is
based on the Internal Revenue Code of 1986, as amended (the "Code") and the
regulations issued thereunder as in effect on the date of this Statement of
Additional Information. New legislation, as well as administrative changes or
court decisions, may significantly change the conclusions expressed herein, and
may have a retroactive effect with respect to the transactions contemplated
herein.
QUALIFICATION AS REGULATED INVESTMENT COMPANY
Each Fund intends to qualify and elect to be treated as a RIC as defined under
Subchapter M of the Code. By following such a policy, the MDL Funds expect to
eliminate or reduce to a nominal amount the federal taxes to which they may be
subject.
In order to qualify as a RIC, a Fund must distribute at least 90% of its net
investment income (that generally includes dividends, taxable interest, and the
excess of net short-term capital gains over net long-term capital losses less
operating expenses) and at least 90% of its net tax exempt interest income, for
each tax year, if any, to its shareholders and also must meet several additional
requirements. Shareholders are urged to consult their tax advisors with specific
reference to their own tax situations, including their state and local tax
liabilities. Among these requirements are the following: (i) at least 90% of the
Fund's gross income each taxable year must be derived from dividends, interest,
payments with respect to securities loans, and gains from the sale or other
disposition of stock or securities, or certain other income; (ii) at the close
of each quarter of the Fund's taxable year, at least 50% of the value of its
total assets must be
S - 28
<PAGE>
represented by cash and cash items, U.S. Government securities, securities of
other RICs and other securities, with such other securities limited, in respect
to any one issuer, to an amount that does not exceed 5% of the value of the
Fund's assets and that does not represent more than 10% of the outstanding
voting securities of such issuer; and (iii) at the close of each quarter of the
Fund's taxable year, not more than 25% of the value of its assets may be
invested in securities (other than U.S. Government securities or the securities
of other RICs) of any one issuer or of two or more issuers which the Fund
controls and which are engaged in the same, similar or related trades or
businesses.
The MDL Funds may make investments in securities (such as STRIPS) that bear
"original issue discount" or "acquisition discount" (collectively, "OID
Securities"). The holder of such securities is deemed to have received interest
income even though no cash payments have been received. Accordingly, OID
Securities may not produce sufficient current cash receipts to match the amount
of distributable net investment income the MDL Funds must distribute to satisfy
the Distribution Requirement. In some cases, the MDL Funds may have to borrow
money or dispose of other investments in order to make sufficient cash
distributions to satisfy the Distribution Requirement.
Although each Fund intends to distribute substantially all of its net
investment income and may distribute its capital gains for any taxable year,
each Fund will be subject to federal income taxation to the extent any such
income or gains are not distributed.
If the MDL Funds fails to qualify for any taxable year as a RIC, all of their
taxable income will be subject to tax at regular corporate income tax rates
without any deduction for distributions to shareholders and such distributions
generally will be taxable to shareholders as ordinary dividends to the extent of
a Fund's current and accumulated earnings and profits. In this event,
distributions generally will be eligible for the dividends-received deduction
for corporate shareholders.
FUND DISTRIBUTIONS
Distributions of investment company taxable income will be taxable to
shareholders as ordinary income, regardless of whether such distributions are
paid in cash or are reinvested in additional shares, to the extent of a Fund's
earnings and profits. Each Fund anticipates that it will distribute
substantially all of its investment company taxable income for each taxable
year.
Each Fund may either retain or distribute to shareholders its excess of net
long-term capital gains over net short-term capital losses ("net capital
gains"). If such gains are distributed as a capital gains distribution, they are
taxable to shareholders who are individuals at a maximum rate of 20%, regardless
of the length of time the shareholder has held shares. If any such gains are
retained, a Fund will pay federal income tax thereon.
S - 29
<PAGE>
In the case of corporate shareholders, distributions (other than capital gains
distributions) from a RIC generally qualify for the dividends-received deduction
to the extent of the gross amount of qualifying dividends received by a Fund for
the year. Generally, and subject to certain limitations, a dividend will be
treated as a qualifying dividend if it has been received from a domestic
corporation. Accordingly, it is not expected that any Fixed Income Fund
distribution will qualify for the corporate dividends-received deduction.
Conversely, distributions from the Equity Fund generally will qualify for the
corporate dividends-received deduction.
Ordinarily, investors should include all dividends as income in the year of
payment. However, dividends declared payable to shareholders of record in
October, November or December of one year, but paid in January of the following
year, will be deemed for tax purposes to have been received by the shareholder
and paid by the Fund in the year in which the dividends were declared.
Each Fund will provide a statement annually to shareholders as to the federal
tax status of distributions paid (or deemed to be paid) by the Fund during the
year, including the amount of dividends eligible for the corporate
dividends-received deduction.
SALE OR EXCHANGE OF FUND SHARES
Generally, gain or loss on the sale or exchange of a share will be capital gain
or loss that will be long-term if the share has been held for more than twelve
months and otherwise will be short-term. For individuals, long-term capital
gains are currently taxed at a maximum rate of 20% and short-term capital gains
are currently taxed at ordinary income tax rates. However, if a shareholder
realizes a loss on the sale, exchange or redemption of a share held for six
months or less and has previously received a capital gains distribution with
respect to the share (or any undistributed net capital gains of a Fund with
respect to such share are included in determining the shareholder's long-term
capital gains), the shareholder must treat the loss as a long-term capital loss
to the extent of the amount of the prior capital gains distribution (or any
undistributed net capital gains of a Fund that have been included in determining
such shareholder's long-term capital gains). In addition, any loss realized on a
sale or other disposition of shares will be disallowed to the extent an investor
repurchases (or enters into a contract or option to repurchase) shares within a
period of 61 days (beginning 30 days before and ending 30 days after the
disposition of the shares). This loss disallowance rule will apply to shares
received through the reinvestment of dividends during the 61-day period.
In certain cases, the MDL Funds will be required to withhold, and remit to the
United States Treasury, 31% of any distributions paid to a shareholder who (1)
has failed to provide a correct taxpayer identification number; (2) is subject
to backup withholding by the Internal Revenue Service; or (3) has failed to
certify the MDL Funds that such shareholder is not subject to backup
withholding.
FEDERAL EXCISE TAX
S - 30
<PAGE>
If a Fund fails to distribute in a calendar year at least 98% of its ordinary
income for the year and 98% of its capital gain net income (the excess of short
and long term capital gains over short and long term capital losses) for the
one-year period ending October 31 of that year (and any retained amount from the
prior calendar year), a Fund will be subject to a nondeductible 4% Federal
excise tax on the undistributed amounts. Each Fund intends to make sufficient
distributions to avoid imposition of this tax, or to retain, at most its net
capital gains and pay tax thereon.
STATE AND LOCAL TAXES
Each MDL Fund is not liable for any income or franchise tax in Massachusetts if
it qualifies as a RIC for federal income tax purposes. Fund shareholders should
consult with their tax advisers regarding the state and local tax consequences
of investments in the MDL Funds.
FUND TRANSACTIONS
The MDL Funds have no obligation to deal with any broker-dealer or group of
broker-dealers in the execution of transactions in portfolio securities. Subject
to policies established by the Trustees of the Trust, the Adviser is responsible
for placing the orders to execute transactions for the MDL Funds. In placing
orders, it is the policy of the Trust to seek to obtain the best net results
taking into account such factors as price (including the applicable dealer
spread), the size, type and difficulty of the transaction involved, the firm's
general execution and operational facilities and the firm's risk in positioning
the securities involved. While the Adviser generally seeks reasonably
competitive spreads or commissions, the MDL Funds will not necessarily be paying
the lowest spread or commission available.
The money market instruments in which the Fund invests are traded primarily in
the over-the-counter market. Bonds and debentures are usually traded
over-the-counter, but may be traded on an exchange. Where possible, the Adviser
will deal directly with the dealers who make a market in the securities involved
except in those circumstances where better prices and execution are available
elsewhere. Such dealers usually are acting as principal for their own account.
On occasion, securities may be purchased directly from the issuer. Money market
instruments are generally traded on a net basis and do not normally involve
either brokerage commissions or transfer taxes. The cost of executing portfolio
securities transactions of the MDL Funds will primarily consist of dealer
spreads and underwriting commissions.
TRADING PRACTICES AND BROKERAGE
The Trust selects brokers or dealers to execute transactions for the purchase or
sale of portfolio securities on the basis of its judgment of their professional
capability to provide the service. The primary consideration is to have brokers
or dealers provide transactions at best price and execution for the Trust. Best
price and execution includes many factors, including the price paid or received
for a security, the commission charged, the promptness and reliability of
execution, the confidentiality and placement accorded the order and other
factors affecting the overall
S - 31
<PAGE>
benefit obtained by the account on the transaction. The Trust's determination of
what are reasonably competitive rates is based upon the professional knowledge
of its trading department as to rates paid and charged for similar transactions
throughout the securities industry. In some instances, the Trust pays a minimal
share transaction cost when the transaction presents no difficulty. Some trades
are made on a net basis where the Trust either buys securities directly from the
dealer or sells them to the dealer. In these instances, there is no direct
commission charged but there is a spread (the difference between the buy and
sell price) which is the equivalent of a commission.
The Trust may allocate out of all commission business generated by the fund and
accounts under management by the Adviser, brokerage business to brokers or
dealers who provide brokerage and research services. These research services
include advice, either directly or through publications or writings, as to the
value of securities, the advisability of investing in, purchasing or selling
securities, and the availability of securities or purchasers or sellers of
securities; furnishing of analyses and reports concerning issuers, securities or
industries; providing information on economic factors and trends, assisting in
determining portfolio strategy, providing computer software used in security
analyses, and providing portfolio performance evaluation and technical market
analyses. Such services are used by the Adviser in connection with its
investment decision-making process with respect to one or more funds and
accounts managed by it, and may not be used exclusively with respect to the fund
or account generating the brokerage.
As provided in the Securities Exchange Act of 1934 (the "1934 Act") higher
commissions may be paid to broker-dealers who provide brokerage and research
services than to broker-dealers who do not provide such services if such higher
commissions are deemed reasonable in relation to the value of the brokerage and
research services provided. Although transactions are directed to broker-dealers
who provide such brokerage and research services, the Trust believes that the
commissions paid to such broker-dealers are not, in general, higher than
commissions that would be paid to broker-dealers not providing such services and
that such commissions are reasonable in relation to the value of the brokerage
and research services provided. In addition, portfolio transactions which
generate commissions or their equivalent are directed to broker-dealers who
provide daily portfolio pricing services to the Trust. Subject to best price and
execution, commissions used for pricing may or may not be generated by the funds
receiving the pricing service.
The Adviser may place a combined order for two or more accounts or funds engaged
in the purchase or sale of the same security if, in its judgment, joint
execution is in the best interest of each participant and will result in best
price and execution. Transactions involving commingled orders are allocated in a
manner deemed equitable to each account or fund. It is believed that the ability
of the accounts to participate in volume transactions will generally be
beneficial to the accounts and funds. Although it is recognized that, in some
cases, the joint execution of orders could adversely affect the price or volume
of the security that a particular account or the MDL Funds may obtain, it is the
opinion of the Adviser and the Trust's Board of Trustees that the advantages of
combined orders outweigh the possible disadvantages of separate transactions.
S - 32
<PAGE>
Consistent with the Conduct Rules of the National Association of Securities
Dealers, Inc., and subject to seeking best price and execution, the MDL Funds,
at the request of the Distributor, give consideration to sales of shares of the
Trust as a factor in the selection of brokers and dealers to execute Trust
portfolio transactions.
It is expected that the MDL Funds may execute brokerage or other agency
transactions through the Distributor, which is a registered broker-dealer, for a
commission in conformity with the 1940 Act, the 1934 Act and rules promulgated
by the SEC. Under these provisions, the Distributor is permitted to receive and
retain compensation for effecting portfolio transactions for the MDL Funds on an
exchange if a written contract is in effect between the Distributor and the
Trust expressly permitting the Distributor to receive and retain such
compensation. These rules further require that commissions paid to the
Distributor by the MDL Funds for exchange transactions not exceed "usual and
customary" brokerage commissions. The rules define "usual and customary"
commissions to include amounts which are "reasonable and fair compared to the
commission, fee or other remuneration received or to be received by other
brokers in connection with comparable transactions involving similar securities
being purchased or sold on a securities exchange during a comparable period of
time." The Trustees, including those who are not "interested persons" of the
Trust, have adopted procedures for evaluating the reasonableness of commissions
paid to the Distributor and will review these procedures periodically.
For the fiscal year ended October 31, 1999, the following commissions were paid
on brokerage transactions, pursuant to an agreement or understanding, to brokers
because of research services provided by the brokers:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------
Total Dollar
Amount of Total Dollar Amount of
Fund Brokerage Transactions Involving Directed
Commissions for Brokerage Commissions for
Research Services Research Services
- --------------------------------------------------------------------------------------
<S> <C> <C>
Fixed Income Fund $[ ] $[ ]
Equity Fund $[ ] $[ ]
- --------------------------------------------------------------------------------------
</TABLE>
For the fiscal years ended October 31, 1998 and 1999, the MDL Funds paid $0, and
[$__] to SEI Investments.
For the fiscal years ended October 31, 1998 and 1999, the MDL Funds paid the
following brokerage commissions:
S - 33
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
Total $ Amount of Total $ Amount % of Total % of Total
Brokerage of Brokerage Brokerage Brokerage
Fund Commissions Paid Commissions Commissions Transactions
Paid to Affiliated Paid to the Effected Through
Brokers Affiliated Affiliated Brokers
Brokers
- --------------------------------------------------------------------------------------------------------------------------
1998 1999 1998 1999 1998 1999 1998 1999
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Fixed Income $0 $0 $0 $353 0% 1.00% 0% 0%
Fund
Equity Fund $4,841 $20,970 $0 $20,147 0% 0.96% 0% 0%
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
Since the Trust does not market its shares through intermediary brokers or
dealers, it is not the Trust's practice to allocate brokerage or principal
business on the basis of sales of its shares which may be made through such
firms. However, the Adviser may place portfolio orders with qualified
broker-dealers who recommend the MDL Funds' shares to clients, and may, when a
number of brokers and dealers can provide best net results on a particular
transaction, consider such recommendations by a broker or dealer in selecting
among broker-dealers.
The MDL Funds are required to identify any securities of its "regular brokers or
dealers" (as such term is defined in the 1940 Act, which the MDL Funds have
acquired during its most recent fiscal year). For the fiscal year ended October
31, 1999, the Fixed Income Fund held $51,000 of Morgan Stanley's repurchase
agreements and the Equity Fund held $440,000 of Morgan Stanley's repurchase
agreements.
DESCRIPTION OF SHARES
The Declaration of Trust authorizes the issuance of an unlimited number of
portfolios and shares of each portfolio, each of which represents an equal
proportionate interest in the portfolio with each other share. Shares are
entitled upon liquidation to a pro rata share in the net assets of the
portfolio. Shareholders have no preemptive rights. The Declaration of Trust
provides that the Trustees of the Trust may create additional series of shares.
All consideration received by the Trust for shares of any additional series and
all assets in which such consideration is invested would belong to that series
and would be subject to the liabilities related thereto. Share certificates
representing shares will not be issued.
SHAREHOLDER LIABILITY
The Trust is an entity of the type commonly known as a "Massachusetts business
trust." Under Massachusetts law, shareholders of such a trust could, under
certain circumstances, be held personally liable as partners for the obligations
of the trust. Even if, however, the Trust were
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<PAGE>
held to be a partnership, the possibility of the shareholders incurring
financial loss for that reason appears remote because the Trust's Declaration of
Trust contains an express disclaimer of shareholder liability for obligations of
the Trust and requires that notice of such disclaimer be given in each
agreement, obligation or instrument entered into or executed by or on behalf of
the Trust or the Trustees, and because the Declaration of Trust provides for
indemnification out of the Trust property for any shareholder held personally
liable for the obligations of the Trust.
LIMITATION OF TRUSTEES' LIABILITY
The Declaration of Trust provides that a Trustee shall be liable only for his or
her own willful defaults and, if reasonable care has been exercised in the
selection of officers, agents, employees or investment advisers, shall not be
liable for any neglect or wrongdoing of any such person. The Declaration of
Trust also provides that the Trust will indemnify its Trustees and officers
against liabilities and expenses incurred in connection with actual or
threatened litigation in which they may be involved because of their offices
with the Trust unless it is determined in the manner provided in the Declaration
of Trust that they have not acted in good faith in the reasonable belief that
their actions were in the best interests of the Trust. However, nothing in the
Declaration of Trust shall protect or indemnify a Trustee against any liability
for his or her willful misfeasance, bad faith, gross negligence or reckless
disregard of his or her duties.
5% AND 25% SHAREHOLDERS
As of February 1, 2000, the following persons were the only persons who were
record owners (or to the knowledge of the Fund, beneficial owners) of 5% and 25%
or more of the MDL Funds' shares. Persons who owned of record or beneficially
more than 25% of a Fund's outstanding shares may be deemed to control that Fund
within the meaning of the Act.
THE FIXED INCOME FUND
<TABLE>
<CAPTION>
Shareholder Number of Shares %
- ----------- ---------------- -
<S> <C> <C>
City of Aliquippa -- Police 237,586 10.56%
300 Franklin Ave.
Aliquippa, PA 15001-3708
Beaver County Retirement Plan 1,527,275 67.90%
Courthouse
Beaver, PA 15009
THE EQUITY FUND
Shareholder Number of Shares %
- ----------- ---------------- -
S - 35
<PAGE>
City of Aliquippa -- Police 277,929 15.07%
300 Franklin Ave.
Aliquippa, PA 15001-3708
Beaver County Retirement Plan 1,255,418 68.05%
Courthouse
Beaver, PA 15009
</TABLE>
The Trust believes that most of the shares referred to above were held by the
above persons in accounts for their fiduciary, agency or custodial customers.
EXPERTS
The financial statements incorporated by reference have been audited by Arthur
Andersen LLP, independent public accountants, as indicated in their report with
respect thereto, in reliance upon the authority of said firm as experts in
giving said reports.
FINANCIAL STATEMENTS
The financial statements for the fiscal year ended October 31, 1999, including
notes thereto and the report of Arthur Andersen LLP thereon, are herein
incorporated by reference in reliance upon the authority of said firm as experts
in giving said report. A copy of the 1999 Annual Report to Shareholders must
accompany the delivery of this Statement of Additional Information.
S - 36
<PAGE>
AIG MONEY MARKET FUND
Investment Adviser:
AIG CAPITAL MANAGEMENT CORP.
This STATEMENT OF ADDITIONAL INFORMATION is not a prospectus and relates only to
the Class A and Class B shares of the AIG Money Market Fund (the "Fund"). It is
intended to provide additional information regarding the activities and
operations of The Advisors' Inner Circle Fund (the "Trust") and the Fund. This
Statement of Additional Information should be read in conjunction with the
Fund's Prospectuses dated March 1, 2000, as amended or supplemented from time to
time. A copy of the Prospectuses for the Class A and Class B shares of the Fund
may be obtained by calling 1-800-249-7445.
TABLE OF CONTENTS
THE TRUST..................................................................S-2
INVESTMENT OBJECTIVES AND POLICIES.........................................S-2
DESCRIPTION OF PERMITTED INVESTMENTS.......................................S-3
INVESTMENT LIMITATIONS.....................................................S-9
THE ADVISER...............................................................S-11
THE ADMINISTRATOR.........................................................S-12
THE DISTRIBUTOR...........................................................S-13
THE TRANSFER AGENT........................................................S-14
THE CUSTODIAN.............................................................S-14
INDEPENDENT PUBLIC ACCOUNTANTS............................................S-14
LEGAL COUNSEL.............................................................S-14
TRUSTEES AND OFFICERS OF THE TRUST........................................S-14
PERFORMANCE INFORMATION...................................................S-18
COMPUTATION OF YIELD......................................................S-19
CALCULATION OF TOTAL RETURN...............................................S-19
PURCHASING SHARES.........................................................S-20
REDEEMING SHARES..........................................................S-20
DETERMINATION OF NET ASSET VALUE..........................................S-21
TAXES.....................................................................S-22
FUND TRANSACTIONS.........................................................S-25
TRADING PRACTICES AND BROKERAGE...........................................S-25
DESCRIPTION OF SHARES.....................................................S-28
SHAREHOLDER LIABILITY.....................................................S-29
LIMITATION OF TRUSTEES' LIABILITY.........................................S-29
5% AND 25% SHAREHOLDERS...................................................S-29
EXPERTS...................................................................S-30
FINANCIAL STATEMENTS......................................................S-30
APPENDIX...................................................................A-1
March 1, 2000
AIG-F-003-06
S-1
<PAGE>
THE TRUST
This Statement of Additional Information relates only to the AIG Money Market
Fund (the "Fund"). The Fund is a separate series of The Advisors' Inner Circle
Fund (the "Trust"), an open-end management investment company, established under
Massachusetts law as a Massachusetts business trust under a Declaration of Trust
dated July 18, 1991. The Declaration of Trust permits the Trust to offer
separate series ("portfolios") of shares of beneficial interest ("shares").
Shares of the Fund are offered through two separate classes (Class A and Class
B) which provide for variations in minimum investment balances, distribution
fees, voting rights and dividends. Except for these differences, each share of
the Fund represents an equal proportionate interest in the Fund. See
"Description of Shares." No investment in shares of the Fund should be made
without first reading the applicable Prospectuses of the Fund. Capitalized terms
not defined herein are defined in the Prospectuses.
The Fund pays its (i) operating expenses, including fees of its service
providers, expenses of preparing prospectuses, proxy solicitation material and
reports to shareholders, costs of custodial services and registering shares
under federal and state securities laws, pricing and insurance expenses,
brokerage costs, interest charges, taxes and organization expenses and (ii) pro
rata share of the Trust's other expenses, including audit and legal expenses.
Expenses not attributable to a specific portfolio are allocated across all of
the portfolios on the basis of relative net assets.
INVESTMENT OBJECTIVES AND POLICIES
The investment objective of the Fund is to preserve principal value and maintain
a high degree of liquidity while providing current income. This investment
objective is fundamental and cannot be changed without the consent of
shareholders. It is also a fundamental policy of the Fund to use its best
efforts to maintain a constant net asset value of $1.00 per share. There is no
assurance that the Fund will achieve its investment objective or that it will be
able to maintain a constant net asset value of $1.00 per share on a continuous
basis.
RESTRAINTS ON INVESTMENTS BY MONEY MARKET FUNDS -- Investments by a money market
fund are subject to limitations imposed under regulations adopted by the SEC.
These regulations impose certain quality, maturity and diversification
restraints on investments by a money market fund. Under these regulations, money
market funds may only acquire obligations that present minimal credit risk and
that are "eligible securities," which means they are (i) rated, at the time of
investment, by at least two NRSROs (one if it is the only organization rating
such obligation) in the highest rating category or, if unrated, determined to be
of comparable quality (a "first tier security"); or (ii) rated according to the
foregoing criteria in the second highest rating category or, if unrated,
determined to be of comparable quality ("second tier security"). A security is
not considered to be unrated if its issuer has outstanding obligations of
comparable priority and security that have a short-term rating. A money market
fund may invest up to 25% of its assets in "first tier" securities of a single
issuer for a period of up to three business days. The securities that money
market funds may acquire may be supported by credit enhancements, such as demand
features or guarantees. The SEC
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regulations limit the percentage of securities that a money market fund may hold
for which a single issuer provides credit enhancements. The Fund invests only in
first tier securities.
INVESTMENT STRATEGIES OF THE FUND
In seeking its investment objective, the Fund will invest exclusively in (i)
bills, notes and bonds issued by the United States Treasury ("U.S. Treasury
Obligations") and separately traded interest and principal component parts of
such obligations ("Stripped Government Securities"); (ii) obligations issued or
guaranteed as to principal and interest by the agencies or instrumentalities of
the United States Government; (iii) U.S. dollar denominated short-term
obligations of issuers rated at the time of investment in the highest rating
category for short-term debt obligations (within which there may be
sub-categories or gradations indicating relative standing) by two or more
nationally recognized statistical rating organizations ("NRSROs"), or only one
NRSRO if only one NRSRO has rated the security, or, if not rated, as determined
by the Adviser to be of comparable quality, consisting of obligations of U.S.
and foreign corporations, domestic banks, foreign banks, and U.S. and foreign
savings and loan institutions; (iv) repurchase agreements with respect to the
foregoing; (v) obligations of supranational entities satisfying the credit
standards described above or, if not rated, determined by the Adviser to be of
comparable quality; and (vi) obligations of foreign governments, agencies and
instrumentalities satisfying the credit standards described above or, if not
rated, determined by the Adviser to be of comparable quality.
The Fund reserves the right to invest more than 25% of its total assets in
obligations issued by domestic branches of U.S. banks or U.S. branches of
foreign banks subject to similar regulations as U.S. banks. To the extent that
the Fund invests more than 25% of its net assets in bank obligations, it will be
exposed to the risks associated with that industry as a whole. The Fund may
purchase asset-backed securities rated in the highest NRSRO rating category at
the time of investment. The Fund may invest in securities which pay interest on
a variable or floating rate basis. In addition, the Fund may acquire securities
on a when-issued basis and may buy securities which are subject to puts or
standby commitments. The Fund will not invest more than 10% of its net assets in
illiquid securities. The Fund reserves the right to enter into reverse
repurchase agreements and engage in securities lending.
The Fund will use NRSROs such as Standard & Poor's Corporation and Moody's
Investors Service, Inc. when determining security credit ratings.
DESCRIPTION OF PERMITTED INVESTMENTS
ASSET-BACKED SECURITIES - Asset-backed securities are securities backed by
non-mortgage assets such as company receivables, truck and auto loans, leases
and credit card receivables. Other asset-backed securities may be created in the
future. These securities may be traded over-the-counter and typically have a
short-intermediate maturity structure depending on the paydown characteristics
of the underlying financial assets which are passed through to the security
holder. These securities are
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generally issued as pass-through certificates, which represent undivided
fractional ownership interests in the underlying pool of assets. Asset-backed
securities may also be debt obligations, which are known as collateralized
obligations and are generally issued as the debt of a special purpose entity,
such as a trust, organized solely for the purpose of owning these assets and
issuing debt obligations.
Asset-backed securities are not issued or guaranteed by the U.S. Government, its
agencies or instrumentalities; however, the payment of principal and interest on
such obligations may be guaranteed up to certain amounts and, for a certain
period, by a letter of credit issued by a financial institution (such as a bank
or insurance company) unaffiliated with the issuers of such securities. The
purchase of asset-backed securities raises risk considerations peculiar to the
financing of the instruments underlying such securities. For example, there is a
risk that another party could acquire an interest in the obligations superior to
that of the holders of the asset-backed securities. There also is the
possibility that recoveries on repossessed collateral may not, in some cases, be
available to support payments on those securities.
Asset-backed securities entail prepayment risk, which may vary depending on the
type of asset, but is generally less than the prepayment risk associated with
mortgage-backed securities. In addition, credit card receivables are unsecured
obligations of the card holder. There may be a limited secondary market for such
securities.
BANKERS' ACCEPTANCES -- Bankers' acceptances are bills of exchange or time
drafts drawn on and accepted by a commercial bank. Bankers' acceptances are used
by corporations to finance the shipment and storage of goods. Maturities are
generally six months or less.
CERTIFICATES OF DEPOSIT -- Certificates of deposit are interest bearing
instruments with a specific maturity. They are issued by banks and savings and
loan institutions in exchange for the deposit of funds and normally can be
traded in the secondary market prior to maturity.
COMMERCIAL PAPER -- Commercial paper is a term used to describe unsecured
short-term promissory notes issued by banks, municipalities, corporations and
other entities. Maturities on these issues vary from a few to 270 days.
EURODOLLAR AND YANKEE BANK OBLIGATIONS -- Eurodollar bank obligations are U.S.
dollar denominated certificates of deposit or time deposits issued outside the
United States by foreign branches of U.S. banks or by foreign banks. Yankee bank
obligations are U.S. dollar denominated obligations issued in the United States
by foreign banks.
ILLIQUID SECURITIES -- Illiquid securities are securities that cannot be
disposed of within seven business days at approximately the price at which they
are being carried on the Fund's books. An illiquid security includes a demand
instrument with a demand notice period exceeding seven days, where there is no
secondary market for such security, and repurchase agreements with a remaining
term to maturity in excess of 7 days.
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OBLIGATIONS OF SUPRANATIONAL ENTITIES -- Supranational entities are entities
established through the joint participation of several governments, and include
the Asian Development Bank, the Inter-American Development Bank, International
Bank for Reconstruction and Development (World Bank), African Development Bank,
European Economic Community, European Investment Bank and the Nordic Investment
Bank.
REPURCHASE AGREEMENTS --Repurchase agreements are agreements by which a person
(E.G., the Fund) obtains a security and simultaneously commits to return the
security to the seller (a primary securities dealer as recognized by the Federal
Reserve Bank of New York or a national member bank as defined in Section 3(d)(1)
of the Federal Deposit Insurance Act, as amended) at an agreed upon price
(including principal and interest) on an agreed upon date within a number of
days (usually not more than seven) from the date of purchase. The resale price
reflects the purchase price plus an agreed upon market rate of interest which is
unrelated to the coupon rate or maturity of the underlying security. A
repurchase agreement involves the obligation of the seller to pay the agreed
upon price, which obligation is, in effect, secured by the value of the
underlying security.
Repurchase agreements are considered to be loans by the Fund for purposes of its
investment limitations. The repurchase agreements entered into by the Fund will
provide that the underlying security at all times shall have a value at least
equal to 102% of the resale price stated in the agreement (the Adviser monitors
compliance with this requirement). Under all repurchase agreements entered into
by the Fund, the appropriate Custodian or its agent must take possession of the
underlying collateral. However, if the seller defaults, the Fund could realize a
loss on the sale of the underlying security to the extent that the proceeds of
the sale including accrued interest are less than the resale price provided in
the agreement including interest. In addition, even though the Bankruptcy Code
provides protection for most repurchase agreements, if the seller should be
involved in bankruptcy or insolvency proceedings, the Fund may incur delay and
costs in selling the underlying security or may suffer a loss of principal and
interest if the Fund is treated as an unsecured creditor and required to return
the underlying security to the seller's estate.
RESTRICTED SECURITIES -- Restricted securities are securities that may not be
sold to the public without registration under the Securities Act of 1933 (the
"1933 Act") or an exemption from registration. Permitted investments for the
Fund includes restricted securities. Restricted securities, including securities
eligible for re-sale under 1933 Act Rule 144A, that are determined to be liquid
are not subject to this limitation. This determination is to be made by the Fund
Adviser pursuant to guidelines adopted by the Board of Trustees. Under these
guidelines, the particular Adviser will consider the frequency of trades and
quotes for the security, the number of dealers in, and potential purchasers for,
the securities, dealer undertakings to make a market in the security, and the
nature of the security and of the marketplace trades. In purchasing such
Restricted Securities, each Adviser intends to purchase securities that are
exempt from registration under Rule 144A under the 1933 Act.
REVERSE REPURCHASE AGREEMENTS -- Reverse repurchase agreements are agreements by
which the Fund sells securities to financial institutions and simultaneously
agrees to repurchase those securities at a mutually agreed-upon date and price.
At the time the Fund enters into a reverse repurchase
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agreement, the Fund will place liquid assets having a value equal to the
repurchase price in a segregated custodial account and monitor this account to
ensure equivalent value is maintained. Reverse repurchase agreements involve the
risk that the market value of securities sold by the Fund may decline below the
price at which the Fund is obligated to repurchase the securities. Reverse
repurchase agreements are considered to be borrowings by the Fund under the 1940
Act.
SECURITIES LENDING --The Fund may lend securities pursuant to agreements which
require that the loans be continuously secured by collateral at all times equal
to 100% of the market value of the loaned securities which consists of: cash,
securities of the U.S. Government or its agencies, or any combination of cash
and such securities. Such loans will not be made if, as a result, the aggregate
amount of all outstanding securities loans for the Fund exceed one-third of the
value of the Fund's total assets taken at fair market value. The Fund will
continue to receive interest on the securities lent while simultaneously earning
interest on the investment of the cash collateral in U.S. Government securities.
However, the Fund will normally pay lending fees to such broker-dealers and
related expenses from the interest earned on invested collateral. There may be
risks of delay in receiving additional collateral or risks of delay in recovery
of the securities or even loss of rights in the collateral should the borrower
of the securities fail financially. However, loans are made only to borrowers
deemed by the appropriate Adviser to be of good standing and when, in the
judgment of that Adviser, the consideration which can be earned currently from
such securities loans justifies the attendant risk. Any loan may be terminated
by either party upon reasonable notice to the other party. The Fund may use the
Distributor or a broker-dealer affiliate of an Adviser as a broker in these
transactions.
SECURITIES OF FOREIGN GOVERNMENTS - The Fund may invest in U.S. dollar
denominated obligations of foreign governments. These instruments may subject
the Fund to investment risks that differ in some respects from those related to
investments in obligations of U.S. domestic issuers. Such risks include future
adverse political and economic developments, the possible imposition of
withholding taxes on interest or other income, possible seizure,
nationalization, or expropriation of foreign deposits, the possible
establishment of exchange controls or taxation at the source, greater
fluctuations in value due to changes in exchange rates, or the adoption of other
foreign governmental restrictions which might adversely affect the payment of
principal and interest on such obligations. Such investments may also entail
higher custodial fees and sales commissions than domestic investments. Foreign
issuers of securities or obligations are often subject to accounting treatment
and engage in business practices different from those respecting domestic
issuers of similar securities or obligations. Foreign branches of U.S. banks and
foreign banks may be subject to less stringent reserve requirements than those
applicable to domestic branches of U.S. banks.
SECURITIES OF FOREIGN ISSUERS - There are certain risks connected with investing
in foreign securities. These include risks of adverse political and economic
developments (including possible governmental seizure or nationalization of
assets), the possible imposition of exchange controls or other governmental
restrictions, less uniformity in accounting and reporting requirements, the
possibility that there will be less information on such securities and their
issuers available to the public, the difficulty of obtaining or enforcing court
judgments abroad, restrictions on foreign
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investments in other jurisdictions, difficulties in effecting repatriation of
capital invested abroad, and difficulties in transaction settlements and the
effect of delay on shareholder equity. Foreign securities may be subject to
foreign taxes, and may be less marketable than comparable U.S. securities.
STANDBY COMMITMENTS AND PUTS --The Fund may purchase securities at a price which
would result in a yield to maturity lower than that generally offered by the
seller at the time of purchase when they can simultaneously acquire the right to
sell the securities back to the seller, the issuer or a third party (the
"writer") at an agreed-upon price at any time during a stated period or on a
certain date. Such a right is generally denoted as a "standby commitment" or a
"put." The purpose of engaging in transactions involving puts is to maintain
flexibility and liquidity to permit the Fund to meet redemptions and remain as
fully invested as possible in municipal securities. The Fund reserves the right
to engage in put transactions. The right to put the securities depends on the
writer's ability to pay for the securities at the time the put is exercised. The
Fund would limit its put transactions to institutions which the Adviser believes
present minimal credit risks, and the Adviser would use its best efforts to
initially determine and continue to monitor the financial strength of the
sellers of the options by evaluating their financial statements and such other
information as is available in the marketplace. It may, however, be difficult to
monitor the financial strength of the writers because adequate current financial
information may not be available. In the event that any writer is unable to
honor a put for financial reasons, the Fund would be a general creditor (I.E.,
on a parity with all other unsecured creditors) of the writer. Furthermore,
particular provisions of the contract between the Fund and the writer may excuse
the writer from repurchasing the securities; for example, a change in the
published rating of the underlying securities or any similar event that has an
adverse effect on the issuer's credit or a provision in the contract that the
put will not be exercised except in certain special cases, for example, to
maintain portfolio liquidity. The Fund could, however, at any time sell the
underlying portfolio security in the open market or wait until the portfolio
security matures, at which time it should realize the full par value of the
security.
The securities purchased subject to a put may be sold to third persons at any
time, even though the put is outstanding, but the put itself, unless it is an
integral part of the security as originally issued, may not be marketable or
otherwise assignable. Therefore, the put would have value only to the Fund. Sale
of the securities to third parties or lapse of time with the put unexercised may
terminate the right to put the securities. Prior to the expiration of any put
option, the Fund could seek to negotiate terms for the extension of such an
option. If such a renewal cannot be negotiated on terms satisfactory to the
Fund, the Fund could, of course, sell the portfolio security. The maturity of
the underlying security will generally be different from that of the put. There
will be no limit to the percentage of portfolio securities that the Fund may
purchase subject to a standby commitment or put, but the amount paid directly or
indirectly for all standby commitments or puts which are not integral parts of
the security as originally issued held in the Fund will not exceed 1/2 of 1% of
the value of the total assets of the Fund calculated immediately after any such
put is acquired.
STRIPPED GOVERNMENT SECURITIES -- The Fund may purchase Separately Traded
Registered Interest and Principal Securities ("STRIPS") that are created when
the coupon payments and the principal
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payment are stripped from an outstanding United States Treasury bond by the
Federal Reserve Bank of New York and sold separately. The Fund may not actively
trade STRIPS.
TIME DEPOSITS -- Time deposits are non-negotiable receipts issued by a bank in
exchange for the deposit of funds. Like a certificate of deposit, it earns a
specified rate of interest over a definite period of time; however, it cannot be
traded in the secondary market. Time deposits with a withdrawal penalty or a
remaining term to maturity in excess of 7 days are considered to be illiquid
securities.
U.S. GOVERNMENT AGENCY OBLIGATIONS -- U.S. Government agency obligations are
obligations issued or guaranteed by agencies or instrumentalities of the U.S.
Government. Agencies of the United States Government which issue obligations
consist of, among others, the Export Import Bank of the United States, Farmers
Home Administration, Federal Farm Credit Bank, Federal Housing Administration,
Government National Mortgage Association ("GNMA"), Maritime Administration,
Small Business Administration and The Tennessee Valley Authority. Obligations of
instrumentalities of the United States Government include securities issued by,
among others, Federal Home Loan Banks, Federal Home Loan Mortgage Corporation
("FHLMC"), Federal Intermediate Credit Banks, Federal Land Banks, Fannie Mae and
the United States Postal Service as well as government trust certificates. Some
of these securities are supported by the full faith and credit of the United
States Treasury, others are supported by the right of the issuer to borrow from
the Treasury and still others are supported only by the credit of the
instrumentality. Guarantees of principal by agencies or instrumentalities of the
U.S. Government may be a guarantee of payment at the maturity of the obligation
so that in the event of a default prior to maturity there might not be a market
and thus no means of realizing the value of the obligation prior to maturity.
U.S. TREASURY OBLIGATIONS -- U.S. Treasury obligations consist of bills, notes
and bonds issued by the U.S. Treasury and separately traded interest and
principal component parts of such obligations that are transferable through the
federal book-entry system known as STRIPS.
VARIABLE AND FLOATING RATE INSTRUMENTS -- Certain obligations may carry variable
or floating rates of interest, and may involve a conditional or unconditional
demand feature. Such instruments bear interest at rates which are not fixed, but
which vary with changes in specified market rates or indices. The interest rates
on these securities may be reset daily, weekly, quarterly or some other reset
period. There is a risk that the current interest rate on such obligations may
not accurately reflect existing market interest rates. A demand instrument with
a demand notice exceeding seven days may be considered illiquid if there is no
secondary market for such security.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES -- When-issued or delayed delivery
basis transactions involve the purchase of an instrument with payment and
delivery taking place in the future. Delivery of and payment for these
securities may occur a month or more after the date of the purchase commitment.
The Fund will maintain with the Custodian a separate account with liquid assets
in an amount at least equal to these commitments. The interest rate realized on
these securities is fixed as of the purchase date and no interest accrues to the
Fund before settlement. These
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securities are subject to market fluctuation due to changes in market interest
rates and it is possible that the market value at the time of settlement could
be higher or lower than the purchase price if the general level of interest
rates has changed. Although the Fund generally purchases securities on a
when-issued or forward commitment basis with the intention of actually acquiring
securities for its portfolio, the Fund may dispose of a when-issued security or
forward commitment prior to settlement if it deems appropriate.
INVESTMENT LIMITATIONS
The following are fundamental policies of the Fund and cannot be changed with
respect to the Fund without the consent of the holders of a majority of the
Fund's outstanding shares. The term "majority of the outstanding shares" means
the vote of (i) 67% or more of the Fund's shares present at a meeting, if more
than 50% of the outstanding shares of the Fund are present or represented by
proxy, or (ii) more than 50% of the Fund's outstanding shares, whichever is
less.
The Fund may not:
1. Purchase securities of any issuer (except securities issued or
guaranteed by the United States Government, its agencies or
instrumentalities and repurchase agreements involving such securities)
if, as a result, more than 5% of the total assets of the Fund would be
invested in the securities of such issuer; provided, however, that the
Fund may invest up to 25% of its total assets without regard to this
restriction as permitted by applicable law.
2. Purchase any securities which would cause 25% or more of the total
assets of the Fund to be invested in the securities of one or more
issuers conducting their principal business activities in the same
industry, provided that this limitation does not apply to investments
in the obligations issued or guaranteed by the United States
Government, its agencies or instrumentalities, repurchase agreements
involving such securities and obligations issued by domestic branches
of U.S. banks or U.S. branches of foreign banks subject to the same
regulations as U.S. banks. For purposes of this limitation, (i) utility
companies will be classified according to their services, for example,
gas, gas transmission, electric and telephone will each be considered a
separate industry; (ii) financial service companies will be classified
according to the end users of their services, for example, automobile
finance, bank finance and diversified finance will each be considered a
separate industry; (iii) supranational entities will be considered a
separate industry; and (iv) asset-backed securities will be classified
according to the underlying assets securing such securities.
3. Make loans, except that the Fund may (i) purchase or hold debt
instruments in accordance with its investment objective and policies;
(ii) enter into repurchase agreements; and (iii) engage in securities
lending as described in this Statement of Additional Information.
4. Borrow money, except that the Fund may (i) enter into reverse
repurchase agreements and (ii) borrow money for temporary or emergency
purposes and then only in an amount not exceeding 33 1/3% of the value
of its total assets. Any borrowing will be done from a bank
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and asset coverage of at least 300% is required. In the event that such
asset coverage shall at any time fall below 300%, the Fund shall,
within three days thereafter or such longer period as the SEC may
prescribe by rules and regulations, reduce the amount of its borrowings
to such an extent that the asset coverage of such borrowings shall be
at least 300%. This borrowing provision is included for temporary
liquidity or emergency purposes. All borrowings will be repaid before
making investments and any interest paid on such borrowings will reduce
income.
5. Acquire more than 5% of the voting securities of any one issuer.
6. Invest in companies for the purpose of exercising control.
7. Pledge, mortgage or hypothecate assets except to secure temporary
borrowings in aggregate amounts not to exceed 10% of total assets taken
at current value at the time of the incurrence of such loan.
8. Purchase or sell real estate, real estate limited partnership
interests, futures contracts, commodities or commodities contracts and
interests in a pool of securities that are secured by interests in real
estate. However, subject to the permitted investments of the Fund, it
may invest in municipal securities or other marketable obligations
secured by real estate or interests therein.
9. Make short sales of securities, maintain a short position or purchase
securities on margin, except that the Fund may obtain short-term
credits as necessary for the clearance of security transactions.
10. Act as an underwriter of securities of other issuers except as it may
be deemed an underwriter in selling the Fund security.
11. Purchase securities of other investment companies except as permitted
by the 1940 Act and the rules and regulations thereunder.
13. Issue senior securities (as defined in the 1940 Act) except in
connection with permitted borrowings as described above or as permitted
by rule, regulation or order of the SEC.
14. Purchase or retain securities of an issuer if, to the knowledge of the
Fund, an officer, trustee, partner or director of the Trust or any
investment adviser of the Fund owns beneficially more than 0.5% of the
shares or securities of such issuer and all such officers, trustees,
partners and directors owning more than 0.5% of such shares or
securities together own more than 5% of such shares or securities.
15. Invest in interests in oil, gas or other mineral exploration or
development programs and oil, gas or mineral leases.
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16. Write puts, calls, options or combinations thereof or invest in
warrants.
The foregoing percentages will apply at the time of the purchase of a security.
THE ADVISER
The Trust and AIG Capital Management Corp. (the "Adviser") have entered into an
advisory agreement dated November 21, 1994 (the "Advisory Agreement"). The
Advisory Agreement provides that the Adviser shall not be protected against any
liability to the Trust or its shareholders by reason of willful misfeasance, bad
faith or gross negligence on its part in the performance of its duties or from
reckless disregard of its obligations or duties thereunder.
The Adviser is an indirect wholly-owned subsidiary of American International
Group, Inc. ("AIG"). AIG is a holding company which through its subsidiaries is
primarily engaged in a broad range of insurance and insurance-related and
financial services activities in the United States and abroad. The Adviser was
formed in June 1994. Its officers and employees include individuals with
investment management experience, including experience with short-term
investments. The principal business address of the Adviser is 70 Pine Street,
New York, New York 10270.
The Adviser serves as the Fund's investment adviser and makes the investment
decisions for the assets of the Fund and continuously reviews, supervises and
administers the Fund's investment program, subject to the supervision of, and
policies established by, the Trustees of the Trust.
The Adviser is entitled to a fee, which is calculated daily and paid monthly, at
an annual rate of .25% of the average daily net assets of the Fund. The Adviser
has voluntarily agreed to waive 10 basis points (.10%) of its fees and to waive
additional fees and/or reimburse certain expenses of the Fund to the extent
necessary in order to limit net operating expenses to an annual rate of not more
than .40% of the average daily net assets of the Class A shares of the Fund and
not more than .75% of the average daily net assets of the Class B Shares of the
Fund. The Adviser reserves the right to terminate its waiver or any
reimbursements at any time upon sixty days' notice to the Fund in its sole
discretion. For the fiscal year ended October 31, 1999, the Adviser received
(after fee waivers) a fee equal to .15% of the Fund's average daily net assets.
For the fiscal years ended October 31, 1997, October 31, 1998 and October 31,
1999, the Adviser was paid advisory fees of $689,323, $932,230 and $954,019,
respectively, and waived advisory fees of $459,559, $504,977 and $636,005,
respectively, with respect to the Fund.
The continuance of the Advisory Agreement must be specifically approved at least
annually (i) by the vote of the Trustees or by a vote of the shareholders of the
Fund, and (ii) by the vote of a majority of the Trustees who are not parties to
the Agreement or "interested persons" of any party thereto, cast in person at a
meeting called for the purpose of voting on such approval. The Advisory
Agreement will terminate automatically in the event of its assignment, and is
terminable at any time without penalty by the Trustees of the Trust or, with
respect to the Fund, by a majority of the outstanding
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shares of the Fund, on not less than 30 days' nor more than 60 days' written
notice to the Adviser, or by the Adviser on 90 days' written notice to the
Trust.
THE ADMINISTRATOR
SEI Investments Mutual Funds Services (the "Administrator") serves as the
Administrator of the Trust. The Administrator provides the Trust with
administrative services, including regulatory reporting and all necessary office
space, equipment, personnel and facilities. The Trust shall pay the
Administrator compensation for services rendered at an annual rate equal to the
sum of (i) .10% of average daily net assets up to $50 million; (ii) .08% of
average daily net assets from $50 million up to $250 million; (iii) .06% of
average daily net assets from $250 million up to and including $450 million; and
(iv) .05% of average daily net assets in excess of $450 million. There is a
minimum annual fee of $75,000 per portfolio plus $15,000 for each additional
class.
The Administration Agreement provides that the Administrator shall not be liable
for any error of judgment or mistake of law or for any loss suffered by the
Trust in connection with the matters to which the Administration Agreement
relates, except a loss resulting from willful misfeasance, bad faith or gross
negligence on the part of the Administrator in the performance of its duties or
from reckless disregard by it of its duties and obligations thereunder. For the
fiscal years ended October 31, 1997, October 31, 1998 and October 31, 1999, the
Administrator received a fee of $326,095, $343,631 and $422,996, respectively,
from the Fund. The Administrator waived $56,655, $48,702 and $0, respectively,
of fees for the fiscal years ended October 31, 1997, October 31, 1998 and
October 31, 1999.
The Trust and the Administrator have also entered into a shareholder servicing
agreement pursuant to which the Administrator provides certain shareholder
services in addition to those set forth in the Administration Agreement.
The Administrator, a Delaware business trust, has its principal business
offices at Oaks, Pennsylvania 19456. SEI Investments Management Corporation
("SIMC"), a wholly-owned subsidiary of SEI Investments Company ("SEI
Investments"), is the owner of all beneficial interest in the Administrator.
SEI Investments and its subsidiaries and affiliates, including the
Administrator, are leading providers of funds evaluation services, trust
accounting systems, and brokerage and information services to financial
institutions, institutional investors, and money managers. The Administrator
and its affiliates also serve as administrator or sub-administrator to the
following other mutual funds: The Achievement Funds Trust, Alpha Select
Funds, Amerindo Funds, Inc., The Arbor Fund, ARK Funds, Armada Funds, Bishop
Street Funds, Boston 1784 Funds-Registered Trademark-, CNI Charter Funds,
CUFUND, The Expedition Funds, First American Funds, Inc., First American
Investment Funds, Inc., First American Strategy Funds, Inc., HighMark Funds,
Huntington Funds, The Nevis Funds, Inc., Oak Associates Funds, The Parkstone
Advantage Fund, The PBHG Funds, Inc., PBHG Insurance Series Fund, Inc., The
Pillar Funds, SEI Asset Allocation Trust, SEI Daily Income Trust, SEI Index
Funds, SEI Institutional International Trust, SEI Institutional Investments
Trust, SEI Institutional Managed Trust, SEI Liquid Asset Trust, SEI Tax
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Exempt Trust, STI Classic Funds, STI Classic Variable Trust, TIP Funds, UAM
Funds Trust, UAM Funds, Inc. II, and UAM Funds, Inc.
THE DISTRIBUTOR
SEI Investments Distribution Co. (the "Distributor"), a wholly-owned subsidiary
of SEI Investments, and the Trust are parties to a distribution agreement dated
November 14, 1991 ("Distribution Agreement") which applies to both Class A and
Class B shares of the Fund.
The Distribution Agreement is renewable annually. The Distribution Agreement may
be terminated by the Distributor, by a majority vote of the Trustees who are not
interested persons and have no financial interest in the Distribution Agreement
or by a majority of the outstanding shares of the Trust upon not more than 60
days' written notice by either party or upon assignment by the Distributor. The
Distributor does not receive compensation for distribution of Class A shares of
the Fund. Class B shares are subject to the terms of a distribution plan dated
August 8, 1994 (the "Class B Plan").
CLASS B PLAN
The Distribution Agreement and the Class B Plan provide that the Class B shares
of the Fund will pay the Distributor a fee of .35% of the average daily net
assets of the Class B shares which the Distributor may make payments pursuant to
written agreements to financial institutions and intermediaries such as banks,
savings and loan associations, insurance companies including, without limit,
other subsidiaries and affiliates of AIG, investment counselors, broker-dealers
and the Distributor's affiliates and subsidiaries (collectively, "Agents") as
compensation for services, reimbursement of expenses incurred in connection with
distribution assistance or provision of shareholder services. The Class B Plan
is characterized as a compensation plan since the distribution fee will be paid
to the Distributor without regard to the distribution or shareholder service
expenses incurred by the Distributor or the amount of payments made to other
financial institutions and intermediaries. Investors should understand that some
Agents may charge their clients fees in connection with purchases of Class B
shares or the provision of shareholder services with respect to Class B shares.
The Trust intends to operate the Class B Plan in accordance with its terms and
with the NASD rules concerning sales charges.
The Distributor has appointed AIG Equity Sales Corp. (the "Sub-Distributor"), a
wholly-owned subsidiary of AIG and an affiliate of the Adviser, as
sub-distributor and servicing agent with respect to the Class B shares of the
Fund. The Sub-Distributor may appoint additional sub-distributors and/or
servicing agents.
The Trust has adopted the Class B Plan in accordance with the provisions of Rule
12b-1 under the 1940 Act, which regulates circumstances under which an
investment company may directly or indirectly bear expenses relating to the
distribution of its shares. Continuance of the Class B Plan must be approved
annually by a majority of the Trustees of the Trust and by a majority of the
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Trustees who are not parties to the Distribution Agreement or interested persons
(as defined by the 1940 Act) of any party to the Distribution Agreement
("Qualified Trustees"). The Class B Plan requires that quarterly written reports
of amounts spent under the Class B Plan and the purposes of such expenditures be
furnished to and reviewed by the Trustees. The Class B Plan may not be amended
to increase materially the amount which may be spent thereunder without approval
by a majority of the outstanding Class B shares of the Fund. All material
amendments of the Plan will require approval by a majority of the Trustees of
the Trust and of the Qualified Trustees.
For the fiscal years ended October 31, 1997, October 31, 1998 and October 31,
1999 the Distributor received from the Fund, pursuant to the Class B Plan,
distribution fees in the amount of $419,962, $482,117 and $585,788,
respectively, with respect to the Class B shares. The entire amount of these
fees was paid by the Distributor to the Sub-Distributor, as compensation for its
services, in accordance with an agreement between the Distributor and the
Sub-Distributor.
THE TRANSFER AGENT
DST Systems, Inc., 333 West 12th Street, Kansas City, MO 64105 serves as the
Trust's transfer agent.
THE CUSTODIAN
First Union National Bank, 123 South Broad Street, Philadelphia, Pennsylvania
19109 acts as custodian (the "Custodian") of the Trust. The Custodian holds
cash, securities and other assets of the Trust as required by the 1940 Act.
INDEPENDENT PUBLIC ACCOUNTANTS
Arthur Andersen LLP serves as independent public accountants for the Trust.
LEGAL COUNSEL
Morgan, Lewis & Bockius LLP, 1800 M Street, N.W., Washington, D.C. serves as
legal counsel to the Trust.
TRUSTEES AND OFFICERS OF THE FUND
The management and affairs of the Fund are supervised by the Trustees under the
laws of the Commonwealth of Massachusetts. The Trustees have approved contracts
under which, as described above, certain companies provide essential management
services to the Fund. The Fund pays the fees for unaffiliated Trustees.
The Trustees and Executive Officers of the Fund, their respective dates of
birth, and their principal occupations for the last five years are set forth
below. Each may have held other positions with the
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<PAGE>
named companies during that period. Unless otherwise noted, the business
address of each Trustee and each Executive Officer is SEI Investments
Company, Oaks, Pennsylvania 19456. Certain officers of the Fund also serve as
officers of some or all of the following: The Achievement Funds Trust, Alpha
Select Funds, Amerindo Funds, Inc., The Arbor Fund, ARK Funds, Armada Funds,
Bishop Street Funds, Boston 1784 Funds-Registered Trademark-, CNI Charter
Funds, CUFUND, The Expedition Funds, First American Funds, Inc., First
American Investment Funds, Inc., First American Strategy Funds, Inc.,
HighMark Funds, Huntington Funds, The Nevis Funds, Inc., Oak Associates
Funds, The Parkstone Advantage Fund, The PBHG Funds, Inc., PBHG Insurance
Series Fund, Inc., The Pillar Funds, SEI Asset Allocation Trust, SEI Daily
Income Trust, SEI Index Funds, SEI Institutional International Trust, SEI
Institutional Investments Trust, SEI Institutional Managed Trust, SEI Liquid
Asset Trust, SEI Tax Exempt Trust, STI Classic Funds, STI Classic Variable
Trust, TIP Funds, UAM Funds Trust, UAM Funds, Inc. II, and UAM Funds, Inc.,
each of which is an open-end management investment company managed by SEI
Investments Mutual Funds Services or its affiliates and, except for PBHG
Advisor Funds, Inc., distributed by SEI Investments Distribution Co.
ROBERT A. NESHER (DOB 08/17/46) -- Chairman of the Board of Trustees* --
Currently performs various services on behalf of SEI Investments for which
Mr. Nesher is compensated. Executive Vice President of SEI Investments,
1986-1994. Director and Executive Vice President of the Administrator and the
Distributor, 1981-1994. Trustee of The Arbor Fund, Boston 1784
Funds-Registered Trademark-, The Expedition Funds, Oak Associates Funds,
Pillar Funds, SEI Asset Allocation Trust, SEI Daily Income Trust, SEI Index
Funds, SEI Institutional Investments Trust, SEI Institutional Managed Trust,
SEI Institutional International Trust, SEI Liquid Asset Trust and SEI Tax
Exempt Trust.
JOHN T. COONEY (DOB 01/20/27) -- Trustee** -- Vice Chairman of Ameritrust
Texas N.A., 1989-1992, and MTrust Corp., 1985-1989. Trustee of The Arbor
Fund, The Expedition Funds, and Oak Associates Funds.
WILLIAM M. DORAN (DOB 05/26/40) -- Trustee* -- 1701 Market Street,
Philadelphia, PA 19103-2921. Partner, Morgan, Lewis & Bockius LLP (law firm),
counsel to the Trust, SEI Investments, the Administrator and the Distributor.
Director and Secretary of SEI Investments and Secretary of the Administrator
and the Distributor. Trustee of The Arbor Fund, The Expedition Funds, Oak
Associates Funds, SEI Asset Allocation Trust, SEI Daily Income Trust, SEI
Index Funds, SEI Institutional Investments Trust, SEI Institutional Managed
Trust, SEI Institutional International Trust, SEI Liquid Asset Trust and SEI
Tax Exempt Trust.
ROBERT A. PATTERSON (DOB 11/05/27) -- Trustee** -- Pennsylvania State
University, Senior Vice President, Treasurer (Emeritus). Financial and
Investment Consultant, Professor of Transportation (1984-present). Vice
President-Investments, Treasurer, Senior Vice President (Emeritus) (1982-1984).
Director, Pennsylvania Research Corp.; Member and Treasurer, Board of Trustees
of Grove City College. Trustee of The Arbor Fund, The Expedition Funds and Oak
Associates Funds.
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<PAGE>
EUGENE B. PETERS (DOB 06/03/29) -- Trustee** -- Private investor from 1987 to
present. Vice President and Chief Financial Officer, Western Company of North
America (petroleum service company) (1980-1986). President of Gene Peters and
Associates (import company) (1978-1980). President and Chief Executive Officer
of Jos. Schlitz Brewing Company before 1978. Trustee of The Arbor Fund, The
Expedition Funds and Oak Associates Funds.
JAMES M. STOREY (DOB 04/12/31) -- Trustee** -- Partner, Dechert Price & Rhoads,
from September 1987 - December 1993; Trustee of The Arbor Fund, The Expedition
Funds, Oak Associates Funds, SEI Asset Allocation Trust, SEI Daily Income Trust,
SEI Index Funds, SEI Institutional Investments Trust, SEI Institutional Managed
Trust, SEI Institutional International Trust, SEI Liquid Asset Trust and SEI Tax
Exempt Trust.
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 Liquid Asset Trust, SEI
Institutional Investments Trust, SEI Institutional Managed Trust, SEI
Institutional International Trust, and SEI Tax Exempt Trust.
MARK E. NAGLE (DOB 10/20/59) -- Controller and Chief Financial Officer --
President of the Administrator and Senior Vice President of SEI Investments
Mutual Funds Services Operations Group since 1998. Vice President of the
Administrator and Vice President of Fund Accounting and Administration of SEI
Investments Mutual Fund Services, 1996- 1998. Vice President of the Distributor
since December 1997. Senior Vice President, Fund Administration, BISYS Fund
Services, September 1995 - November 1996. Senior Vice President and Site
Manager, Fidelity Investments 1981 - September 1995.
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 LLP (1997-1999). Associate at Richter,
Miller & Finn LLP (1994-1997).
TODD B. CIPPERMAN (DOB 02/14/66) -- Vice President and Assistant Secretary --
General Counsel of SEI Investments since 2000. Vice President and Assistant
Secretary of SEI Investments, the Administrator and the Distributor since 1995.
Associate, Dewey Ballantine (law firm), 1994-1995. Associate, Winston & Strawn
(law firm) 1991-1994.
JAMES R. FOGGO (DOB 06/30/64) -- Vice President and Assistant Secretary -- Vice
President and Assistant Secretary of SEI Investments since 1998. 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
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<PAGE>
Fowler L.L.P. (law firm), 1993-1995. Operations Manager, The Shareholder
Services Group, Inc., 1986-1990.
LYDIA A. GAVALIS (DOB 06/05/64) -- Vice President and Assistant Secretary --
Vice President and Assistant Secretary of the Administrator and the Distributor
since 1998. Assistant General Counsel and Director of Arbitration, Philadelphia
Stock Exchange, 1989-1998.
KEVIN P. ROBINS (DOB 04/15/61) -- Vice President and Assistant Secretary --
Senior Vice President and General Counsel of SEI Investments, the Administrator
and the Distributor since 1994. Assistant Secretary of SEI Investments since
1992; Secretary of the Administrator since 1994. Vice President, General Counsel
and Assistant Secretary of the Administrator and the Distributor, 1992-1994.
Associate, Morgan, Lewis & Bockius LLP (law firm), 1988-1992.
LYNDA J. STRIEGEL (DOB 10/30/48) -- Vice President and Assistant Secretary --
Vice President and Assistant Secretary of the Administrator and the Distributor
since 1998. Senior Asset Management Counsel, Barnett Banks, Inc., 1997-1998.
Partner, Groom and Nordberg, Chartered, 1996-1997. Associate General Counsel,
Riggs Bank, N.A., 1991-1995.
JOHN H. GRADY, JR. (DOB 06/01/61) -- Secretary -- 1701 Market Street,
Philadelphia, PA 19103-2921, Partner since 1995, Morgan, Lewis & Bockius LLP
(law firm), counsel to the Trust, SEI Investments, the Administrator and the
Distributor.
RICHARD W. GRANT (DOB 10/25/45) -- Assistant Secretary -- 1701 Market Street,
Philadelphia, PA 19103. Partner, Morgan, Lewis & Bockius LLP (law firm), counsel
to the Trust, 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 Fund pays the fees for unaffiliated Trustees.
The following table exhibits Trustee compensation for the fiscal period ended
October 31, 1999.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
Total Compensation
Aggregate Compensation From Registrant and
From Registrant for the Pension or Retirement Fund Complex* Paid
Fiscal Year Ended October Benefits Accrued as Part Estimated Annual to Trustees for the
Name of Person, Position 31, 1999 of Fund Expenses Benefits Upon Fiscal Year Ended
Retirement October 31, 1999
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
John T. Cooney $9,571.48 N/A N/A $9,571.48 for services
on 1 board
S-17
<PAGE>
**Frank E. Morris $2,447.81 N/A N/A $2,447.81 for services
on 1 board
Robert Patterson $9571.48 N/A N/A $9571.48 for services
on 1 board
Eugene B. Peters $9571.48 N/A N/A $9571.48 for services
on 1 board
James M. Storey, Esq. $9571.48 N/A N/A $9571.48 for services
on 1 board
George J. Sullivan $7,123.67 N/A N/A $7,123.67 for services
on 1 board
William M. Doran, Esq. $0 N/A N/A $0 for service on 1
board
Robert A. Nesher $0 N/A N/A $0 for service on 1
board
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
* For the purposes of this table, the Fund is the only investment company in the
"Fund Complex."
** Retired December 31, 1998.
PERFORMANCE INFORMATION
From time to time, the Trust may advertise yield, effective yield and total
return of the Fund. These figures will be based on historical earnings and are
not intended to indicate future performance. No representation can be made
concerning actual future yields.
CLASSES OF SHARES AND PERFORMANCE
The performance of Class A shares will normally be higher than that of Class B
shares because Class A shares are not subject to distribution expenses charged
to Class B shares. Yield quotations are computed and presented separately for
the Class A and Class B shares.
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<PAGE>
PERFORMANCE COMPARISONS
The Fund may periodically compare its performance to other mutual funds tracked
by mutual fund rating services, to broad groups of comparable mutual funds, or
to unmanaged indices. These comparisons may assume reinvestment of dividends but
generally do not reflect deductions for administrative and management costs.
COMPUTATION OF YIELD
The yield of the Fund refers to the annualized income generated by an
investment in the Fund over a specified 7-day period. The yield is calculated
by assuming that the income generated by the investment during that 7-day
period is generated in each period over one year and is shown as a percentage
of the investment. The "effective yield" is calculated similarly, but when
annualized, the income earned by an investment in the Fund is assumed to be
reinvested. The "effective yield" will be slightly higher than the "yield"
because of the compounding effect of this assumed investment. In particular,
these yields will be calculated as follows:
The current yield of the Fund will be calculated daily based upon the seven days
ending on the date of calculation ("base period"). The yield is computed by
determining the net change during the period (exclusive of capital changes) in
the value of a hypothetical pre-existing shareholder account having a balance of
one share at the beginning of the period, subtracting a hypothetical charge
reflecting deductions from shareholder accounts, and dividing such net change by
the value of the account at the beginning of the same period to obtain the base
period return and multiplying the result by (365/7). Realized and unrealized
gains and losses are not included in the calculation of the yield. The effective
yield of the Fund is determined by computing the net change during the period,
exclusive of capital changes, in the value of a hypothetical pre-existing
account having a balance of one share at the beginning of the period,
subtracting a hypothetical charge reflecting deductions from shareholder
accounts, and dividing the difference by the value of the account at the
beginning of the base period to obtain the base period return, and then
compounding the base period return, according to the following formula:
365/7
Effective Yield = [(Base Period Return + 1) ] - 1.
The effective yield reflects the reinvestment of net income earned daily on the
Fund's assets.
For the 7-day period ended October 31, 1999, the end of the Fund's most recent
fiscal year, the current and effective yields for Class A shares of the Fund
were 5.15% and 5.29%, respectively, and for Class B shares were 4.81% and 4.92%,
respectively.
CALCULATION OF TOTAL RETURN
The total return of the Fund refers to the average compounded rate of return to
a hypothetical investment for designated time periods (including, but not
limited to, the period from which the
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<PAGE>
Trust commenced operations through the specified date), assuming that the
entire investment is redeemed at the end of each period. In particular, total
return will be calculated according to the following formula: P (1 + T) TO
THE POWER OF n = ERV, where P = a hypothetical initial payment of $1,000; T =
average annual total return; n = number of years; and ERV = ending redeemable
value, as of the end of the designated time period, of a hypothetical $1,000
payment made at the beginning of the designated time period. Total return is
calculated separately for each class of shares of the Trust.
The average annual total returns for Class A Shares of the Fund for the fiscal
year ended October 31, 1999 and for the three year period ended October 31, 1999
were 4.94% and 5.28%, and for the period from December 1, 1994 (commencement of
operations) through October 31, 1999, the cumulative return for Class A Shares
of the Fund was 29.29%.
The average annual total returns for Class B Shares of the Fund for the fiscal
year ended October 31, 1999 and for the three year period ended October 31, 1999
were 4.58% and 4.91%, and for the period from February 16, 1995 (commencement of
operations) through October 31, 1999, the cumulative return for Class B Shares
of the Fund was 25.72%.
PURCHASING SHARES
Purchases and redemptions may be made through the Distributor on a day when the
New York Stock Exchange and Federal Reserve wire system are open for business.
Shares of the Fund are offered on a continuous basis. Currently, the Fund is
closed for business when the following holidays are observed: New Year's Day,
Martin Luther King Jr. Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Columbus Day, Veterans' Day, Thanksgiving and
Christmas.
REDEEMING SHARES
It is currently the Trust's policy to pay all redemptions in cash. The Trust
retains the right, however, to alter this policy to provide for redemptions in
whole or in part by a distribution in-kind of securities held by the Fund in
lieu of cash. Shareholders may incur brokerage charges on the sale of any such
securities so received in payment of redemptions. The Trust has obtained an
exemptive order from the SEC that permits the Trust to make in-kind redemptions
to those Shareholders that are affiliated with the Trust solely by their
ownership of a certain percentage of the Trust's investment portfolios.
A shareholder will at all times be entitled to aggregate cash redemptions from
all portfolios of the Trust during any 90-day period of up to the lesser of
$250,000 or 1% of the Trust's net assets.
The Trust reserves the right to suspend the right of redemption and/or to
postpone the date of payment upon redemption for any period on which trading on
the New York Stock Exchange is restricted, or during the existence of an
emergency (as determined by the SEC by rule or regulation) as a result of which
the disposal or valuation of the Fund's securities is not reasonably
practicable, or for such other periods as the SEC has by order permitted. The
Trust also reserves the right to
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<PAGE>
suspend sales of shares of any Fund for any period during which the New York
Stock Exchange, the Adviser, the Administrator, the Transfer Agent and/or the
Custodian are not open for business.
DETERMINATION OF NET ASSET VALUE
The net asset value per share of each class of the Fund is calculated by
adding the value of securities and other assets, subtracting liabilities and
dividing by the number of outstanding shares. Securities will be valued by
the amortized cost method which involves valuing a security at its cost on
the date of purchase and thereafter (absent unusual circumstances) assuming a
constant amortization to maturity of any discount or premium, regardless of
the impact of fluctuations in general market rates of interest on the value
of the instrument. While this method provides certainty in valuation, it may
result in periods during which a security's value, as determined by this
method, is higher or lower than the price the Fund would receive if it sold
the instrument. During periods of declining interest rates, the daily yield
of the Fund may tend to be higher than a like computation made by a company
with identical investments utilizing a method of valuation based upon market
prices and estimates of market prices for all of its portfolio securities.
Thus, if the use of amortized cost by the Fund resulted in a lower aggregate
portfolio value on a particular day, a prospective investor in the Fund would
be able to obtain a somewhat higher yield than would result from investment
in a company utilizing solely market values, and existing investors in the
Fund would experience a lower yield. The converse would apply in a period of
rising interest rates.
The use of amortized cost valuation by the Fund and the maintenance of the
Fund's net asset value at $1.00 are permitted by regulations promulgated by Rule
2a-7 under the Investment Company Act of 1940 (the "1940 Act"), provided that
certain conditions are met. Under Rule 2a-7 as amended, a money market portfolio
must maintain a dollar-weighted average maturity in the Fund of 90 days or less
and not purchase any instrument having a remaining maturity of more than 397
days. In addition, money market funds may acquire only U.S. dollar denominated
obligations that present minimal credit risks and that are "eligible securities"
which means they are (i) rated, at the time of investment, by at least two
nationally recognized statistical rating organizations (one if it is the only
organization rating such obligation) in the highest short-term rating category
or, if unrated, determined to be of comparable quality (a "first tier
security"), or (ii) rated according to the foregoing criteria in the second
highest short-term rating category or, if unrated, determined to be of
comparable quality ("second tier security"). The Fund does not invest in second
tier securities. The Adviser will determine that an obligation presents minimal
credit risks or that unrated instruments are of comparable quality to first tier
securities in accordance with guidelines established by the Trustees. In
addition, investments in second tier securities are subject to the further
constraints that (i) no more than 5% of the Fund's assets may be invested in
such securities in the aggregate, and (ii) any investment in such securities of
one issuer is limited to the greater of 1% of the Fund's total assets or $1
million. The regulations also require the Trustees to establish procedures which
are reasonably designed to stabilize the net asset value per share at $1.00 for
the Fund. However, there is no assurance that the Fund will be able to meet this
objective. The Trust's procedures include the determination of the extent of
deviation, if any, of the Fund's current net asset value per unit calculated
using available market quotations from the Fund's amortized cost price per
share at such
S-21
<PAGE>
intervals as the Trustees deem appropriate and reasonable in light of market
conditions and periodic reviews of the amount of the deviation and the methods
used to calculated such deviation. In the event that such deviation exceeds 1/2
of 1%, the Trustees are required to consider promptly what action, if any,
should be initiated. If the Trustees believe that the extent of any deviation
may result in material dilution or other unfair results to shareholders, the
Trustees are required to take such corrective action as they deem appropriate to
eliminate or reduce such dilution or unfair results to the extent reasonably
practicable. In addition, if the Fund incurs a significant loss or liability,
the Trustees have the authority to reduce pro rata the number of shares of the
Fund in each shareholder's account and to offset each shareholder's pro rata
portion of such loss or lability from the shareholder's accrued but unpaid
dividends or from future dividends.
The securities of the Fund are valued by the Administrator. The Administrator
will use an independent pricing service to obtain valuations of securities. The
pricing service relies primarily on prices of actual market transactions as well
as trader quotations. However, the service may also use a matrix system to
determine valuations, which system considers such factors as security prices,
yields, maturities, call features, ratings and developments relating to specific
securities in arriving at valuations. The procedures of the pricing service and
its valuations are reviewed by the officers of the Trust under the general
supervision of the Trustees.
TAXES
The following is only a summary of certain additional federal income tax
considerations generally affecting the Fund and its shareholders that are not
described in the Fund's prospectus. No attempt is made to present a detailed
explanation of the tax treatment of the Fund or its shareholders, and the
discussion here and in the Fund's prospectus is not intended as a substitute for
careful tax planning. Shareholders are urged to consult their tax advisors with
specific reference to their own tax situations, including their state and local
tax liabilities.
FEDERAL INCOME TAX TREATMENT OF DIVIDENDS AND DISTRIBUTIONS
The following general discussion of certain federal income tax consequences is
based on the Internal Revenue Code of 1986, as amended (the "Code") and the
regulations issued thereunder as in effect on the date of this Statement of
Additional Information. New legislation, as well as administrative changes or
court decisions, may significantly change the conclusions expressed herein, and
may have a retroactive effect with respect to the transactions contemplated
herein.
QUALIFICATION AS REGULATED INVESTMENT COMPANY
The Fund intends to qualify and elect to be treated as a "regulated investment
company" ("RIC") under Subchapter M of the Code. By following such a policy, the
Fund expects to eliminate or reduce to a nominal amount the federal taxes to
which it may be subject.
S-22
<PAGE>
In order to qualify as a RIC, the Fund must distribute at least 90% of its net
investment income (generally, dividends, taxable interest, and the excess of net
short-term capital gains over net long-term capital losses less operating
expenses) and at least 90% of its net tax exempt interest income, for each tax
year (the "Distribution Requirement"), if any, to its shareholders and also must
meet several additional requirements. Among these requirements are the
following: (i) at least 90% of the Fund's gross income each taxable year must be
derived from dividends, interest, payments with respect to securities loans and
gains from the sale or other disposition of stock or securities, or certain
other income; (ii) at the close of each quarter of the Fund's taxable year, at
least 50% of the value of its total assets must be represented by cash and cash
items, U.S. Government securities, securities of other RICs and other
securities, with such other securities limited, in respect to any one issuer, to
an amount that does not exceed 5% of the value of the Fund's assets and that
does not represent more than 10% of the outstanding voting securities of such
issuer; and (iii) at the close of each quarter of the Fund's taxable year, not
more than 25% of the value of its assets may be invested in securities (other
than U.S. Government securities or the securities of other RICs) of any one
issuer or of two or more issuers that the Fund controls or that are engaged in
the same, similar or related trades or business.
The Fund may make investments in securities (such as STRIPS) that bear "original
issue discount" or "acquisition discount" (collectively, "OID Securities"). The
holder of such securities is deemed to have received interest income even though
no cash payments have been received. Accordingly, OID Securities may not produce
sufficient current cash receipts to match the amount of distributable net
investment income the Fund must distribute to satisfy the Distribution
Requirement. In some cases, the Fund may have to borrow money or dispose of
other investments in order to make sufficient cash distributions to satisfy the
Distribution Requirement.
Although the Fund intends to distribute substantially all of its net investment
income and may distribute its capital gains for any taxable year, the Fund will
be subject to federal income taxation to the extent any such income or gains are
not distributed.
If the Fund fails to qualify for any taxable year as a RIC, all of its taxable
income will be subject to tax at regular corporate income tax rates without any
deduction for distributions to shareholders and such distributions generally
will be taxable to shareholders as ordinary dividends to the extent of the
Fund's current and accumulated earnings and profits. In this event,
distributions generally will be eligible for the dividends-received deduction
for corporate shareholders.
FUND DISTRIBUTIONS
Distributions of investment company taxable income will be taxable to
shareholders as ordinary income, regardless of whether such distributions are
paid in cash or are reinvested in additional Shares, to the extent of the Fund's
earnings and profits. The Fund anticipates that it will distribute substantially
all of its investment company taxable income for each taxable year.
S-23
<PAGE>
The Fund may either retain or distribute to shareholders its excess of net
long-term capital gains over net short-term capital losses ("net capital
gains"). If such gains are distributed as a capital gains distribution, they are
taxable to shareholders who are individuals at a maximum rate of 20%, regardless
of the length of time the shareholder has held shares. If any such gains are
retained, the Fund will pay federal income tax thereon. It is not expected that
any Fund distribution will qualify for the corporate dividends-received
deduction.
Ordinarily, investors should include all dividends as income in the year of
payment. However, dividends declared payable to shareholders of record in
October, November, or December of one year, but paid in January of the following
year, will be deemed for tax purposes to have been received by the shareholder
and paid by the Fund in the year in which the dividends were declared.
The Fund will provide a statement annually to shareholders as to the federal tax
status of distributions paid (or deemed to be paid) by the Fund during the year,
including the amount of dividends eligible for the corporate dividends-received
deduction.
SALE OF FUND SHARES
Generally, gain or loss on the sale of a share will be capital gain or loss that
will be long-term if the share has been held for more than twelve months and
otherwise will be short-term. For individuals, long-term capital gains are
currently taxed at a maximum rate of 20% and short-term capital gains are
currently taxed at ordinary income tax rates. However, if a shareholder realizes
a loss on the sale or redemption of a share held for six months or less and has
previously received a capital gains distribution with respect to the share (or
any undistributed net capital gains of the Fund with respect to such share are
included in determining the shareholder's long-term capital gains), the
shareholder must treat the loss as a long-term capital loss to the extent of the
amount of the prior capital gains distribution (or any undistributed net capital
gains of the Fund that have been included in determining such shareholder's
long-term capital gains). In addition, any loss realized on a sale or other
disposition of shares will be disallowed to the extent an investor repurchases
(or enters into a contract or option to repurchase) shares within a period of 61
days (beginning 30 days before and ending 30 days after the disposition of the
shares). This loss disallowance rule will apply to shares received through the
reinvestment of dividends during the 61-day period.
In certain cases, the Fund will be required to withhold, and remit to the United
States Treasury, 31% of any distributions paid to a shareholder who (1) has
failed to provide a correct taxpayer identification number, (2) is subject to
backup withholding by the Internal Revenue Service, or (3) has failed to certify
to the Fund that such shareholder is not subject to backup withholding.
FEDERAL EXCISE TAX
If the Fund fails to distribute in a calendar year at least 98% of its ordinary
income for the year and 98% of its capital gain net income (the excess of short
and long term capital gains over short and long term capital losses) for the
one-year period ending October 31 of that year (and any retained
S-24
<PAGE>
amount from the prior calendar year), the Fund will be subject to a
nondeductible 4% Federal excise tax on the undistributed amounts. The Fund
intends to make sufficient distributions to avoid imposition of this tax, or to
retain, at most its net capital gains and pay tax thereon.
STATE AND LOCAL TAXES
The Fund is not liable for any income or franchise tax in Massachusetts if it
qualifies as a RIC for federal income tax purposes. Distributions by the Fund to
shareholders and the ownership of shares may be subject to state and local
taxes.
FUND TRANSACTIONS
The Fund has no obligation to deal with any broker-dealer or group of
broker-dealers in the execution of transactions in portfolio securities. Subject
to policies established by the Trustees of the Trust, the Adviser is responsible
for placing the orders to execute transactions for the Fund. In placing orders,
it is the policy of the Trust to seek to obtain the best net results taking into
account such factors as price (including the applicable dealer spread), the
size, type and difficulty of the transaction involved, the firm's general
execution and operational facilities and the firm's risk in positioning the
securities involved. While the Adviser generally seeks reasonably competitive
spreads or commissions, the Fund will not necessarily be paying the lowest
spread or commission available.
The money market instruments in which the Fund invests are traded primarily in
the over-the-counter market. Bonds and debentures are usually traded
over-the-counter, but may be traded on an exchange. Where possible, the Adviser
will deal directly with the dealers who make a market in the securities involved
except in those circumstances where better prices and execution are available
elsewhere. Such dealers usually are acting as principal for their own account.
On occasion, securities may be purchased directly from the issuer. Money market
instruments are generally traded on a net basis and do not normally involve
either brokerage commissions or transfer taxes. The cost of executing portfolio
securities transactions of the Fund will primarily consist of dealer spreads and
underwriting commissions.
TRADING PRACTICES AND BROKERAGE
The Adviser, consistent with the interests of the Fund, selects brokers or
dealers to execute transactions for the purchase or sale of portfolio securities
on the basis of its judgment of their professional capability to provide the
service. The primary consideration is to have brokers or dealers provide
transactions at best price and execution for the Trust. Best price and execution
includes many factors, including the price paid or received for a security, the
commission charged, the promptness and reliability of execution, the
confidentiality and placement accorded the order and other factors affecting the
overall benefit obtained by the account on the transaction. The Adviser's
determination of what are reasonably competitive rates is based upon the
professional knowledge of its trading department as to rates paid and charged
for similar transactions throughout the
S-25
<PAGE>
securities industry. In some instances, the Trust pays a minimal share
transaction cost when the transaction presents no difficulty. Some trades are
made on a net basis where the Trust either buys securities directly from the
dealer or sells them to the dealer. In these instances, there is no direct
commission charged but there is a spread (the difference between the buy and
sell price) which is the equivalent of a commission.
The Trust may allocate out of all commission business generated by the Fund and
accounts under management by the Adviser, brokerage business to brokers or
dealers who provide brokerage and research services. These research services
include advice, either directly or through publications or writings, as to the
value of securities, the advisability of investing in, purchasing or selling
securities, and the availability of securities or purchasers or sellers of
securities; furnishing of analyses and reports concerning issuers, securities or
industries; providing information on economic factors and trends, assisting in
determining portfolio strategy, providing computer software used in security
analyses, and providing portfolio performance evaluation and technical market
analyses. Such services are used by the Adviser in connection with its
investment decision-making process with respect to one or more funds and
accounts managed by it, and may not be used exclusively with respect to the fund
or account generating the brokerage.
As provided in the Securities Exchange Act of 1934 (the "1934 Act") higher
commissions may be paid to broker-dealers who provide brokerage and research
services than to broker-dealers who do not provide such services if such higher
commissions are deemed reasonable in relation to the value of the brokerage and
research services provided. Although transactions are directed to broker-dealers
who provide such brokerage and research services, the Adviser believes that the
commissions paid to such broker-dealers are not, in general, higher than
commissions that would be paid to broker-dealers not providing such services and
that such commissions are reasonable in relation to the value of the brokerage
and research services provided. In addition, portfolio transactions which
generate commissions or their equivalent are directed to broker-dealers who
provide daily portfolio pricing services to the Trust. Subject to best price and
execution, commissions used for pricing may or may not be generated by the funds
receiving the pricing service.
The Adviser may place a combined order for two or more accounts or funds engaged
in the purchase or sale of the same security if, in its judgment, joint
execution is in the best interest of each participant and will result in best
price and execution. Transactions involving commingled orders are allocated in a
manner deemed equitable to each account or fund. It is believed that the ability
of the accounts to participate in volume transactions will generally be
beneficial to the accounts and funds. Although it is recognized that, in some
cases, the joint execution of orders could adversely affect the price or volume
of the security that a particular account or the Fund may obtain, it is the
opinion of the Adviser and the Trust's Board of Trustees that the advantages of
combined orders outweigh the possible disadvantages of separate transactions.
Consistent with the Conduct Rules of the National Association of Securities
Dealers, Inc., and subject to seeking best price and execution, the Fund, at the
request of the Distributor, give
S-26
<PAGE>
consideration to sales of shares of the Trust as a factor in the selection of
brokers and dealers to execute Trust portfolio transactions.
The Adviser may, consistent with the interests of the Fund, select brokers on
the basis of the research services they provide to the Adviser. Such services
may include analyses of the business or prospects of a company, industry or
economic sector, or statistical and pricing services. Information so received by
the Adviser will be in addition to and not in lieu of the services required to
be performed by the Adviser under the Advisory Agreement. If, in the judgment of
the Adviser, the Fund or other accounts managed by the Adviser will be
benefitted by supplemental research services, the Adviser is authorized to pay
brokerage commissions to a broker furnishing such services which are in excess
of commissions which another broker may have charged for effecting the same
transaction. These research services include advice, either directly or through
publications or writings, as to the value of securities, the advisability of
investing in, purchasing or selling securities, and the availability of
securities or purchasers or sellers of securities; furnishing of analyses and
reports concerning issuers, securities or industries; providing information on
economic factors and trends; assisting in determining portfolio strategy;
providing computer software used in security analyses; and providing portfolio
performance evaluation and technical market analyses. The expenses of the
Adviser will not necessarily be reduced as a result of the receipt of such
supplemental information, such services may not be used exclusively, or at all,
with respect to the Fund or account generating the brokerage, and there can be
no guarantee that the Adviser will find all of such services of value in
advising the Fund. For the fiscal year ended October 31, 1998, the Fund directed
no transactions to broker-dealers for research services.
It is expected that the Fund may execute brokerage or other agency transactions
through the Distributor, which is a registered broker-dealer, for a commission
in conformity with the 1940 Act, the Securities Exchange Act of 1934 and rules
promulgated by the SEC. Under these provisions, the Distributor is permitted to
receive and retain compensation for effecting portfolio transactions for the
Fund on an exchange if a written contract is in effect between the Distributor
and the Trust expressly permitting the Distributor to receive and retain such
compensation. These rules further require that commissions paid to the
Distributor by the Fund for exchange transactions not exceed "usual and
customary" brokerage commissions. The rules define "usual and customary"
commissions to include amounts which are "reasonable and fair compared to the
commission, fee or other remuneration received or to be received by other
brokers in connection with comparable transactions involving similar securities
being purchased or sold on a securities exchange during a comparable period of
time." The Trustees, including those who are not "interested persons" of the
Trust, have adopted procedures for evaluating the reasonableness of commissions
paid to the Distributor and will review these procedures periodically.
S-27
<PAGE>
For the fiscal years ended October 31, 1997, 1998 and 1999, the Fund paid the
following brokerage commissions:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
Total Brokerage Commissions Amount Paid to SEI Investments(1)
- ------------------------------------------- ---------------------------------------------
1997 1998 1999 1997 1998 1999
- -------------- ------------ -------------- ------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
$0 $0 $10,121 $0 $2,260 $10,121
- -------------- ------------ -------------- ------------- -------------- --------------
</TABLE>
(1) The amounts paid to SEI Investments reflect fees paid in connection with
repurchase agreement transactions.
For the fiscal years indicated, the Fund paid the following brokerage
commissions:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
% of Total % of Total
Total $ Amount of Total $ Amount of Brokerage Brokerage
Brokerage Commissions Brokerage Commissions Commissions Transactions
Paid Paid to Affiliated Brokers Paid to the Effected Through
Affiliated Brokers Affiliated Brokers
- ---------------------------------------------------------------------------------------------------------
1997 1998 1999 1997 1998 1999 1999 1999
---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
$0 $0 $10,121 $0 $0 $10,121 100% 0%
- ---------------------------------------------------------------------------------------------------------
</TABLE>
Since the Fund does not market its shares through intermediary brokers or
dealers, it is not the Trust's practice to allocate brokerage or principal
business on the basis of sales of its shares which may be made through such
firms. However, the Adviser may place portfolio orders with qualified
broker-dealers who recommend the Fund's shares to clients, and may, when a
number of brokers and dealers can provide best net results on a particular
transaction, consider such recommendations by a broker or dealer in selecting
among broker-dealers.
The Fund is required to identify any securities of its "regular brokers or
dealers" (as such term is defined in the 1940 Act), which the Fund has acquired
during its most recent fiscal year. As of October 31, 1999, the Fund held
$24,992,583 of debt securities issued by Merrill Lynch.
DESCRIPTION OF SHARES
The Declaration of Trust authorizes the issuance of an unlimited number of
portfolios and different classes of shares of each portfolio, each of which
represents an equal proportionate interest in the portfolio with each other
share. Shares are entitled upon liquidation to a pro rata share in the net
assets of the Fund. Shareholders have no preemptive rights. The Declaration of
Trust provides that the Trustees of the Trust may create additional series of
shares divided into different classes. All consideration received by the Trust
for shares of any additional series and all assets in which such consideration
is invested would belong to that series and would be subject to the liabilities
related thereto. Share certificates representing shares will not be issued.
S-28
<PAGE>
SHAREHOLDER LIABILITY
The Trust is an entity of the type commonly known as a "Massachusetts business
trust." Under Massachusetts law, shareholders of such a trust could, under
certain circumstances, be held personally liable as partners for the obligations
of the trust. Even if, however, the Trust were held to be a partnership, the
possibility of the shareholders incurring financial loss for that reason appears
remote because the Trust's Declaration of Trust contains an express disclaimer
of shareholder liability for obligations of the Trust and requires that notice
of such disclaimer be given in each agreement, obligation or instrument entered
into or executed by or on behalf of the Trust or the Trustees, and because the
Declaration of Trust provides for indemnification out of the Trust property for
any shareholder held personally liable for the obligations of the Trust.
LIMITATION OF TRUSTEES' LIABILITY
The Declaration of Trust provides that a Trustee shall be liable only for his or
her own willful defaults and, if reasonable care has been exercised in the
selection of officers, agents, employees or investment advisers, shall not be
liable for any neglect or wrongdoing of any such person. The Declaration of
Trust also provides that the Trust will indemnify its Trustees and officers
against liabilities and expenses incurred in connection with actual or
threatened litigation in which they may be involved because of their offices
with the Trust unless it is determined in the manner provided in the Declaration
of Trust that they have not acted in good faith in the reasonable belief that
their actions were in the best interests of the Trust. However, nothing in the
Declaration of Trust shall protect or indemnify a Trustee against any liability
for his or her willful misfeasance, bad faith, gross negligence or reckless
disregard of his or her duties.
5% AND 25% SHAREHOLDERS
As of February 1, 2000, the following persons were the only persons who were
record owners (or to the knowledge of the Trust, beneficial owners) of 5% and
25% or more of each class of the Fund's shares. Persons who owned of record or
beneficially more than 25% of the Fund's outstanding shares may be deemed to
control the Fund within the meaning of the Act.
<TABLE>
<CAPTION>
Shareholder Number of Shares %
- ----------- ---------------- -
<S> <C> <C>
CLASS A:
A I Life Assurance -- Investment 96,419,022 15.60%
c/o AIG Inc.
70 Pine Street, 19th Floor
New York, NY 10270-0002
AIG Life Insurance -- Investment 96,419,022 15.60%
c/o AIG Inc.
S-29
<PAGE>
70 Pine Street, 19th Floor
New York, NY 10270-0002
AIG Life Insurance Company -- TFA 34,637,463 5.61%
c/o AIG Inc.
70 Pine Street, 19th Floor
New York, NY 10270-0002
CLASS B:
NUF/Machine Deductible 13,579,234 9.02%
Attn: AIG Treasury
70 Pine Street, 19th Floor
New York, NY 10270-0002
NUF of Pittsburgh PA/Reinsurance 51,333,329 34.08%
DIV - 16W
C/O AIG Treasury Group
70 Pine Street, 19th Floor
New York, NY 10270-0002
</TABLE>
The Trust believes that most of the shares referred to above were held by the
above persons in accounts for their fiduciary, agency or custodial customers.
EXPERTS
The financial statements of the Trust have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their report with respect
thereto, and are incorporated by reference hereto in reliance upon the authority
of said firm as experts in giving said report.
FINANCIAL STATEMENTS
The financial statements for the fiscal year ended October 31, 1999, including
notes thereto and the report of Arthur Andersen LLP thereon, are herein
incorporated by reference in reliance upon the authority of said firm as experts
in giving said report. A copy of the 1999 Annual Report to Shareholders must
accompany the delivery of this Statement of Additional Information.
S-30
<PAGE>
APPENDIX
DESCRIPTION OF RATINGS
The following descriptions are summaries of published ratings.
A-1 - This is Standard & Poor's Corporation ("S&P") highest rating category for
short-term obligations and indicates that the degree of safety regarding timely
payment is strong. Those issues determined to possess extremely strong safety
characteristics are denoted with a plus sign (+) designation.
A-2 - Capacity for timely payment for this S&P category on issues with this
designation is satisfactory and the obligation is somewhat more susceptible to
the adverse effects of changes in circumstances and economic conditions than
obligations in higher rating categories.
PRIME-1 - Issues rated Prime-1 (or supporting institutions) by Moody's Investors
Service, Inc. ("Moody's") have a superior ability for repayment of short-term
debt obligations. Prime-1 repayment ability will often be evidenced by many of
the following characteristics:
- Leading market positions in well-established industries.
- High rates of return on funds employed.
- Conservative capitalization structure with moderate reliance on debt
and ample asset protection.
- Broad margins in earnings coverage of fixed financial charges and high
internal cash generation.
- Well-established access to a range of financial markets and assured
sources of alternate liquidity.
PRIME-2 - Issuers rated Prime-2 (or supporting institutions) by Moody's have a
strong ability for repayment of senior short-term debt obligations. This will
normally be evidenced by many of the characteristics cited above but to a lesser
degree. Earnings trends and coverage ratios, while sound, may be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
The rating Fitch-1 (Highest Grade) is the highest commercial rating assigned by
Fitch IBCA ("Fitch IBCA"). Paper rated Fitch-1 is regarded as having the
strongest degree of assurance for timely payment. The rating Fitch-2 (Very Good
Grade) is the second highest short-term obligations rating assigned by Fitch
IBCA which reflects an assurance of timely payment only slightly less in degree
than the strongest issues.
The rating Duff-1 is the highest short-term obligations rating assigned by Duff
& Phelps, Inc. ("Duff"). Paper rated Duff-1 is regarded as having very high
certainty of timely payment with excellent liquidity factors which are supported
by ample asset protection. Risk factors are minor.
A-1
<PAGE>
Paper rated Duff-2 is regarded as having good certainty of timely payment, good
access to capital markets and sound liquidity factors and company fundamentals.
Risk factors are small. The designation A1 by Fitch IBCA, Inc. ("Fitch IBCA")
indicates that the obligation is supported by a very strong capacity for timely
repayment. Those obligations rated A1+ are supported by the highest capacity for
timely repayment. Obligations rated A2 are supported by a strong capacity for
timely repayment, although such capacity may be susceptible to adverse changes
in business, economic or financial conditions.
Securities rated A-2, P-2, Fitch-2, Duff-2 and (Fitch IBCA) A2 are deemed to be
second tier securities. The Fund's fundamental policy is not to invest in such
securities.
A-2
<PAGE>
PART C: OTHER INFORMATION
POST EFFECTIVE AMENDMENT NO. 39
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
C-1
<PAGE>
Statement on Form N-1A (File No. 33-42484) filed with the
Securities and Exchange Commission on May 22, 1997.
(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) Amended and Restated Contractual Fee Waiver Agreement between
Registrant and HGK Asset Management dated March 1, 2000 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. 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.
C-2
<PAGE>
(g)(2) Amended and restated Custodian Agreement between Registrant
and CoreStates Bank, N.A. is included herewith.
(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.
(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.
C-3
<PAGE>
(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 filed herewith.
(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 filed herewith.
(h)(16) Administration Agreement dated August 20, 1999 between Registrant,
LSV Asset Management Fidelity Brokerage Services, Inc. and
National Financial Services Corporation is filed herewith.
(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 filed herewith.
(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 Mangement and Charles Schwab & Co, Inc.
(i) Opinion and Consent of Counsel is filed herewith.
(j) Consent of Independent Public Accountants (Arthur Andersen, LLP)
is filed herewith.
(k) Not Applicable.
(l) Not Applicable.
C-4
<PAGE>
(m) Distribution Plan for The Advisors' Inner Circle Fund as
originally filed with Post-Effective Amendment No. 17 to
Registrant's Registration Statement on Form N-1A (File No.
33-42484), filed with the Securities and Exchange Commission on
September 19, 1994 is incorporated herein by reference to
Post-Effective Amendment No. 24 filed on February 28, 1996.
(n) Not Applicable.
(o) Rule 18f-3 Plan dated May 15, 1995, as originally filed June 1,
1995, is incorporated herein by reference to Post-Effective
Amendment No. 32 to Registrant's Registration Statement on Form
N-1A (File No. 33-42484), filed with the Securities and Exchange
Commission on February 27, 1998.
(q)(1) Powers of Attorney for Mark E. Nagle, John T. Cooney, William M.
Doran, Robert A. Nesher, Eugene B. Peters, Dr. Robert A.
Patterson, James M. Storey and George J. Sullivan 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
Registrant by the Registrant pursuant to the Declaration of Trust or otherwise,
the Registrant is aware that in the opinion of the Securities and Exchange
Commission, such indemnification is against public policy as expressed in the
Act and, therefore, is unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by trustees, directors, officers or
controlling persons of the Registrant in connection with the successful defense
of any act, suit or proceeding) is asserted by such trustees, directors,
officers or controlling persons in connection with the shares being registered,
the Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issues.
C-5
<PAGE>
Item 26. Business and Other Connections of Investment Adviser:
Other business, profession, vocation, or employment of a
substantial nature in which each director or principal officer of the Adviser is
or has been, at any time during the last two fiscal years, engaged for his own
account or in the capacity of director, officer, employee, partner or trustee
are as follows:
HGK ASSET MANAGEMENT, INC.
HGK Asset Management, Inc. is the investment adviser for the HGK Fixed Income
Fund. The principal address of HGK Asset Management, Inc. is Newport Tower, 525
Washington Blvd., Jersey City, NJ 07310.
The list required by this Item 26 of general partners of HGK Asset Management,
Inc., together with information as to any other business profession, vocation,
or employment of a substantial nature engaged in by such general partners during
the past two years is incorporated by reference to Schedules B and D of Form ADV
filed by HGK Asset Management, Inc. under the Advisers Act of 1940 (SEC File No.
801-19314).
AIG CAPITAL MANAGEMENT CORP.
AIG Capital Management Corp. is the investment adviser for the AIG Money Market
Fund. The principal address of AIG Capital Management Corp. is 70 Pine Street,
New York, NY 10270.
The list required by this Item 26 of directors and officers of AIG Capital
Management Corp., together with information as to any other business profession,
vocation, or employment of a substantial nature engaged in by such directors and
officers during the past two years is incorporated by reference to Schedules A
and D of Form ADV filed by AIG Capital Management Corp. under the Advisers Act
of 1940 (SEC File No. 801-47192).
FIRST MANHATTAN CO.
First Manhattan Co. is the investment adviser for the FMC Select Fund. The
principal address of First Manhattan Co. is 437 Madison Avenue, New York, NY
10022.
The list required by this Item 26 of general partners of First Manhattan Co.,
together with information as to any other business profession, vocation, or
employment of a substantial nature engaged in by such general partners during
the past two years is incorporated by reference to Schedules B and D of Form ADV
filed by First Manhattan Co. under the Advisers Act of 1940 (SEC File No.
801-12411).
CRA REAL ESTATE SECURITIES L.P.
CRA Real Estate Securities L.P. is the investment adviser for the CRA Realty
Shares Portfolio. The principal address of CRA Real Estate Securities L.P. is
Suite 205, 259 North Radnor-Chester Road, Radnor, PA 19087.
The list required by this Item 26 of general partners of CRA Real Estate
Securities L.P., together with information as to any other business profession,
vocation, or employment of a substantial nature engaged
C-6
<PAGE>
in by such general partners during the past two years is incorporated by
reference to Schedules B and D of Form ADV filed by CRA Real Estate Securities
L.P. under the Advisers Act of 1940 (SEC File No. 801-49083).
MDL CAPITAL MANAGEMENT, INC.
MDL Capital Management, Inc. is the investment adviser for the MDL Broad Market
Fixed Income Portfolio and the MDL Large Cap Growth Equity Portfolio. The
principal address of MDL Capital Management, Inc. is 225 Ross Street,
Pittsburgh, PA 15222.
The list required by this Item 26 of general partners of MDL Capital Management,
Inc., together with information as to any other business profession, vocation,
or employment of a substantial nature engaged in by such general partners during
the past two years is incorporated by reference to Schedules B and D of Form ADV
filed by MDL Capital Management, Inc. under the Advisers Act of 1940 (SEC File
No. 801-43419).
SAGE GLOBAL FUNDS, LLC
SAGE Global Funds, LLC is the investment adviser for the SAGE Corporate Bond
Fund. The principal address of SAGE Global Funds, LLC is 55 William Street,
Suite G-40, Wellesley, MA 02181.
The list required by this Item 26 of general partners of SAGE Global Funds, LLC,
together with information as to any other business profession, vocation, or
employment of a substantial nature engaged in by such general partners during
the past two years is incorporated by reference to Schedules B and D of Form ADV
filed by SAGE Global Funds, LLC under the Advisers Act of 1940 (SEC File No.
801-54753).
STANDARD ASSET GROUP, INC.
Standard Asset Group, Inc. Is the investment sub-adviser for the SAGE Corporate
Bond Fund. The principal address of Standard Asset Group, Inc. is 55 William
Street, Suite G-40, Wellesley, MA 02181.
The list required by this Item 26 of general partners of Standard Asset Group,
Inc., together with information as to any other business profession, vocation,
or employment of a substantial nature engaged in by such general partners during
the past two years is incorporated by reference to Schedules B and D of Form ADV
filed by Standard Asset Group, Inc. under the Advisers Act of 1940 (SEC File No.
801-29883).
LSV ASSET MANAGEMENT COMPANY
LSV Asset Management Company is the investment adviser for the LSV Value Equity
Fund. The address of LSV Asset Management Company 200 W. Madison Street, 27th
Floor, Chicago, Illinois 60606.
The list required by this Item 26 of general partners of LSV Asset Management
Company, together with information as to any other business profession,
vocation, or employment of a substantial nature engaged in by such general
partners during the past two years is incorporated by reference to Schedules B
and D of Form ADV filed by LSV Asset Management Company under the Advisers Act
of 1940 (SEC File No. 801-47689).
C-7
<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-Registered Trademark- June 1, 1993
The PBHG Funds, Inc. July 16, 1993
Morgan Grenfell Investment Trust January 3, 1994
The Achievement Funds Trust December 27, 1994
Bishop Street Funds January 27, 1995
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
The Parkstone Group of Funds September 14, 1998
CNI Charter Funds April 1, 1999
The Parkstone Advantage Fund May 1, 1999
Amerindo Funds, Inc. July 13, 1999
C-8
<PAGE>
The Distributor provides numerous financial services to investment
managers, pension plan sponsors, and bank trust departments. These
services include portfolio evaluation, performance measurement and
consulting services ("Funds Evaluation") and automated execution, clearing
and settlement of securities transactions ("MarketLink").
(b) Furnish the Information required by the following table with respect to each
director, officer or partner of each principal underwriter named in the answer
to Item 21 of Part B. Unless otherwise noted, the business address of each
director or officer is Oaks, PA 19456.
<TABLE>
<CAPTION>
Position and Office Positions and Offices
Name with Underwriter with Registrant
- ---- ---------------- ---------------
<S> <C> <C>
Alfred P. West, Jr. Director, Chairman of the Board of Directors --
Henry H. Greer Director --
Carmen V. Romeo Director --
Gilbert L. Beebower Executive Vice President --
Richard B. Lieb Executive Vice President --
Dennis J. McGonigle Executive Vice President --
Robert M. Silvestri Chief Financial Officer & Treasurer --
Leo J. Dolan, Jr. Senior Vice President --
Carl A. Guarino Senior Vice President --
Larry Hutchison Senior Vice President --
Jack May Senior Vice President --
Hartland J. McKeown Senior Vice President --
Barbara J. Moore Senior Vice President --
Kevin P. Robins Senior Vice President & General Counsel Vice President, Assistant
Secretary
Patrick K. Walsh Senior Vice President --
Robert Aller Vice President --
Gordon W. Carpenter Vice President --
Timothy D. Barto Vice President & Assistant Secretary
Vice President, Assistant Secretary
Todd Cipperman Vice President & General Counsel Vice President, Assistant
Secretary
S. Courtney E. Collier Vice President & Assistant Secretary --
Robert Crudup Vice President & Managing Director --
Barbara Doyne Vice President --
Jeff Drennen Vice President --
James Foggo Vice President & Assistant Secretary Vice President, Assistant
Secretary
Vic Galef Vice President & Managing Director --
C-9
<PAGE>
Lydia A. Gavalis Vice President & Assistant Secretary Vice President, Assistant
Secretary
Greg Gettinger Vice President & Assistant Secretary --
Kathy Heilig Vice President --
Jeff Jacobs Vice President --
Samuel King Vice President --
Kim Kirk Vice President & Managing Director --
John Krzeminski Vice President & Managing Director --
Carolyn McLaurin Vice President & Managing Director --
W. Kelso Morrill Vice President --
Mark Nagle Vice President Controller & Chief
Financial Officer
Joanne Nelson Vice President --
Joseph M. O'Donnell Vice President & Assistant Secretary Vice President, Assistant
Secretary
Sandra K. Orlow Vice President & Assistant Secretary Vice President, Assistant
Secretary
Cynthia M. Parrish Vice President & Assistant Secretary --
Kim Rainey Vice President --
Rob Redican Vice President --
Maria Rinehart Vice President --
Mark Samuels Vice President & Managing Director --
Steve Smith Vice President --
Daniel Spaventa Vice President --
Kathryn L. Stanton Vice President & Assistant Secretary --
Lydia J. Streigel Vice President & Assistant Secretary Vice President, Assistant
Secretary
Lori L. White Vice President & Assistant Secretary --
Wayne M. Withrow Vice President & Managing Director --
</TABLE>
Item 28. Location of Accounts and Records:
Books or other documents required to be maintained by Section 31(a) of
the Investment Company Act of 1940, and the rules promulgated
thereunder, are maintained as follows:
(a) With respect to Rules 31a-1(a); 31a-1(b)(1); (2)(a) and (b); (3);
(6); (8); (12); and 31a-I (d), the required books and records are
maintained at the offices of Registrant's Custodian:
First Union National Bank
Broad & Chestnut Streets
C-10
<PAGE>
P.O. Box 7618
Philadelphia, PA 19101
(b)/(c) With respect to Rules 31a-1(a); 31a-1 (b)(1),(4); (2)(C) and
(D); (4); (5); (6); (8); (9); (10); (11); and 31a-1(f), the required
books and records are maintained at the offices of Registrant's
Administrator:
SEI Investments Mutual Funds Services
Oaks, PA 19456
(c) With respect to Rules 31a-1 (b)(5), (6), (9) and (10) and 31a-1
(f), the required books and records are maintained at the offices of
the Registrant's Advisers:
HGK Asset Management, Inc.
Newport Tower
525 Washington Blvd.
Jersey City, NJ 07310
AIG Capital Management Corp.
70 Pine Street
20th Floor
New York, NY 10270
First Manhattan Co.
437 Madison Avenue
New York, NY 10022-7022
CRA Real Estate Securities L.P.
Suite 205
259 North Radnor-Chester Road
Radnor, PA 19087
MDL Capital Management, Inc.
225 Ross Street
Pittsburgh, PA 15222
SAGE Global Funds, LLC
55 William Street, Suite G-40
Wellesley, MA 02181
Standard Asset Group, Inc.
55 William Street
Wellesley, MA 02181
LSV Asset Management Company
C-11
<PAGE>
200 W. Madison Street, 27th Floor
Chicago, Illinois 60606
Item 29. Management Services: None.
Item 30. Undertakings:
None
C-12
<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-13
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant certifies that it meets all of the
requirements for the effectiveness of this Post-Effective Amendment to the
Registrant's Registration Statement pursuant to Rule 485(b) under the Securities
Act of 1933 and has duly caused this Post-Effective Amendment No. 39 to be
signed on its behalf by the undersigned, thereto duly authorized, in the City of
Oaks, Commonwealth of Pennsylvania on the 25th day of February, 2000.
THE ADVISORS' INNER CIRCLE FUND
By: /s/ Mark E. Nagle
---------------------------------
Mark E. Nagle President
Pursuant to the requirements of the Securities Act of 1933, this Amendment to
the Registration Statement has been signed below by the following persons in the
capacity and on the dates indicated.
<TABLE>
<S> <C> <C>
* Trustee February 25, 2000
- ------------------------------------
John T. Cooney
* Trustee February 25, 2000
- ------------------------------------
William M. Doran
* Trustee February 25, 2000
- ------------------------------------
Robert A. Nesher
* Trustee February 25, 2000
- ------------------------------------
Robert A. Patterson
* Trustee February 25, 2000
- ------------------------------------
Eugene Peters
* Trustee February 25, 2000
- ------------------------------------
George J. Sullivan, Jr.
* Trustee February 25, 2000
- ------------------------------------
James M. Storey
/s/ Mark E. Nagle President, Controller & February 25, 2000
- ------------------------------------ Chief Financial Officer
Mark E. Nagle
</TABLE>
*By: /s/ Mark E. Nagle
--------------------------------
Mark E. Nagle
Attorney-in-Fact
C-14
<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 is
incorporated herein by reference to Post-Effective Amendment No.
17 to Registrant's Registration Statement on Form N-1A (File No.
33-42484), filed with the Securities and Exchange Commission on
C-15
<PAGE>
Exhibit No. and Description
- ---------------------------
September 19, 1994 is incorporated herein by reference to
Post-Effective Amendment No. 28 filed February 27, 1997.
EX-99.D3 Investment Advisory Agreement Between Registrant and First
Manhattan Co. with respect to FMC Select Fund dated May 3, 1995
as originally filed with Post-Effective Amendment No. 19 to
Registrant's Registration Statement on Form N-1A (File
No.33-42484), filed with the Securities and Exchange Commission
on February 1, 1995 is incorporated herein by reference to
Post-Effective Amendment No. 24 filed on February 28, 1996.
EX-99.D4 Investment Advisory Agreement between Registrant and CRA Real
Estate Securities L.P. dated December 31, 1996 with respect to
the CRA Realty Shares Portfolio is incorporated herein by
reference to Post-Effective Amendment No. 29 to Registrant's
Registration Statement on From N-1A (File No. 33-42484) filed
with the Securities and Exchange Commission on May 22, 1997.
EX-99.D5 Investment Advisory Agreement between Registrant and MDL Capital
Management, Inc. with respect to the MDL Broad Market Fixed
Income Portfolio and the MDL Large Cap Growth Equity Portfolio is
incorporated herein by reference to Post-Effective Amendment No.
32 to Registrant's Registration Statement on Form N-1A (File No.
33-42484), filed with the Securities and Exchange Commission on
February 27, 1998.
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-16
<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 A Amended and restated Contractual Fee Waiver Agreement
between Registrant and HGK Asset Management, LP, dated
March 1, 2000 is filed herewith.
EX-99.E1 Amended and Restated Distribution Agreement between Registrant
and SEI Financial Services Company dated August 8, 1994 as
originally filed with Post-Effective Amendment No. 17 to
Registrant's Registration Statement on Form N-1A (File No.
33-42484), filed with the Securities and Exchange Commission on
September 19, 1994 is incorporated herein by reference to
Post-Effective Amendment No. 24 filed on February 28, 1996.
EX-99.E2 Distribution Agreement between Registrant and CCM Securities,
Inc. dated February 28, 1997 is incorporated herein by reference
to Post-Effective Amendment No. 30 to Registrant's Registration
Statement on From N-1A (File No. 33-42484), filed with the
Securities and Exchange Commission on June 30, 1997.
EX-99.E3 Amended and Restated Sub-Distribution and Servicing Agreement
between SEI Investments Company and AIG Equity Sales Corporation
is incorporated herein by reference to Post-Effective Amendment
No. 32 to Registrant's Registration Statement on Form N-1A (File
No. 33-42484), filed with the Securities and Exchange Commission
on February 27, 1998.
EX-99.F Not Applicable.
EX-99.G1 Custodian Agreement between Registrant and CoreStates Bank N.A.
is incorporated herein by Exhibit No. and Description reference
to Pre-Effective Amendment No. 1 to Registrant's Registration
Statement on Form N-1A (File No. 33-42484), filed with the
Securities and Exchange Commission on October 28, 1991 is
incorporated herein by reference to Post-Effective Amendment No.
28 filed on February 27, 1997.
EX-99.G2 Amended and Restated Custodian Agreement between Registrant and
CoreStates Bank, N.A. is included herewith.
C-17
<PAGE>
Exhibit No. and Description
- ---------------------------
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 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
C-18
<PAGE>
Exhibit No. and Description
- ---------------------------
Registrant's Registration Statement on Form N-1A (File No.
33-42484), filed with the Securities and Exchange Commission on
February 27, 1997.
EX-99.H6 Schedule to the Amended and Restated Administration Agreement
adding the MDL Broad Market Fixed Income Fund and the MDL Large
Cap Growth Equity Fund is incorporated herein by reference to
Post-Effective Amendment No. 32 to Registrant's Registration
Statement on Form N-1A (File No. 33-42484), filed with the
Securities and Exchange Commission on February 27, 1998.
EX-99.H7 Schedule to the Amended and Restated Administration Agreement
adding the SAGE Corporate Fixed Bond Fund incorporated herein by
reference to Post-Effective Amendment No. 32 to Registrant's
Registration Statement on Form N-1A (File No. 33-42484), filed
with the Securities and Exchange Commission on February 27, 1998.
EX-99.H8 Schedule dated May 19, 1997 to Administration Agreement dated
November 14, 1991 between the Advisors' Inner Circle Fund and SEI
Financial Management Corporation adding the AIG Money Market Fund
is incorporated herein by reference to Post-Effective Amendment
No. 32 to Registrant's Registration Statement on Form N-1A (File
No. 33-42484), filed with the Securities and Exchange Commission
on February 27, 1998.
EX-99.H9 Schedule to Administration Agreement relating to the CRA Realty
Portfolios is incorporated herein by reference to Post-Effective
Amendment No. 32 to Registrant's Registration Statement on Form
N-1A (File No. 33-42484), filed with the Securities and Exchange
Commission on February 27, 1998.
EX-99.H10 [Form of] Shareholder Servicing Agreement for AIG Money Market
Fund is incorporated herein by reference to Post-Effective
Amendment No. 32 to Registrant's Registration Statement on Form
N-1A (File No. 33-42484), filed with the Securities and Exchange
Commission on February 27, 1998.
EX-99.H11 Transfer Agency Agreement dated November 30, 1994 is incorporated
herein by reference to Post-Effective Amendment No. 32 to
Registrant's Registration Statement on Form N-1A (File No.
33-42484), filed with the
C-19
<PAGE>
Exhibit No. and Description
- ---------------------------
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 filed herewith.
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 Mutual Funds Services is filed herewith.
EX.99.H16 Administration Agreement dated August 20, 1999 between
Registrant, LSV Asset Management, Fidelity Brokerage Services,
Inc. and National Financial Services Corporation is filed
herewith.
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 filed herewith.
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.
C-20
<PAGE>
Exhibit No. and Description
- ---------------------------
EX-99.I Opinion and Consent of Counsel is filed herewith.
EX-99.J Consent of Independent Public Accountants (Aurthur Andersen,
LLP) is filed herewith.
EX-99.K Not Applicable.
EX-99.L Not Applicable.
EX-99.M Distribution Plan for The Advisors' Inner Circle Fund as
originally filed with Post-Effective Amendment No. 17 to
Registrant's Registration Statement on Form N-1A (File No.
33-42484), filed with the Securities and Exchange Commission on
September 19, 1994 is incorporated herein by reference to
Post-Effective Amendment No. 24 filed on February 28, 1996.
EX-99.N 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 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.Q Powers of Attorney for Mark E. Nagle, John T. Cooney, William M.
Doran, Frank E. Morris, Robert A. Nesher, Eugene B. Peters,
Robert A. Patterson , James M. Storey and George J. Sullivan are
filed herewith.
C-21
<PAGE>
CONTRACTUAL FEE WAIVER AGREEMENT
AGREEMENT made this day of March, 2000, by and between, The Advisors' Inner
Circle Fund, a Massachusetts business trust (the "Trust"), and HGK Asset
Management, Inc. (the "Adviser").
The Adviser hereby agrees to waive its fee and/or reimburse expenses to the
extent necessary to limit the total operating expenses at the following levels
for a period of one year from the date of this Agreement for each of the
following funds:
<TABLE>
<CAPTION>
Fund Total Operating Expenses
- ---- ------------------------
<S> <C>
HGK Equity Value Fund 1.50%
</TABLE>
This Agreement shall be renewable at the end of each one year period for an
additional one year period upon the written agreement of the parties hereto.
IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be
executed as of the day and year first written above.
THE ADVISORS' INNER CIRCLE FUND HGK ASSET MANAGEMENT, INC.
By:/s/ James Foggo By:/s/Paul Kosara
-------------------------- ------------------------
<PAGE>
CUSTODY AGREEMENT
This Custody Agreement is dated as of May 14, 1996 between MORGAN
STANLEY TRUST COMPANY, a New York State chartered trust company (the
"Custodian"), and CORESTATES BANK, N.A., a national banking association, on its
own behalf and for the benefit of its affiliates (the "Client").
1. APPOINTMENT AND ACCEPTANCE: ACCOUNTS. (a) The Client hereby appoints
the Custodian as a custodian of Property (as defined below) owned or under the
control of the Client that are delivered to the Custodian, or any Subcustodian
as appointed below, from time to time to be held in custody for the benefit of
the Client. The Custodian agrees to act as such custodian upon the terms and
conditions hereinafter provided.
(b) Prior to the delivery of any Property by the Client to the
Custodian, the Client shall deliver to the Custodian each document and other
item listed in Appendix I. In addition, the Client shall deliver to the
Custodian any additional documents or items as the Custodian may deem necessary
for the performance of its duties under this Agreement.
(c) The Client instructs the Custodian to establish on the books and
records of the Custodian the accounts listed in Appendix 2 (the "Accounts") in
the name of the Client. Upon receipt of Authorized Instructions (as defined
below) and appropriate documentation, the Custodian shall open additional
Accounts for the Client. Upon the Custodian's confirmation to the Client of the
opening of such additional Accounts, or of the closing of Accounts, Appendix 2
shall be deemed automatically amended or supplemented accordingly. The Custodian
shall record in the Accounts and shall have general responsibility for the
safekeeping of all securities ("Securities"), cash, cash equivalents and other
property (all such Securities, cash, cash equivalents and other property being
collectively the "Property") of the Client that are delivered to the Custodian
for custody.
(d) The procedures the Custodian and the Client will use in performing
activities in connection with this Agreement are set forth in a client services
guide provided to the Client by the Custodian, as such guide may be amended from
time to time by the Custodian by written notice to the Client (the "Client
Services Guide").
2. SUBCUSTODIANS. The Property may be held in custody and deposit
accounts that have been established by the Custodian with one or more domestic
or foreign banks that qualify as "Eligible Foreign Custodians" (as such term is
defined in Rule 17f-5 of the Investment Company Act of 1940 (the "Act")) or
other institutions as listed on Exhibit A (the "Subcustodians"), as such Exhibit
may be amended from time to time by the Custodian by written notice to the
Client, or through the facilities of one or more securities depositories or
clearing agencies. The Custodian shall hold Property through a Subcustodian,
securities depository or clearing agency only if (a) such Subcustodian and any
securities depository or
<PAGE>
clearing agency in which such Subcustodian or the Custodian holds Property, or
any of their creditors, may not assert any right, charge, security interest,
lien, encumbrance or other claim of any kind to such Property except a claim of
payment for its safe custody or administration and (b) beneficial ownership of
such Property may be freely transferred without the payment of money or value
other than for safe custody or administration. Any Subcustodian may hold
Property in a securities depository and may utilize a clearing agency, subject
to the limitation in subsection (a) above.
3. RECORDS. With respect to Property held by a Subcustodian;
(a) The Custodian may hold Property for all of its customers with a
Subcustodian in a single account identified as belonging to the Custodian
for the benefit of its customers;
(b) The Custodian shall identify on its books as belonging to the
Client any Property held by a Subcustodian for the Custodian's account;
(c) The Custodian shall require that Property held by the Subcustodian
for the Custodian's account be identified on the Subcustodian's books as
separate from any other property held by the Subcustodian other than
property of the Custodian's customers held solely for the benefit of
customers of the Custodian; and
(d) In the event the Subcustodian holds Property in a securities
depository or clearing agency, such Subcustodian shall be required by its
agreement with the Custodian to identify on its books such Property as
being held for the account of the Custodian as custodian for its customers
or in such manner as is required by local law or market practice.
4. ACCESS TO RECORDS. The Custodian shall allow the Client's
accountants reasonable access to the Custodian's records relating to the
Property held by the Custodian as such accountants may reasonably require in
connection with their examination of the Client's affairs. The Custodian shall
also obtain from any Subcustodian (and shall require each Subcustodian to use
reasonable efforts to obtain from any securities depository or clearing agency
in which it deposits Property) an undertaking, to the extent consistent with
local practice and the laws of the jurisdiction or jurisdictions to which such
Subcustodian, securities depository or clearing agency is subject, to permit
independent public accountants such reasonable access to the records of such
Subcustodian, securities depository or clearing agency as may be reasonably
required in connection with the examination of the Client's affairs or to take
such other action as the Custodian in its judgment may deem sufficient to ensure
such reasonable access.
5. REPORTS. The Custodian shall provide such reports and other
information to the Client and to such persons as the Client directs as the
Custodian and the Client may agree from time to time.
2
<PAGE>
6. PAYMENT OF MONIES. The Custodian shall make, or cause any
Subcustodian to make, payments from monies being held in the Accounts only in
accordance with Authorized Instructions or as provided in Sections 9, 13 and 17.
The Custodian may act as the Client's agent or act as a principal in
foreign exchange transactions at such rates as are agreed from time to time
between the Client and the Custodian.
7. TRANSFER OF SECURITIES. The Custodian shall make, or cause any
Subcustodian to make, transfers, exchanges or deliveries of Securities only in
accordance with Authorized Instructions as provided in Sections 9, 13 and 17.
8. CORPORATE ACTION. (a) The Custodian shall notify the Client of
details of all corporate actions affecting the Client's Securities within 24
hours, or sooner if immediate action is required, upon its receipt of such
information.
(b) The Custodian shall take, or cause any Subcustodian to take,
such corporate action only in accordance with Authorized Instructions or as
provided in this Section 8 or Section 9.
(c) In the event the Client does not provide timely Authorized
Instructions to the Custodian, the Custodian shall act in accordance with the
default option provided by local market practice and/or the issuer of the
Securities.
(d) Fractional shares resulting from corporate action activity shall
be treated in accordance with local market practices.
9. GENERAL AUTHORITY. In the absence of Authorized Instructions to the
contrary, the Custodian may, and may authorize any Subcustodian to:
(a) make payments to itself or others for expenses of handling Property
or other similar items relating to its duties under this Agreement,
provided that all such payments shall be accounted for to the Client;
(b) receive and collect all income and principal with respect to
Securities and to credit cash receipts to the Accounts;
(c) exchange Securities when the exchange is purely ministerial
(including, without limitation, the exchange of interim receipts or
temporary securities for securities in definitive form and the exchange of
warrants, or other documents of entitlement to securities, for the
securities themselves);
(d) surrender Securities at maturity or when called for redemption upon
receiving payment therefor;
3
<PAGE>
(e) execute in the Client's name such ownership and other certificates
as may be required to obtain the payment of income from Securities;
(f) pay or cause to be paid, from the Accounts, any and all taxes and
levies in the nature of taxes imposed on Property by any governmental
authority in connection with custody of and transactions in such Property;
(g) endorse for collection, in the name of the Client, checks, drafts
and other negotiable instruments;
(h) take non-discretionary action on mandatory corporate actions; and
(i) in general, attend to all nondiscretionary details in connection
with the custody, sale, purchase, transfer and other dealings with the
Property.
10. AUTHORIZED INSTRUCTIONS: AUTHORIZED PERSONS. (a) Except as
otherwise provided in Sections 6 through 9, 13 and 17, all payments of monies,
all transfers, exchanges or deliveries of Property and all responses to
corporate actions shall be made or taken only upon receipt by the Custodian of
Authorized Instructions; PROVIDED that such Authorized Instructions are timely
received by the Custodian. "AUTHORIZED INSTRUCTIONS" of the Client means
instructions from an Authorized Person received by telecopy, tested telex,
electronic link or other electronic means or by such other means as may be
agreed in writing between the Client and the Custodian.
(b) "AUTHORIZED PERSON" means each of the persons or entities
identified on Appendix 3 as amended from time to time by written notice from
the Client to the Custodian. The Client represents and warrants to the
Custodian that each Authorized Person listed in Appendix 3, as amended from
time to time, is authorized to issue Authorized Instructions on behalf of the
Client. Prior to the delivery of the Property to the Custodian, the Custodian
shall provide a list of designated system user ID numbers and passwords that
the Client shall be responsible for assigning to Authorized Persons. The
Custodian shall assume that an electronic transmission received and
identified by a system user ID number and password was sent by an Authorized
Person. The Custodian agrees to provide additional designated system user ID
numbers and passwords as needed by the Client. The Client authorizes the
Custodian to issue new system user ID numbers upon the request of a
previously existing Authorized Person. Upon the issuance of additional system
user ID numbers by the Custodian to the Client, Appendix 3 shall be deemed
automatically amended accordingly. The Client authorizes the Custodian to
receive, act and rely upon any Authorized Instructions received by the
Custodian which the Custodian reasonably believe to have been issued by an
Authorized Person.
(c) Any Authorized Person may cancel/correct or otherwise amend
any Authorized Instruction received by the Custodian, but the Client agrees
to indemnify the Custodian for any liability, loss or expense incurred by the
Custodian and its Subcustodians as a result of their having relied upon or
acted on any prior Authorized Instruction. An amendment or cancellation of an
Authorized Instruction to deliver or receive any security or funds in
connection with a trade will not be processed once the trade has settled.
4
<PAGE>
11. REGISTRATION OF SECURITIES. (a) In the absence of Authorized
Instructions to the contrary, Securities which must be held in registered form
shall be registered in the name of the Custodian or the Custodian's nominee or,
in the case of Securities in the custody of an entity other than the Custodian,
in the name of the Custodian, its Subcustodian or any such entity's nominee. The
Custodian may, without notice to the Client, cause any Securities to be
registered or re-registered in the name of the Client.
(b) Where the Custodian has been instructed by the Client to hold
any Securities in the name of any person or entity other than the Custodian,
its Subcustodian or any such entity's nominee, the Custodian shall not be
responsible for the collection of any dividends or other income or
participation in any corporate action with respect to such Securities;
PROVIDED, HOWEVER, that the Custodian shall use reasonable efforts to (i)
provide the Client with information on any such dividends income or corporate
actions for which the Custodian receives actual notice and (ii) assist the
Client in the collection of such dividends or other income or participation
in any such corporate action.
12. DEPOSIT ACCOUNTS. All cash received by the Custodian for the
Accounts shall be held by the Custodian as a short-term credit balance in favor
of the Client, and the Custodian and the Client have agreed in writing that such
credit balances shall earn interest at rates and times as agreed between the
Custodian and the Client. The Client acknowledges that any such credit balances
shall not be accompanied by the benefit of any governmental insurance.
13. SHORT-TERM CREDIT EXTENSIONS. (a) From time to time, the Custodian
may extend or arrange short-term credit for the Client which is (i) necessary in
connection with payment and clearance of securities and foreign exchange
transactions or (ii) pursuant to an agreed schedule, as and if set forth in the
Client Services Guide, of credits for dividends and interest payments on
Securities. All such extensions of credit shall be repayable by the Client on
demand.
(b) The Custodian shall be entitled to charge the Client interest for
any such credit extension at rates to be agreed upon from time to time or, if
such credit is arranged by the Custodian with a third party on behalf of the
Client, the Client shall reimburse the Custodian for any interest charge. In
addition to any other remedies available, the Custodian shall be entitled to a
right of set-off against the Property to satisfy the repayment of such credit
extensions and the payment of, or reimbursement for, accrued interest thereon.
14. REPRESENTATIONS AND WARRANTIES. (a) The Client represents and
warrants that (i) the execution, delivery and performance of this Agreement
(including, without limitation, the ability to obtain the short-term extensions
of credit in accordance with Section 13) are within the Client's power and
authority and have been duly authorized by all requisite action (corporate or
otherwise) of the Client and of the beneficial owner of the Property, if other
than the Client, and (ii) this Agreement and each extension of short-term credit
extended to or arranged for the benefit of the Client in accordance with Section
13 shall at all times constitute a legal, valid and binding obligation of the
Client enforceable against the Client in accordance with their respective
5
<PAGE>
terms, except as may be limited by bankruptcy, insolvency or other similar laws
affecting the enforcement of creditors' rights in general and subject to the
effect of general principles of equity (regardless of whether considered in a
proceeding in equity or at law).
(b) The Custodian represents and warrants that (i) the execution,
delivery and performance of this Agreement are within the Custodian's power
and authority and have been duly authorized by all requisite action
(corporate or otherwise) of the Custodian and (ii) this Agreement constitutes
the legal, valid and binding obligation of the Custodian enforceable against
the Custodian in accordance with its terms, except as may be limited by
bankruptcy, insolvency or other similar laws affecting the enforcement of
creditors' rights in general and subject to the effect of general principles
of equity (regardless of whether considered in a proceeding in equity or at
law).
15. STANDARD OF CARE; INDEMNIFICATION. (a) The Custodian shall be
responsible for the performance of only such duties as are set forth in this
Agreement or contained in Authorized Instructions given to the Custodian which
are not contrary to the provisions of any relevant law or regulation. The
Custodian shall be liable to the Client for any loss, liability or expense
incurred by the Client in connection with this Agreement to the extent that any
such loss, liability or expense results from the negligence or willful
misconduct of the Custodian or any Subcustodian.
(b) The Client acknowledges that the Property may be physically held
outside the United States. The Custodian shall not be liable for any loss,
liability or expense resulting from events beyond the reasonable control of the
Custodian, including, but not limited to, FORCE MAJEURE.
(c) In addition, the Client shall indemnify the Custodian and
Subcustodians and any nominee for, and hold each of them harmless from, any
liability, loss or expense (including attorneys' fees and disbursements)
incurred in connection with this Agreement, including without limitation, (i) as
a result of the Custodian having acted or relied upon any Authorized
Instructions or (ii) arising out of any such person acting as a nominee or
holder of record of Securities, pursuant to Authorized Instructions.
16. FEES; LIENS. The Client shall pay to the Custodian from time to
time such compensation for its services pursuant to this Agreement as may be
mutually agreed upon as well as the Custodian's out-of-pocket and incidental
expenses. The Client shall hold the Custodian harmless from any liability or
loss resulting from any taxes or other governmental charges, and any expenses
related thereto, which may be imposed or assessed with respect to the Accounts
or any Property held therein. The Custodian is, and any Subcustodians are,
authorized to charge the Accounts for such items and the Custodian shall have a
lien, charge and security interest on any and all Property for any amount owing
to the Custodian from time to time under this Agreement.
17. TERMINATION. This Agreement may be terminated by the Client or the
Custodian by 60 days written notice to the other, sent by registered mail. If
notice of termination is given, the Client shall, within 30 days following the
giving of such notice, deliver to the
6
<PAGE>
Custodian a statement in writing specifying the successor custodian or other
person to whom the Custodian shall transfer the Property. In either event, the
Custodian, subject to the satisfaction of any lien it may have, shall transfer
the Property to the person so specified. If the Custodian does not receive such
statement the Custodian, at its election, may transfer the Property to a bank or
trust company established under the laws of the United States or any state
thereof to be held and disposed of pursuant to the provisions of this Agreement
or may continue to hold the Property until such a statement is delivered to the
Custodian. In such event the Custodian shall be entitled to fair compensation
for its services during such period as the Custodian remains in possession of
any Property and the provisions of this Agreement relating to the duties and
obligations of the Custodian shall remain in full force and effect; provided,
however, that the Custodian shall have no obligation to settle any transactions
in Securities for the Accounts. The provisions of Sections 15 and 16 shall
survive termination of this Agreement.
18. INVESTMENT ADVICE. The Custodian shall not supervise, recommend or
advise the Client relative to the investment, purchase, sale, retention or other
disposition of any Property held under this Agreement.
19. CONFIDENTIALITY. (a) The Custodian, its agents and employees
shall maintain the confidentiality of information concerning the Property
held in the Client's account, including in dealings with affiliates of the
Custodian. In the event the Custodian or any Subcustodian is requested or
required to disclose any confidential information concerning the Property,
the Custodian shall, to the extent practicable and legally permissible,
promptly notify the Client of such request or requirement so that the Client
may seek a protective order or waive any objection to the Custodian's or such
Subcustodian's compliance with this Section 19. In the absence of such a
waiver, if the Custodian or such Subcustodian is compelled, in the opinion of
its counsel, to disclose any confidential information, the Custodian or such
Subcustodian may disclose such information to such persons as, in the opinion
of counsel, is so required.
(b) The Client shall maintain the confidentiality of, and not provide
to any third parties absent the written permission of the Custodian, any
computer software, hardware or communications facilities made available to the
Client or its agents by the Custodian.
20. NOTICES. Any notice or other communication from the Client to the
Custodian, unless otherwise provided by this Agreement or the Client Services
Guide, shall be sent by certified or registered mail to Morgan Stanley Trust
Company, One Pierrepont Plaza, Brooklyn, New York, 11201. Attention: President,
and any notice from the Custodian to the Client is to be mailed postage prepaid,
addressed to the Client at the address appearing below, or as it may hereafter
be changed on the Custodian's records in accordance with written notice from the
Client.
21. ASSIGNMENT. This contract may not be assigned by either party
without the prior written approval of the other.
22. MISCELLANEOUS. (a) This Agreement shall bind the successors and
assigns of the Client and the Custodian.
7
<PAGE>
(b) This Agreement shall be governed by and construed in accordance
with the internal laws of the State of New York without regard to its
conflicts of law rules and to the extent not preempted by federal law. The
Custodian and the Client hereby irrevocably submit to the exclusive
jurisdiction of any New York State court or any United States District Court
located in the State of New York in any action or proceeding arising out of
this Agreement and hereby irrevocably waive any objection to the venue of any
such action or proceeding brought in any such court or any defense of an
inconvenient forum.
In witness whereof, the parties hereto have set their hands as of the
date first above written.
CORESTATES BANK, N.A.
By /s/ Elsa Perez
--------------------------
Name: Elsa Perez
Title: V.P.
Address for record: 530 Walnut St
-------------------------
FC 1-9-81-48
-------------------------
Philadelphia, PA 19106
-------------------------
Accepted:
MORGAN STANLEY TRUST COMPANY
By /s/ [ILLEGIBLE]
-----------------------------
Authorized Signature
8
<PAGE>
[LETTERHEAD] [LOGO]
GLOBAL CUSTODY FEE SCHEDULE
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------
HOLDING TRANSACTION
COUNTRY FEE FEE
(BASIS POINTS) $USD
- -------------------------------------------------------------------------
<S> <C> <C>
ARGENTINA 52 165
- -------------------------------------------------------------------------
AUSTRALIA 9 80
- -------------------------------------------------------------------------
AUSTRIA 9 65
- -------------------------------------------------------------------------
BANGLADESH 78 260
- -------------------------------------------------------------------------
BELGIUM 9 80
- -------------------------------------------------------------------------
BOTSWANA 78 260
- -------------------------------------------------------------------------
BRAZIL 33 65
- -------------------------------------------------------------------------
CANADA 4 40
- -------------------------------------------------------------------------
CEDEL 3 18
- -------------------------------------------------------------------------
CHILE 65 120
- -------------------------------------------------------------------------
CHINA 65 260
- -------------------------------------------------------------------------
COLOMBIA 65 145
- -------------------------------------------------------------------------
COTE D'IVORE 60 200
- -------------------------------------------------------------------------
CYPRUS 78 195
- -------------------------------------------------------------------------
CZECH REPUBLIC 65 165
- -------------------------------------------------------------------------
DENMARK 9 65
- -------------------------------------------------------------------------
ECU 9 65
- -------------------------------------------------------------------------
ECUADOR 78 130
- -------------------------------------------------------------------------
EGYPT 78 230
- -------------------------------------------------------------------------
EUROCLEAR 3 30
- -------------------------------------------------------------------------
EURO CD 2 20
- -------------------------------------------------------------------------
FINLAND 9 65
- -------------------------------------------------------------------------
FRANCE 8 80
- -------------------------------------------------------------------------
GERMANY 7 55
- -------------------------------------------------------------------------
GHANA 78 260
- -------------------------------------------------------------------------
GREECE 104 260
- -------------------------------------------------------------------------
HONG KONG 10 100
- -------------------------------------------------------------------------
</TABLE>
***PROPRIETARY***
<PAGE>
[LETTERHEAD] [LOGO]
GLOBAL CUSTODY FEE SCHEDULE
CONT'D
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------
HOLDING TRANSACTION
COUNTRY FEE FEE
(BASIS POINTS) $USD
- -------------------------------------------------------------------------
<S> <C> <C>
HUNGARY 78 260
- -------------------------------------------------------------------------
INDIA 60 200
- -------------------------------------------------------------------------
INDONESIA 26 120
- -------------------------------------------------------------------------
IRELAND 9 80
- -------------------------------------------------------------------------
ISRAEL 52 100
- -------------------------------------------------------------------------
ITALY 9 80
- -------------------------------------------------------------------------
JAPAN 4.5 30
- -------------------------------------------------------------------------
JORDAN 58 260
- -------------------------------------------------------------------------
KENYA 78 260
- -------------------------------------------------------------------------
MALAYSIA 13 100
- -------------------------------------------------------------------------
MAURITIUS 78 230
- -------------------------------------------------------------------------
MEXICO 16 80
- -------------------------------------------------------------------------
MOROCCO 65 130
- -------------------------------------------------------------------------
NETHERLANDS 8 80
- -------------------------------------------------------------------------
NEW ZEALAND 10 100
- -------------------------------------------------------------------------
NORWAY 9 80
- -------------------------------------------------------------------------
PAKISTAN 33 195
- -------------------------------------------------------------------------
PAPUA NEW GUINEA 16 130
- -------------------------------------------------------------------------
PERU 85 195
- -------------------------------------------------------------------------
PHILIPPINES 20 100
- -------------------------------------------------------------------------
POLAND 104 195
- -------------------------------------------------------------------------
PORTUGAL 26 120
- -------------------------------------------------------------------------
RUSSIA 104 195
- -------------------------------------------------------------------------
SINGAPORE 16 100
- -------------------------------------------------------------------------
SLOVAK REPUBLIC 78 130
- -------------------------------------------------------------------------
SOUTH AFRICA 13 100
- -------------------------------------------------------------------------
SOUTH KOREA 20 100
- -------------------------------------------------------------------------
SPAIN 8 80
- -------------------------------------------------------------------------
SRI LANKA 33 100
- -------------------------------------------------------------------------
</TABLE>
***PROPRIETARY***
<PAGE>
[LETTERHEAD] [LOGO]
GLOBAL CUSTODY FEE SCHEDULE
CONT'D
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------
HOLDING TRANSACTION
COUNTRY FEE FEE
(BASIS POINTS) $USD
- -------------------------------------------------------------------------
<S> <C> <C>
SWAZILAND 78 260
- -------------------------------------------------------------------------
SWEDEN 9 80
- -------------------------------------------------------------------------
SWITZERLAND 8 80
- -------------------------------------------------------------------------
TAIWAN 20 120
- -------------------------------------------------------------------------
THAILAND 16 100
- -------------------------------------------------------------------------
TURKEY 26 100
- -------------------------------------------------------------------------
UNITED KINGDOM 4 40
- -------------------------------------------------------------------------
UNITED STATES 2 20
- -------------------------------------------------------------------------
URUGUAY 78 130
- -------------------------------------------------------------------------
VENEZUELA 65 130
- -------------------------------------------------------------------------
ZAMBIA 78 260
- -------------------------------------------------------------------------
ZIMBABWE 78 260
- -------------------------------------------------------------------------
</TABLE>
NON-CORESTATES FOREIGN EXCHANGE CONTRACTS: $10.00 PER F/X CONTRACT
CANCEL & CORRECTS CHARGE BASIS COUNTRY TRANSACTION FEE
ADMINISTRATIVE REPORTING (FULLY AUDITED) FEE: $10,000 PER ANNUM
***PROPRIETARY***
<PAGE>
[LETTERHEAD]
GLOBAL CUSTODY FEE SCHEDULE
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------
HOLDING TRANSACTION
COUNTRY FEE FEE
(BASIS POINTS) $USD
- -------------------------------------------------------------------------
<S> <C> <C>
ARGENTINA 52 165
- -------------------------------------------------------------------------
AUSTRALIA 9 80
- -------------------------------------------------------------------------
AUSTRIA 9 65
- -------------------------------------------------------------------------
BANGLADESH 78 260
- -------------------------------------------------------------------------
BELGIUM 9 80
- -------------------------------------------------------------------------
BOTSWANA 78 260
- -------------------------------------------------------------------------
BRAZIL 33 65
- -------------------------------------------------------------------------
CANADA 4 40
- -------------------------------------------------------------------------
CEDEL 3 18
- -------------------------------------------------------------------------
CHILE 65 120
- -------------------------------------------------------------------------
CHINA 65 260
- -------------------------------------------------------------------------
COLOMBIA 65 145
- -------------------------------------------------------------------------
COTE D'IVORE 60 200
- -------------------------------------------------------------------------
CYPRUS 78 195
- -------------------------------------------------------------------------
CZECH REPUBLIC 65 165
- -------------------------------------------------------------------------
DENMARK 9 65
- -------------------------------------------------------------------------
ECU 9 65
- -------------------------------------------------------------------------
ECUADOR 78 130
- -------------------------------------------------------------------------
EGYPT 78 230
- -------------------------------------------------------------------------
EUROCLEAR 3 30
- -------------------------------------------------------------------------
EURO CD 2 20
- -------------------------------------------------------------------------
FINLAND 9 65
- -------------------------------------------------------------------------
FRANCE 8 80
- -------------------------------------------------------------------------
GERMANY 7 55
- -------------------------------------------------------------------------
GHANA 78 260
- -------------------------------------------------------------------------
GREECE 104 260
- -------------------------------------------------------------------------
HONG KONG 10 100
- -------------------------------------------------------------------------
</TABLE>
***PROPRIETARY***
<PAGE>
[LETTERHEAD]
GLOBAL CUSTODY FEE SCHEDULE
CONT'D
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------
HOLDING TRANSACTION
COUNTRY FEE FEE
(BASIS POINTS) $USD
- -------------------------------------------------------------------------
<S> <C> <C>
HUNGARY 78 260
- -------------------------------------------------------------------------
INDIA 60 200
- -------------------------------------------------------------------------
INDONESIA 26 120
- -------------------------------------------------------------------------
IRELAND 9 80
- -------------------------------------------------------------------------
ISRAEL 52 100
- -------------------------------------------------------------------------
ITALY 9 80
- -------------------------------------------------------------------------
JAPAN 4.5 30
- -------------------------------------------------------------------------
JORDAN 58 260
- -------------------------------------------------------------------------
KENYA 78 260
- -------------------------------------------------------------------------
MALAYSIA 13 100
- -------------------------------------------------------------------------
MAURITIUS 78 230
- -------------------------------------------------------------------------
MEXICO 16 80
- -------------------------------------------------------------------------
MOROCCO 65 130
- -------------------------------------------------------------------------
NETHERLANDS 8 80
- -------------------------------------------------------------------------
NEW ZEALAND 10 100
- -------------------------------------------------------------------------
NORWAY 9 80
- -------------------------------------------------------------------------
PAKISTAN 33 195
- -------------------------------------------------------------------------
PAPUA NEW GUINEA 16 130
- -------------------------------------------------------------------------
PERU 85 195
- -------------------------------------------------------------------------
PHILIPPINES 20 100
- -------------------------------------------------------------------------
POLAND 104 195
- -------------------------------------------------------------------------
PORTUGAL 26 120
- -------------------------------------------------------------------------
RUSSIA 104 195
- -------------------------------------------------------------------------
SINGAPORE 16 100
- -------------------------------------------------------------------------
SLOVAK REPUBLIC 78 130
- -------------------------------------------------------------------------
SOUTH AFRICA 13 100
- -------------------------------------------------------------------------
SOUTH KOREA 20 100
- -------------------------------------------------------------------------
SPAIN 8 80
- -------------------------------------------------------------------------
SRI LANKA 33 100
- -------------------------------------------------------------------------
</TABLE>
***PROPRIETARY***
<PAGE>
[LETTERHEAD]
GLOBAL CUSTODY FEE SCHEDULE
CONT'D
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------
HOLDING TRANSACTION
COUNTRY FEE FEE
(BASIS POINTS) $USD
- -------------------------------------------------------------------------
<S> <C> <C>
SWAZILAND 78 260
- -------------------------------------------------------------------------
SWEDEN 9 80
- -------------------------------------------------------------------------
SWITZERLAND 8 80
- -------------------------------------------------------------------------
TAIWAN 20 120
- -------------------------------------------------------------------------
THAILAND 16 100
- -------------------------------------------------------------------------
TURKEY 26 100
- -------------------------------------------------------------------------
UNITED KINGDOM 4 40
- -------------------------------------------------------------------------
UNITED STATES 2 20
- -------------------------------------------------------------------------
URUGUAY 78 130
- -------------------------------------------------------------------------
VENEZUELA 65 130
- -------------------------------------------------------------------------
ZAMBIA 78 260
- -------------------------------------------------------------------------
ZIMBABWE 78 260
- -------------------------------------------------------------------------
</TABLE>
NON-CORESTATES FOREIGN EXCHANGE CONTRACTS: $10.00 PER F/X CONTRACT
CANCEL & CORRECTS CHANGE BASIS COUNTRY TRANSACTION FEE
ADMINISTRATIVE REPORTING (FULLY AUDITED) FEE: $10,000 PER ANNUM
***PROPRIETARY***
<PAGE>
APPENDIX I
Account Documentation
REQUIRED DOCUMENTATION FOR CORE CUSTODIAL SERVICES
(INCLUDING TAX RECLAIMS):
CUSTODY AGREEMENT
CLIENT SERVICES GUIDE (INCLUDING APPENDICES)
FEE SCHEDULE/BILLING GUIDE
GENERAL ACCOUNT INFORMATION
US TAX AUTHORITY DOCUMENTATION
LOCAL TAX OFFICE LETTER/APPLICATION LETTER
(NON-UNITED STATES-RESIDENT BENEFICIAL OWNERS, ONLY)
FORM 6166/REQUEST FOR FOREIGN CERTIFICATION FORM
(UNITED STATES-RESIDENT BENEFICIAL OWNERS, ONLY)
CERTIFICATION OF BENEFICIAL OWNERSHIP, LEGAL NAME, LEGAL
RESIDENCY, TAX STATUS AND TAX IDS
TAX RECLAIM POWER OF ATTORNEY
PREVIOUS TAX RECLAIM FILING INFORMATION
(PREVIOUS FILERS, ONLY)
UK TAX AUTHORITY DOCUMENTATION
SOPHISTICATED INVESTOR (ACCREDITED INVESTOR) LETTER
(UNITED STATES-RESIDENT BENEFICIAL OWNERS, ONLY)
DOCUMENTATION THAT IS REQUIRED FROM AN ENTITY CLASSIFIED AS
TAX-EXEMPT BY ITS LOCAL TAX AUTHORITY:
UK FORM 4338
(EXEMPT NON-UNITED KINGDOM-RESIDENT BENEFICIAL OWNERS, ONLY)
UK FORM 309A
(EXEMPT UNITED STATES-RESIDENT BENEFICIAL OWNERS, ONLY)
9
<PAGE>
FOREIGN EXEMPTION LETTERS / APPLICATION FOR AUSTRALIAN
EXEMPTION LETTER
(EXEMPT BENEFICIAL OWNERS, ONLY)
DOCUMENTATION THAT IS REQUIRED ONLY IF YOU WILL USE THE
PROXY VOTING SERVICE:
VOTING POWER OF ATTORNEY
DOCUMENTATION THAT IS REQUIRED ONLY IF YOU WILL DEAL IN
CERTAIN SECURITIES:
JGB INDEMNIFICATION LETTER
KOREAN SECURITIES POWER OF ATTORNEY
NEW ZEALAND 'APPROVED ISSUER LEVY' LETTER
SPANISH POWER OF ATTORNEY WITH APOSTILE
10
<PAGE>
[LETTERHEAD]
April 24, 1996
Morgan Stanley Trust Company
One Pierrepont Plaza (8th Floor)
Brooklyn, NY 11201
Attention: Julie Flynn
Dear Julie
Please accept this letter as your authorization to receive instructions from
the following CoreStates personnel:
J. A. Breslin /s/ J. A. Breslin
---------------------------------------
Eleanor Hollman /s/ Eleanor Hollman
---------------------------------------
Lisa M. Lucerte /s/ Lisa M. Lucerte
---------------------------------------
Helen McFadyen /s/ Helen McFadyen
---------------------------------------
Jean Leigh /s/ Jean Leigh
---------------------------------------
Sally LaMaina /s/ Sally LaMaina
---------------------------------------
Raye Goldsborough /s/ Raye Goldsborough
---------------------------------------
Linda Montague /s/ Linda Montague
---------------------------------------
Daniel Bailey /s/ Daniel Bailey
---------------------------------------
Stephen Maher /s/ Stephen Maher
---------------------------------------
Jim O'Connell /s/ Jim O'Connell
---------------------------------------
Chuck Gallagher /s/ Chuck Gallagher
---------------------------------------
Please contact Jean Leigh if additional information is needed.
Thank you.
Sincerely,
/s/ Elsa Perez
Elsa Perez
<PAGE>
REMBRANDT FUND
AUTHORIZED SIGNERS FOR CASH TRANSACTIONS
Effective April 15, 1996
SEI FUNDS ACCOUNTING SEI TRANSFER AGENCY
- ---------------------------------------------------------------------
David Lee David Lee
Jeffrey Cohen Robert Redican
Robert Della Croce Marla B Rinehart
Stephen G Meyer
John Alshefski
Nancy McCormick
Paul Fitzgerald
Karen Pagllerulo
Carol Rooney
Joseph Lydon
James Volk
<PAGE>
COREFUND
AUTHORIZED SIGNERS FOR CASH TRANSACTIONS
Effective April 15, 1996
SEI FUNDS ACCOUNTING SEI TRANSFER AGENCY
- ---------------------------------------------------------------------
David Lee David Lee
Jeffrey Cohen Robert Redican
Robert Della Croce Marla B Rinehart
Stephen G Meyer
John Alshefski
Nancy McCormick
Karen Pagllerulo
Joseph Lydon
Carol Rooney
John Zaleski
James Volk
<PAGE>
SEI SIGNATURE SPECIMENS
/s/ David Lee /s/ Karen Pagllerulo
- --------------------------------------- ------------------------------------
David Lee Karen Pagllerulo
/s/ Jeffrey A Cohen
- ---------------------------------------
Jeffrey A Cohen
/s/ Stephen G Meyer /s/ Christopher Salfi
- --------------------------------------- ------------------------------------
Stephen G Meyer Christopher Salfi
/s/ Steven J Fellin /s/ Nancy McCormick
- --------------------------------------- ------------------------------------
Steven J Fellin Nancy McCormick
/s/ John Alshefski /s/ Robert Redican
- --------------------------------------- ------------------------------------
John Alshefski Robert Redican
/s/ Carol Rooney /s/ Michael Bouttle
- --------------------------------------- ------------------------------------
Carol Rooney Michael Bouttle
/s/ Robert Della Croce /s/ Marla B Rinehart
- --------------------------------------- ------------------------------------
Robert Della Croce Marla B Rinehart
/s/ Trudi Faneltz /s/ Christopher A Glidden
- --------------------------------------- ------------------------------------
Trudi Faneltz Christopher A Glidden
/s/ Paul Fitzgerald /s/ John Zaleski
- --------------------------------------- ------------------------------------
Paul Fitzgerald John Zaleski
/s/ Francis Magee /s/ Joseph Lydon
- --------------------------------------- ------------------------------------
Francis Magee Joseph Lydon
/s/ James F Volk /s/ Michael Lawson
- --------------------------------------- ------------------------------------
James F Volk Michael Lawson
<PAGE>
Part II - Sysem User ID's
The Custodian is directed to accept and act upon Authorized Instructions
transmitted electronically and identified with the following mnemonics and
system user ID's for the following activities:
This is the revised list which includes authorized levels for trade and cash
input.
<TABLE>
<CAPTION>
WORKSTATION ACCOUNT WORKSTATION SESSIONS
USER I.D. MNEMONIC NUMBER TE TCC SL FE CM MA TD
- -------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ECU1484 CSOM 00042903(5) N N N N N N N
CSMR 00042904(3) N N N N N N N
CSVG 00042905(0) N N N N N N N
CSLZ 00042906(8) N N N N N N N
CSMF 00042907(6) N N N N N N N
CSPM 00042908(4) N N N N N N N
CSIO 00042909(2) N N N N N N N
CSCM 00042910(0) N N N N N N N
CSRL 00042911(8) N N N N N N N
CSRA 00042912(6) N N N N N N N
CSRF 00042913(4) N N N N N N N
CSRI 00042914(2) N N N N N N N
CSGF 00042915(9) N N N N N N N
CSIT 00042916(7) N N N N N N N
CSRU 00042917(5) N N N N N N N
CSGB 00042918(3) N N N N N N N
ECU1485 CSOM 00042903(5) N N N N N N N
CSMR 00042904(3) N N N N N N N
CSVG 00042905(0) N N N N N N N
CSLZ 00042906(8) N N N N N N N
CSMF 00042907(6) N N N N N N N
CSPM 00042908(4) N N N N N N N
CSIO 00042909(2) N N N N N N N
CSCM 00042910(0) N N N N N N N
CSRL 00042911(8) N N N N N N N
CSRA 00042912(6) N N N N N N N
CSRF 00042913(4) N N N N N N N
CSRI 00042914(2) N N N N N N N
CSGF 00042915(9) N N N N N N N
43
<PAGE>
<CAPTION>
WORKSTATION ACCOUNT WORKSTATION SESSIONS
USER I.D. MNEMONIC NUMBER TE TCC SL FE CM MA TD
- -------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CSIT 00042916(7) N N N N N N N
CSRU 00042917(5) N N N N N N N
CSGB 00042918(3) N N N N N N N
ECU1486 CSOM 00042903(5) N N N N N N N
CSMR 00042904(3) N N N N N N N
CSVG 00042905(0) N N N N N N N
CSLZ 00042906(8) N N N N N N N
CSMF 00042907(6) N N N N N N N
CSPM 00042908(4) N N N N N N N
CSIO 00042909(2) N N N N N N N
CSCM 00042910(0) N N N N N N N
CSRL 00042911(8) N N N N N N N
CSRA 00042912(6) N N N N N N N
CSRF 00042913(4) N N N N N N N
CSRI 00042914(2) N N N N N N N
CSGF 00042915(9) N N N N N N N
CSIT 00042916(7) N N N N N N N
CSRU 00042917(5) N N N N N N N
CSGB 00042918(3) N N N N N N N
ECU1487 CSOM 00042903(5) Y Y N Y Y N N
CSMR 00042904(3) Y Y N Y Y N N
CSVG 00042905(0) Y Y N Y Y N N
CSLZ 00042906(8) Y Y N Y Y N N
CSMF 00042907(6) Y Y N Y Y N N
CSPM 00042908(4) Y Y N Y Y N N
CSIO 00042909(2) Y Y N Y Y N N
CSCM 00042910(0) Y Y N Y Y N N
CSRL 00042911(8) Y Y N Y Y N N
CSRA 00042912(6) Y Y N Y Y N N
CSRF 00042913(4) Y Y N Y Y N N
CSRI 00042914(2) Y Y N Y Y N N
CSGF 00042915(9) Y Y N Y Y N N
CSIT 00042916(7) Y Y N Y Y N N
CSRU 00042917(5) Y Y N Y Y N N
CSGB 00042918(3) Y Y N Y Y N N
44
<PAGE>
<CAPTION>
WORKSTATION ACCOUNT WORKSTATION SESSIONS
USER I.D. MNEMONIC NUMBER TE TCC SL FE CM MA TD
- -------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ECU1488 CSOM 00042903(5) Y Y N Y Y N N
CSMR 00042904(3) Y Y N Y Y N N
CSVG 00042905(0) Y Y N Y Y N N
CSLZ 00042906(8) Y Y N Y Y N N
CSMF 00042907(6) Y Y N Y Y N N
CSPM 00042908(4) Y Y N Y Y N N
CSIO 00042909(2) Y Y N Y Y N N
CSCM 00042910(0) Y Y N Y Y N N
CSRL 00042911(8) Y Y N Y Y N N
CSRA 00042912(6) Y Y N Y Y N N
CSRF 00042913(4) Y Y N Y Y N N
CSRI 00042914(2) Y Y N Y Y N N
CSGF 00042915(9) Y Y N Y Y N N
CSIT 00042916(7) Y Y N Y Y N N
CSRU 00042917(5) Y Y N Y Y N N
CSGB 00042918(3) Y Y N Y Y N N
ECU1489 CSOM 00042903(5) Y Y N Y Y N N
CSMR 00042904(3) Y Y N Y Y N N
CSVG 00042905(0) Y Y N Y Y N N
CSLZ 00042906(8) Y Y N Y Y N N
CSMF 00042907(6) Y Y N Y Y N N
CSPM 00042908(4) Y Y N Y Y N N
CSIO 00042909(2) Y Y N Y Y N N
CSCM 00042910(0) Y Y N Y Y N N
CSRL 00042911(8) Y Y N Y Y N N
CSRA 00042912(6) Y Y N Y Y N N
CSRF 00042913(4) Y Y N Y Y N N
CSRI 00042914(2) Y Y N Y Y N N
CSGF 00042915(9) Y Y N Y Y N N
CSIT 00042916(7) Y Y N Y Y N N
CSRU 00042917(5) Y Y N Y Y N N
CSGB 00042918(3) Y Y N Y Y N N
ECU1490 CSOM 00042903(5) Y Y N Y Y N N
CSMR 00042904(3) Y Y N Y Y N N
CSVG 00042905(0) Y Y N Y Y N N
CSLZ 00042906(8) Y Y N Y Y N N
CSMF 00042907(6) Y Y N Y Y N N
45
<PAGE>
<CAPTION>
WORKSTATION ACCOUNT WORKSTATION SESSIONS
USER I.D. MNEMONIC NUMBER TE TCC SL FE CM MA TD
- -------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CSPM 00042908(4) Y Y N Y Y N N
CSIO 00042909(2) Y Y N Y Y N N
CSCM 00042910(0) Y Y N Y Y N N
CSRL 00042911(8) Y Y N Y Y N N
CSRA 00042912(6) Y Y N Y Y N N
CSRF 00042913(4) Y Y N Y Y N N
CSRI 00042914(2) Y Y N Y Y N N
CSGF 00042915(9) Y Y N Y Y N N
CSIT 00042916(7) Y Y N Y Y N N
CSRU 00042917(5) Y Y N Y Y N N
CSGB 00042918(3) Y Y N Y Y N N
ECU1491 CSOM 00042903(5) Y Y N Y Y N N
CSMR 00042904(3) Y Y N Y Y N N
CSVG 00042905(0) Y Y N Y Y N N
CSLZ 00042906(8) Y Y N Y Y N N
CSMF 00042907(6) Y Y N Y Y N N
CSPM 00042908(4) Y Y N Y Y N N
CSIO 00042909(2) Y Y N Y Y N N
CSCM 00042910(0) Y Y N Y Y N N
CSRL 00042911(8) Y Y N Y Y N N
CSRA 00042912(6) Y Y N Y Y N N
CSRF 00042913(4) Y Y N Y Y N N
CSRI 00042914(2) Y Y N Y Y N N
CSGF 00042915(9) Y Y N Y Y N N
CSIT 00042916(7) Y Y N Y Y N N
CSRU 00042917(5) Y Y N Y Y N N
CSGB 00042918(3) Y Y N Y Y N N
ECU1492 CSOM 00042903(5) Y Y N Y Y N N
CSMR 00042904(3) Y Y N Y Y N N
CSVG 00042905(0) Y Y N Y Y N N
CSLZ 00042906(8) Y Y N Y Y N N
CSMF 00042907(6) Y Y N Y Y N N
CSPM 00042908(4) Y Y N Y Y N N
CSIO 00042909(2) Y Y N Y Y N N
CSCM 00042910(0) Y Y N Y Y N N
CSRL 00042911(8) Y Y N Y Y N N
CSRA 00042912(6) Y Y N Y Y N N
46
<PAGE>
<CAPTION>
WORKSTATION ACCOUNT WORKSTATION SESSIONS
USER I.D. MNEMONIC NUMBER TE TCC SL FE CM MA TD
- -------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CSRF 00042913(4) Y Y N Y Y N N
CSRI 00042914(2) Y Y N Y Y N N
CSGF 00042915(9) Y Y N Y Y N N
CSIT 00042916(7) Y Y N Y Y N N
CSRU 00042917(5) Y Y N Y Y N N
CSGB 00042918(3) Y Y N Y Y N N
ECU1493 CSOM 00042903(5) Y Y N Y Y N N
CSMR 00042904(3) Y Y N Y Y N N
CSVG 00042905(0) Y Y N Y Y N N
CSLZ 00042906(8) Y Y N Y Y N N
CSMF 00042907(6) Y Y N Y Y N N
CSPM 00042908(4) Y Y N Y Y N N
CSIO 00042909(2) Y Y N Y Y N N
CSCM 00042910(0) Y Y N Y Y N N
CSRL 00042911(8) Y Y N Y Y N N
CSRA 00042912(6) Y Y N Y Y N N
CSRF 00042913(4) Y Y N Y Y N N
CSRI 00042914(2) Y Y N Y Y N N
CSGF 00042915(9) Y Y N Y Y N N
CSIT 00042916(7) Y Y N Y Y N N
CSRU 00042917(5) Y Y N Y Y N N
CSGB 00042918(3) Y Y N Y Y N N
</TABLE>
- ---------------------------
TE Trade Entry
TCC Trade Cancel/Correct
SL Securities Lending
FE Foreign Exchange
CM Cash Movement
MA Mass Authorization
TD Time Deposit
47
<PAGE>
LSV VALUE EQUITY FUND
SCHEDULE DATED MARCH 15, 1999
TO THE ADMINISTRATION AGREEMENT
DATED NOVEMBER 14, 1991
AS AMENDED AND RESTATED MAY 17, 1994
BETWEEN
THE ADVISORS' INNER CIRCLE FUND
AND
SEI FUND RESOURCES
Fees: Pursuant to Article 4, Section A, the Trust shall pay the
Administrator compensation for services rendered to the LSV Value
Equity Fund (the "Fund") at an annual rate equal to 10.0 basis points
on the first $100 million of assets; 8.0 basis points on the next
$100 million of assets and 7.0 basis points on all assets over $200
million. There is a minimum annual administration fee of $75,000 per
fund and $15,000 per additional class.
Term: Pursuant to Article 7, the term of this Agreement shall commence on
March 15, 1999 and shall remain in effect with respect to the Fund for
five years (the "Initial Term"). This Agreement shall continue in
effect for successive periods of 2 years after the Initial Term,
unless terminated by either party on not less than 90 days prior
written notice to the other party. In the event of a material breach
of this Agreement by either party, the non-breaching party shall
notify the breaching party in writing of such breach and upon receipt
of such notice, the breaching party shall have 45 days to remedy the
breach or the non-breaching party may immediately terminate this
Agreement.
<PAGE>
HGK FIXED INCOME FUND
HGK EQUITY VALUE FUND
HGK MID CAP VALUE FUND
SCHEDULE DATED AUGUST 15, 1999
TO THE ADMINISTRATION AGREEMENT
DATED NOVEMBER 14, 1991
AS AMENDED AND RESTATED MAY 17, 1994
BETWEEN
THE ADVISORS' INNER CIRCLE FUND
AND
SEI INVESTMENTS MUTUAL FUNDS SERVICES
Fees: Pursuant to Article 6, Section A, the Trust shall pay the
Administrator compensation for services rendered to the HGK Fixed
Income Portfolio, the HGK Equity Value Portfolio and HGK Mid Cap Value
Portfolio (the "Portfolios") at an annual rate equal to the higher of
a minimum of $75,000 per Portfolio and $15,000 per each additional
class of shares of the Portfolios, or at an annual rate of the
Portfolios' average daily net assets according to the following
schedule.
<TABLE>
<CAPTION>
----------------------------------------------------------------------
FEE (ON AVERAGE ANNUAL ASSETS IN PORTFOLIOS
ASSETS)
-------------------------------- -------------------------------------
<S> <C>
.18% To $250 million
-------------------------------- -------------------------------------
.14% Next $250 million
-------------------------------- -------------------------------------
.10% Over $500 million
----------------------------------------------------------------------
</TABLE>
Term: Pursuant to Article 9, the term of this Agreement shall commence on
August 15, 1999 and shall remain in effect with respect to the
Portfolio for 5 years ("Initial Term"). This Agreement shall continue
in effect for successive periods of 2 years after the Initial Term,
unless terminated by either party on not less than 90 days prior
written notice to the other party. In the event of a material breach
of this Agreement by either party, the non-breaching party shall
notify the breaching party in writing of such breach and upon receipt
of such notice, the breaching party shall have 45 days to remedy the
breach or the non-breaching party may immediately terminate this
Agreement.
<PAGE>
ADMINISTRATION AGREEMENT
- TRANSACTION FEE FUNDS -
This Agreement is made as of the 20th day of August, 1999 among: (1) Fidelity
Brokerage Services, Inc. ("FBSI") and National Financial Services Corporation
("NFSC")(together "Fidelity"), (2) the undersigned ("LSV Asset Management")
("Adviser") and (3) the Advisors' Inner Circle Fund, on behalf of the LSV Value
Equity fund ("the Trust")
RECITALS
A. Fidelity acts as broker for its customers to effect the purchase, redemption
and exchange of shares of investment companies;
B. The Trust desires that Fidelity include one or more Funds among the
investment companies which Fidelity makes available to its customers; and
C. Fidelity agrees to make Funds available on the terms and conditions set forth
herein.
TERMS AND CONDITIONS
A. Set Up For Administration of Funds
1. Upon agreement among Fidelity, the Trust and the Adviser, Fidelity
shall set up one or more Funds on Fidelity's transaction processing and
recordkeeping system in order to provide administrative services to customers
with respect to such Fund(s). Such administrative services may include, but
not be limited to, the following:
- purchase, redemption and exchange of Fund shares
- Fund transaction clearance and settlement
- collection and crediting of Fund distributions
- maintenance of customers' Fund information such as share balance(s),
dividend information and transaction history
- sending of confirmations, statements, prospectuses and other materials
as may be required by applicable law or regulation
- tax reporting to customers
2. Each party agrees that it shall provide to the other such information
and documentation necessary to fulfill its respective obligations hereunder, and
that it shall comply with such operating policies and procedures as the parties
may adopt from time to time.
3. The Trust agrees that it shall either: (1) make arrangements for all
transactions processed pursuant to this Agreement to be processed through the
<PAGE>
National Securities Clearing Corporation Fund/SERV system, or (2) obtain proper
authority for NFSC to transmit to the Fund or its Agent daily manual trades
until 5:00 p.m. Eastern Time, or such other time as set forth on Exhibit A,
which trades shall remain eligible for that day's public offering price provided
Fidelity received the order by the close of trading that day.
B. FEES
1. Start Up Fee
The Adviser shall pay to NFSC a one-time start up fee ("Start Up Fee") for
Fidelity's initial set up and preparation to support a new group or family of
Funds. The amount of the Start Up Fee is set forth on Exhibit B, and shall be
due and payable to NFSC the earlier of 30 days from the execution of this
Agreement or the availability of any such Fund to Fidelity customers. The
identity and description of each Fund which is subject to this Agreement shall
be set forth on Exhibit A, as amended from time to time.
2. CUSIP Fee
The Adviser shall pay to NFSC a fee("CUSIP Fee") to add any Fund to Fidelity's
computer system in order to make such Fund available to Fidelity's customers.
The amount of the CUSIP Fee is set forth on Exhibit B, and shall be due and
payable to NFSC upon the earlier of the addition of the Fund to Exhibit A, or
the availability of such Fund to Fidelity's customers.
3. Maintenance Fee
The Adviser shall pay to NFSC an annual maintenance fee ("Maintenance Fee") with
respect to certain Funds as set forth on Exhibit B.
4. Fidelity may change the fees set forth in this Agreement and any
Exhibits hereto upon 90 days prior written notice to the Adviser and any changes
in fees shall be effective at the expiration of such 90 days or such earlier
time as the parties may agree.
5. The Adviser and the Trust represent to Fidelity that is has the
requisite authority to enter into this Agreement and to properly make payment
of any fee due to Fidelity hereunder.
C. INDEMNIFICATION
The Trust and'the Adviser shall indemnify and hold harmless Fidelity and each
officer, employee and agent of Fidelity from and against any and all claims,
-2-
<PAGE>
demands, actions, losses, damages, liabilities, or costs, charges, counsel fees,
and expenses of any nature ("Losses") arising out of (i) any inaccuracy or
omission in any Fund prospectus or supplement thereto, registration statement,
annual report or proxy statement of any Fund or Fund/Agent or any advertising or
promotional material generated by any Funds or Fund/Agent and (ii) any breach by
Fund/Agent of this Agreement or any representation herein.
Fidelity shall indemnify and hold harmless the Trust and its Trustees,
officers, employees and agent (including the Adviser) against any and all
losses, claims, liabilities and expenses (including reasonable attorney's
fees) incurred by any of them and arising out of (i) Fidelity's dissemination
of information regarding the Trust or any Fund that is materially incorrect
and that was not provided to Fidelity by the Trust or any of its affiliates
or agents (including the Adviser), or (ii) Fidelity's willful misconduct or
gross negligence in the performance of, or failure to perform, its
obligations under the Agreement, except to the extent that any such loss,
claim, liability or breach resulted from the gross negligence, willful
misconduct or breach of this Agreement by the Trust or its agents.
D. CONFIDENTIALITY
Each party acknowledges and understands that any and all technical, trade
secret, or business information, including, without limitation, financial
information, business or marketing strategies or plans, product development or
customer information, which is disclosed to the other or is otherwise obtained
by the other, its affiliates, agents or representatives during the term of this
Agreement (the "Proprietary Information") is confidential and proprietary,
constitutes trade secrets of the owner, and is of great value and importance to
the success of the owner's business. Each party agrees to use its best efforts
(the same being not less than that employed to protect his own proprietary
information) to safeguard the Proprietary information and to prevent the
unauthorized, negligent or inadvertent use or disclosure thereof. Neither party
shall, without the prior written approval of any officer of the other, directly
or indirectly, disclose the Proprietary Information to any person or business
entity except for a limited number of employees , attorneys, accountants and
other advisors of the other on a need-to-know basis or as may be required by law
or regulation. Each party shall promptly notify the other in writing of any
unauthorized, negligent or inadvertent use or disclosure of Proprietary
Information. Each party shall be liable under this Agreement to the other for
any use or disclosure in violation of this Agreement by its employees,
attorneys, accountants, accountants or other advisors or agents. This Section D
shall continue in full force and effect notwithstanding the termination of this
Agreement.
E. DURATION and TERMINATION OF AGREEMENT
With respect to any Fund, this Agreement shall become effective upon the date
such Fund is Identified on Exhibit A, and this Agreement is approved by the Fund
or its Board of Trustees if such approval is required by the Fund or its Board
of
-3-
<PAGE>
Trustees. This Agreement is terminable as to any Fund by any party upon 90 days
written notice thereof to the other parties or upon default hereof provided that
such default shall not terminate this Agreement to the extent the defaulting
party has been notified of such default by the non-defaulting party and the
defaulting party cures such default within 10 business days of notice of such
default.
Notwithstanding the termination of this Agreement with respect to any Fund, the
Adviser will remain obligated to pay NFSC the annual Maintenance Fee which was
payable to Fidelity as of the most recent payment due date prior to such
termination.
F. MISCELLANEOUS
1. CUSTODY - The Trust acknowledges that Fund shares maintained by the Fund
for Fidelity Customers hereunder are held in custody for the exclusive benefit
of customers of NFSC and shall be held free of any right, charge, security
interest, lien or claim against Fidelity in favor of the Fund or its agents
acting on behalf of the Fund.
2. TRANSACTION CHARGES - During the term of this Agreement, Fidelity may
assess against or collect from its brokerage customers any transaction fee upon
the purchase, redemption or exchange of Funds in its sole discretion.
3. USE OF FIDELITY INVESTMENTS NAME - The Trust and the Adviser will not,
nor will the Trust or the Adviser cause or permit any Fund to, describe or refer
to the name "Fidelity Investments" or any derivation thereof, or to FMR Corp.
or any affiliate thereof, or to the services or relationship contemplated by
this Agreement in any advertisement or promotional materials or activities
without the prior written consent of any authorized officer of Fidelity.
4. NONEXCLUSIVITY - The Trust acknowledges that Fidelity may enter into
agreements similar to this Agreement with other investment companies,
investment company sponsors, or service providers to investment companies.
5. FORCE MAJEURE - Neither Fidelity nor its affiliates shall be liable to
the Trust, the Adviser, or any Fund for any damage, claim or other loss
whatsoever caused by circumstances or events beyond its reasonable
control.
6. A copy of the Trust's Declaration of Trust is on file with the
Secretary of the Commonwealth of Massachusetts and notice is hereby
given that this instrument is executed on behalf of the trustees of the
Trust as trustees and not individually and that the obligations of this
instrument are not binding upon any of the trustees, officers or
shareholders of the any, of the Funds individually, but binding only
upon the assets and property of the Funds or the Trust.
-4-
<PAGE>
7. NOTICES - All notices and communications required or permitted by this
Agreement shall be in writing and delivered personally or sent by first
class mail unless otherwise agreed. All such notices and other
communications shall be made:
IF TO FIDELITY, TO:
Fidelity Investments
82 Devonshire Street, L4D
Boston, MA 02109
Attn: Rob Masabny
IF TO THE TRUST, TO:
SEI Investments
1 Freedom Valley Drive
Oaks, PA 19456
Attn: General Counsel
IF TO THE ADVISER, TO:
LSV Asset Management
200 West Madison Street
Chicago, IL 60606
Attn: Tremaine Atkinson
7. Except as provided herein, this Agreement and any Exhibits hereto may be
amended only upon written agreement of the parties.
8. This Agreement may not be transferred or assigned by either Fund/Agent
or Fidelity, and shall be construed in accordance with the laws of the
Commonwealth of Massachusetts.
ADVISORS' INNER CIRCLE FIDELITY BROKERAGE SERVICES, INC.
By: /s/ James R. Foggo By: /s/ L. Hasicezc
----------------------- ------------------------
Name: James R. Foggo Name: L. Hasicezc
----------------------- ------------------------
Title: Vice President Title: V.P.
----------------------- -----------------------
Fund or
Company: Advisors' Inner Circle Fund --
--------------------
LSV Value Equity Fund
-5-
<PAGE>
LSV ASSET MANAGEMENT NATIONAL FINANCIAL SERVICES CORPORATION
By: /s/ Tremaine Atkinson By: /s/ Robert J. Adams
----------------------------- -----------------------------------
Name: Tremaine Atkinson Name: Robert J. Adams
----------------------------- -----------------------------------
Title: COO Title: Senior Vice President
----------------------------- -----------------------------------
-6-
<PAGE>
EXHIBIT A
FUND NAME CUSIP TRADING ORDER
SYMBOL DEADLINE
LSV Value Equity Fund 00768M634
- --------------------- ------------- ---------------- -----------------
- --------------------- ------------- ---------------- -----------------
- --------------------- ------------- ---------------- -----------------
- --------------------- ------------- ---------------- -----------------
- --------------------- ------------- ---------------- -----------------
- --------------------- ------------- ---------------- -----------------
-7-
<PAGE>
EXHIBIT B
FEE Due Pursuant to Section: B
1. Start Up Fee = $10,000.00 (WAIVED)
2. CUSIP Fee = $1,000.00 per CUSIP (WAIVED for funds listed in Exhibit A)
3 Maintenance Fees:
For each Fund which participates in the NSCC Fund/SERV networking level 3
system, Adviser shall pay to NFSC an annual fee of $3.00 for each separate Fund
position held in any Fidelity customer account which fee shall be payable
quarterly in arrears at a rate of $.75 per Fund position.
-8-
<PAGE>
APPENDIX C
NATIONAL FINANCIAL
Services Corporation
200 Liberty Street
One World Financial Center
5th Floor
New York, NY. 10281-1003
Telephone (212)335-5000
Date August 20, 1999
----------------
Re: Custody of Uncertificated Mutual Fund Shares; SEC Rule 15c3-3
To Whom It May Concern:
National Financial Services Corporation ("NFSC"), a registered
broker-dealer, has been asked to establish mutual fund "STREET NAME" accounts
in one or more of your funds which accounts will contain the assets of
customers of NFSC. Each such account will be registered as "Special Custody
Account for the Exclusive Benefit of Customers of National Financial Services
Corporation," or in a form sufficiently similar to identify the account(s) as
containing the assets of customers of NFSC.
Under a clarification to SEC Rule 15c3-3, in order for uncertificated
mutual fund shares to be considered held in a good control location,
broker-dealers are required to obtain a specific acknowledgment from the mutual
fund holding these types of accounts.
Accordingly, NFSC requests that you confirm that the assets of NFSC's
customers held in the "STREET NAME" accounts registered as noted above will be
held free from any right, charge, security interest, lien or claim against NFSC
in favor of such mutual fund or its agents. NFSC ACKNOWLEDGES THAT SUCH "STREET
NAME" ACCOUNTS ARE NOT AND WILL NOT PARTICIPATE IN A LETTER OR STATEMENT OF
INTENTION WHICH THE FUNDS MAY OFFER.
Please confirm this understanding by signing as indicated below and
returning this original to the undersigned. If you have any questions, please
call me at 212-335-5003.
Very Truly Yours,
NATIONAL FINANCIAL SERVICES CORPORATION
Robert J. Adams
Vice-President
CONFIRMED:
By: /s/ James R. Foggo
---------------------------------------
Title: Vice President
------------------------------------
Fund Company: Advisors' Inner Circle Fund -
------------------------------
LSV Value Equity Fund
-9-
<PAGE>
CRA REAL ESTATE SECURITIES L.P.
CRA REALTY SHARES PORTFOLIO
SCHEDULE DATED DECEMBER 1, 1999
TO THE ADMINISTRATION AGREEMENT
DATED NOVEMBER 14, 1991
AS AMENDED AND RESTATED MAY 17, 1994
BETWEEN
THE ADVISORS' INNER CIRCLE FUND
AND
SEI FUND RESOURCES
Fees: Pursuant to Article 4, Section A, the Trust shall pay the
Administrator compensation for services rendered to the CRA
Realty Shares Portfolio (the "Portfolio") at an annual rate
equal to 15.0 basis points on the first $100 million of assets;
12.5 basis points on the next $100 million of assets; 0.0 basis
points on the next $100 million of assets and 8.0 basis points
on all assets over $300 million. There is a minimum annual
administration fee of $75,000 per portfolio.
Term: Pursuant to Article 7, the term of this Agreement shall
commence on December 1, 1998 and shall remain in effect with
respect to the Portfolio for 3 years (the "Renewal Term"). This
Agreement shall continue in effect for successive periods of 1
year after the Renewal Term, unless terminated by either party
on not less than 90 days prior written notice to the other
party. In the event of a material breach of this Agreement by
either party, the non-breaching party shall notify the
breaching party in writing of such breach and upon receipt of
such notice, the breaching party shall have 45 days to remedy
the breach or the non-breaching party may immediately terminate
this Agreement.
This Agreement shall terminate with respect to the Portfolio
immediately upon its assignment except upon the express written
consent by the Portfolio to the assignment.
089
<PAGE>
AMENDMENT TO OPERATING AGREEMENT
This Amendment ("Amendment") is made as of August 18, 1999, by and
between Charles Schwab & Co., Inc. ("Schwab"), a California corporation, and
each registered investment company ("Fund Company") executing this Amendment
on its own behalf and on behalf of each of its series or classes of shares
("Fund(s)") listed on Schedule I hereto, and LSV Asset Management, a Delaware
general partnership ("Fund Affiliate"), and amends the Operating Agreement
between Schwab and Fund Company, made as of January 5, 1996, as amended
thereafter ("Operating Agreement"). Fund Affiliate is added as a party to the
Operating Agreement under this Amendment. All capitalized terms used in the
Amendment and not defined herein shall have the meaning ascribed to them in
the Operating Agreement.
WHEREAS, the parties wish to amend Schedule I to the Operating
Agreement: and
WHEREAS, the parties wish to add Fund Affiliate as a party to the
Operating Agreement, effective as of August 18, 1999, for the purpose of
obligating Fund Affiliate to pay any applicable Account establishment and
maintenance fees with respect to LSV Value Equity Fund, as set forth herein;
WHEREAS, the parties wish to institute the payment of Account
establishment and maintenance fees to be paid by or on behalf of each Fund for
which the effective date of such Fund on Schedule I is on or after the date
on which this Amendment is made, such fees to be set forth on a Schedule III;
NOW, THEREFORE, in consideration of the foregoing and the mutual
promises set forth below, the parties agree as follows:
1. Fund Affiliate is added as a party to the Operating Agreement
effective as of the effective date of this Amendment.
2. Section 4. of the Operating Agreement is hereby deleted in its
entirety and the following Section 4. is inserted in lieu thereof.
4. ACCOUNT ESTABLISHMENT AND MAINTENANCE FEES
Fund Company shall pay to Schwab fees to reimburse Schwab
for its costs in establishing and maintaining Accounts(s) for each Fund.
For each Fund that is designated "FEE 1" on Schedule I, Fund Company
shall pay Schwab the fees that are set forth on Schedule II and in the
following manner. Fees attributable to establishment of the Account(s)
for a Fund shall be paid prior to establishment of the Account(s) for
such fund. Fees attributable to maintaining the Account(s) for each Fund
shall be billed on an annual basis on December 31 and paid promptly in no
event later than thirty (30) days after billing. Such payment shall be by
wire transfer. Such wire transfers shall be separate from wire transfers
of redemption proceeds or distributions under this Agreement. For each
Fund that is designated "FEE 2" on Schedule I, Fund Company, or Fund
Affiliate with respect to LSV Value Equity Fund, shall pay Schwab the fees
at the time and in the manner set forth in Schedule III.
3. Schedule I to the Operating Agreement shall be deleted in its
entirety and the Schedule I attached hereto shall be inserted in lieu thereof.
4. The attached Schedule III is hereby inserted as Schedule III to
the Operating Agreement.
1
<PAGE>
5. Schedule III may be amended by Schwab on forty (40) days' written
notice to Fund Company and Fund Affiliate or such earlier time as shall be
agreed to by the parties.
6. Except as specifically set forth herein, all other provisions of
the Operating Agreement shall remain in full force and effect.
IN WITNESS WHEREOF, the parties have executed this Amendment as of the
date first written above.
CHARLES SCHWAB & CO., INC. THE ADVISORS' INNER CIRCLE FUND, on
its own behalf and on behalf of each
By: /s/ Fred Potts Fund listed on Schedule I hereto
------------------------------
Fred Potts By: /s/ James R. Foggo
Vice President/Mutual Funds ------------------------------
Operations Administration
Name: James R. Foggo
Date: 9/3/99 ------------------------------
------------------------------
Title: Vice President
LSV ASSET MANAGEMENT, a Delaware ------------------------------
general partnership
Date: 8/18/99
By: /s/ Tremaine Atkinson ------------------------------
------------------------------
Name: Tremaine Atkinson
------------------------------
Title: COO
------------------------------
Date: 8-26-99
------------------------------
2
<PAGE>
SCHEDULE I
TO THE OPERATING AGREEMENT
<TABLE>
<CAPTION>
FUND COMPANY/FUNDS EFFECTIVE DATE
<S> <C>
The Advisors' Inner Circle Fund
CRA Realty Shares Portfolio, Institutional Shares* 11/26/97
LSV Value Equity Fund* FEE 2 8/18/99
</TABLE>
* Indicates that Fund is a "no-load" or "no sales charge" Fund as
defined in Rule 2830 of the NASDR.
SI Indicates that Fund is available only to MFMP investors through
Schwab Institutional or another advice program offered or made available
by financial institutions clearing transactions through Schwab.
FEE 1 Indicates that Fund is subject to Account Establishment and
Maintenance Fees and the terms thereof as set forth on Schedule II.
FEE 2 Indicates that Fund is subject to Account Establishment and
Maintenance Fees and the terms thereof as set forth on Schedule III.
Accepted by:
CHARLES SCHWAB & CO., INC. THE ADVISORS' INNER CIRCLE FUND, on
its own behalf and on behalf of each
By: /s/ Fred Potts Fund listed on this Schedule I
------------------------------
Fred Potts By: /s/ James R. Foggo
Vice President/Mutual Funds ------------------------------
Operations Administration
Name: James R. Foggo
Date: 9/3/99 ------------------------------
------------------------------
Acknowledged by: Title: Vice President
LSV ASSET MANAGEMENT, a Delaware ------------------------------
general partnership
Date: 8/18/99
By: /s/ Tremaine Atkinson ------------------------------
------------------------------
Name: Tremaine Atkinson
------------------------------
Title: COO
------------------------------
Date: 8-26-99
------------------------------
3
<PAGE>
SCHEDULE III
TO THE OPERATING AGREEMENT
Fees to Establish and Maintain Account(s) for a Fund
Establishment Fee
The Establishment Fee for the Account(s) for each Fund for which the
effective date of such Fund on Schedule I is August 18, 1999, or any date
thereafter, is $6,000. The Establishment Fee for each Fund shall be paid
prior to establishment of the Account(s) for such Fund.
Maintenance Fee
a. The Maintenance Fee as to the Account(s) for each Fund for which
the effective date of such Fund on Schedule 1 is August 18, 1999, or any date
thereafter, shall be billed in arrears on February 28 (or February 29 in a
leap year) and August 31 (each an "Assessment Date") commencing on the first
Assessment Date after the establishment of the Account(s) for the Fund on the
Schwab system. The Maintenance Fee as to the Account(s) of a Fund shall
continue to be paid as long as there are any shares held in the Account(s).
The Maintenance Fee shall be paid by wire transfer within thirty (30) days
after Fund Affiliate or Fund Company's receipt of the invoice. Such wire
transfers shall be separate from wire transfers of redemption proceeds or
distributions under this Agreement.
b. The Maintenance Fee as to the Account(s) for a Fund is $1,000 per
full month of establishment on Schwab's system since the previous Assessment
Date unless the assets held in the Account(s) for the Fund are in excess of
$5 million on the Assessment Date. If the assets held in the Account(s) for a
Fund are in excess of $5 million on the Assessment Date, then the Maintenance
Fee as to the Account(s) for the Fund for such period is $0.
c. For purposes of this calculation, the value of the shares of each
Fund will be the net asset value reported by such Fund to the National
Association of Securities Dealers, Inc. Automated Quotation System. No
adjustments will be made to the net asset values to correct errors in the net
asset values so reported for any Assessment Date unless such error is
corrected and the corrected net asset value per share is reported to Schwab
before 5 o'clock p.m., San Francisco time, on the next business day after the
Assessment Date to which the error relates. For purposes of this Exhibit, a
"Business Day" is any day the New York Stock Exchange is open for trading.
4
<PAGE>
February 18, 2000
The Advisors' Inner Circle Fund
2 Oliver Street
Boston, MA 02109
Re: Opinion of Counsel regarding Post-Effective Amendment No. 39 to the
Registration Statement filed on Form N-1A under the Securities Act of
1933 (File No. 33-42484)
Ladies and Gentlemen:
We have acted as counsel to The Advisors' Inner Circle Fund, a Massachusetts
trust (the "Trust"), in connection with the above-referenced Registration
Statement (as amended, the"Registration Statement") which relates to the Trust's
units of beneficial interest, with no par value (collectively, the
"Shares") of the AIG Money Market Fund, CRA Realty Shares Portfolio, FMC Select
Fund, FMC Strategic Value Fund, HGK Fixed Income Fund, HGK Equity Value Fund,
HGK Mid Cap Value Fund, LSV Value Equity Fund, MDL Broad Market Fixed Income
Fund and MDL Large Cap Growth Equity Fund. This opinion is being delivered to
you with the Trust's filing of Post-Effective Amendment No. 39 to the
Registration Statement (the "Amendment") to be filed with the Securities and
Exchange Commission pursuant to Rule 485(b) of the Securities Act of 1933 (the
"1933 Act"). With your permission, all assumptions and statements of reliance
herein have been made without any independent investigation or verification on
our part except to the extent otherwise expressly stated, and we express no
opinion with respect to the subject matter or accuracy of such assumptions or
items relied upon.
In connection with this opinion, we have reviewed, among other things, executed
copies of the following documents:
(a) a certificate of the Commonwealth of Massachusetts as to the existence
and good standing of the Trust;
(b) the Agreement and Declaration of Trust for the Trust and all
amendments and supplements thereto (the "Declaration of Trust");
<PAGE>
The Advisors' Inner Circle Fund
February 18, 2000
Page 2
(c) a certificate executed by John Grady, the Secretary of the
Trust, certifying as to, and attaching copies of, the Trust's
Declaration of Trust and Amended and Restated By-Laws (the
"By-Laws"), and certain resolutions adopted by the Board of
Trustees of the Trust authorizing the issuance of the Shares;
and
(d) a printer's proof of the Amendment.
In our capacity as counsel to the Trust, we have examined the originals, or
certified, conformed or reproduced copies, of all records, agreements,
instruments and documents as we have deemed relevant or necessary as the
basis for the opinion hereinafter expressed. In all such examinations, we
have assumed the legal capacity of all natural persons executing documents,
the genuineness of all signatures, the authenticity of all original or
certified copies, and the conformity to original or certified copies of all
copies submitted to us as conformed or reproduced copies. As to various
questions of facts relevant to such opinion, we have relied upon, and assume
the accuracy of, certificates and oral or written statements of public
officials and officers or representatives of the Fund. We have assumed that
the Amendment, as filed with the Securities and Exchange Commission, will be
in substantially the form of the printer's proof referred to in paragraph (d)
above.
Based upon, and subject to, the limitations set forth herein, we are of the
opinion that the Shares, when issued and sold in accordance with the
Declaration of Trust and By-Laws, and for the consideration described in the
Registration Statement, will be legally issued, fully paid and non-assessable
under the laws of the Commonwealth of Massachusetts.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement. In giving this consent, we do not concede that we are
in the category of persons whose consent is required under Section 7 of the
1933 Act.
Very truly yours,
/s/ Morgan, Lewis and Bockius LLP
<PAGE>
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
dated December 17, 1999, on the October 31, 1999 financial statements of The
Advisors' Inner Circle Fund, incorporated by reference in Post-Effective
Amendment No. 39 to the Registration Statement on Form N-1A of The Advisors'
Inner Circle Fund (Registration Statement No. 33-42484), and to all references
to our firm included in or made part of this Registration Statement.
/s/ Arthur Andersen LLP
------------------------
Philadelphia, Pennsylvania
February 23, 2000
<PAGE>
THE ARBOR FUND
THE ADVISORS' INNER CIRCLE FUND
THE EXPEDITION FUNDS
OAK ASSOCIATES FUNDS
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned trustee and/or
officer of the above referenced funds (the "Trusts"), each a business trust
organized under the laws of The Commonwealth of Massachusetts, hereby
constitutes and appoints Mark E. Nagle, Joseph M. O'Donnell and Kevin P.
Robins, each of them singly, his true and lawful attorney-in-fact and agent
with full power of substitution and resubstitution, to sign for him and in his
name, place and stead, and in the capacity indicated below, to sign any and
all Registration Statements and all amendments thereto relating to the
offering of the Trust's shares under the provisions of the Investment Company
Act of 1940 and/or the Securities Act of 1933, each such Act as amended, and
to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting
unto said attorneys-in-fact and agents, and each of them, acting alone, full
power and authority to do and perform each and every act and thing requisite
or necessary to be done in and about the premises, as fully to all intents
and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents or any of them, or
their substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal
as of the date set forth below.
/s/ George J. Sullivan
- --------------------------------- Date: 9/1/99
George J. Sullivan, Jr. Trustee
<PAGE>
THE ARBOR FUND
THE ADVISORS' INNER CIRCLE FUND
THE EXPEDITION FUNDS
OAK ASSOCIATES FUNDS
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned trustee and/or
officer of the above referenced fund (the "Trust"), a business trust
organized under the laws of The Commonwealth of Massachusetts, hereby
constitutes and appoints Kevin P. Robins and Joseph M. O'Donnell, each of
them singly, his true and lawful attorney-in-fact and agent with full power
of substitution and resubstitution, to sign for his and in his name, place
and stead, and in the capacity indicated below, to sign any and all
Registration Statements and all amendments thereto relating to the offering
of the Trust's shares under the provisions of the Investment Company Act of
1940 and/or the Securities Act of 1933, each such Act as amended, and to file
the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, acting alone, full power and
authority to do and perform each and every act and thing requisite or
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming
all that said attorneys-in-fact and agents or any of them, or their
substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal
as of the date set forth below.
/s/ Mark E. Nagle Date: September 9, 1998
- -------------------------------- -------------------------
Mark E. Nagle, President
<PAGE>
THE ARBOR FUND
THE ADVISORS' INNER CIRCLE FUND
THE EXPEDITION FUNDS
OAK ASSOCIATES FUNDS
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned trustee and/or
officer of the above referenced fund (the "Trust"), a business trust
organized under the laws of The Commonwealth of Massachusetts, hereby
constitutes and appoints Mark E. Nagle, Joseph M. O'Donnell and Kevin P.
Robins, each of them singly, his true and lawful attorney-in-fact and agent
with full power of substitution and resubstitution, to sign for his and in
his name, place and stead, and in the capacity indicated below, to sign any
and all Registration Statements and all amendments thereto relating to the
offering of the Trust's shares under the provisions of the Investment Company
Act of 1940 and/or the Securities Act of 1933, each such Act as amended, and
to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting
unto said attorneys-in-fact and agents, and each of them, acting alone, full
power and authority to do and perform each and every act and thing requisite
or necessary to be done in and about the premises, as fully to all intents
and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents or any of them, or
their substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal
as of the date set forth below.
/s/ John T. Cooney Date: 9-9-98
- -------------------------------- -------------------------
John T. Cooney, Trustee
<PAGE>
THE ARBOR FUND
THE ADVISORS' INNER CIRCLE FUND
THE EXPEDITION FUNDS
OAK ASSOCIATES FUNDS
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned trustee and/or
officer of the above referenced fund (the "Trust"), a business trust
organized under the laws of The Commonwealth of Massachusetts, hereby
constitutes and appoints Mark E. Nagle, Joseph M. O'Donnell and Kevin P.
Robins, each of them singly, his true and lawful attorney-in-fact and agent
with full power of substitution and resubstitution, to sign for his and in
his name, place and stead, and in the capacity indicated below, to sign any
and all Registration Statements and all amendments thereto relating to the
offering of the Trust's shares under the provisions of the Investment Company
Act of 1940 and/or the Securities Act of 1933, each such Act as amended, and
to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting
unto said attorneys-in-fact and agents, and each of them, acting alone, full
power and authority to do and perform each and every act and thing requisite
or necessary to be done in and about the premises, as fully to all intents
and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents or any of them, or
their substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal
as of the date set forth below.
/s/ William M. Doran Date: 9/9/98
- -------------------------------- -------------------------
William M. Doran, Trustee
<PAGE>
THE ARBOR FUND
THE ADVISORS' INNER CIRCLE FUND
THE EXPEDITION FUNDS
OAK ASSOCIATES FUNDS
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned trustee and/or
officer of the above referenced fund (the "Trust"), a business trust
organized under the laws of The Commonwealth of Massachusetts, hereby
constitutes and appoints Mark E. Nagle, Joseph M. O'Donnell and Kevin P.
Robins, each of them singly, his true and lawful attorney-in-fact and agent
with full power of substitution and resubstitution, to sign for his and in
his name, place and stead, and in the capacity indicated below, to sign any
and all Registration Statements and all amendments thereto relating to the
offering of the Trust's shares under the provisions of the Investment Company
Act of 1940 and/or the Securities Act of 1933, each such Act as amended, and
to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting
unto said attorneys-in-fact and agents, and each of them, acting alone, full
power and authority to do and perform each and every act and thing requisite
or necessary to be done in and about the premises, as fully to all intents
and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents or any of them, or
their substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal
as of the date set forth below.
/s/ Robert A. Nesher Date: 9-11-98
- -------------------------------- -------------------------
Robert A. Nesher, Trustee
<PAGE>
THE ARBOR FUND
THE ADVISORS' INNER CIRCLE FUND
THE EXPEDITION FUNDS
OAK ASSOCIATES FUNDS
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned trustee and/or
officer of the above referenced fund (the "Trust"), a business trust
organized under the laws of The Commonwealth of Massachusetts, hereby
constitutes and appoints Mark E. Nagle, Joseph M. O'Donnell and Kevin P.
Robins, each of them singly, his true and lawful attorney-in-fact and agent
with full power of substitution and resubstitution, to sign for his and in
his name, place and stead, and in the capacity indicated below, to sign any
and all Registration Statements and all amendments thereto relating to the
offering of the Trust's shares under the provisions of the Investment Company
Act of 1940 and/or the Securities Act of 1933, each such Act as amended, and
to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting
unto said attorneys-in-fact and agents, and each of them, acting alone, full
power and authority to do and perform each and every act and thing requisite
or necessary to be done in and about the premises, as fully to all intents
and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents or any of them, or
their substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal
as of the date set forth below.
/s/ Eugene B. Peters Date: 10 Sept '98
- -------------------------------- -------------------------
Eugene B. Peters, Trustee
<PAGE>
THE ARBOR FUND
THE ADVISORS' INNER CIRCLE FUND
THE EXPEDITION FUNDS
OAK ASSOCIATES FUNDS
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned trustee and/or
officer of the above referenced fund (the "Trust"), a business trust
organized under the laws of The Commonwealth of Massachusetts, hereby
constitutes and appoints Mark E. Nagle, Joseph M. O'Donnell and Kevin P.
Robins, each of them singly, his true and lawful attorney-in-fact and agent
with full power of substitution and resubstitution, to sign for his and in
his name, place and stead, and in the capacity indicated below, to sign any
and all Registration Statements and all amendments thereto relating to the
offering of the Trust's shares under the provisions of the Investment Company
Act of 1940 and/or the Securities Act of 1933, each such Act as amended, and
to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting
unto said attorneys-in-fact and agents, and each of them, acting alone, full
power and authority to do and perform each and every act and thing requisite
or necessary to be done in and about the premises, as fully to all intents
and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents or any of them, or
their substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal
as of the date set forth below.
/s/ Dr. Robert A. Patterson Date: 9-9-98
- -------------------------------- -------------------------
Dr. Robert A. Patterson, Trustee
<PAGE>
THE ARBOR FUND
THE ADVISORS' INNER CIRCLE FUND
THE EXPEDITION FUNDS
OAK ASSOCIATES FUNDS
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned trustee and/or
officer of the above referenced fund (the "Trust"), a business trust
organized under the laws of The Commonwealth of Massachusetts, hereby
constitutes and appoints Mark E. Nagle, Joseph M. O'Donnell and Kevin P.
Robins, each of them singly, his true and lawful attorney-in-fact and agent
with full power of substitution and resubstitution, to sign for his and in
his name, place and stead, and in the capacity indicated below, to sign any
and all Registration Statements and all amendments thereto relating to the
offering of the Trust's shares under the provisions of the Investment Company
Act of 1940 and/or the Securities Act of 1933, each such Act as amended, and
to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting
unto said attorneys-in-fact and agents, and each of them, acting alone, full
power and authority to do and perform each and every act and thing requisite
or necessary to be done in and about the premises, as fully to all intents
and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents or any of them, or
their substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal
as of the date set forth below.
/s/ James M. Storey Date: 9/10/98
- -------------------------------- -------------------------
James M. Storey, Trustee
