AS FILED WITH THE U.S. SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 25, 2005
File No. 033-42484
File No. 811-06400
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933
POST-EFFECTIVE AMENDMENT NO. [79] /X/
AND
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940
AMENDMENT NO. [80] /X/
THE ADVISORS' INNER CIRCLE FUND
(Exact Name of Registrant as Specified in Charter)
101 FEDERAL STREET
BOSTON, MASSACHUSETTS 02110
(Address of Principal Executive Offices, Zip Code)
Registrant's Telephone Number, including Area Code (800) 932-7781
James F. Volk
c/o SEI Corporation
One Freedom Valley Drive
Copies to:
Richard W. Grant, Esquire John M. Ford, Esquire Morgan, Lewis & Bockius LLP Morgan, Lewis & Bockius LLP One Oxford Centre 1111 Pennsylvania Avenue, NW Pittsburgh, Pennsylvania 15219-6401 Washington, DC 20004 |
THE ANALYTIC FUNDS
Investment Adviser:
ANALYTIC
INVESTORS
[Logo omitted]
PROSPECTUS
May 1, 2005
THE ADVISORS' INNER CIRCLE FUND
DEFENSIVE EQUITY FUND
GLOBAL LONG-SHORT FUND
SHORT-TERM INCOME FUND
The Securities and Exchange Commission has not approved or disapproved these securities or passed upon the adequacy of this prospectus.
Any representation to the contrary is a
criminal offense.
TABLE OF CONTENTS
ANALYTIC DEFENSIVE EQUITY FUND................................ 1
WHAT IS THE FUND'S OBJECTIVE?............................. 1
WHAT ARE THE FUND'S PRINCIPAL INVESTMENT STRATEGIES?...... 1
WHAT ARE THE FUND'S PRINCIPAL RISKS?...................... 2
HOW HAS THE FUND PERFORMED?............................... 3
WHAT ARE THE FUND'S FEES AND EXPENSES?.................... 4
ANALYTIC GLOBAL LONG-SHORT FUND............................... 6
WHAT IS THE FUND'S OBJECTIVE?............................. 6
WHAT ARE THE FUND'S PRINCIPAL INVESTMENT STRATEGIES?...... 6
WHAT ARE THE FUND'S PRINCIPAL RISKS?...................... 7
HOW HAS THE FUND PERFORMED?............................... 8
WHAT ARE THE FUND'S FEES AND EXPENSES?.................... 9
ANALYTIC SHORT-TERM INCOME FUND............................... 10
WHAT IS THE FUND'S OBJECTIVE?............................. 10
WHAT ARE THE FUND'S PRINCIPAL INVESTMENT STRATEGIES?...... 10
WHAT ARE THE FUND'S PRINCIPAL RISKS?...................... 11
HOW HAS THE FUND PERFORMED?............................... 12
WHAT ARE THE FUND'S FEES AND EXPENSES?.................... 13
INVESTING WITH THE FUNDS...................................... 14
BUYING SHARES............................................. 14
REDEEMING SHARES.......................................... 15
EXCHANGING SHARES......................................... 15
TRANSACTION POLICIES...................................... 16
ACCOUNT POLICIES.......................................... 19
ADDITIONAL INFORMATION ABOUT THE FUNDS........................ 22
OTHER INVESTMENT PRACTICES AND STRATEGIES................. 22
INVESTMENT MANAGEMENT..................................... 23
SHAREHOLDER SERVICING ARRANGEMENTS........................ 24
FINANCIAL HIGHLIGHTS.......................................... 26
DEFENSIVE EQUITY FUND..................................... 26
GLOBAL LONG-SHORT FUND.................................... 27
SHORT-TERM INCOME FUND.................................... 28
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ANALYTIC DEFENSIVE EQUITY FUND WHAT IS THE FUND'S OBJECTIVE? -------------------------------------------------------------------------------- |
The Defensive Equity Fund seeks to obtain a greater long-term total return and smaller fluctuations in quarterly total return from a diversified, hedged common stock fund than would be realized from the same fund unhedged. The fund may change its investment objective without shareholder approval.
Through its proprietary investment process, the adviser attempts to create a well-diversified and significantly hedged portfolio by investing in a combination of stocks, debt securities and options. The Defensive Equity Fund invests primarily (at least 80% of its net assets) in equity securities and may not change this policy without 60 days' written notice to shareholders. Equity securities represent an ownership interest, or the right to acquire an ownership interest, in an issuer. Different types of equity securities provide different voting and dividend rights and priority in case of the bankruptcy of the issuer. Equity securities include common stocks, preferred stocks, convertible securities, rights and warrants.
The fund may also use options, which are agreements that give an investor the right to buy or sell an asset at an agreed upon price in the future, and futures contracts, which are agreements that enable an investor to buy or sell an asset at an agreed upon price in the future. Options are used to protect the fund's investments against changes resulting from market conditions (a practice called "hedging"). The adviser bases its hedging decisions on estimates of the fair value and expected contribution made by an option to the overall expected return of the fund.
The fund may use futures contracts, which are agreements that enable an investor to buy or sell an asset at an agreed upon price in the future, and options on futures contracts for a variety of purposes, including:
o To reduce transaction costs;
o To manage cash flows;
o To maintain full market exposure, which means to adjust the characteristics of its investments to more closely approximate those of its benchmark; and
o To enhance returns.
The adviser selects equity securities for this fund using a proprietary system that ranks stocks according to a mathematical model. The adviser's system seeks to determine a security's intrinsic (true) value by evaluating variables, such as relative valuation, price momentum, company fundamentals, liquidity and risk. Using its system, the adviser believes it can assemble a portfolio of securities that is style and sector neutral to achieve a level of diversification and risk similar to that of the S&P 500 Index, the fund's investment universe. "Style neutral" means a fund is similar to its investment universe in terms of exposure to quantifiable characteristics such as average market capitalization. A fund is "sector neutral" when its exposure to specified economic sectors (such as technology or utilities) is similar to that of its investment universe. The adviser also believes that by using its system the fund can consistently outperform traditional strategies that focus on a single style, such as value or growth.
The adviser begins the stock selection process by ranking stocks according to their one-month expected return. The adviser then uses a process called "portfolio optimization" to select securities that it believes will:
o Maximize expected returns for the fund;
o Minimize expected volatility relative to its benchmark; and
o Diversify the assets of the fund among the various countries, industries, sectors and individual securities.
The adviser monitors the stocks held by the fund on a real-time basis for developments in terms of news events (such as lawsuits or takeover bids) and significant changes in fundamental factors. The adviser sells a security when it believes the incremental return from the sale exceeds the associated transaction costs.
As with all mutual funds, at any time, your investment in the fund may be worth more or less than the price that you originally paid for it. There is also a possibility that the fund will not achieve its goal. This could happen because its strategy failed to produce the intended results or because the adviser did not implement its strategy properly. The fund's shares are not bank deposits and are not guaranteed, endorsed or insured by any financial institution, government authority or the FDIC. You may lose money by investing in the fund.
As with all equity funds, the risks that could affect the value of the fund's shares and the total return on your investment include the possibility that the equity securities held by the fund will experience sudden, unpredictable drops in value or long periods of decline in value. This may occur because of factors that affect the securities markets generally, such as adverse changes in economic conditions, the general outlook for corporate earnings, interest rates or investor sentiment. Equity securities may also lose value because of factors affecting an entire industry or sector, such as increases in production costs, or factors directly related to a specific company, such as decisions made by its management. This risk is greater for small and medium sized companies, which tend to be more vulnerable to adverse developments than larger companies.
Derivatives are often more volatile than other investments and may magnify the fund's gains or losses. There are various factors that affect the fund's ability to achieve its objectives with derivatives. Successful use of a derivative depends on the degree to which prices of the underlying assets correlate with price movements in the derivatives the fund buys or sells. The fund could be negatively affected if the change in market value of its securities fails to correlate perfectly with the values of the derivatives it purchased or sold.
The lack of a liquid secondary market for a derivative may prevent a fund from closing its derivative positions and could adversely impact its ability to achieve its objectives and to realize profits or limit losses.
Since derivatives may be purchased for a fraction of their value, a relatively small price movement in a derivative may result in an immediate and substantial loss or gain to a fund. Derivatives are often more volatile than other investments and the fund may lose more in a derivative than it originally invested in it.
Effective June 24, 2002, the fund became the successor to a separate mutual fund, the UAM Funds, Inc. II Analytic Defensive Equity Fund (the "Predecessor Defensive Equity Fund"). The Predecessor Defensive Equity Fund was managed by the same employees of the adviser who currently manage the fund, had identical investment objectives and strategies and was subject to substantially similar fees and expenses. The performance shown in the following bar chart and performance table represents the performance of the Predecessor Defensive Equity Fund for the periods prior to June 24, 2002.
The following information illustrates some of the risks of investing in the fund. The bar chart shows how performance of the fund and the Predecessor Defensive Equity Fund has varied from year to year. Returns are based on past results and are not an indication of future performance.
CALENDAR YEAR RETURNS
[BAR CHART OMITTED, PLOT POINTS FOLLOWS]
2004 XX.XX% 2003 23.13% 2002 -12.22% 2001 -1.98% 2000 -6.46% 1999 21.35% 1998 28.89% 1997 19.08% 1996 15.71% 1995 21.55% |
During the periods shown in the chart for the fund and the Predecessor Defensive Equity Fund, the highest return for a quarter was XX.XX% (quarter ending XX/XX/XX) and the lowest return for a quarter was XX.XX% (quarter ending XX/XX/XX).
AVERAGE ANNUAL RETURNS FOR PERIODS ENDED DECEMBER 31, 2004
The average annual returns table compares average annual returns of the fund and the Predecessor Defensive Equity Fund to those of a broad-based securities market index. Returns are based on past results and are not an indication of future performance.
1 Year 5 Years 10 Years
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Average Annual Return Before Taxes XX.XX% XX.XX% XX.XX%
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Average Annual Return After
Taxes on Distributions* XX.XX% XX.XX% XX.XX%
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Average Annual Return After
Taxes on Distributions and Sale
of Fund Shares* XX.XX% XX.XX% XX.XX%
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S&P 500 Composite Index# XX.XX% XX.XX% XX.XX%
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* After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor's tax situation and may differ from those shown. After-tax returns shown are not relevant to investors who hold their fund shares through tax-deferred arrangements such as 401(k) plans or individual retirement accounts.
# S&P 500 Composite Index is an unmanaged index composed of 400 industrial stocks, 40 financial stocks, 40 utility stocks and 20 transportation stocks.
The table describes the fees and expenses you may pay if you buy and hold shares of the fund.
SHAREHOLDER TRANSACTION FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
The fund is a no-load investment, which means there are no fees or charges to buy or sell its shares, to reinvest dividends or to exchange into other Analytic Funds.
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
The fund's annual operating expenses are deducted from fund assets. Therefore, shareholders indirectly pay the fund's annual operating expenses, as described below.
Management Fee X.XX%
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Other Expenses X.XX%
--------------------------------------------------------------------------
Total Annual Fund Operating Expenses* X.XX%
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* [The actual total annual fund operating expenses for the most recently completed fiscal year are expected to be less than the amount shown above because the fund's adviser has voluntarily agreed to waive all or a portion of its fees and reimburse expenses (excluding interest, taxes, brokerage commissions and extraordinary expenses) in order to keep total annual operating expenses from exceeding a specified level. With this fee waiver, the actual annual total fund operating expenses were X.XX%. The adviser may discontinue all or part of its waiver at any time. In addition, the adviser may enter into arrangements with certain broker-dealers who have agreed to pay certain fund expenses in return for the direction of a portion of the fund's brokerage business. As a result of these arrangements, the fund's expenses generally may be reduced, which in turn may reduce the cost to the adviser of its voluntary expense limit.]
EXAMPLE
This example can help you to compare the cost of investing in the fund to the cost of investing in other mutual funds. The example assumes you invest $10,000 in the fund for the periods shown and then redeem all of your shares at the end of those periods. The example also assumes that you earned a 5% return on your investment each year, that you reinvested all of your dividends and distributions and that you paid the total expenses stated above (which do not reflect any expense limitations) throughout the period of your investment. Although your actual costs may be higher or lower, based on these assumptions your costs would be:
ANALYTIC GLOBAL LONG-SHORT FUND
The Global Long-Short Fund seeks above-average total returns through investments in, and short sales of, equity securities. The fund may change its investment objective without shareholder approval.
The Global Long-Short Fund normally seeks to achieve its objective by investing primarily in long and short positions in equity securities of publicly traded companies in the United States and in foreign developed markets. Using a disciplined investment process, the fund buys securities "long" that the investment adviser believes will perform better than their peers, and sells stocks "short" that the investment adviser believes will underperform their peers.
Equity securities represent an ownership interest, or the right to acquire an ownership interest, in an issuer. Different types of equity securities provide different voting and dividend rights and priority in case of the bankruptcy of the issuer.
With a long position, the fund purchases a security outright; with a short position the fund sells a security that it has borrowed. Short positions may be used either to hedge long positions or may be used speculatively to seek positive returns in instances where the investment adviser believes a security's price will decline. The fund will realize a profit or incur a loss from a short position depending on whether the value of the underlying stock decreases or increases, respectively, between the time it is sold and when the fund replaces the borrowed security.
The fund typically maintains a net long exposure and expects that on average 75-85% of the fund's assets will be sold "short."
The fund may use futures contracts, which are agreements that enable an investor to buy or sell an asset at an agreed upon price in the future, and options on futures contracts for a variety of purposes, including:
o To reduce transaction costs;
o To manage cash flows;
o To maintain full market exposure, which means to adjust the characteristics of its investments to more closely approximate those of its benchmark; and
o To enhance returns.
The adviser selects equity securities for this fund using a proprietary system that ranks stocks according to a mathematical model. The attractiveness of a security is determined using a disciplined valuation approach which takes into account factors relating to cheapness, growth prospects, liquidity and risk. However, the desirability of these characteristics changes based on both the global business cycle and local economic conditions. By identifying these changes using an adaptive valuation model, the adviser is able to systematically identify attractive relative valuation opportunities. These relative valuations are exploited by building a global long-short portfolio based on their relative attractiveness.
As with all mutual funds, at any time, your investment in the fund may be worth more or less than the price that you originally paid for it. There is also a possibility that the fund will not achieve its goal. This could happen because its strategy failed to produce the intended results or because the adviser did not implement its strategy properly. The fund's shares are not bank deposits and are not guaranteed, endorsed or insured by any financial institution, government authority or the FDIC. You may lose money by investing in the fund.
As with all equity funds, the risks that could affect the value of the fund's shares and the total return on your investment include the possibility that the equity securities held by the fund will experience sudden, unpredictable drops in value or long periods of decline in value. This may occur because of factors that affect the securities markets generally, such as adverse changes in economic conditions, the general outlook for corporate earnings, interest rates or investor sentiment. Equity securities may also lose value because of factors affecting an entire industry or sector, such as increases in production costs, or factors directly related to a specific company, such as decisions made by its management. This risk is greater for small and medium sized companies, which tend to be more vulnerable to adverse developments than larger companies.
When the fund invests in foreign securities, it will be subject to risks not typically associated with domestic securities. Although American Depository Receipts ("ADRs") and European Depository Receipts ("EDRs") are alternatives to directly purchasing the underlying foreign securities in their national markets and currencies, they are also subject to many of the risks associated with investing directly in foreign securities. Foreign investments, especially investments in emerging markets, can be riskier and more volatile than investments in the United States. Adverse political and economic developments or changes in the value of foreign currency can make it difficult for the fund to sell its securities and could reduce the value of your shares. Differences in tax and accounting standards and difficulties in obtaining information about foreign companies can negatively affect investment decisions. Unlike more established markets, emerging markets may have governments that are less stable, markets that are less liquid and economies that are less developed.
When the fund sells securities "short", the fund may be subject to substantially higher risks and greater volatility than most mutual funds. The fund seeks to increase return and reduce risk by using short sales and other forms of volatile financial derivatives such as options and futures. Short sales are speculative investments that will cause the fund to lose money if the value of a security does not go down as the adviser expects. Short sales can also be used as a hedge and therefore lower the overall risk of the fund. The use of borrowing and short sales may cause the fund to have higher expenses (especially interest and dividend expenses) than those of other equity mutual funds.
Derivatives are often more volatile than other investments and may magnify the fund's gains or losses. There are various factors that affect the fund's ability to achieve its objectives with derivatives. Successful use of a derivative depends upon the degree to which prices of the underlying assets correlate with price movements in the derivatives the fund buys or sells. The fund could be negatively affected if the change in market value of its securities fails to correlate perfectly with the values of the derivatives it purchased or sold.
The lack of a liquid secondary market for a derivative may prevent a fund from closing its derivative positions and could adversely impact its ability to achieve its objectives and to realize profits or limit losses.
Since derivatives may be purchased for a fraction of their value, a relatively small price movement in a derivative may result in an immediate and substantial loss or gain to a fund. Derivatives are often more volatile than other investments and the fund may lose more in a derivative than it originally invested in it.
Effective June 24, 2002, the fund became the successor to a separate mutual fund, the UAM Funds, Inc. II Analytic International Fund (the "Predecessor International Fund"). The Predecessor International Fund was managed by the same employees of the adviser who currently manage the fund, had identical investment objectives and strategies and was subject to substantially similar fees and expenses. As of May 1, 2003, the fund began employing its current global long-short investment strategy. The performance shown in the following bar chart and performance table represents the performance of the Predecessor International Fund for the periods prior to June 24, 2002.
The following information illustrates some of the risks of investing in the fund. The bar chart shows how performance of the fund and the Predecessor International Fund has varied from year to year. Returns are based on past results and are not an indication of future performance.
CALENDAR YEAR RETURNS
[BAR CHART OMITTED, PLOT POINTS FOLLOWS]
2004 XX.XX% 2003 26.59% 2002 -6.73% 2001 -23.41% 2000 -11.44% |
During the periods shown in the chart for the fund and the Predecessor International Fund, the highest return for a quarter was XX.XX% (quarter ending XX/XX/XX) and the lowest return for a quarter was XX.XX% (quarter ending XX/XX/XX).
AVERAGE ANNUAL RETURNS FOR PERIODS ENDED DECEMBER 31, 2004
The average annual return table compares the average annual returns of the fund and the Predecessor International Fund to those of a broad-based securities market index. Returns are based on past results and are not an indication of future performance.
1 Year Since 9/30/99*
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Average Annual Return Before Taxes XX.XX% XX.XX%
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Average Annual Return After Taxes on Distributions** XX.XX% XX.XX%
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Average Annual Return After Taxes on
Distributions and Sale of Fund Shares** XX.XX% XX.XX%
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Morgan Stanley MSCI World Index# XX.XX% XX.XX%
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Morgan Stanley Capital International EAFE Index## XX.XX% XX.XX%
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* Commencement of operations. Index comparisons begin on September 30, 1999.
** After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor's tax situation and may differ from those shown. After-tax returns shown are not relevant to investors who hold their fund shares through tax-deferred arrangements such as 401(k) plans or individual retirement accounts.
# The Morgan Stanley MSCI World Index is a widely recognized, capitalization-weighted index of equity securities of the U.S. and other developed countries. The Morgan Stanley MSCI World Index replaces the Morgan Stanley Capital International EAFE Index as the fund's primary benchmark because in the view of the adviser, the new index better approximates the types of securities owned by the fund.
## Morgan Stanley Capital International EAFE Index is an unmanaged arithmetic, market value-weighted average of the performance of over 900 securities listed on the stock exchange of countries in Europe, Australia and the Far East.
The table describes the fees and expenses you may pay if you buy and hold shares of the fund.
SHAREHOLDER TRANSACTION FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
The fund may charge a redemption fee that would be paid directly from your investment. Shareholders may pay a redemption fee when they redeem shares held for less than sixty days. For more information, see "Redemption Fee" in the Section on "Transaction Policies."
Redemption Fee (as a percentage of amount redeemed) 2.00%
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
The fund's annual operating expenses are deducted from fund assets. Therefore, shareholders indirectly pay the fund's annual operating expenses, as described below.
Management Fees 1.00%
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Other Expenses X.XX%
--------------------------------------------------------------------------------
Total Annual Fund Operating Expenses* X.XX%
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* The actual total annual fund operating expenses for the most recently completed fiscal year are expected to be less than the amount shown above because the fund's adviser has voluntarily agreed to waive all or a portion of its fees and reimburse expenses (excluding interest, taxes, brokerage commissions and extraordinary expenses) in order to keep total annual operating expenses from exceeding a specified level. With this fee waiver, the actual annual total fund operating expenses were X.XX%. The adviser may discontinue all or part of its waiver at any time. In addition, the adviser may enter into arrangements with certain broker-dealers who have agreed to pay certain fund expenses in return for the direction of a portion of the fund's brokerage business. As a result of these arrangements, the fund's expenses generally may be reduced, which in turn may reduce the cost to the adviser of its voluntary expense limit.
EXAMPLE
This example can help you to compare the cost of investing in the fund to the cost of investing in other mutual funds. The example assumes you invest $10,000 in the fund for the periods shown and then redeem all of your shares at the end of those periods. The example also assumes that you earned a 5% return on your investment each year, that you reinvested all of your dividends and distributions and that you paid the total expenses stated above (which do not reflect any expense limitations) throughout the period of your investment. Although your actual costs may be higher or lower, based on these assumptions your costs would be:
ANALYTIC SHORT-TERM INCOME FUND
The Short-Term Income Fund seeks to provide a high level of income consistent with both low fluctuations in market value and low credit risk. The fund may change its investment objective without shareholder approval.
The Short-Term Income Fund invests primarily (at least 80% of its net assets) in "income-producing" U.S. government securities. The fund may invest the remainder of its assets in investment-grade debt securities. The fund expects its dollar weighted average maturity to be two years and to invest in debt securities with maturities of three years or less. The fund will not change its investment objective to invest in "income-producing" U.S. government securities without 60 days' written notice to shareholders.
The adviser constructs the fund to match its benchmark, the Merrill Lynch 1 to 3 Year U.S. Corporate/ Government Index, with respect to duration, maturity and quality. In addition, the adviser tries to add value over the benchmark by using a disciplined quantitative, computer driven, approach to forecast short-term interest rates and shifts in the yield curve of U.S. Treasury securities.
A debt security is an interest bearing security that corporations and governments use to borrow money from investors. The issuer of a debt security promises to pay interest at a stated rate, which may be variable or fixed, and to repay the amount borrowed at maturity (the date when the issuer must repay the amount it borrowed (principal) from investors).
An investment grade debt security is one that a nationally recognized statistical rating agency, such as Moody's Investors Service or Standard & Poor's Rating Group, has rated in its top four rating categories at the time of purchase. If a security is not rated or is rated under a different system, the adviser may determine that it is of investment-grade. The adviser may retain securities that are downgraded, if it believes that keeping those securities is warranted.
The fund may also use futures contracts, which are agreements that enable an investor to buy or sell an asset at an agreed upon price in the future, and options on futures contracts for a variety of purposes, including:
o To protect the value of its investments against changes resulting from market conditions;
o To reduce transaction costs;
o To manage cash flows; and
o To enhance returns.
As with all mutual funds, at any time, your investment in the fund may be worth more or less than the price that you originally paid for it. There is also a possibility that the fund will not achieve its goal. This could happen because its strategy failed to produce the intended results or because the adviser did not implement its strategy properly. The fund's shares are not bank deposits and are not guaranteed, endorsed or insured by any financial institution, government authority or the FDIC. You may lose money by investing in the fund.
As with most funds that invest in debt securities, changes in interest rates are one of the most important factors that could affect the value of your investment. Rising interest rates tend to cause the prices of debt securities (especially those with longer maturities) and the fund's share price to fall. Rising interest rates may also cause investors to pay off mortgage-backed and asset-backed securities later than anticipated forcing the fund to keep its money invested at lower rates. Falling interest rates, however, generally cause investors to pay off mortgage-backed and asset-backed securities earlier than expected, forcing the fund to reinvest the money at a lower interest rate.
The concept of duration is useful in assessing the sensitivity of a fixed-income fund to interest rate movements, which are the main source of risk for most fixed-income funds. Duration measures price volatility by estimating the change in price of a debt security for a 1% change in its yield. For example, a duration of five years means the price of a debt security will change about 5% for every 1% change in its yield. Thus, the higher the duration, the more volatile the security. The average duration of the fund will normally range from one to three years.
Debt securities have a stated maturity date when the issuer must repay the principal amount of the bond. Some debt securities, known as callable bonds, may repay the principal earlier or after the stated maturity date. Debt securities are most likely to be called when interest rates are falling because the issuer can refinance at a lower rate. Mutual funds that invest in debt securities have no real maturity. Instead, they calculate their weighted average maturity. This number is an average of the effective or anticipated maturity of each debt security held by the mutual fund, with the maturity of each security weighted by the percentage of the assets of the mutual fund it represents.
The credit rating or financial condition of an issuer may affect the value of a debt security. Generally, the lower the quality rating of a security, the greater the risk that the issuer will fail to pay interest fully and return principal in a timely manner. If an issuer defaults or becomes unable to honor its financial obligations, the security may lose some or all of its value. The issuer of an investment-grade security is more likely to pay interest and repay principal than an issuer of a lower rated bond. Adverse economic conditions or changing circumstances, however, may weaken the capacity of the issuer to pay interest and repay principal.
Derivatives are often more volatile than other investments and may magnify the fund's gains or losses. There are various factors that affect the fund's ability to achieve its objectives with derivatives. Successful use of a derivative depends on the degree to which prices of the underlying assets correlate with price movements in the derivatives the fund buys or sells. The fund could be negatively affected if the change in market value of its securities fails to correlate perfectly with the values of the derivatives it purchased or sold.
The lack of a liquid secondary market for a derivative may prevent a fund from closing its derivative positions and could adversely impact its ability to achieve its objectives and to realize profits or limit losses.
Since derivatives may be purchased for a fraction of their value, a relatively small price movement in a derivative may result in an immediate and substantial loss or gain to a fund. Derivatives are often more volatile than other investments and the fund may lose more in a derivative than it originally invested in it.
Effective June 24, 2002, the fund became the successor to a separate mutual fund, the UAM Funds, Inc. II Analytic Short-Term Income Fund (the "Predecessor Short-Term Income Fund"). The Predecessor Short-Term Income Fund was managed by the same employees of the adviser who currently manage the fund, had identical investment objectives and strategies and was subject to substantially similar fees and expenses. The performance shown in the following bar chart and performance table represents the performance of the Predecessor Short-Term Income Fund for the periods prior to June 24, 2002.
The following information illustrates some of the risks of investing in the fund. The bar chart shows how performance of the fund and the Predecessor Short-Term Income Fund has varied from year to year. Returns are based on past results and are not an indication of future performance.
CALENDAR YEAR RETURNS
[BAR CHART OMITTED, PLOT POINTS FOLLOWS]
2004 XX.XX% 2003 5.76% 2002 6.39% 2001 7.02% 2000 7.60% 1999 2.54% 1998 7.10% 1997 5.55% 1996 5.30% 1995 10.57% |
During the periods shown in the chart for the fund and the Predecessor Short-Term Income Fund, the highest return for a quarter was XX.XX% (quarter ending XX/XX/XX) and the lowest return for a quarter was XX.XX% (quarter ending XX/XX/XX).
AVERAGE ANNUAL RETURNS FOR PERIODS ENDED DECEMBER 31, 2004
The average annual return table compares the average annual returns of the fund and the Predecessor Short-Term Income Fund to those of a broad-based securities market index. Returns are based on past results and are not an indication of future performance.
1 Year 5 Years 10 Years
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Average Annual Return Before Taxes XX.XX% XX.X% XX.XX%
---------------------------------------------------------------------------------------------------------------
Average Annual Return After Taxes on Distributions* XX.XX% XX.X% XX.XX%
---------------------------------------------------------------------------------------------------------------
Average Annual Return After Taxes on Distributions and
Sale of Fund Shares* XX.XX% XX.X% XX.XX%
---------------------------------------------------------------------------------------------------------------
Merrill Lynch 1-3 Year U.S. Corporate/Government Index** XX.XX% XX.X% XX.XX%
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* After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor's tax situation and may differ from those shown. After-tax returns shown are not relevant to investors who hold their fund shares through tax-deferred arrangements such as 401(k) plans or individual retirement accounts.
** The Merrill Lynch 1-3 Year U.S. Corporate/Government Index is an unmanaged index composed of U.S. dollar-denominated investment grade Government and Corporate public debt issued in the U.S. Domestic bond market, with an outstanding par value of at least $1 billion for U.S. Treasury Securities and $150 million for all other securities, a fixed coupon schedule and a maturity ranging between one to three years.
The table describes the fees and expenses you may pay if you buy and hold shares of the fund.
SHAREHOLDER TRANSACTION FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
The fund is a no-load investment, which means there are no fees or charges to buy or sell its shares, to reinvest dividends or to exchange into other Analytic Funds.
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
The fund's annual operating expenses are deducted from fund assets. Therefore, shareholders indirectly pay the fund's annual operating expenses, as described below.
Management Fees 0.30%
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Other Expenses X.XX%
--------------------------------------------------------------------------------
Total Annual Fund Operating Expenses* X.XX%
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* The actual total annual fund operating expenses for the most recently completed fiscal year are expected to be less than the amount shown above because the fund's adviser has voluntarily agreed to waive all or a portion of its fees and reimburse expenses (excluding interest, taxes, brokerage commissions and extraordinary expenses) in order to keep total annual operating expenses from exceeding a specified level. With this fee waiver, the actual annual total fund operating expenses were X.XX%. The adviser may discontinue all or part of its waiver at any time. In addition, the adviser may enter into arrangements with certain broker-dealers who have agreed to pay certain fund expenses in return for the direction of a portion of the fund's brokerage business. As a result of these arrangements the fund's expenses generally may be reduced which in turn may reduce the cost to the adviser of its voluntary expense limit.
EXAMPLE
This example can help you to compare the cost of investing in the fund to the cost of investing in other mutual funds. The example assumes you invest $10,000 in the fund for the periods shown and then redeem all of your shares at the end of those periods. The example also assumes that you earned a 5% return on your investment each year, that you reinvested all of your dividends and distributions and that you paid the total expenses stated above (which do not reflect any expense limitations) throughout the period of your investment. Although your actual costs may be higher or lower, based on these assumptions your costs would be:
INVESTING WITH THE FUNDS
BY MAIL
All investments must be made by check or wire. All checks must be made payable in U.S. dollars and drawn on U.S. financial institutions. The funds do not accept purchases made by cash or certain cash equivalents (for instance, you may not pay by money order or traveler's check). The funds do not accept purchases made by credit card checks.
Each fund reserves the right to reject any specific purchase order, including exchange purchases, for any reason. The funds are not intended for excessive trading by shareholders in response to short- term market fluctuations. For more information about the funds' policy on excessive trading, see "Excessive Trading Policies and Procedures."
The funds do not generally accept investments by non-U.S. persons. Non-U.S. persons may be permitted to invest in the funds subject to the satisfaction of enhanced due diligence. Please contact the funds for more information.
REGULAR MAIL ADDRESS
The Analytic Funds
PO Box 219009
Kansas City, MO 64121
EXPRESS MAIL ADDRESS
The Analytic Funds
330 West 9th Street
Kansas City, MO 64105
BY WIRE
To open an account by wire call 866-777-7818 for details. To add to an existing account by wire, wire your money using the instructions set forth below (be sure to include the fund name and your account number).
WIRING INSTRUCTIONS
United Missouri Bank
ABA # 101000695
The Analytic Funds
DDA Acct. # 9871063178
Ref: fund name/account number/
account name/wire control number
BY AUTOMATIC INVESTMENT PLAN (VIA AUTOMATED CLEARING HOUSE OR ACH)
You may not open an account via ACH. However, once you have established an account, you can set up an automatic investment plan by mailing a completed application to the funds. To cancel or change a plan, write to the funds at The Analytic Funds, PO Box 219009, Kansas City, MO 64121 (Express Mail Address: 330 West 9th Street, Kansas City, MO 64105). Allow up to 15 days to create the plan and 3 days to cancel or change it.
MINIMUM INVESTMENTS
You can open an account with a fund with a minimum initial investment of $2,500 ($500 for individual retirement accounts (IRAs) and $250 for Spousal IRAs). You can buy additional shares for as little as $100.
FUND CODES
Each fund's reference information, which is listed below, will be helpful to you when you contact the funds to purchase or exchange shares, check daily net asset value per share ("NAV") or get additional information.
Fund Name Trading Symbol CUSIP Fund Code
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Defensive Equity Fund ANDEX 00758M287 1284
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Global Long-Short Fund NONE 00758M154 1285
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Short-Term Income Fund ANSTX 00758M279 1283
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BY MAIL
You may contact the funds directly by mail at The Analytic Funds, PO Box 219009, Kansas City, MO 64121 (Express Mail Address: 330 West 9th Street, Kansas City, MO 64105). Send a letter to the funds signed by all registered parties on the account specifying:
o The fund(s) name;
o The account number;
o The dollar amount or number of shares you wish to redeem;
o The account name(s); and
o The address to which redemption (sale) proceeds should be sent.
All registered share owner(s) in the exact name(s) and any special capacity in which they are registered must sign the letter.
Certain shareholders may need to include additional documents to redeem shares.
BY TELEPHONE
You must first establish the telephone redemption privilege (and, if desired, the wire redemption privilege) by completing the appropriate sections of the account application.
Call 866-777-7818 to redeem your shares. Based on your instructions, the funds will mail your proceeds to you or wire them to your bank.
BY SYSTEMATIC WITHDRAWAL PLAN (VIA ACH)
If your account balance is at least $10,000, you may transfer as little as $100 per month from your account to another financial institution. To participate in this service, you must complete the appropriate sections of the account application and mail it to the funds.
At no charge, you may exchange shares of one Analytic Fund for shares of any other Analytic Fund by writing to or calling the funds. You may only exchange shares between accounts with identical registrations (I.E., the same names and addresses).
The exchange privilege is not intended as a vehicle for short-term or excessive trading. A fund may suspend or terminate your exchange privilege if you engage in a pattern of exchanges that is excessive, as determined in the sole discretion of the funds. For more information about the funds' policy on excessive trading, see "Excessive Trading Policies and Procedures."
CALCULATING YOUR SHARE PRICE
You may buy, sell or exchange shares of the funds on each day the New York Stock Exchange (NYSE) is open at a price equal to its NAV next computed after it receives and accepts your order. The funds calculate NAV once each day the NYSE is open for business (a "Business Day") as of the regularly scheduled close of normal trading on the NYSE (normally 4:00 p.m., Eastern Time). To receive the NAV on any given day, the fund must receive your order in good form (meaning that it is complete and contains all necessary information, and has all supporting documentation such as proper signature guarantees, IRA rollover forms, etc.) before the close of trading on the NYSE that day. Otherwise, you will receive the NAV that is calculated at the close of trading on the following business day if the NYSE is open for trading that day. If the NYSE closes early - such as on days in advance of certain generally observed holidays - the funds will calculate NAV as of the earlier closing time.
The funds calculate their NAVs by adding the total value of the assets, subtracting the liabilities and then dividing the result by the number of shares outstanding. In calculating NAV, the funds generally value their investment portfolios at market price. If market prices are not readily available or the funds reasonably believe that they are unreliable, such as in the case of a security value that has been materially affected by events occurring after the relevant market closes, the funds are required to price those securities at fair value as determined in good faith using methods approved by the Board of Trustees. The funds' determination of a security's fair value price often involves the consideration of a number of subjective factors, and is therefore subject to the unavoidable risk that the value that the funds assign to a security may be higher or lower than the security's value would be if a reliable market quotation for the security was readily available.
With respect to non-U.S. securities held by the Analytic Global Long-Short Fund, the fund may take factors influencing specific markets or issuers into consideration in determining the fair value of a non-U.S. security. International securities markets may be open on days when the U.S. markets are closed. In such cases, the value of any international securities owned by the fund may be significantly affected on days when investors cannot buy or sell shares. In addition, due to the difference in times between the close of the international markets and the time the fund prices its shares, the value the fund assigns to securities generally will not be the same as the quoted or published prices of those securities on their primary markets or exchanges. In determining fair value prices, the fund may consider the performance of securities on their primary exchanges, foreign currency appreciation/depreciation, securities market movements in the U.S., or other relevant information as related to the securities.
When valuing fixed income securities with remaining maturities of more than 60 days, the Analytic Short-Term Income Fund uses the value of the security provided by pricing services. The values provided by a pricing service may be based upon market quotations for the same security, securities expected to trade in a similar manner or a pricing matrix. When valuing fixed income securities with remaining maturities of 60 days' or less, the Fund uses the security's amortized cost. Amortized cost and the use of a pricing matrix in valuing fixed income securities are forms of fair value pricing.
Securities, options, futures contracts and other assets (including swap agreements) for which market quotations are not readily available will be valued at their fair value as determined in good faith by or under the direction of the Board of Trustees.
BUYING OR SELLING SHARES THROUGH A FINANCIAL INTERMEDIARY
You may buy or sell shares of the funds through a financial intermediary (such as a financial planner or adviser). To buy or sell shares at the NAV of any given day, your financial intermediary must receive your order before the close of trading on the NYSE that day. Your financial intermediary is responsible for transmitting all purchase and redemption requests, investment information, documentation and money to the funds on time. Your financial intermediary may charge additional transaction fees for its services.
Certain financial intermediaries have agreements with the funds that allow them to enter purchase or redemption orders on behalf of clients and customers. Under this arrangement, the financial intermediary must send your payment to the funds by the time they price their shares on the following business day. If your financial intermediary fails to do so, it may be responsible for any resulting fees or losses.
IN-KIND TRANSACTIONS
Under certain conditions and at the funds' discretion, you may pay for shares of a fund with securities instead of cash. In addition, the funds may pay part of your redemption proceeds (in excess of $250,000) with securities instead of cash. In the event shares are redeemed in-kind, investors may bear additional transaction costs and market risks until the securities are converted into cash. In the event shares are redeemed in-kind, shareholders will generally bear market risks until the securities are converted into cash.
PAYMENT OF REDEMPTION PROCEEDS
Redemption proceeds can be mailed to your account address, sent to your bank by ACH transfer or wired to your bank account (provided that your bank information is already on file). The funds will pay for all shares redeemed within seven days after they receive a redemption request in proper form meaning that it is complete and contains all necessary information, and has all supporting documentation (such as proper signature guarantees, IRA rollover forms, etc.).
The funds may require that signatures be guaranteed by a bank or member firm of a national securities exchange. Signature guarantees are for the protection of shareholders. Before they grant a redemption request, the funds may require a shareholder to furnish additional legal documents to insure proper authorization.
If you redeem shares that were purchased by check, you will not receive your redemption proceeds until the check has cleared, which may take up to 15 days from the purchase date.
REDEMPTION FEE
In an effort to discourage short-term trading and defray costs incurred by shareholders as a result of same, the Analytic Global Long-Short Fund charges a 2.00% redemption fee on redemptions of shares that have been held for less than 60 days. The fee is deducted from the sale proceeds and cannot be paid separately, and any proceeds of the fee are credited to the assets of the fund. The fee does not apply to shares purchased with reinvested dividends or distributions. In determining how long shares of the fund have been held, the fund assumes that shares held by the investor the longest period of time will be sold first.
The redemption fee is applicable to fund shares purchased either directly or through a financial intermediary, such as a broker-dealer. Transactions through financial intermediaries typically are placed with the fund on an omnibus basis and include both purchase and sale transactions placed on behalf of multiple investors. The fund requests that financial intermediaries assess the redemption fee on customer accounts and to collect and remit the proceeds to the fund. However, the fund recognizes that due to operational and system limitations the intermediaries' methods for tracking and calculating the fee may be inadequate or differ in some respects from the fund's.
The fund reserves the right to waive the redemption fee in its discretion
where it believes such waiver is in the best interests of the fund,
including certain categories of redemptions that the fund reasonably
believes may not raise frequent trading or market timing concerns. These
categories include, but are not limited to, the following: (i)
participants in certain group retirement plans whose processing systems are
incapable of properly applying the redemption fee to underlying
shareholders; (ii) redemptions resulting from certain transfers upon the
death of a shareholder; (iii) redemptions by certain pension plans as
required by law or by regulatory authorities; (iv) systematic redemptions,
(v) checkwriting redemptions and (vi) retirement loans and withdrawals.
TELEPHONE TRANSACTIONS
The funds will employ reasonable procedures to confirm that instructions communicated by telephone are genuine. Therefore, the funds will not be responsible for any loss, liability, cost or expense for following instructions received by telephone reasonably believed to be genuine.
RIGHTS RESERVED BY THE FUNDS
PURCHASES
At any time and without notice, the funds may:
o Stop offering shares;
o Reject any purchase order; or
o Bar an investor engaged in a pattern of excessive trading from buying shares. (Excessive trading can hurt performance by disrupting management and by increasing expenses.) The funds will consider various factors in determining whether an investor has engaged in excessive trading. These factors include, but are not limited to, the investor's historic trading patterns, the number of transactions, the size of the transactions, the time between transactions and the percentage of the investor's account involved in each transaction. For more information on the funds' policies on excessive trading, see "Excessive Trading Policies and Procedures."
REDEMPTIONS
At any time, and without notice the funds may change or eliminate any of the redemption methods described, except redemption by mail. The funds may suspend your right to redeem if:
o Trading on the NYSE is restricted or halted; or
o The Securities and Exchange Commission allows the funds to delay redemptions.
EXCHANGES
The funds may:
o Modify or cancel the exchange program at any time on 60 days written notice to shareholders;
o Reject any request for an exchange; or
o Limit or cancel a shareholder's exchange privilege, especially when an investor is engaged in a pattern of excessive trading.
EXCESSIVE TRADING POLICIES AND PROCEDURES
The funds are intended for long-term investment purposes only and discourages shareholders from engaging in frequent short-term trading that could be considered excessive or "market timing." This frequent trading into and out of the fund may present risks to the funds' long-term shareholders, all of which could adversely affect shareholder returns. The risks posed by frequent trading include interfering with the efficient implementation of each fund's investment strategies, triggering the recognition of taxable gains and losses on the sale of fund investments, requiring each fund to maintain higher cash balances to meet redemption requests, and experiencing increased transaction costs.
In addition, because the Analytic Global Long-Short Fund invests in foreign securities traded primarily on markets that close prior to the time the fund determines its NAV, the risks posed by frequent trading may have a greater potential to dilute the value of fund shares held by long-term shareholders than a fund investing in U.S. securities. In instances where a significant event that affects the value of one or more foreign securities held by the fund takes place after the close of the primary foreign market, but before the time that the fund determines its NAV, certain investors may seek to take advantage of the fact that there will be a delay in the adjustment of the market price for a security caused by this event until the foreign market reopens (sometimes referred to as "price" or "time zone" arbitrage). Shareholders who attempt this type of arbitrage may dilute the value of the fund's shares by virtue of their fund share transaction, if those prices reflect the fair value of the foreign securities. Although the fund has procedures designed to determine the fair value of foreign securities for purposes of calculating its NAV when such an event has occurred, fair value pricing, because it involves judgments which are inherently subjective, may not always eliminate the risk of price arbitrage. For more information on how the fund uses fair value pricing, see "Calculating Your Share Price."
The funds' service providers will take steps reasonably designed to detect and deter frequent trading by shareholders pursuant to the funds' policies and procedures described in this prospectus and approved by the funds' Board of Trustees. For purposes of applying these policies, the funds' service providers may consider the trading history of accounts under common ownership or control. The funds' policies and procedures include:
o Shareholders are restricted from making more than four "round trips" into or out of each fund per year. If a shareholder exceeds this amount, the funds and/or their service providers may, at their discretion, reject any additional purchase or exchange orders. The funds define a round trip as a purchase into a fund by a shareholder, followed by a subsequent redemption out of the fund.
o The Analytic Global Long-Short Fund assesses a redemption fee of 2.00% on redemptions by shareholders of fund shares held for less than 60 days (subject to certain exceptions as discussed in "Redemption Fees").
o Each fund reserves the right to reject any purchase or exchange request by any investor or group of investors for any reason without prior notice, including, in particular, if the fund or its adviser reasonably believes that the trading activity would be harmful or disruptive to the fund.
Each fund and/or its service providers seek to apply these policies to the best of their abilities uniformly and in a manner they believe is consistent with the interests of the fund's long-term shareholders. Systematic purchases and redemptions are exempt from these policies.
Although these policies are designed to deter frequent trading, none of these measures alone nor all of them taken together eliminate the possibility that frequent trading in a fund will occur, particularly with respect to trades placed by shareholders that invest in the fund through omnibus accounts maintained by brokers, retirement plan accounts and other financial intermediaries. The funds and their service
providers' access to information about individual shareholder transactions made through such omnibus arrangements is often unavailable or severely limited. As a result, the funds cannot assure that their policies will be enforced with regard to those fund shares held through such omnibus arrangements (which may represent a majority of fund shares), and as a result frequent trading could adversely affect the funds and their long-term shareholders as discussed above.
CUSTOMER IDENTIFICATION AND VERIFICATION
To help the government fight the funding of terrorism and money laundering activities, federal law requires all financial institutions to obtain, verify, and record information that identifies each person who opens an account.
What this means to you: when you complete a new account application, we will ask your name, address, date of birth, and other information that will allow us to identify you. This information is subject to verification to ensure the identity of all persons opening a mutual fund account.
The funds are required by law to reject your new account application if the required identifying information is not provided.
In certain instances, the funds are required to collect documents to fulfill their legal obligation. Documents provided in connection with your application will be used solely to establish and verify a customer's identity.
Attempts to collect the missing information required on the application will be performed by either contacting you or, if applicable, your broker. If this information is unable to be obtained within a timeframe established in the sole discretion of the funds, your application will be rejected.
Upon receipt of your application in proper form (meaning that it is complete and contains all necessary information, and has all supporting documentation such as proper signature guarantees, IRA rollover forms, etc.), or upon receipt of all identifying information required on the application, your investment will be received and your order will be processed at the NAV next-determined.
However, each fund reserves the right to close your account at the NAV next calculated after we determine to close your account (less any applicable redemption fees) if it is unable to verify your identity, or for other reasons. Attempts to verify your identity will be performed within a timeframe established in the sole discretion of the fund. If a fund is unable to verify your identity, the fund reserves the right to liquidate your account at the net asset value per share next calculated after we determine to close your account (less any applicable redemption fees) and remit proceeds to you via check. Further, the funds reserve the right to hold your proceeds until your original check clears the bank. In such an instance, you may be subject to a gain or loss on fund shares and will be subject to corresponding tax implications.
ANTI-MONEY LAUNDERING PROGRAM
Customer identification and verification is part of the funds' overall obligation to deter money laundering under federal law. The funds have adopted an Anti-Money Laundering Compliance Program designed to prevent the funds from being used for money laundering or the financing of terrorist activities. In this regard, the funds reserve the right to (i) refuse, cancel or rescind any purchase or exchange order, (ii) freeze any account and/or suspend account services or (iii) involuntarily close your account in cases of threatening conduct or suspected fraudulent or illegal activity. These actions will be taken when, in the sole discretion of fund management, they are deemed to be in the best interest of a fund or in cases when a fund is requested or compelled to do so by governmental or law enforcement authority. If your account is closed at the request of governmental or law enforcement authority, you may not receive proceeds of the redemption if the funds are required to withhold such proceeds.
SMALL ACCOUNTS
The funds may redeem your shares without your permission if the value of your account falls below 50% of the required minimum initial investment. (See "Buying Shares--Minimum Investments" for minimum investment amounts). This provision does not apply:
o To retirement accounts and certain other accounts; or
o When the value of your account falls because of market fluctuations and not your redemptions.
The funds will notify you before liquidating your account and allow you 60 days to increase the value of your account.
DISTRIBUTIONS
Normally, the Global Long-Short Fund distributes its net investment income annually, the Defensive Equity Fund distributes its net investment income quarterly and the Short-Term Income Fund accrues dividends daily and pays them monthly to shareholders. In addition, the funds distribute their net capital gains at least once a year. The funds will automatically reinvest dividends and distributions in additional shares of a fund, unless you elect on your account application to receive them in cash.
FEDERAL TAXES
The following is a summary of the federal income tax consequences of investing in the funds. This summary does not apply to shares held in an individual retirement account or other tax-qualified plan, which are not subject to current tax. Transactions relating to shares held in such accounts may, however, be taxable at some time in the future. You should always consult your tax advisor for specific guidance regarding the federal, state and local tax effect of your investment in a fund.
TAXES ON DISTRIBUTIONS Each fund will distribute substantially all of its net investment income and its net realized capital gains, if any. The dividends and distributions you receive, whether in cash or reinvested in additional shares of the funds may be subject to federal, state, and local taxation, depending upon your tax situation. Income distributions, including distributions of net short-term capital gains but excluding distributions of qualified dividend income, are generally taxable at ordinary income tax rates. Capital gains distributions and distributions that are designated by the funds as qualified dividend income are generally taxable at the rates applicable to long-term capital gains. Once a year the funds will send you a statement showing the types and total amount of distributions you received during the previous year.
You should note that if you purchase shares just before a distribution, the purchase price would reflect the amount of the upcoming distribution. In this case, you would be taxed on the entire amount of the distribution received, even though, as an economic matter, the distribution simply constitutes a return of your investment. This is known as "buying a dividend" and should be avoided by taxable investors. Call 866-777-7818 to find out when the funds expect to make a distribution to shareholders.
Each sale or exchange of shares of a fund may be a taxable event. For tax purposes, an exchange of shares of one Analytic Fund for another is the same as a sale.
A sale may result in a capital gain or loss to you. The gain or loss generally will be treated as short term if you held the shares 12 months or less, long term if you held the shares for longer.
If the funds invest in foreign securities, they may be subject to foreign withholding taxes with respect to dividends or interest the funds received from sources in foreign countries. A fund may elect to treat some of those taxes as a distribution to shareholders, which would allow shareholders to offset some of their U.S. federal income tax.
More information about taxes is in the Statement of Additional Information ("SAI").
ADDITIONAL INFORMATION ABOUT THE FUNDS
In addition to its principal investment strategies, each fund may use the investment strategies described below. Each fund may also employ investment practices that this prospectus does not describe, such as repurchase agreements, when-issued and forward commitment transactions, lending of securities, borrowing and other techniques. For more information concerning any of a fund's investment practices and its risks, you should read the SAI.
FOREIGN SECURITIES
The Global Long-Short Fund will ordinarily invest a portion of its assets in foreign securities. In addition, the Defensive Equity and Short-Term Income Funds may each invest up to 20% of their total assets in foreign securities. Foreign securities are securities of companies located outside the United States, ADRs, EDRs, and other similar global instruments. When a fund invests in foreign securities, it will be subject to risks not typically associated with domestic securities. Although ADRs and EDRs are alternatives to directly purchasing the underlying foreign securities in their national markets and currencies, they are also subject to many of the risks associated with investing directly in foreign securities. Foreign investments, especially investments in emerging markets, can be riskier and more volatile than investments in the United States. Adverse political and economic developments or changes in the value of foreign currency can make it harder for the fund to sell its securities and could reduce the value of your shares. Changes in tax and accounting standards and difficulties in obtaining information about foreign companies can negatively affect investment decisions.
SHORT-TERM INVESTING
The investments and strategies described in this prospectus are those that are used under normal circumstances. During unusual economic, market, political or other circumstances, the funds may invest up to 100% of its assets in short-term high quality debt instruments, such as U.S. government securities. These instruments would not ordinarily be consistent with the funds' principal investment strategies, and may prevent the funds from achieving their investment objective. The funds will do so only if the adviser believes that the risk of loss outweighs the opportunity for achieving the funds' investment objective. The funds with a policy requiring it to invest at least 80% of its net assets in particular types of securities also may temporarily deviate from the policy in other limited, appropriate circumstances, such as unusually large cash inflows or redemptions.
When the adviser pursues a temporary defensive strategy, the funds may not profit from favorable developments that it would have otherwise profited from if it were pursuing its normal strategies.
INFORMATION ABOUT PORTFOLIO HOLDINGS
A description of the funds' policy and procedures with respect to the circumstances under which each fund discloses its portfolio securities is available in the SAI.
PORTFOLIO TURNOVER
The funds may buy and sell investments relatively often. Such a strategy often involves higher expenses, including brokerage commissions, and may increase the amount of capital gains (in particular, short-term gains) realized by a fund. Shareholders must pay tax on such capital gains.
SHORT SALES RISK
Short sales are transactions in which a fund sells a security it does not own. To complete the transaction, the fund must borrow the security to make delivery to the buyer. The fund is then obligated to replace the security borrowed by purchasing the security at market price at the time of replacement. The price at such time may be higher or lower than the price at which the security was sold by the fund. If the underlying security goes down in price between the time the fund sells the security and buys it back, the fund will realize a gain on the transaction. Conversely, if the underlying security goes up in price during the period, the fund will realize a loss on the transaction. The risk of such price increases is the principal risk of engaging in short sales.
INVESTMENT ADVISER
Analytic Investors, Inc., a California corporation located at 500 South Grand Avenue, 23rd Floor, Los Angeles, CA 90071, is the investment adviser to each of the funds (the "adviser"). The adviser manages and supervises the investment of each fund's assets on a discretionary basis. It was founded in 1970 as one of the first independent investment counsel firms specializing in the creation and continuous management of optioned equity and optioned debt portfolios for fiduciaries and other long-term investors. The adviser serves pensions and profit-sharing plans, endowments, foundations, corporate investment portfolios, mutual savings banks and insurance companies. The adviser is an affiliate of Old Mutual (US) Holdings Inc. ("Old Mutual") (formerly named United Asset Management Corporation). Old Mutual is a subsidiary of Old Mutual plc, a financial services group based in the United Kingdom.
For its services, each fund pays the adviser a fee, as set forth below. The adviser has voluntarily agreed to limit the total expenses of the funds (excluding interest, taxes, brokerage commissions and extraordinary expenses) to the amounts listed, as a percentage of average net assets, in the table below. To maintain these expense limits, the adviser may waive a portion of its management fee and/or reimburse certain expenses of the fund. The adviser intends to continue its expense limitations until further notice, but may discontinue them at any time. The table also lists the amount each fund and predecessor fund paid the adviser during the most recent fiscal year, as a percentage of its average net assets.
Defensive Global Short-Term
Equity Long-Short Income
Fund Fund Fund
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Contractual Management Fees 0.60% 1.00%* 0.30%
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Expense Limits X.XX% X.XX% X.XX%
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Advisory Fees Paid for During
Most Recent Fiscal Year X.XX% X.XX% X.XX%
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* The contractual management fee for the Global Long-Short Fund is 1.00% for the first $100 million in average daily net assets and 0.80% thereafter.
PORTFOLIO MANAGERS
Each fund is managed by a team of investment professionals. The following portfolio managers are jointly and primarily responsible for the day-to-day management of each fund.
Each fund is managed by a team of investment professionals. The following portfolio managers are jointly and primarily responsible for the day-to-day management of each fund.
Mr. Doug Savarese, Portfolio Manager, co-manages the Analytic Global Long-Short Fund. Mr. Savarese joined Analytic in 1999 and has over 17 years of investment experience. Mr. Savarese has a B.A. in Mathematics and a B.S. in Business Studies from the Richard Stockton College.
Dr. Robert Murdock, Portfolio Manager, co-manages the Analytic Global Long-Short Fund, Analytic Defensive Equity Fund and Analytic Short-Term Income Fund. Dr. Murdock joined Analytic in 1997 and has over 14 years of investment experience. Mr. Murdock has a B.S. from the University of Wyoming, a M.B.A. from the Amos Tuck School of Business, a M.A. from the University of Pennsylvania and a Ph.D. from the Anderson Graduate School of Management at the University of California, Los Angeles.
Mr. Dennis Bein, Chief Investment Officer, co-manages the Analytic Global Long-Short Fund and Analytic Defensive Equity Fund. Mr. Bein joined Analytic in 1995 and has over 14 years of investment experience. Mr. Bein has a B.A. from the University of California, Riverside and an M.B.A. from the Anderson Graduate School of Management at the University of California, Riverside.
Mr. Greg McMurran, Chief Investment Officer, co-manages the Analytic Global Long-Short Fund, Analytic Defensive Equity Fund and Analytic Short-Term Income Fund. Mr. McMurran joined Analytic in 1976 and has over 28 years of investment experience. Mr. McMurran has a B.S. from the University of California, Irvine and a M.A. in Economics at California State University, Fullerton.
Mr. Harindra de Silva, President, co-manages the Analytic Global Long-Short Fund, Analytic Defensive Equity Fund and Analytic Short-Term Income Fund. Mr. de Silva joined Analytic in 1995 and has over 18 years of investment experience. Mr. de Silva has a B.S. in Mechanical Engineering from the University of Manchester Institute of Science and Technology, an M.B.A. and an M.S. from the University of Rochester and a Ph.D. in Finance from the University of California, Irvine.
Mr. Steven Sapra, Portfolio Manager, co-manages the Analytic Defensive Equity Fund. Mr. Sapra joined Analytic in 2000 and has over 7 years of investment experience. Mr. Sapra has a B.S. from California State Polytechnic University, Pomona an a M.A. from the University of Southern California.
Mr. Scott Barker, Portfolio Manager, co-manages the Analytic Short-Term Income Fund. Mr. Barker joined Analytic in 1995 and has over 11 years of investment experience. Mr. Barker received a B.A. from Pomona College.
The SAI provides additional information about the portfolio managers' compensation, other accounts managed, and ownership of fund shares.
Brokers, dealers, banks, trust companies and other financial representatives may receive compensation from the funds or their service providers for providing a variety of services. This section briefly describes how the financial representatives may get paid.
For providing certain services to their clients, financial representatives may be paid a fee based on the assets of the funds that are attributable to the financial representative. These services may include record keeping, transaction processing for shareholders' accounts and certain shareholder services not currently
offered to shareholders that deal directly with the fund. In addition, your financial representatives may charge you other account fees for buying or redeeming shares of a fund or for servicing your account. Your financial representative should provide you with a schedule of its fees and services.
The funds may pay all or part of the fees paid to financial representatives. Periodically, the Board reviews these arrangements to ensure that the fees paid are appropriate for the services performed. The funds do not pay these service fees on shares purchased directly. In addition, the adviser and its affiliates may, at their own expense, pay financial representatives for these services.
The adviser and its affiliates may, at their own expense, pay financial representatives for distribution and marketing services performed with respect to the funds. The amount of these payments will generally vary. Additional compensation may also be paid to financial representatives who offer the funds as part of a special preferred list or other promotional program. Financial representatives that receive these types of payments may have a conflict of interest in recommending or selling fund shares rather than other mutual funds, particularly where such payments exceed those associated with other funds.
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the financial performance of each fund for the fiscal periods indicated. Certain information contained in the table reflects the financial results for a single share. The total returns in the table represent the rate that an investor would have earned on an investment in each fund assuming all dividends and distributions were reinvested. The information below relates to each fund and its Predecessor Fund. On June 24, 2002, The Advisors' Inner Circle Fund Analytic Defensive Equity Fund acquired all of the assets of the UAM Funds, Inc. II Analytic Defensive Equity Fund, The Advisors' Inner Circle Fund Analytic Global Long-Short Fund (formerly, the Analytic International Fund) acquired all of the assets of the UAM Funds, Inc. II Analytic International Fund and The Advisors' Inner Circle Fund Analytic Short-Term Income Fund acquired all of the assets of the UAM Funds, Inc. II Analytic Short-Term Income Fund (together, the "Predecessor Funds"). [ ], independent auditor, have audited the funds' and the Predecessor Funds' information. The financial statements and the unqualified opinion of [ ] are included in the annual report of the funds, which is available upon request by calling the funds at 866-777-7818.
DEFENSIVE EQUITY FUND
-----------------------------------------------------------------------------------------------------------------------------------
Years Ended December 31, 2004 2003 2002(2) 2001 2000
-----------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, Beginning of Period $ 9.09 $ 10.46 $ 10.80 $ 11.82
------------ --------- -------- --------- ----------
Income (Loss) from Investment Operations:
Net Investment Income 0.08* 0.09 0.08 0.06
Net Realized and Unrealized Gain (Loss) 2.01* (1.36) (0.30) (0.82)
------------ --------- -------- --------- ----------
Total From Investment Operations 2.09 (1.27) (0.22) (0.76)
------------ --------- -------- --------- ----------
Dividends and Distributions:
Net Investment Income (0.08) (0.10)(1) (0.07) (0.07)
Net Realized Gain -- -- (0.05) (0.19)
------------ --------- -------- --------- ----------
Total Dividends and Distributions (0.08) (0.10)(1) (0.12) (0.26)
------------ --------- -------- --------- ----------
Net Asset Value, End of Period $ 11.10 $ 9.09 $ 10.46 $ 10.80
============ ========= ======== ========= ==========
Total Return+ 23.13% (12.22)% (1.98)% (6.46)%
============ ========= ======== ========= ==========
Ratios and Supplemental Data
Net Assets, End of Period (Thousands) $ 44,693 $ 35,131 $ 40,806 $ 48,244
Ratio of Expenses to Average Net Assets**
(including Dividend Expense) 1.30% 1.09% 0.99% 0.99%
Ratio of Expenses to Average Net Assets**
(excluding Dividend Expense) 0.99% 0.99% 0.99% 0.99%
Ratio of Expenses to Average Net Assets
(excluding Waivers and Directed Brokerage,
Including Dividend Expense) 2.27% 1.94% 1.69% 1.17%
Ratio of Expenses to Average Net Assets
(excluding Directed Brokerage, Including
Dividend Expense) 1.71% 1.46% 0.99% 0.99%
Ratio of Net Investment Income to Average Net Assets 0.79% 0.91% 0.71% 0.51%
Portfolio Turnover Rate 218% 224% 216% 264%
|
+ Total return would have been lower had certain expenses not been waived
and assumed by the adviser during the period. Returns shown do not reflect
the deduction of taxes that a shareholder would pay on fund distributions
or the redemption of fund shares.
* Per share amounts for the period are based on average outstanding
shares.
** Includes Directed Brokerage offset.
(1) Includes a return of capital of $(0.003).
(2) On June 24, 2002, The Advisors' Inner Circle Fund Analytic Defense
Equity Fund acquired the assets of the UAM Analytic Defense Equity
Fund, a series of the UAM Funds, Inc. II. The operations of The
Advisors' Inner Circle Fund Analytic Defensive Equity Fund prior to
acquisition were those of the predecessor fund, the UAM Analytic
Defense Equity Fund.
Amounts designed as "_" are either $0 or have been rounded to $0.
GLOBAL LONG-SHORT FUND
----------------------------------------------------------------------------------------------------------------------------------
Years Ended December 31, 2004 2003 2002(2) 2001 2000
----------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, Beginning of Period $ 6.75 $ 7.44 $ 9.78 $ 11.25
------------ --------- -------- --------- ----------
Income (Loss) from Investment Operations:
Net Investment Income 0.03^ 0.12 0.03 0.11
Net Realized and Unrealized Gain (Loss) 1.76^ (0.62) (2.32) (1.40)
------------ --------- -------- --------- ----------
Total From Investment Operations 1.79 (0.50) (2.29) (1.29)
------------ --------- -------- --------- ----------
Dividends and Distributions:
Net Investment Income (0.03) (0.19)(1) (0.05) (0.10)
Net Realized Gain -- -- -- (0.08)
------------ --------- -------- --------- ----------
Total Dividends and Distributions (0.03) (0.19)(1) (0.05) (0.18)
------------ --------- -------- --------- ----------
Net Asset Value, End of Period $ 8.51 $ 6.75 $ 7.44 $ 9.78
============ ========= ======== ========= ==========
Total Return+ 26.59% (6.73)% (23.41)% (11.44)%
============ ========= ======== ========= ==========
Ratios and Supplemental Data
Net Assets, End of Period (Thousands) $ 2,267 $ 1,471 $ 4,599 $ 6,731
Ratio of Expenses to Average Net Assets
(including Dividend Expenses) 2.04% 1.30% 1.30% 1.30%
Ratio of Expenses to Average Net Assets
(excluding Dividend Expenses) 1.30% 1.30% 1.30% 1.30%
Ratio of Expenses to Average Net Assets
(excluding Waivers and Including
Dividend Expenses) 7.42% 6.92% 4.78% 3.80%
Ratio of Net Investment Income to Average
Net Assets 0.35% 1.05% 0.84% 1.11%
Portfolio Turnover Rate 63% 198% 176% 38%
|
^ Per share amounts for the period are based on average outstanding
shares.
* Annualized
** Not Annualized
*** For the period from September 30, 1999 (commencement of operations) to
December 31, 1999.
+ Total return would have been lower had certain expenses not been
waived and assumed by the adviser during the period. Returns shown do
not reflect the deduction of taxes that a shareholder would pay on
fund distributions or the redemption of fund shares.
(1) Includes a return of capital of $(0.002).
(2) On June 24, 2002, The Advisors' Inner Circle Fund Analytic Global
Long-Short Fund acquired the assets of the UAM Analytic International
Fund, a series of the UAM Funds, Inc. II. The operations of The
Advisors' Inner Circle Fund Analytic Global Long-Short Fund prior to
acquisition were those of the predecessor fund, the UAM Analytic
International Fund.
Amounts designed as "_" are either $0 or have been rounded to $0.
SHORT-TERM INCOME FUND
-------------------------------------------------------------------------------------------------------------------------------
Years Ended December 31, 2004 2003 2002(1) 2001 2000
-------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, Beginning of Period $ 10.19 $ 9.93 $ 9.92 $ 9.79
------------ --------- -------- --------- ----------
Income (Loss) from Investment Operations:
Net Investment Income 0.16* 0.21 0.67 0.59
Net Realized and Unrealized Gain (Loss) 0.42* 0.41 0.01 0.13
------------ --------- -------- --------- ----------
0.58 0.62 0.68 0.72
------------ --------- -------- --------- ----------
Dividends:
Net Investment Income (0.32) (0.36) (0.67) (0.59)
------------ --------- -------- --------- ----------
Net Asset Value, End of Period $ 10.45 $ 10.19 $ 9.93 $ 9.92
============ ========= ======== ========= ==========
Total Return+ 5.76% 6.39% 7.02% 7.60%
============ ========= ======== ========= ==========
Ratios and Supplemental Data
Net Assets, End of Period
(Thousands) $ 15,055 $ 3,913 $ 4,595 $ 3,646
Ratio of Expenses to Average Net Assets 0.60% 0.60% 0.60% 0.60%
Ratio of Expenses to Average Net Assets
(excluding Waivers and Reimbursements) 2.26% 4.31% 3.39% 3.86%
Ratio of Net Investment Income to Average
Net Assets 1.53% 2.08% 5.20% 6.02%
Portfolio Turnover Rate 22% 113% 167% 34%
|
* Per share amounts for the period are based on average outstanding
shares.
+ Total return would have been lower had certain expenses not been
waived and assumed by the adviser during the period. Returns shown do
not reflect the deduction of taxes that a shareholder would pay on
fund distributions or the redemption of fund shares.
(1) On June 24, 2002, The Advisors' Inner Circle Fund Analytic Short-Term
Income Fund acquired the assets of the UAM Analytic Short-Term Income
Fund, a series of the UAM Funds, Inc. II. The operations of The
Advisors' Inner Circle Fund Analytic Short-Term Fund prior to
acquisition were those of the predecessor fund, the UAM Analytic
Short-Term Income Fund.
[THIS PAGE INTENTIONALLY LEFT BLANK]
INVESTMENT ADVISER
Analytic Investors, Inc.
500 South Grand Avenue
23rd Floor
Los Angeles, CA 90071
DISTRIBUTOR
SEI Investments Distribution Co.
One Freedom Valley Drive
Oaks, Pennsylvania 19456
LEGAL COUNSEL
Morgan, Lewis & Bockius LLP
More information about the Analytic Funds is available without charge through the following:
STATEMENT OF ADDITIONAL INFORMATION (SAI)
The SAI dated May 1, 2005 includes detailed information about The Advisors' Inner Circle Fund and the Analytic 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 the Funds' holdings and contain information from the Funds' 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 (Toll Free) 866-777-7818
BY MAIL: Write to us
Analytic Funds
P.O. Box 219009
Kansas City, Missouri 64121-9009
BY INTERNET: www.analyticinvestors.com
From the SEC: You can also obtain the SAI or the annual and semi-annual reports,
as well as other information about The Advisors' Inner Circle Fund, from the
EDGAR Database on the SEC's website at: "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 20549-0102. You may also obtain this information, upon
payment of a duplicating fee, by e-mailing the SEC at the following address:
publicinfo@sec.gov. The Fund's Investment Company Act registration number is
811-06400.
ANA-PS-001-0300
THE ANALYTIC FUNDS
Investment Adviser:
[LOGO OMITTED]
PROSPECTUS
May 1, 2005
THE ADVISORS' INNER CIRCLE FUND
CLASS A SHARES
DEFENSIVE EQUITY FUND
The Securities and Exchange Commission has not approved or disapproved these securities or passed upon the adequacy of this prospectus.
Any representation to the contrary is a
criminal offense.
TABLE OF CONTENTS
ANALYTIC DEFENSIVE EQUITY FUND...................................... 1
WHAT IS THE FUND'S OBJECTIVE?................................... 1
WHAT ARE THE FUND'S PRINCIPAL INVESTMENT STRATEGIES?............ 1
WHAT ARE THE FUND'S PRINCIPAL RISKS?............................ 2
HOW HAS THE FUND PERFORMED?..................................... 3
WHAT ARE THE FUND'S FEES AND EXPENSES?.......................... 4
INVESTING WITH THE FUND............................................. 6
BUYING SHARES................................................... 6
REDEEMING SHARES................................................ 11
TRANSACTION POLICIES............................................ 11
ACCOUNT POLICIES................................................ 13
ADDITIONAL INFORMATION ABOUT THE FUND............................... 17
OTHER INVESTMENT PRACTICES AND STRATEGIES....................... 17
INVESTMENT MANAGEMENT........................................... 18
SHAREHOLDER SERVICING ARRANGEMENTS.............................. 19
|
ANALYTIC DEFENSIVE EQUITY FUND WHAT IS THE FUND'S OBJECTIVE? -------------------------------------------------------------------------------- |
The Defensive Equity Fund seeks to obtain a greater long-term total return and smaller fluctuations in quarterly total return from a diversified, hedged common stock fund than would be realized from the same fund unhedged. The fund may change its investment objective without shareholder approval.
Through its proprietary investment process, the adviser attempts to create a diversified and hedged portfolio by investing in a combination of stocks, debt securities and options. The Defensive Equity Fund invests primarily (at least 80% of its net assets) in equity securities and may not change this policy without 60 days written notice to shareholders. Equity securities represent an ownership interest, or the right to acquire an ownership interest, in an issuer. Different types of equity securities provide different voting and dividend rights and priority in case of the bankruptcy of the issuer. Equity securities include common stocks, preferred stocks, convertible securities, rights and warrants.
The fund may also use options, which are agreements that give an investor the right to buy or sell an asset at an agreed upon price in the future, and futures contracts, which are agreements that enable an investor to buy or sell an asset at an agreed upon price in the future. Options are used to protect the fund's investments against changes resulting from market conditions (a practice called "hedging"). The adviser bases its hedging decisions on estimates of the fair value and expected contribution made by an option to the overall expected return of the fund.
The fund may use futures contracts, which are agreements that enable an investor to buy or sell an asset at an agreed upon price in the future, and options on futures contracts for a variety of purposes, including:
o To reduce transaction costs;
o To manage cash flows;
o To maintain full market exposure, which means to adjust the
characteristics of its investments to more closely approximate those
of its benchmark; and
o To enhance returns.
The adviser selects equity securities for this fund using a proprietary system that ranks stocks according to a mathematical model. The adviser's system seeks to determine a security's intrinsic (true) value by evaluating variables, such as relative valuation, price momentum, company fundamentals, liquidity and risk. Using its system, the adviser believes it can assemble a portfolio of securities that is style and sector neutral to achieve a level of diversification and risk similar to that of the S&P 500 Index, the fund's investment universe. "Style neutral" means a fund is similar to its investment universe in terms of exposure to quantifiable characteristics such as average market capitalization. A fund is "sector neutral" when its exposure to specified economic sectors (such as technology or utilities) is similar to that of its investment universe. The adviser also believes that by using its system the fund can consistently outperform traditional strategies that focus on a single style, such as value or growth.
The adviser begins the stock selection process by ranking stocks according to their one-month expected return. The adviser then uses a process called "portfolio optimization" to select securities that it believes will:
o Maximize expected returns for the fund;
o Minimize expected volatility relative to its benchmark; and
o Diversify the assets of the fund among the various countries, industries, sectors and individual securities.
The adviser monitors the stocks held by the fund on a real-time basis for developments in terms of news events (such as lawsuits or takeover bids) and significant changes in fundamental factors. The adviser sells a security when it believes the incremental return from the sale exceeds the associated transaction costs.
As with all mutual funds, at any time, your investment in the fund may be worth more or less than the price that you originally paid for it. There is also a possibility that the fund will not achieve its goal. This could happen because its strategy failed to produce the intended results or because the adviser did not implement its strategy properly. The fund's shares are not bank deposits and are not guaranteed, endorsed or insured by any financial institution, government authority or the FDIC. You may lose money by investing in the fund.
As with all equity funds, the risks that could affect the value of the fund's shares and the total return on your investment include the possibility that the equity securities held by the fund will experience sudden, unpredictable drops in value or long periods of decline in value. This may occur because of factors that affect the securities markets generally, such as adverse changes in economic conditions, the general outlook for corporate earnings, interest rates or investor sentiment. Equity securities may also lose value because of factors affecting an entire industry or sector, such as increases in production costs, or factors directly related to a specific company, such as decisions made by its management. This risk is greater for small and medium sized companies, which tend to be more vulnerable to adverse developments than larger companies.
Derivatives are often more volatile than other investments and may magnify the fund's gains or losses. There are various factors that affect the fund's ability to achieve its objectives with derivatives. Successful use of a derivative depends on the degree to which prices of the underlying assets correlate with price movements in the derivatives the fund buys or sells. The fund could be negatively affected if the change in market value of its securities fails to correlate perfectly with the values of the derivatives it purchased or sold.
The lack of a liquid secondary market for a derivative may prevent a fund from closing its derivative positions and could adversely impact its ability to achieve its objectives and to realize profits or limit losses.
Since derivatives may be purchased for a fraction of their value, a relatively small price movement in a derivative may result in an immediate and substantial loss or gain to a fund. Derivatives are often more volatile than other investments and the fund may lose more in a derivative than it originally invested in it.
Effective June 24, 2002, the fund became the successor to a separate mutual fund, the UAM Funds, Inc. II Analytic Defensive Equity Fund (the "Predecessor Defensive Equity Fund"). The Predecessor Defensive Equity Fund was managed by the same employees of the adviser who currently manage the fund, had identical investment objectives and strategies and was subject to substantially similar fees and expenses. The performance shown in the following bar chart and performance table represents the performance of the Predecessor Defensive Equity Fund for the periods prior to June 24, 2002.
The following information illustrates some of the risks of investing in the fund. The bar chart shows how performance of the fund and the Predecessor Defensive Equity Fund has varied from year to year. Class A Shares were first offered on December 31, 2004 and, therefore, do not have a full calendar year of performance. The performance of Class A Shares is expected to be substantially similar to the performance of the Institutional Class Shares, except to the extent that the classes have different fees and expenses, because the shares are invested in the same portfolio of securities. The bar chart does not reflect sales charges. If sales charges had been reflected, returns would be less than those shown below. Returns are based on past results and are not an indication of future performance.
CALENDAR YEAR RETURNS
[BAR CHART OMITTED, PLOT POINTS FOLLOWS]
1995 21.55% 1996 15.71% 1997 19.08% 1998 28.89% 1999 21.35% 2000 -6.46% 2001 -1.98% 2002 -12.22% 2003 23.13% 2004 XX.XX% |
During the periods shown in the chart for the fund and the Predecessor Defensive Equity Fund, the highest return for a quarter was XX.XX% (quarter ending XX/XX/XX) and the lowest return for a quarter was (XX.XX)% (quarter ending XX/XX/XX).
AVERAGE ANNUAL RETURNS FOR PERIODS ENDED DECEMBER 31, 2003
The average annual returns table compares average annual returns of the fund and the Predecessor Defensive Equity Fund to those of a broad-based securities market index. Returns are based on past results and are not an indication of future performance.
Institutional Class Shares 1 Year 5 Years 10 Years*
---------------------------------------------------------------------------------------------------------------------------
Average Annual Return Before Taxes
---------------------------------------------------------------------------------------------------------------------------
Average Annual Return After
Taxes on Distributions**
---------------------------------------------------------------------------------------------------------------------------
Average Annual Return After
Taxes on Distributions and Sale
of Fund Shares**
---------------------------------------------------------------------------------------------------------------------------
S&P 500 Composite Index#
|
* The performance information shown is for the Institutional Class Shares, which were offered on June 24, 2002. Prior to June 24, 2002, the performance shown represents the performance of the Predecessor Defensive Equity Fund. Class A Shares were first offered on December 31, 2004 and, therefore, do not have a full year of performance. The performance for Class A Shares would have been substantially similar to the performance of the Institutional Class Shares, except to the extent that the classes have different fees and expenses. The returns above do not reflect sales charges and Rule 12b-1 fees applicable to Class A Shares. If sales charges and Rule 12b-1 fees had been reflected, returns would be less than those shown above.
** After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor's tax situation and may differ from those shown. After-tax returns shown are not relevant to investors who hold their fund shares through tax-deferred arrangements such as 401(k) plans or individual retirement accounts.
# S&P 500 Composite Index is an unmanaged index composed of 400 industrial stocks, 40 financial stocks, 40 utility stocks and 20 transportation stocks.
The table describes the fees and expenses you may pay if you buy and hold shares of the fund.
SHAREHOLDER TRANSACTION FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
Class A Shares
---------------------------------------------------------------------------------------------------------------------------
Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price) 5.75%*
---------------------------------------------------------------------------------------------------------------------------
Maximum Deferred Sales Charge (Load) (as a percentage of offering price) None**
---------------------------------------------------------------------------------------------------------------------------
Maximum Sales Charge (Load) Imposed on Reinvested Dividends and other Distributions
(as a percentage of offering price) None
---------------------------------------------------------------------------------------------------------------------------
Exchange Fee None
---------------------------------------------------------------------------------------------------------------------------
|
* This sales charge varies depending upon how much you invest. See "Front-End Sales Charges - Class A Shares."
** Class A purchases without an initial sales charge ($1 million or more) may be subject to a 1.00% contingent deferred sales charge if redeemed within one year of the date of purchase. See "Contingent Deferred Sales Charges (CDSC) - Class A Shares."
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
* The actual total annual fund operating expenses for the most recently completed fiscal year are expected to be less than the amount shown above because the fund's adviser has voluntarily agreed to waive all or a portion of its fees and reimburse expenses (excluding interest, taxes, brokerage commissions and extraordinary expenses) in order to keep total annual operating expenses from exceeding a specified level. With this fee waiver, the actual annual total fund operating expenses were X.XX%. The adviser may discontinue all or part of its waiver at any time. In addition, the adviser may enter into arrangements with certain broker-dealers who have agreed to pay certain fund expenses in return for the direction of a portion of the fund's brokerage business. As a result of these arrangements, the fund's expenses generally may be reduced, which in turn may reduce the cost to the adviser of its voluntary expense limit.
EXAMPLE
This example can help you to compare the cost of investing in the fund to the cost of investing in other mutual funds. The example assumes you invest $10,000 in the fund for the periods shown and then redeem all of your shares at the end of those periods. The example also assumes that you earned a 5% return on your investment each year, that you reinvested all of your dividends and distributions and that you paid the total expenses stated above (which do not reflect any expense limitations) throughout the period of your investment. Although your actual costs may be higher or lower, based on these assumptions your costs would be:
INVESTING WITH THE FUND
BY MAIL
All investments must be made by check or wire. All checks must be made payable in U.S. dollars and drawn on U.S. financial institutions. The fund does not accept purchases made by cash or certain cash equivalents (for instance, you may not pay by money order or traveler's check). The fund does not accept purchases made by credit card checks.
The fund reserves the right to reject any specific purchase order, including exchange purchases, for any reason. The fund is not intended for excessive trading by shareholders in response to short- term market fluctuations. For more information about the fund's policy on excessive trading, see "Excessive Trading Policies and Procedures."
The fund does not generally accept investments by non-U.S. persons. Non-U.S. persons may be permitted to invest in the fund subject to the satisfaction of enhanced due diligence. Please contact the fund for more information.
REGULAR MAIL ADDRESS
The Analytic Funds
PO Box 219009
Kansas City, MO 64121
EXPRESS MAIL ADDRESS
The Analytic Funds
330 West 9th Street
Kansas City, MO 64105
BY WIRE
To open an account by wire call 866-777-7818 for details. To add to an existing account by wire, wire your money using the instructions set forth below (be sure to include the fund name and your account number).
WIRING INSTRUCTIONS
United Missouri Bank
ABA # 101000695
The Analytic Funds
DDA Acct. # 9871063178
Ref: fund name/class/account number/
account name/wire control number
BY AUTOMATIC INVESTMENT PLAN (VIA AUTOMATED CLEARING HOUSE OR ACH)
You may not open an account via ACH. However, once you have established an account, you can set up an automatic investment plan by mailing a completed application to the fund. To cancel or change a plan, write to the fund at The Analytic Funds, PO Box 219009, Kansas City, MO 64121 (Express Mail Address: 330 West 9th Street, Kansas City, MO 64105). Allow up to 15 days to create the plan and 3 days to cancel or change it.
MINIMUM INVESTMENTS
Minimum Investments Initial Additional
--------------------------------------------------------------------------------------------
Regular accounts $ 2,500 $100
--------------------------------------------------------------------------------------------
Uniform Gifts/Transfer to Minor Accounts $ 500 no minimum
--------------------------------------------------------------------------------------------
Traditional IRAs $ 2,000 $100
--------------------------------------------------------------------------------------------
Roth IRAs $ 2,000 $100
--------------------------------------------------------------------------------------------
Systematic Investment Plans* (SIP) $ 500 $ 25
--------------------------------------------------------------------------------------------
|
* Provided a SIP is established, the minimum initial investment for the fund is $500 along with a monthly systematic investment of $25 or more.
SALES CHARGES
FRONT-END SALES CHARGES - CLASS A SHARES
The offering price of Class A Shares is the NAV next calculated after the fund receives your request, plus the front-end sales charge. The amount of any front-end sales charge included in your offering price for Class A Shares varies, depending on the amount of your investment:
Your Sales Your Sales
Charge as a Charge as a
Percentage Percentage
of Offering of Your Net
Class A Shares If Your Investment is: Price Investment
-------------------------------------------------------------------------------------------------------
Defensive Equity Fund Less than $99,999 5.75% 6.10%
$100,000 but less than $250,000 4.50% 4.71%
$250,000 but less than $500,000 3.25% 3.36%
$500,000 but less than $1,000,000 2.00% 2.04%
$1,000,000 and over* None None
|
* Even though you do not pay a sales charge on purchases of $1,000,000 or more of Class A Shares, these purchases may be subject to a 1.00% contingent deferred sales charge if redeemed within one year of the date of purchase. See "Contingent Deferred Sales Charges (CDSC) - Class A Shares."
You may qualify for reduced sales charges or sales charge waivers. If you believe that you may qualify for a reduction or waiver of the sales charge, you should discuss this matter with your broker or other financial intermediary. To qualify for these reductions or waivers, you or your financial intermediary must provide sufficient information at the time of purchase to verify that your purchase qualifies for such treatment. This information could be used to aggregate, for example, holdings in retirement accounts, fund shares owned by your immediate family members, and holdings in accounts at other brokers or financial intermediaries. In addition to breakpoint discounts, the following sections describe other circumstances in which sales charges are waived or otherwise may be reduced. See "Reduced Sales Charges - Class A Shares" below.
WAIVER OF FRONT-END SALES CHARGE - CLASS A SHARES
The front-end sales charge will be waived on Class A Shares purchased:
o through reinvestment of dividends and distributions;
o through a Analytic Investors' asset allocation account;
o when exchanging shares among certain funds (see "Exchanging Shares" for
more information);
o by employees, and members of their immediate family, of the adviser and
its affiliates;
o by employees and retirees of the administrator or distributor;
o by Trustees and officers of The Advisors' Inner Circle Fund;
o through dealers, retirement plans, asset allocation programs and
financial institutions that, under their dealer agreements with the
distributor or otherwise, do not receive any portion of the front-end
sales charge.
REPURCHASE OF CLASS A SHARES
You may repurchase any amount of Class A Shares of the fund at NAV (without the normal front-end sales charge), up to the limit of the value of any amount of Class A Shares (other than those which were purchased with reinvested dividends and distributions) that you redeemed within the past 90 days. In effect, this allows you to reacquire shares that you may have had to redeem, without repaying the front-end sales charge. To exercise this privilege, the fund must receive your purchase order within 90 days of your redemption. In addition, you must notify the fund when you send in your purchase order that you are repurchasing shares. Certain tax rules may limit your ability to recognize a loss on the redemption of your Class A Shares, and you should consult your tax advisor if recognizing such a loss is important to you.
REDUCED SALES CHARGES - CLASS A SHARES
In addition to the above described reductions in initial sales charges for purchases over a certain dollar size, you may also be eligible to participate in one or more of the programs described below to lower your initial sales charge. To be eligible to participate in these programs, you must inform your broker-dealer or financial advisor at the time you purchase shares that you would like to participate in one or more of the programs and provide information necessary to determine your eligibility to participate, including the account number(s) and names in which your accounts are registered at the time of purchase. In addition, the fund or its agent may request account statements if it is unable to verify your account information.
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 fund 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 fund 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 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 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 fund 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 Class A Shares sold subject to a sales charge. As a result, shares of the Class A Shares purchased with dividends
or distributions will not be included in the calculation. To be entitled to a reduced sales charge on the purchase of Class A Shares 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 5% of the total amount you intend to purchase. If you do not complete the total intended purchase of Class A Shares 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 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.
CONCURRENT PURCHASES. You may combine purchases of Class A and Class C Shares of the fund to determine your Class A sales charge. For more information regarding Class C Shares, please contact the fund or your financial intermediary to request a prospectus.
PURCHASERS QUALIFYING FOR REDUCTIONS IN INITIAL SALES CHARGES
Only certain persons or groups are eligible for the reductions in initial sales charges described in the preceding section. These qualified purchasers include the following:
INDIVIDUALS
o an individual, his or her spouse, or children residing in the same
household,
o any trust established exclusively for the benefit of an individual,
TRUSTEES AND FIDUCIARIES
o a trustee or fiduciary purchasing for a single trust, estate or fiduciary account, and
OTHER GROUPS
o any organized group of persons, whether or not incorporated, purchasing Class A Shares, provided that (i) the organization has been in existence for at least six months; and (ii) the organization has some purpose other than the purchase at a discount of redeemable securities of a registered investment company.
Investors or dealers seeking to qualify orders for a reduced initial sales charge must identify such orders at the time of purchase and, if necessary, support their qualification for the reduced charge with appropriate documentation. Appropriate documentation includes, without limitation, account statements regarding Class A Shares of the fund held in all accounts (E.G., retirement accounts) by the investor, and, if applicable, his or her spouse and children residing in the same household, including accounts at bro-
ker-dealers or other financial intermediaries different than the broker-dealer of record for the current purchase of fund shares. The distributor reserves the right to determine whether any purchaser is entitled, by virtue of the foregoing, to the reduced initial sales charge. No person or entity may distribute shares of the fund without payment of the applicable sales charge other than to persons or entities who qualify for a reduction in the sales charge as provided herein.
CONTINGENT DEFERRED SALES CHARGES (CDSC) - CLASS A SHARES
If you invest $1 million or more in a single purchase, you are able to purchase Class A Shares without an initial sales charge. However, if you sell (redeem) these shares within 1 year of purchase, you will generally be required to pay a contingent deferred sales charge (CDSC) of 1% based on your original purchase price for the shares. For purposes of calculating the CDSC, the start of the 1-year holding period is the first day of the month in which the purchase was made. The fund will use the "first-in, first-out" (FIFO) method when taking the CDSC. You do not have to pay this CDSC if your financial intermediary has made arrangements with the distributor and agrees to waive the commission.
IF YOU SELL YOUR CLASS A SHARES:
The CDSC will be waived if you sell your Class A Shares for the following reasons:
o to make certain withdrawals from a retirement plan (not including IRAs); or
o because of death or disability.
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 of the fund you buy.
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 receives or from any other source available to it. Under any such program, the distributor may provide cash or non-cash compensation as recognition for past sales or encouragement for future sales that may include merchandise, travel expenses, prizes, meals, lodgings, and gifts that do not exceed $100 per year, per individual.
[Information about the fund's sales charges is available at:
http://aninvestor.com.]
FUND CODES
The fund's reference information, which is listed below, will be helpful to you when you contact the fund to purchase or exchange shares, check daily net asset value per share ("NAV") or get additional information.
Fund Name Trading Symbol CUSIP Fund Code
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Defensive Equity Fund-- Class A Shares ANDAX 0075WO791 1286
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BY MAIL
You may contact the fund directly by mail at The Analytic Funds, PO Box 219009, Kansas City, MO 64121 (Express Mail Address: 330 West 9th Street, Kansas City, MO 64105). Send a letter to the fund signed by all registered parties on the account specifying:
o The fund name;
o The account number;
o The dollar amount or number of shares you wish to redeem;
o The account name(s); and
o The address to which redemption (sale) proceeds should be sent.
All registered share owner(s) in the exact name(s) and any special capacity in which they are registered must sign the letter.
Certain shareholders may need to include additional documents to redeem shares.
BY TELEPHONE
You must first establish the telephone redemption privilege (and, if desired, the wire redemption privilege) by completing the appropriate sections of the account application.
Call 866-777-7818 to redeem your shares. Based on your instructions, the fund will mail your proceeds to you or wire them to your bank.
BY SYSTEMATIC WITHDRAWAL PLAN (VIA ACH)
If your account balance is at least $5,000, you may transfer as little as $100 per month from your account to another financial institution. To participate in this service, contact your broker, dealer or financial intermediary regarding how to establish this feature.
CALCULATING YOUR SHARE PRICE
You may buy, sell or exchange shares of the fund on each day the New York Stock Exchange ("NYSE") is open at a price equal to its NAV next computed after it receives and accepts your order. The fund calculates NAV once each day the NYSE is open for business (a "Business Day") as of the regularly scheduled close of normal trading on the NYSE (normally 4:00 p.m., Eastern Time). To receive the NAV on any given day, the fund must receive your order in good form (meaning that it is complete and contains all necessary information, and has all supporting documentation such as proper signature guarantees, IRA rollover forms, etc.) before the close of trading on the NYSE that day. Otherwise, you will receive the NAV that is calculated at the close of trading on the following business day if the NYSE is open for trading that day. If the NYSE closes early - such as on days in advance of certain generally observed holidays - the fund will calculate NAV as of the earlier closing time.
The fund calculates its NAVs by adding the total value of the assets, subtracting the liabilities and then dividing the result by the number of shares outstanding. In calculating NAV, the fund generally values its investment portfolios at market price. If market prices are not readily available or the fund reasonably believes that they are unreliable, such as in the case of a security value that has been materially affected by events occurring after the relevant market closes, the fund is required to price those securities at fair value as determined
in good faith using methods approved by the Board of Trustees. The fund's determination of a security's fair value price often involves the consideration of a number of subjective factors, and is therefore subject to the unavoidable risk that the value that the fund assigns to a security may be higher or lower than the security's value would be if a reliable market quotation for the security was readily available.
Securities, options, futures contracts and other assets (including swap agreements) for which market quotations are not readily available will be valued at their fair value as determined in good faith by or under the direction of the Board of Trustees.
BUYING OR SELLING SHARES THROUGH A FINANCIAL INTERMEDIARY
You may buy or sell shares of the fund through a financial intermediary (such as a financial planner or adviser). To buy or sell shares at the NAV of any given day, your financial intermediary must receive your order before the close of trading on the NYSE that day. Your financial intermediary is responsible for transmitting all purchase and redemption requests, investment information, documentation and money to the fund on time. Your financial intermediary may charge additional transaction fees for its services.
Certain financial intermediaries have agreements with the fund that allow them to enter purchase or redemption orders on behalf of clients and customers. Under this arrangement, the financial intermediary must send your payment to the fund by the time they price their shares on the following business day. If your financial intermediary fails to do so, it may be responsible for any resulting fees or losses.
IN-KIND TRANSACTIONS
Under certain conditions and at the fund's discretion, you may pay for shares of the fund with securities instead of cash. In addition, the fund may pay part of your redemption proceeds (in excess of $250,000) with securities instead of cash. In the event shares are redeemed in-kind, investors may bear additional transaction costs and market risks until the securities are converted into cash. In the event shares are redeemed in-kind, shareholders will generally bear market risks until the securities are converted into cash.
PAYMENT OF REDEMPTION PROCEEDS
Redemption proceeds, less any applicable CDSC, can be mailed to your account address, sent to your bank by ACH transfer or wired to your bank account (provided that your bank information is already on file). The fund will pay for all shares redeemed within seven days after it receives a redemption request in proper form, meaning that it is complete and contains all necessary information and has all supporting documentation (such as proper signature guarantees, IRA rollover forms, etc.).
The fund may require that signatures be guaranteed by a bank or member firm of a national securities exchange. Signature guarantees are for the protection of shareholders. Before it grants a redemption request, the fund may require a shareholder to furnish additional legal documents to insure proper authorization.
If you redeem shares that were purchased by check, you will not receive your redemption proceeds until the check has cleared, which may take up to 15 days from the purchase date.
TELEPHONE TRANSACTIONS
The fund will employ reasonable procedures to confirm that instructions communicated by telephone are genuine. Therefore, the fund will not be responsible for any loss, liability, cost or expense for following instructions received by telephone reasonably believed to be genuine.
RULE 12B-1 FEES
The fund has adopted a distribution plan under Rule 12b-1 that allows the fund to pay distribution fees for the sale and distribution of its Class A Shares and for services provided to its shareholders. Distribution fees may be up to 0.25% of the fund's average daily net assets. Because these fees are paid out of the fund's assets on an ongoing basis, over time these fees will increase the cost of your investment in Class A Shares of the fund and may cost you more than paying other types of sales charges.
RIGHTS RESERVED BY THE FUND
PURCHASES
At any time and without notice, the fund may:
o Stop offering shares;
o Reject any purchase order; or
o Bar an investor engaged in a pattern of excessive trading from buying shares. (Excessive trading can hurt performance by disrupting management and by increasing expenses.) The fund will consider various factors in determining whether an investor has engaged in excessive trading. These factors include, but are not limited to, the investor's historic trading patterns, the number of transactions, the size of the transactions, the time between transactions and the percentage of the investor's account involved in each transaction. For more information on the fund's policies on excessive trading, see "Excessive Trading Policies and Procedures."
REDEMPTIONS
At any time, and without notice the fund may change or eliminate any of the redemption methods described, except redemption by mail. The fund may suspend your right to redeem if:
o Trading on the NYSE is restricted or halted; or
o The Securities and Exchange Commission allows the fund to delay redemptions.
EXCESSIVE TRADING POLICIES AND PROCEDURES
The fund is intended for long-term investment purposes only and discourages shareholders from engaging in frequent short-term trading that could be considered excessive or "market timing." This frequent trading into and out of the fund may present risks to the fund's long-term shareholders, all of which could adversely affect shareholder returns. The risks posed by frequent trading include interfering with the efficient implementation of the fund's investment strategies, triggering the recognition of taxable gains and losses on the sale of fund investments, requiring the fund to maintain higher cash balances to meet redemption requests, and experiencing increased transaction costs.
The fund's service providers will take steps reasonably designed to detect and deter frequent trading by shareholders pursuant to the fund's policies and procedures described in this prospectus and approved by the fund's Board of Trustees. For purposes of applying these policies, the fund's service providers may consider the trading history of accounts under common ownership or control. The fund's policies and procedures include:
o Shareholders are restricted from making more than [four] "round trips" into or out of the fund per year. If a shareholder exceeds this amount, the fund and/or its service providers may, at their discretion, reject any additional purchase or exchange orders. The fund defines a round trip as a purchase into the fund by a shareholder, followed by a subsequent redemption out of the fund.
o The fund reserves the right to reject any purchase request by any investor or group of investors for any reason without prior notice, including, in particular, if the fund or its adviser reasonably believes that the trading activity would be harmful or disruptive to the fund.
The fund and/or its service providers seek to apply these policies to the best of their abilities uniformly and in a manner they believe is consistent with the interests of the fund's long-term shareholders. Systematic purchases and redemptions are exempt from these policies.
Although these policies are designed to deter frequent trading, none of these measures alone nor all of them taken together eliminate the possibility that frequent trading in the fund will occur, particularly with respect to trades placed by shareholders that invest in the fund through omnibus accounts maintained by brokers, retirement plan accounts and other financial intermediaries. The fund and its service providers' access to information about individual shareholder transactions made through such omnibus arrangements is often unavailable or severely limited. As a result, the fund cannot assure that its policies will be enforced with regard to those fund shares held through such omnibus arrangements (which may represent a majority of fund shares), and as a result frequent trading could adversely affect the fund and their long-term shareholders as discussed above. In addition, if you own your fund shares through an omnibus account maintained by a broker, retirement plan or other financial intermediary, it is possible that your financial intermediary's policies regarding frequent trading may differ from those of the fund. Please contact your financial intermediary for more information.
CUSTOMER IDENTIFICATION AND VERIFICATION
To help the government fight the funding of terrorism and money laundering activities, federal law requires all financial institutions to obtain, verify, and record information that identifies each person who opens an account.
What this means to you: when you complete a new account application, we will ask your name, address, date of birth, and other information that will allow us to identify you. This information is subject to verification to ensure the identity of all persons opening a mutual fund account.
The fund is required by law to reject your new account application if the required identifying information is not provided.
In certain instances, the fund is required to collect documents to fulfill their legal obligation. Documents provided in connection with your application will be used solely to establish and verify a customer's identity.
Attempts to collect the missing information required on the application will be performed by either contacting you or, if applicable, your broker. If this information is unable to be obtained within a timeframe established in the sole discretion of the fund, your application will be rejected.
Upon receipt of your application in proper form (meaning that it is complete and contains all necessary information, and has all supporting documentation such as proper signature guarantees, IRA rollover forms, etc.), or upon receipt of all identifying information required on the application, your investment will be received and your order will be processed at the NAV next-determined.
However, the fund reserves the right to close your account at the NAV next calculated after we determine to close your account (less any applicable redemption fees) if it is unable to verify your identity, or for other reasons. Attempts to verify your identity will be performed within a timeframe established in the sole discretion of the fund. If the fund is unable to verify your identity, the fund reserves the right to liquidate your account at the net asset value per share next calculated after we determine to close your account (less any applicable redemption fees) and remit proceeds to you via check. Further, the fund reserves the right to hold your proceeds until your original check clears the bank. In such an instance, you may be subject to a gain or loss on fund shares and will be subject to corresponding tax implications.
ANTI-MONEY LAUNDERING PROGRAM
Customer identification and verification is part of the fund's overall obligation to deter money laundering under federal law. The fund has adopted an Anti-Money Laundering Compliance Program designed to prevent the fund from being used for money laundering or the financing of terrorist activities. In this regard, the fund reserves the right to (i) refuse, cancel or rescind any purchase or exchange order, (ii) freeze any account and/or suspend account services or (iii) involuntarily close your account in cases of threatening conduct or suspected fraudulent or illegal activity. These actions will be taken when, in the sole discretion of fund management, they are deemed to be in the best interest of the fund or in cases when the fund is requested or compelled to do so by governmental or law enforcement authority. If your account is closed at the request of governmental or law enforcement authority, you may not receive proceeds of the redemption if the fund is required to withhold such proceeds.
SMALL ACCOUNTS
The fund may redeem your shares without your permission if the value of your account falls below 50% of the required minimum initial investment. (See "Buying Shares-Minimum Investments" for minimum investment amounts). This provision does not apply:
o To retirement accounts and certain other accounts; or
o When the value of your account falls because of market fluctuations and
not your redemptions.
The fund will notify you before liquidating your account and allow you 60 days' to increase the value of your account.
DISTRIBUTIONS
Normally, the fund distributes its net investment income quarterly. In addition, the fund distributes its net capital gains at least once a year. The fund will automatically reinvest dividends and distributions in additional shares, unless you elect on your account application to receive them in cash.
FEDERAL TAXES
The following is a summary of the federal income tax consequences of investing in the fund. This summary does not apply to shares held in an individual retirement account or other tax-qualified plan, which are not subject to current tax. Transactions relating to shares held in such accounts may, however, be taxable at some time in the future. You should always consult your tax advisor for specific guidance regarding the federal, state and local tax effect of your investment the fund.
TAXES ON DISTRIBUTIONS The fund will distribute substantially all of its net investment income and its net realized capital gains, if any. The dividends and distributions you receive, whether in cash or reinvested in additional shares of the fund may be subject to federal, state, and local taxation, depending upon your tax
situation. Income distributions, including distributions of net short-term capital gains but excluding distributions of qualified dividend income, are generally taxable at ordinary income tax rates. Capital gains distributions and distributions that are designated by the fund as qualified dividend income are generally taxable at the rates applicable to long-term capital gains. Once a year the fund will send you a statement showing the types and total amount of distributions you received during the previous year.
You should note that if you purchase shares just before a distribution, the purchase price would reflect the amount of the upcoming distribution. In this case, you would be taxed on the entire amount of the distribution received, even though, as an economic matter, the distribution simply constitutes a return of your investment. This is known as "buying a dividend" and should be avoided by taxable investors. Call 866-777-7818 to find out when the fund expects to make a distribution to shareholders.
Each sale or exchange of shares of the fund may be a taxable event. For tax purposes, an exchange of shares of one Analytic Fund for another is the same as a sale.
A sale may result in a capital gain or loss to you. The gain or loss generally will be treated as short term if you held the shares 12 months or less, long term if you held the shares for longer.
If the fund invests in foreign securities, it may be subject to foreign withholding taxes with respect to dividends or interest the fund received from sources in foreign countries. The fund may elect to treat some of those taxes as a distribution to shareholders, which would allow shareholders to offset some of its U.S. federal income tax.
More information about taxes is in the Statement of Additional Information ("SAI").
ADDITIONAL INFORMATION ABOUT THE FUND
In addition to its principal investment strategies, the fund may use the investment strategies described below. The fund may also employ investment practices that this prospectus does not describe, such as repurchase agreements, when-issued and forward commitment transactions, lending of securities, borrowing and other techniques. For more information concerning any of the fund's investment practices and its risks, you should read the SAI.
FOREIGN SECURITIES
The fund may invest up to 20% of its total assets in foreign securities. Foreign securities are securities of companies located outside the United States, ADRs, EDRs, and other similar global instruments. When the fund invests in foreign securities, it will be subject to risks not typically associated with domestic securities. Although ADRs and EDRs are alternatives to directly purchasing the underlying foreign securities in their national markets and currencies, they are also subject to many of the risks associated with investing directly in foreign securities. Foreign investments, especially investments in emerging markets, can be riskier and more volatile than investments in the United States. Adverse political and economic developments or changes in the value of foreign currency can make it harder for the fund to sell its securities and could reduce the value of your shares. Changes in tax and accounting standards and difficulties in obtaining information about foreign companies can negatively affect investment decisions.
SHORT-TERM INVESTING
The investments and strategies described in this prospectus are those that are used under normal circumstances. During unusual economic, market, political or other circumstances, the fund may invest up to 100% of its assets in short-term high quality debt instruments, such as U.S. government securities. These instruments would not ordinarily be consistent with the fund's principal investment strategies, and may prevent the fund from achieving its investment objective. The fund will do so only if the adviser believes that the risk of loss outweighs the opportunity for achieving the fund's investment objective. The fund has a policy requiring it to invest at least 80% of its net assets in particular types of securities and may temporarily deviate from this policy in other limited, appropriate circumstances, such as unusually large cash inflows or redemptions.
When the adviser pursues a temporary defensive strategy, the fund may not profit from favorable developments that it would have otherwise profited from if it were pursuing its normal strategies.
INFORMATION ABOUT PORTFOLIO HOLDINGS
A description of the fund's policy and procedures with respect to the circumstances under which the fund discloses its portfolio securities is available in the SAI.
PORTFOLIO TURNOVER
The fund may buy and sell investments relatively often. Such a strategy often involves higher expenses, including brokerage commissions, and may increase the amount of capital gains (in particular, short-term gains) realized by the fund. Shareholders must pay tax on such capital gains.
SHORT SALES RISK
Short sales are transactions in which the fund sells a security it does not own. To complete the transaction, the fund must borrow the security to make delivery to the buyer. The fund is then obligated to replace the security borrowed by purchasing the security at market price at the time of replacement. The price at such time may be higher or lower than the price at which the security was sold by the fund. If the underlying security goes down in price between the time the fund sells the security and buys it back, the fund will realize a gain on the transaction. Conversely, if the underlying security goes up in price during the period, the fund will realize a loss on the transaction. Because the market price of the security sold short could increase without limit, the fund could also be subject to a theoretically unlimited loss. The risk of such price increases is the principal risk of engaging in short sales.
INVESTMENT ADVISER
Analytic Investors, Inc., a California corporation located at 500 South Grand Avenue, 23rd Floor, Los Angeles, CA 90071, is the investment adviser to the fund (the "adviser"). The adviser manages and supervises the investment of the fund's assets on a discretionary basis. Founded in 1970, the adviser serves pensions and profit-sharing plans, endowments, foundations, corporate investment portfolios, mutual savings banks and insurance companies. The adviser is an affiliate of Old Mutual (US) Holdings Inc. ("Old Mutual") (formerly named United Asset Management Corporation). Old Mutual is a subsidiary of Old Mutual plc, a financial services group based in the United Kingdom.
For its services, the fund pays the adviser a fee, as set forth below. The adviser has voluntarily agreed to limit the total expenses of the fund (excluding interest, taxes, brokerage commissions and extraordinary expenses) to the amounts listed, as a percentage of average net assets, in the table below. To maintain these expense limit, the adviser may waive a portion of its management fee and/or reimburse certain expenses of the fund. The adviser intends to continue its expense limitations until further notice, but may discontinue them at any time. The table also lists the amount the fund paid the adviser during the most recent fiscal year, as a percentage of its average net assets.
Defensive
Equity Fund
---------------------------------------------------------------------------------------------------------------------------
Contractual Management Fees 0.60%
---------------------------------------------------------------------------------------------------------------------------
Expense Limits 1.24%
---------------------------------------------------------------------------------------------------------------------------
Advisory Fees Paid (After Waivers) to the Adviser for During Most Recent Fiscal Year 0.03%
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PORTFOLIO MANAGERS
Each fund is managed by a team of investment professionals. The following portfolio managers are jointly and primarily responsible for the day-to-day management of the fund.
Dr. Robert Murdock, Portfolio Manager, co-manages the fund. Dr. Murdock joined Analytic in 1997 and has over 14 years of investment experience. Mr. Murdock has a B.S. from the University of Wyoming, a M.B.A. from the Amos Tuck School of Business, a M.A. from the University of Pennsylvania and a Ph.D. from the Anderson Graduate School of Management at the University of California, Los Angeles.
Mr. Dennis Bein, Chief Investment Officer, co-manages the Analytic Global Long-Short Fund and Analytic Defensive Equity Fund. Mr. Bein joined Analytic in 1995 and has over 14 years of investment experience. Mr. Bein has a B.A. from the University of California, Riverside and an M.B.A. from the Anderson Graduate School of Management at the University of California, Riverside.
Mr. Greg McMurran, Chief Investment Officer, co-manages the Analytic Global Long-Short Fund, Analytic Defensive Equity Fund and Analytic Short-Term Income Fund. Mr. McMurran joined Analytic in 1976 and has over 28 years of investment experience. Mr. McMurran has a B.S. from the University of California, Irvine and a M.A. in Economics at California State University, Fullerton.
Mr. Harindra de Silva, President, co-manages the Analytic Global Long-Short Fund, Analytic Defensive Equity Fund and Analytic Short-Term Income Fund. Mr. de Silva joined Analytic in 1995 and has over 18 years of investment experience. Mr. de Silva has a B.S. in Mechanical Engineering from the University of Manchester Institute of Science and Technology, an M.B.A. and an M.S. from the University of Rochester and a Ph.D. in Finance from the University of California, Irvine.
Mr. Steven Sapra, Portfolio Manager, co-manages the Analytic Defensive Equity Fund. Mr. Sapra joined Analytic in 2000 and has over 7 years of investment experience. Mr. Sapra has a B.S. from California State Polytechnic University, Pomona an a M.A. from the University of Southern California.
The SAI provides additional information about the portfolio managers' compensation, other accounts managed, and ownership of fund shares.
SHAREHOLDER SERVICING ARRANGEMENTS
Brokers, dealers, banks, trust companies and other financial representatives may receive compensation from the fund or its service providers for providing a variety of services. This section briefly describes how the financial representatives may get paid.
For providing certain services to their clients, financial representatives may be paid a fee based on the assets of the fund that are attributable to the financial representative. These services may include record keeping, transaction processing for shareholders' accounts and certain shareholder services not currently offered to shareholders that deal directly with the fund. In addition, your financial representatives may charge you other account fees for buying or redeeming shares of the fund or for servicing your account. Your financial representative should provide you with a schedule of its fees and services.
The fund may pay all or part of the fees paid to financial representatives. Periodically, the Board reviews these arrangements to ensure that the fees paid are appropriate for the services performed. The fund does not pay these service fees on shares purchased directly. In addition, the adviser and its affiliates may, at their own expense, pay financial representatives for these services.
The adviser and its affiliates may, at their own expense, pay financial representatives for distribution and marketing services performed with respect to the fund. The amount of these payments will generally vary. Additional compensation may also be paid to financial representatives who offer the fund as part of a special preferred list or other promotional program. Financial representatives that receive these types of payments may have a conflict of interest in recommending or selling fund shares rather than other mutual funds, particularly where such payments exceed those associated with other funds.
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INVESTMENT ADVISER
Analytic Investors, Inc.
500 South Grand Avenue
23rd Floor
Los Angeles, CA 90071
DISTRIBUTOR
SEI Investments Distribution Co.
One Freedom Valley Drive
Oaks, Pennsylvania 19456
LEGAL COUNSEL
Morgan, Lewis & Bockius LLP
More information about the Analytic Funds is available without charge through the following:
STATEMENT OF ADDITIONAL INFORMATION (SAI)
The SAI dated May 1, 2005 includes detailed information about The Advisors' Inner Circle Fund and the Analytic 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 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 (Toll Free) 866-777-7818
BY MAIL: Write to us
Analytic Funds
P.O. Box 219009
Kansas City, Missouri 64121-9009
BY INTERNET: www.analyticinvestors.com
From the SEC: You can also obtain the SAI or the annual and semi-annual reports,
as well as other information about The Advisors' Inner Circle Fund, from the
EDGAR Database on the SEC's website at: 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 20549-0102. You may also obtain this information, upon
payment of a duplicating fee, by e-mailing the SEC at the following address:
publicinfo@sec.gov. The fund's Investment Company Act registration number is
811-06400.
[ ]
Investment Adviser:
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PROSPECTUS
May 1, 2005
THE ADVISORS' INNER CIRCLE FUND
CLASS C SHARES
DEFENSIVE EQUITY FUND
TABLE OF CONTENTS
ANALYTIC DEFENSIVE EQUITY FUND.............................................. 1
WHAT IS THE FUND'S OBJECTIVE?........................................... 1
WHAT ARE THE FUND'S PRINCIPAL INVESTMENT STRATEGIES?.................... 1
WHAT ARE THE FUND'S PRINCIPAL RISKS?.................................... 2
HOW HAS THE FUND PERFORMED?............................................. 3
WHAT ARE THE FUND'S FEES AND EXPENSES?.................................. 4
INVESTING WITH THE FUND..................................................... 6
BUYING SHARES........................................................... 6
REDEEMING SHARES........................................................ 8
TRANSACTION POLICIES.................................................... 9
ACCOUNT POLICIES........................................................ 11
ADDITIONAL INFORMATION ABOUT THE FUND....................................... 14
OTHER INVESTMENT PRACTICES AND STRATEGIES............................... 14
INVESTMENT MANAGEMENT................................................... 15
SHAREHOLDER SERVICING ARRANGEMENTS...................................... 16
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ANALYTIC DEFENSIVE EQUITY FUND WHAT IS THE FUND'S OBJECTIVE? -------------------------------------------------------------------------------- |
The Defensive Equity Fund seeks to obtain a greater long-term total return and smaller fluctuations in quarterly total return from a diversified, hedged common stock fund than would be realized from the same fund unhedged. The fund may change its investment objective without shareholder approval.
Through its proprietary investment process, the adviser attempts to create a diversified and hedged portfolio by investing in a combination of stocks, debt securities and options. The Defensive Equity Fund invests primarily (at least 80% of its net assets) in equity securities and may not change this policy without 60 days' written notice to shareholders. Equity securities represent an ownership interest, or the right to acquire an ownership interest, in an issuer. Different types of equity securities provide different voting and dividend rights and priority in case of the bankruptcy of the issuer. Equity securities include common stocks, preferred stocks, convertible securities, rights and warrants.
The fund may also use options, which are agreements that give an investor the right to buy or sell an asset at an agreed upon price in the future, and futures contracts, which are agreements that enable an investor to buy or sell an asset at an agreed upon price in the future. Options are used to protect the fund's investments against changes resulting from market conditions (a practice called "hedging"). The adviser bases its hedging decisions on estimates of the fair value and expected contribution made by an option to the overall expected return of the fund.
The fund may use futures contracts, which are agreements that enable an investor to buy or sell an asset at an agreed upon price in the future, and options on futures contracts for a variety of purposes, including:
o To reduce transaction costs;
o To manage cash flows;
o To maintain full market exposure, which means to adjust the characteristics of its investments to more closely approximate those of its benchmark; and
o To enhance returns.
The adviser selects equity securities for this fund using a proprietary system that ranks stocks according to a mathematical model. The adviser's system seeks to determine a security's intrinsic (true) value by evaluating variables, such as relative valuation, price momentum, company fundamentals, liquidity and risk. Using its system, the adviser believes it can assemble a portfolio of securities that is style and sector neutral to achieve a level of diversification and risk similar to that of the S&P 500 Index, the fund's investment universe. "Style neutral" means a fund is similar to its investment universe in terms of exposure to quantifiable characteristics such as average market capitalization. A fund is "sector neutral" when its exposure to specified economic sectors (such as technology or utilities) is similar to that of its investment universe. The adviser also believes that by using its system the fund can consistently outperform traditional strategies that focus on a single style, such as value or growth.
The adviser begins the stock selection process by ranking stocks according to their one-month expected return. The adviser then uses a process called "portfolio optimization" to select securities that it believes will:
o Maximize expected returns for the fund;
o Minimize expected volatility relative to its benchmark; and
o Diversify the assets of the fund among the various countries, industries, sectors and individual securities.
The adviser monitors the stocks held by the fund on a real-time basis for developments in terms of news events (such as lawsuits or takeover bids) and significant changes in fundamental factors. The adviser sells a security when it believes the incremental return from the sale exceeds the associated transaction costs.
As with all mutual funds, at any time, your investment in the fund may be worth more or less than the price that you originally paid for it. There is also a possibility that the fund will not achieve its goal. This could happen because its strategy failed to produce the intended results or because the adviser did not implement its strategy properly. The fund's shares are not bank deposits and are not guaranteed, endorsed or insured by any financial institution, government authority or the FDIC. You may lose money by investing in the fund.
As with all equity funds, the risks that could affect the value of the fund's shares and the total return on your investment include the possibility that the equity securities held by the fund will experience sudden, unpredictable drops in value or long periods of decline in value. This may occur because of factors that affect the securities markets generally, such as adverse changes in economic conditions, the general outlook for corporate earnings, interest rates or investor sentiment. Equity securities may also lose value because of factors affecting an entire industry or sector, such as increases in production costs, or factors directly related to a specific company, such as decisions made by its management. This risk is greater for small and medium sized companies, which tend to be more vulnerable to adverse developments than larger companies.
Derivatives are often more volatile than other investments and may magnify the fund's gains or losses. There are various factors that affect the fund's ability to achieve its objectives with derivatives. Successful use of a derivative depends on the degree to which prices of the underlying assets correlate with price movements in the derivatives the fund buys or sells. The fund could be negatively affected if the change in market value of its securities fails to correlate perfectly with the values of the derivatives it purchased or sold.
The lack of a liquid secondary market for a derivative may prevent a fund from closing its derivative positions and could adversely impact its ability to achieve its objectives and to realize profits or limit losses.
Since derivatives may be purchased for a fraction of their value, a relatively small price movement in a derivative may result in an immediate and substantial loss or gain to a fund. Derivatives are often more volatile than other investments and the fund may lose more in a derivative than it originally invested in it.
Effective June 24, 2002, the fund became the successor to a separate mutual fund, the UAM Funds, Inc. II Analytic Defensive Equity Fund (the "Predecessor Defensive Equity Fund"). The Predecessor Defensive Equity Fund was managed by the same employees of the adviser who currently manage the fund, had identical investment objectives and strategies and was subject to substantially similar fees and expenses. The performance shown in the following bar chart and performance table represents the performance of the Predecessor Defensive Equity Fund for the periods prior to June 24, 2002.
The following information illustrates some of the risks of investing in the fund. The bar chart shows how performance of the fund and the Predecessor Defensive Equity Fund has varied from year to year. Class C Shares were first offered on December 31, 2004 and, therefore, do not have a full calendar year of performance. The performance of Class C Shares is expected to be substantially similar to the performance of the Institutional Class Shares, except to the extent that the classes have different fees and expenses, because the shares are invested in the same portfolio of securities. The bar chart does not reflect sales charges. If sales charges had been reflected, returns would be less than those shown below. Returns are based on past results and are not an indication of future performance.
CALENDAR YEAR RETURNS
[BAR CHART OMITTED, PLOT POINTS FOLLOWS]
1995 21.55% 1996 15.71% 1997 19.08% 1998 28.89% 1999 21.35% 2000 -6.46% 2001 -1.98% 2002 -12.22% 2003 23.13% 2004 XX.XX% |
During the periods shown in the chart for the fund and the Predecessor Defensive Equity Fund, the highest return for a quarter was XX.XX% (quarter ending XX/XX/XX) and the lowest return for a quarter was (XX.XX)% (quarter ending XX/XX/XX).
AVERAGE ANNUAL RETURNS FOR PERIODS ENDED DECEMBER 31, 2004
The average annual returns table compares average annual returns of the fund and the Predecessor Defensive Equity Fund to those of a broad-based securities market index. Returns are based on past results and are not an indication of future performance.
* The performance information shown is for the Institutional Class Shares, which were offered on June 24, 2002. Prior to June 24. 2002, the performance shown represents the performance of the Predecessor Defensive Equity Fund. Class C Shares were first offered on December 31, 2004 and, therefore, do not have a full year of performance. The performance for Class C Shares would have been substantially similar to the performance of the Institutional Class Shares, except to the extent that the classes have different fees and expenses. The returns above do not reflect sales charges and Rule 12b-1 fees applicable to Class C Shares. If sales charges and Rule 12b-1 fees had been reflected, returns would be less than those shown above.
** After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor's tax situation and may differ from those shown. After-tax returns shown are not relevant to investors who hold their fund shares through tax-deferred arrangements such as 401(k) plans or individual retirement accounts.
# S&P 500 Composite Index is an unmanaged index composed of 400 industrial stocks, 40 financial stocks, 40 utility stocks and 20 transportation stocks.
The table describes the fees and expenses you may pay if you buy and hold shares of the fund.
SHAREHOLDER TRANSACTION FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
Class C Shares
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Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price) None
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Maximum Deferred Sales Charge (Load) (as a percentage of offering price) 1.00%*
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Maximum Sales Charge (Load) Imposed on Reinvested Dividends and other Distributions
(as a percentage of offering price) None
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Exchange Fee None
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* This sales charge will be imposed if you sell Class C Shares within one year of the date of purchase.
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
* The actual total annual fund operating expenses for the most recently completed fiscal year are expected to be less than the amount shown above because the fund's adviser has voluntarily agreed to waive all or a portion of its fees and reimburse expenses (excluding interest, taxes, brokerage commissions and extraordinary expenses) in order to keep total annual operating expenses from exceeding a specified level. With this fee waiver, the actual annual total fund operating expenses were X.XX%. The adviser may discontinue all or part of its waiver at any time. In addition, the adviser may enter into arrangements with certain broker-dealers who have agreed to pay certain fund expenses in return for the direction of a portion of the fund's brokerage business. As a result of these arrangements, the fund's expenses generally may be reduced, which in turn may reduce the cost to the adviser of its voluntary expense limit.
EXAMPLE
This example can help you to compare the cost of investing in the fund to the cost of investing in other mutual funds. The example assumes you invest $10,000 in the fund for the periods shown and then redeem all of your shares at the end of those periods. The example also assumes that you earned a 5% return on your investment each year, that you reinvested all of your dividends and distributions and that you paid the total expenses stated above (which do not reflect any expense limitations) throughout the period of your investment. Although your actual costs may be higher or lower, based on these assumptions your costs would be:
INVESTING WITH THE FUND
BY MAIL
All investments must be made by check or wire. All checks must be made payable in U.S. dollars and drawn on U.S. financial institutions. The fund does not accept purchases made by cash or certain cash equivalents (for instance, you may not pay by money order or traveler's check). The fund does not accept purchases made by credit card checks.
The fund reserves the right to reject any specific purchase order, including exchange purchases, for any reason. The fund is not intended for excessive trading by shareholders in response to short- term market fluctuations. For more information about the fund's policy on excessive trading, see "Excessive Trading Policies and Procedures."
The fund does not generally accept investments by non-U.S. persons. Non-U.S. persons may be permitted to invest in the fund subject to the satisfaction of enhanced due diligence. Please contact the fund for more information.
REGULAR MAIL ADDRESS
The Analytic Funds
PO Box 219009
Kansas City, MO 64121
EXPRESS MAIL ADDRESS
The Analytic Funds
330 West 9th Street
Kansas City, MO 64105
BY WIRE
To open an account by wire call 866-777-7818 for details. To add to an existing account by wire, wire your money using the instructions set forth below (be sure to include the fund name and your account number).
WIRING INSTRUCTIONS
United Missouri Bank
ABA # 101000695
The Analytic Funds
DDA Acct. # 9871063178
Ref: fund name/class/account number/ account name/wire control number
BY AUTOMATIC INVESTMENT PLAN (VIA AUTOMATED CLEARING HOUSE OR ACH)
You may not open an account via ACH. However, once you have established an account, you can set up an automatic investment plan by mailing a completed application to the fund. To cancel or change a plan, write to the fund at The Analytic Funds, PO Box 219009, Kansas City, MO 64121 (Express Mail Address: 330 West 9th Street, Kansas City, MO 64105). Allow up to 15 days to create the plan and 3 days to cancel or change it.
MINIMUM INVESTMENTS
Minimum Investments Initial Additional
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Regular accounts $ 2,500 $100
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Uniform Gifts/Transfer to Minor Accounts $ 500 no minimum
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Traditional IRAs $ 2,000 $100
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Roth IRAs $ 2,000 $100
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* Provided a SIP is established, the minimum initial investment for the fund is $500 along with a monthly systematic investment of $25 or more.
SALES CHARGES
CONTINGENT DEFERRED SALES CHARGES (CDSC) - CLASS C SHARES
You do not pay a sales charge when you purchase Class C Shares. The offering price of Class C Shares is simply the next calculated NAV. If you sell Class C Shares within one year after your purchase, you will pay a CDSC of 1.00% for the NAV of shares for either (1) the NAV of the shares at the time of purchase or (2) the NAV of the shares next calculated after the fund receives your sale request, whichever is less. The sales charge does not apply to shares you purchase through reinvestment of dividends or distributions. So, you never pay a deferred sales charge on any increase in your investment above the initial offering price.
The contingent deferred sales charge will be waived if you sell your Class C Shares for the following reasons:
o to make certain withdrawals from a qualified retirement plan;
o if you redeem shares acquired through reinvestment of dividends and distributions;
o to withdrawals under a systematic withdrawal plan, provided that the amounts withdrawn do not exceed 10% of the value of your shares in any twelve-month period; or
o when using the restatement privilege.
There may be other situations when you may be able to purchase or redeem Class C shares at reduced or without sales charges. Please see the statement of additional information ("SAI") for more information.
Class C Shares are not subject to an initial sales charge but may be sold with a CDSC. The overall cost per share of investing in Class C Shares in amounts greater than $1,000,000 is generally higher than the comparable cost of investing in similar dollar amounts of Class A Shares, which are offered in a separate prospectus. Accordingly, the Trust will refuse an investor's order to purchase additional Class C Shares when, to the knowledge of the fund or its agent, the value of all Class C Shares of the fund in all of the investor's accounts exceeds $1,000,000. In no event will the Trust honor an order to purchase more than $1,000,000 of Class C Shares of the fund.
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 cash or non-cash compensation as recognition for past sales or encouragement for future sales that may include the following: merchandise, travel expenses, prizes, meals and lodgings, and gifts that do not exceed $100 per year, per individual.
[Information about the fund's sales charges is available at:
http://aninvestor.com.]
FUND CODES
The fund's reference information, which is listed below, will be helpful to you when you contact the funds to purchase or exchange shares, check daily net asset value per share ("NAV") or get additional information.
BY MAIL
You may contact the fund directly by mail at The Analytic Funds, PO Box 219009, Kansas City, MO 64121 (Express Mail Address: 330 West 9th Street, Kansas City, MO 64105). Send a letter to the fund signed by all registered parties on the account specifying:
o The fund name;
o The account number;
o The dollar amount or number of shares you wish to redeem;
o The account name(s); and
o The address to which redemption (sale) proceeds should be sent.
All registered share owner(s) in the exact name(s) and any special capacity in which they are registered must sign the letter.
Certain shareholders may need to include additional documents to redeem shares.
BY TELEPHONE
You must first establish the telephone redemption privilege (and, if desired, the wire redemption privilege) by completing the appropriate sections of the account application.
Call 866-777-7818 to redeem your shares. Based on your instructions, the fund will mail your proceeds to you or wire them to your bank.
BY SYSTEMATIC WITHDRAWAL PLAN (VIA ACH)
If your account balance is at least $5,000, you may transfer as little as $100 per month from your account to another financial institution. To participate in this service, contact your broker, dealer or financial intermediary regarding how to establish this feature.
CALCULATING YOUR SHARE PRICE
You may buy, sell or exchange shares of the fund on each day the New York Stock Exchange ("NYSE") is open at a price equal to its NAV next computed after it receives and accepts your order. The fund calculates NAV once each day the NYSE is open for business (a "Business Day") as of the regularly scheduled close of normal trading on the NYSE (normally 4:00 p.m., Eastern Time). To receive the NAV on any given day, the fund must receive your order in good form (meaning that it is complete and contains all necessary information, and has all supporting documentation such as proper signature guarantees, IRA rollover forms, etc.) before the close of trading on the NYSE that day. Otherwise, you will receive the NAV that is calculated at the close of trading on the following business day if the NYSE is open for trading that day. If the NYSE closes early - such as on days in advance of certain generally observed holidays - the fund will calculate NAV as of the earlier closing time.
The fund calculates its NAVs by adding the total value of the assets, subtracting the liabilities and then dividing the result by the number of shares outstanding. In calculating NAV, the fund generally values its investment portfolios at market price. If market prices are not readily available or the fund reasonably believes that they are unreliable, such as in the case of a security value that has been materially affected by events occurring after the relevant market closes, the fund is required to price those securities at fair value as determined in good faith using methods approved by the Board of Trustees. The fund's determination of a security's fair value price often involves the consideration of a number of subjective factors, and is therefore subject to the unavoidable risk that the value that the fund assigns to a security may be higher or lower than the security's value would be if a reliable market quotation for the security was readily available.
Securities, options, futures contracts and other assets (including swap agreements) for which market quotations are not readily available will be valued at their fair value as determined in good faith by or under the direction of the Board of Trustees.
BUYING OR SELLING SHARES THROUGH A FINANCIAL INTERMEDIARY
You may buy or sell shares of the fund through a financial intermediary (such as a financial planner or adviser). To buy or sell shares at the NAV of any given day, your financial intermediary must receive your order before the close of trading on the NYSE that day. Your financial intermediary is responsible for transmitting all purchase and redemption requests, investment information, documentation and money to the fund on time. Your financial intermediary may charge additional transaction fees for its services.
Certain financial intermediaries have agreements with the fund that allow them to enter purchase or redemption orders on behalf of clients and customers. Under this arrangement, the financial intermediary must send your payment to the fund by the time they price their shares on the following business day. If your financial intermediary fails to do so, it may be responsible for any resulting fees or losses.
IN-KIND TRANSACTIONS
Under certain conditions and at the fund's discretion, you may pay for shares of the fund with securities instead of cash. In addition, the fund may pay part of your redemption proceeds (in excess of $250,000) with securities instead of cash. In the event shares are redeemed in-kind, investors may bear additional transaction costs and market risks until the securities are converted into cash. In the event shares are redeemed in-kind, shareholders will generally bear market risks until the securities are converted into cash.
PAYMENT OF REDEMPTION PROCEEDS
Redemption proceeds, less any applicable CDSC, can be mailed to your account address, sent to your bank by ACH transfer or wired to your bank account (provided that your bank information is already on file). The fund will pay for all shares redeemed within seven days after it receives a redemption request in proper form meaning that it is complete and contains all necessary information, and has all supporting documentation (such as proper signature guarantees, IRA rollover forms, etc.).
The fund may require that signatures be guaranteed by a bank or member firm of a national securities exchange. Signature guarantees are for the protection of shareholders. Before it grants a redemption request, the fund may require a shareholder to furnish additional legal documents to insure proper authorization.
If you redeem shares that were purchased by check, you will not receive your redemption proceeds until the check has cleared, which may take up to 15 days from the purchase date.
TELEPHONE TRANSACTIONS
The fund will employ reasonable procedures to confirm that instructions communicated by telephone are genuine. Therefore, the fund will not be responsible for any loss, liability, cost or expense for following instructions received by telephone reasonably believed to be genuine.
RULE 12B-1 FEES
The fund has adopted a distribution plan under Rule 12b-1 that allows the fund to pay distribution fees for the sale and distribution of its Class C Shares and for services provided to its shareholders. Distribution fees may be up to 1.00% of the fund's average daily net assets. Because these fees are paid out of the fund's assets on an ongoing basis, over time these fees will increase the cost of your investment in Class C Shares of the fund and may cost you more than paying other types of sales charges.
RIGHTS RESERVED BY THE FUND
PURCHASES
At any time and without notice, the fund may:
o Stop offering shares;
o Reject any purchase order; or
o Bar an investor engaged in a pattern of excessive trading from buying shares. (Excessive trading can hurt performance by disrupting management and by increasing expenses.) The fund will consider various factors in determining whether an investor has engaged in excessive trading. These factors include, but are not limited to, the investor's historic trading patterns, the number of transactions, the size of the transactions, the time between transactions and the percentage of the investor's account involved in each transaction. For more information on the fund's policies on excessive trading, see "Excessive Trading Policies and Procedures."
REDEMPTIONS
At any time, and without notice the fund may change or eliminate any of the redemption methods described, except redemption by mail. The fund may suspend your right to redeem if:
o Trading on the NYSE is restricted or halted; or
o The Securities and Exchange Commission allows the fund to delay redemptions.
EXCESSIVE TRADING POLICIES AND PROCEDURES
The fund is intended for long-term investment purposes only and discourages frequent short-term trading that could be considered excessive or "market timing." This frequent trading into and out of the fund may present risks to the fund's long-term shareholders, all of which could adversely affect shareholder returns. The risks posed by frequent trading include interfering with the efficient implementation of the fund's investment strategies, triggering the recognition of taxable gains and losses on the sale of fund investments, requiring the fund to maintain higher cash balances to meet redemption requests, and experiencing increased transaction costs.
The fund's service providers will take steps reasonably designed to detect and deter frequent trading by shareholders pursuant to the fund's policies and procedures described in this prospectus and approved by the fund's Board of Trustees. For purposes of applying these policies, the fund's service providers may consider the trading history of accounts under common ownership or control. The fund's policies and procedures include:
o Shareholders are restricted from making more than [four] "round trips" into or out of the fund per year. If a shareholder exceeds this amount, the fund and/or its service providers may, at their discretion, reject any additional purchase or exchange orders. The fund defines a round trip as a purchase into the fund by a shareholder, followed by a subsequent redemption out of the fund.
o The fund reserves the right to reject any purchase request by any investor or group of investors for any reason without prior notice, including, in particular, if the fund or its adviser reasonably believes that the trading activity would be harmful or disruptive to the fund.
The fund and/or its service providers seek to apply these policies to the best of their abilities uniformly and in a manner they believe is consistent with the interests of the fund's long-term shareholders. Systematic purchases and redemptions are exempt from these policies.
Although these policies are designed to deter frequent trading, none of these measures alone nor all of them taken together eliminate the possibility that frequent trading in the fund will occur, particularly with respect to trades placed by shareholders that invest in the fund through omnibus accounts maintained by brokers, retirement plan accounts and other financial intermediaries. The fund and its service providers' access to information about individual shareholder transactions made through such omnibus arrangements is often unavailable or severely limited. As a result, the fund cannot assure that its policies will be enforced with regard to those fund shares held through such omnibus arrangements (which may represent a majority of fund shares), and as a result frequent trading could adversely affect the fund and their long-term shareholders as discussed above. In addition, if you own your fund shares through an omnibus account maintained by a broker, retirement plan or other financial intermediary, it is possible that your financial intermediary's policies regarding frequent trading may differ from those of the fund. Please contact your financial intermediary for more information.
CUSTOMER IDENTIFICATION AND VERIFICATION
To help the government fight the funding of terrorism and money laundering activities, federal law requires all financial institutions to obtain, verify, and record information that identifies each person who opens an account.
What this means to you: when you complete a new account application, we will ask your name, address, date of birth, and other information that will allow us to identify you. This information is subject to verification to ensure the identity of all persons opening a mutual fund account.
The fund is required by law to reject your new account application if the required identifying information is not provided.
In certain instances, the fund is required to collect documents to fulfill their legal obligation. Documents provided in connection with your application will be used solely to establish and verify a customer's identity.
Attempts to collect the missing information required on the application will be performed by either contacting you or, if applicable, your broker. If this information is unable to be obtained within a timeframe established in the sole discretion of the fund, your application will be rejected.
Upon receipt of your application in proper form (meaning that it is complete and contains all necessary information, and has all supporting documentation such as proper signature guarantees, IRA rollover forms, etc.), or upon receipt of all identifying information required on the application, your investment will be received and your order will be processed at the NAV next-determined.
However, the fund reserves the right to close your account at the NAV next calculated after we determine to close your account (less any applicable redemption fees) if it is unable to verify your identity, or for other reasons. Attempts to verify your identity will be performed within a timeframe established in the sole discretion of the fund. If the fund is unable to verify your identity, the fund reserves the right to liquidate your account at the net asset value per share next calculated after we determine to close your account (less any applicable redemption fees) and remit proceeds to you via check. Further, the fund reserves the right to hold your proceeds until your original check clears the bank. In such an instance, you may be subject to a gain or loss on fund shares and will be subject to corresponding tax implications.
ANTI-MONEY LAUNDERING PROGRAM
Customer identification and verification is part of the fund's overall obligation to deter money laundering under federal law. The fund has adopted an Anti-Money Laundering Compliance Program designed to prevent the fund from being used for money laundering or the financing of terrorist activities. In this regard, the fund reserves the right to (i) refuse, cancel or rescind any purchase or exchange order, (ii) freeze any account and/or suspend account services or (iii) involuntarily close your account in cases of threatening conduct or suspected fraudulent or illegal activity. These actions will be taken when, in the sole discretion of fund management, they are deemed to be in the best interest of the fund or in cases when the fund is requested or compelled to do so by governmental or law enforcement authority. If your account is closed at the request of governmental or law enforcement authority, you may not receive proceeds of the redemption if the fund is required to withhold such proceeds.
SMALL ACCOUNTS
The fund may redeem your shares without your permission if the value of your account falls below 50% of the required minimum initial investment. (See "Buying Shares-Minimum Investments" for minimum investment amounts). This provision does not apply:
o To retirement accounts and certain other accounts; or
o When the value of your account falls because of market fluctuations and not your redemptions.
The fund will notify you before liquidating your account and allow you 60 days' to increase the value of your account.
DISTRIBUTIONS
Normally, the fund distributes its net investment income quarterly. In addition, the fund distributes its net capital gains at least once a year. The fund will automatically reinvest dividends and distributions in additional shares unless you elect on your account application to receive them in cash.
FEDERAL TAXES
The following is a summary of the federal income tax consequences of investing in the fund. This summary does not apply to shares held in an individual retirement account or other tax-qualified plan, which are not subject to current tax. Transactions relating to shares held in such accounts may, however, be taxable at some time in the future. You should always consult your tax advisor for specific guidance regarding the federal, state and local tax effect of your investment in a fund.
TAXES ON DISTRIBUTIONS The fund will distribute substantially all of its net investment income and its net realized capital gains, if any. The dividends and distributions you receive, whether in cash or reinvested in additional shares of the fund may be subject to federal, state, and local taxation, depending upon your tax situation. Income distributions, including distributions of net short-term capital gains but excluding distributions of qualified dividend income, are generally taxable at ordinary income tax rates. Capital gains distributions and distributions that are designated by the fund as qualified dividend income are generally taxable at the rates applicable to long-term capital gains. Once a year the fund will send you a statement showing the types and total amount of distributions you received during the previous year.
You should note that if you purchase shares just before a distribution, the purchase price would reflect the amount of the upcoming distribution. In this case, you would be taxed on the entire amount of the distribution received, even though, as an economic matter, the distribution simply constitutes a return of your investment. This is known as "buying a dividend" and should be avoided by taxable investors. Call 866-777-7818 to find out when the fund expects to make a distribution to shareholders.
Each sale or exchange of shares of the fund may be a taxable event. For tax purposes, an exchange of shares of one Analytic Fund for another is the same as a sale.
A sale may result in a capital gain or loss to you. The gain or loss generally will be treated as short term if you held the shares 12 months or less, long term if you held the shares for longer.
If the fund invests in foreign securities, it may be subject to foreign withholding taxes with respect to dividends or interest the fund received from sources in foreign countries. The fund may elect to treat some of those taxes as a distribution to shareholders, which would allow shareholders to offset some of its U.S. federal income tax.
More information about taxes is in the Statement of Additional Information ("SAI").
ADDITIONAL INFORMATION ABOUT THE FUND
In addition to its principal investment strategies, the fund may use the investment strategies described below. The fund may also employ investment practices that this prospectus does not describe, such as repurchase agreements, when-issued and forward commitment transactions, lending of securities, borrowing and other techniques. For more information concerning any of the fund's investment practices and its risks, you should read the SAI.
FOREIGN SECURITIES
The fund may invest up to 20% of its total assets in foreign securities. Foreign securities are securities of companies located outside the United States, ADRs, EDRs, and other similar global instruments. When the fund invests in foreign securities, it will be subject to risks not typically associated with domestic securities. Although ADRs and EDRs are alternatives to directly purchasing the underlying foreign securities in their national markets and currencies, they are also subject to many of the risks associated with investing directly in foreign securities. Foreign investments, especially investments in emerging markets, can be riskier and more volatile than investments in the United States. Adverse political and economic developments or changes in the value of foreign currency can make it harder for the fund to sell its securities and could reduce the value of your shares. Changes in tax and accounting standards and difficulties in obtaining information about foreign companies can negatively affect investment decisions.
SHORT-TERM INVESTING
The investments and strategies described in this prospectus are those that are used under normal circumstances. During unusual economic, market, political or other circumstances, the fund may invest up to 100% of its assets in short-term high quality debt instruments, such as U.S. government securities. These instruments would not ordinarily be consistent with the fund's principal investment strategies, and may prevent the fund from achieving its investment objective. The fund will do so only if the adviser believes that the risk of loss outweighs the opportunity for achieving the fund's investment objective. The fund has a policy requiring it to invest at least 80% of its net assets in particular types of securities and may temporarily deviate from this policy in other limited, appropriate circumstances, such as unusually large cash inflows or redemptions.
When the adviser pursues a temporary defensive strategy, the fund may not profit from favorable developments that it would have otherwise profited from if it were pursuing its normal strategies.
INFORMATION ABOUT PORTFOLIO HOLDINGS
A description of the fund's policy and procedures with respect to the circumstances under which the fund discloses its portfolio securities is available in the SAI.
PORTFOLIO TURNOVER
The fund may buy and sell investments relatively often. Such a strategy often involves higher expenses, including brokerage commissions, and may increase the amount of capital gains (in particular, short-term gains) realized by the fund. Shareholders must pay tax on such capital gains.
SHORT SALES RISK
Short sales are transactions in which the fund sells a security it does not own. To complete the transaction, the fund must borrow the security to make delivery to the buyer. The fund is then obligated to replace the security borrowed by purchasing the security at market price at the time of replacement. The price at such time may be higher or lower than the price at which the security was sold by the fund. If the underlying security goes down in price between the time the fund sells the security and buys it back, the fund will realize a gain on the transaction. Conversely, if the underlying security goes up in price during the period, the fund will realize a loss on the transaction. Because the market price of the security sold short could increase without limit, the fund could also be subject to a theoretically unlimited loss. The risk of such price increases is the principal risk of engaging in short sales.
INVESTMENT ADVISER
Analytic Investors, Inc., a California corporation located at 500 South Grand Avenue, 23rd Floor, Los Angeles, CA 90071, is the investment adviser to each of the fund (the "adviser"). The adviser manages and supervises the investment of the fund's assets on a discretionary basis. Founded in 1970, the adviser serves pensions and profit-sharing plans, endowments, foundations, corporate investment portfolios, mutual savings banks and insurance companies. The adviser is an affiliate of Old Mutual (US) Holdings Inc. ("Old Mutual") (formerly named United Asset Management Corporation). Old Mutual is a subsidiary of Old Mutual plc, a financial services group based in the United Kingdom.
For its services, the fund pays the adviser a fee, as set forth below. The adviser has voluntarily agreed to limit the total expenses of the fund (excluding interest, taxes, brokerage commissions and extraordinary expenses) to the amounts listed, as a percentage of average net assets, in the table below. To maintain this expense limit, the adviser may waive a portion of its management fee and/or reimburse certain expenses of the fund. The adviser intends to continue its expense limitations until further notice, but may discontinue them at any time. The table also lists the amount the fund paid the adviser during the most recent fiscal year, as a percentage of its average net assets.
Defensive
Equity Fund
--------------------------------------------------------------------------------
Contractual Management Fees 0.60%
--------------------------------------------------------------------------------
Expense Limits 1.99%
--------------------------------------------------------------------------------
Advisory Fees Paid (After Waivers) to the Adviser
During Most Recent Fiscal Year 0.03%
|
PORTFOLIO MANAGERS
Each fund is managed by a team of investment professionals. The following portfolio managers are jointly and primarily responsible for the day-to-day management of the fund.
Dr. Robert Murdock, Portfolio Manager, co-manages the fund. Dr. Murdock joined Analytic in 1997 and has over 14 years of investment experience. Mr. Murdock has a B.S. from the University of Wyoming, a
M.B.A. from the Amos Tuck School of Business, a M.A. from the University of Pennsylvania and a Ph.D. from the Anderson Graduate School of Management at the University of California, Los Angeles.
Mr. Dennis Bein, Chief Investment Officer, co-manages the fund. Mr. Bein joined Analytic in 1995 and has over 14 years of investment experience. Mr. Bein has a B.A. from the University of California, Riverside and an M.B.A. from the Anderson Graduate School of Management at the University of California, Riverside.
Mr. Greg McMurran, Chief Investment Officer, co-manages the fund. Mr. McMurran joined Analytic in 1976 and has over 28 years of investment experience. Mr. McMurran has a B.S. from the University of California, Irvine and a M.A. in Economics at California State University, Fullerton.
Mr. Harindra de Silva, President, co-manages the fund. Mr. de Silva joined Analytic in 1995 and has over 18 years of investment experience. Mr. de Silva has a B.S. in Mechanical Engineering from the University of Manchester Institute of Science and Technology, an M.B.A. and an M.S. from the University of Rochester and a Ph.D. in Finance from the University of California, Irvine.
Mr. Steven Sapra, Portfolio Manager, co-manages the fund. Mr. Sapra joined Analytic in 2000 and has over 7 years of investment experience. Mr. Sapra has a B.S. from California State Polytechnic University, Pomona an a M.A. from the University of Southern California.
The SAI provides additional information about the portfolio managers' compensation, other accounts managed, and ownership of fund shares.
SHAREHOLDER SERVICING ARRANGEMENTS
Brokers, dealers, banks, trust companies and other financial representatives may receive compensation from the fund or its service providers for providing a variety of services. This section briefly describes how the financial representatives may get paid.
For providing certain services to their clients, financial representatives may be paid a fee based on the assets of the fund that are attributable to the financial representative. These services may include record keeping, transaction processing for shareholders' accounts and certain shareholder services not currently offered to shareholders that deal directly with the fund. In addition, your financial representatives may charge you other account fees for buying or redeeming shares of the fund or for servicing your account. Your financial representative should provide you with a schedule of its fees and services.
The fund may pay all or part of the fees paid to financial representatives. Periodically, the Board reviews these arrangements to ensure that the fees paid are appropriate for the services performed. The fund does not pay these service fees on shares purchased directly. In addition, the adviser and its affiliates may, at their own expense, pay financial representatives for these services.
The adviser and its affiliates may, at their own expense, pay financial representatives for distribution and marketing services performed with respect to the fund. The amount of these payments will generally vary. Additional compensation may also be paid to financial representatives who offer the fund as part of a special preferred list or other promotional program. Financial representatives that receive these types of payments may have a conflict of interest in recommending or selling fund shares rather than other mutual funds, particularly where such payments exceed those associated with other funds.
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INVESTMENT ADVISER
Analytic Investors, Inc.
500 South Grand Avenue
23rd Floor
Los Angeles, CA 90071
DISTRIBUTOR
SEI Investments Distribution Co.
One Freedom Valley Drive
Oaks, Pennsylvania 19456
LEGAL COUNSEL
Morgan, Lewis & Bockius LLP
More information about the Analytic Funds is available without charge through the following:
STATEMENT OF ADDITIONAL INFORMATION (SAI)
The SAI dated December 31, 2004 includes detailed information about The Advisors' Inner Circle Fund and the Analytic 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 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 (Toll Free) 866-777-7818
BY MAIL: Write to us
Analytic Funds
P.O. Box 219009
Kansas City, Missouri 64121-9009
BY INTERNET: www.analyticinvestors.com
From the SEC: You can also obtain the SAI or the annual and semi-annual reports,
as well as other information about The Advisors' Inner Circle Fund, from the
EDGAR Database on the SEC's website at: 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 20549-0102. You may also obtain this information, upon
payment of a duplicating fee, by e-mailing the SEC at the following address:
publicinfo@sec.gov. The fund's Investment Company Act registration number is
811-06400.
STATEMENT OF ADDITIONAL INFORMATION
ANALYTIC DEFENSIVE EQUITY FUND
ANALYTIC GLOBAL LONG-SHORT FUND
ANALYTIC SHORT-TERM INCOME FUND
SERIES OF THE ADVISORS' INNER CIRCLE FUND
MAY 1, 2005
INVESTMENT ADVISER:
ANALYTIC INVESTORS, INC.
This Statement of Additional Information ("SAI") is not a prospectus. This SAI is intended to provide additional information regarding the activities and operations of The Advisors' Inner Circle Fund (the "Trust") and the Analytic Defensive Equity Fund, the Analytic Global Long-Short Fund and the Analytic Short-Term Income Fund (each a "Fund" and collectively, the "Funds"). This SAI should be read in conjunction with the Funds' prospectus dated May 1, 2005. Capitalized terms not defined herein are defined in the prospectus. The financial statements and notes thereto contained in the 2004 Annual Report to Shareholders are herein incorporated by reference into and deemed to be part of this SAI. A copy of the 2004 Annual Report to Shareholders must accompany the delivery of this SAI. Shareholders may obtain copies of the Funds' prospectus or Annual Report free of charge by the Funds at 1-866-777-7818.
TABLE OF CONTENTS
THE TRUST...............................................................S-1 GLOSSARY ...............................................................S-2 DESCRIPTION OF PERMITTED INVESTMENTS....................................S-2 INVESTMENT POLICIES OF THE FUNDS.......................................S-29 INVESTMENT ADVISORY AND OTHER SERVICES.................................S-31 PORTFOLIO MANAGERS.....................................................S-34 THE ADMINISTRATOR......................................................S-36 THE DISTRIBUTOR........................................................S-36 TRANSFER AGENT.........................................................S-37 CUSTODIAN..............................................................S-37 INDEPENDENT AUDITOR....................................................S-37 LEGAL COUNSEL..........................................................S-37 TRUSTEES AND OFFICERS OF THE TRUST.....................................S-38 PURCHASING AND REDEEMING SHARES........................................S-43 DETERMINATION OF NET ASSET VALUE.......................................S-44 TAXES ..............................................................S-44 BROKERAGE ALLOCATION AND OTHER PRACTICES...............................S-48 PORTFOLIO HOLDINGS.....................................................S-51 DESCRIPTION OF SHARES..................................................S-52 SHAREHOLDER LIABILITY..................................................S-53 LIMITATION OF TRUSTEES' LIABILITY......................................S-53 PROXY VOTING...........................................................S-53 CODES OF ETHICS........................................................S-53 5% AND 25% SHAREHOLDERS................................................S-54 APPENDIX A - RATINGS....................................................A-1 APPENDIX B - PROXY VOTING POLICIES AND PROCEDURES.......................B-1 |
THE TRUST
GENERAL. Each Fund is a separate series of 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, as amended
February 18, 1997. The Declaration of Trust permits the Trust to offer separate
series ("funds") of shares of beneficial interest ("shares"). The Trust reserves
the right to create and issue shares of additional funds. Each fund is a
separate mutual fund, and each share of each fund represents an equal
proportionate interest in that fund. All consideration received by the Trust for
shares of any fund and all assets of such fund belong solely to that fund and
would be subject to liabilities related thereto. Generally, 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, 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.
HISTORY OF THE FUNDS. The Analytic Defensive Equity Fund is a successor to the UAM Funds, Inc. II Analytic Defensive Equity Fund ("Predecessor Analytic Defensive Equity Fund"). The Analytic Global Long-Short Fund, previously the Analytic International Fund, is a successor to the UAM Funds, Inc. II Analytic International Fund ("Predecessor International Fund"). The Analytic Short-Term Income Fund is a successor to the UAM Funds, Inc. II Analytic Short-Term Income Fund ("Predecessor Analytic Short-Term Income Fund" and together with the Predecessor Analytic Defensive Equity Fund and the Predecessor Analytic Global Long-Short Fund, the "Predecessor Funds"). The Predecessor Analytic Defensive Equity Fund, the Predecessor Analytic Global Long-Short Fund and the Predecessor Analytic Short-Term Income Fund's dates of inception were July 1, 1978, September 30, 1999 and July 1, 1993, respectively. Each of the Predecessor Funds dissolved and reorganized into the Analytic Defensive Equity Fund, the Analytic Global Long-Short Fund and the Analytic Short-Term Income Fund, respectively, on June 24, 2002 (the "Reorganization"). Substantially all of the assets of each Predecessor Fund were transferred to its successor in connection with the Funds' commencement of operations on June 24, 2002. The Predecessor Funds were managed by Analytic Investors, Inc. ("Analytic" or the "Adviser") using the same investment objective, strategies, policies and restrictions as those used by the Funds following the Reorganization. Effective May 1, 2003, the Analytic International Fund changed its name to the Analytic Global Long-Short Fund and began employing the investment strategy described in the Funds' prospectus and further described in the SAI.
VOTING RIGHTS. Each shareholder of record is entitled to one vote for each dollar of net asset value of the shares held on the record date for the meeting. Each Fund will vote separately on matters relating solely to it. As a Massachusetts business trust, the Trust is not required, and does not intend, to hold annual meetings of shareholders. Shareholders approval will be sought, however, for certain changes in the operation of the Trust and for the election of Trustees under certain circumstances. Under the Declaration of Trust, the Trustees have the power to liquidate one or more Funds without shareholder approval. While the Trustees have no present intention of exercising this power, they may do so if a Fund fails to reach a viable size within a reasonable amount of time or for some other extraordinary reason.
In addition, a Trustee may be removed by the remaining Trustees or by shareholders at a special meeting called upon written request of shareholders owning at least 10% of the outstanding shares of the Trust. In the event that such a meeting is requested, the Trust will provide appropriate assistance and information to the shareholders requesting the meeting.
GLOSSARY
All terms that this SAI does not otherwise define have the same meaning in the SAI as they do in the Funds' prospectus.
o 1933 ACT means the Securities Act of 1933, as amended.
o 1934 ACT means the Securities Exchange Act of 1934, as amended.
o 1940 ACT means the Investment Company Act of 1940, as amended.
o ADVISER means Analytic Investors, Inc., the investment adviser to the Funds.
o BOARD refers to the Trust's Board of Trustees as a group.
o TRUST refers to The Advisors' Inner Circle Fund.
o NAV is the net asset value per share of a Fund.
o NYSE is the New York Stock Exchange.
o SEC is the U.S. Securities and Exchange Commission.
o ADMINISTRATOR is SEI Investments Global Funds Services.
o DISTRIBUTOR is SEI Investments Distribution Co.
o CODE is the Internal Revenue Code of 1986, as amended.
o CFTC is the Commodity Futures Trading Commission.
Capitalized terms not defined herein are defined in the Funds' prospectus.
DESCRIPTION OF PERMITTED INVESTMENTS
WHAT INVESTMENT STRATEGIES MAY THE FUNDS USE?
Each Fund's investment objectives and principal investment strategies are described in the prospectus(es). The following information supplements, and should be read in conjunction with, the prospectus. Each Fund will only invest in any of the following instruments or engage in any of the following investment practices if such investment or activity is consistent with that Fund's investment objective and as permitted by its stated policies. For a description of certain permitted investments discussed below, see "Description of Permitted Investments" in this SAI.
Corporations and governments use debt securities to borrow money from investors. Most debt securities promise a variable or fixed rate of return and repayment of the amount borrowed at maturity. Some debt securities, such as zero-coupon bonds, do not pay current interest and are purchased at a discount from their face value.
TYPES OF DEBT SECURITIES:
U.S. GOVERNMENT SECURITIES - U.S. government securities are securities issued by the U.S. Treasury (treasury securities) and securities issued by a federal agency or a government-sponsored entity (agency securities). Treasury securities include treasury bills, which have initial maturities of less than one year, and treasury notes, which have initial maturities of one to ten years, and treasury bonds, which have initial maturities of at least ten years, and certain types of mortgage-backed securities that are described under "Mortgage-Backed Securities" and "Other Asset-Backed Securities." This SAI discusses mortgage-backed treasury and agency securities in detail in "Mortgage-Backed Securities" and "Other Asset-Backed Securities."
The full faith and credit of the U.S. government supports treasury securities. Unlike treasury securities, the full faith and credit of the U.S. government generally does not back agency securities. Agency securities are typically supported in one of three ways:
o By the right of the issuer to borrow from the U.S. Treasury;
o By the discretionary authority of the U.S. government to buy the obligations of the agency; or
o By the credit of the sponsoring agency.
While U.S. government securities are guaranteed as to principal and interest, their market value is not guaranteed. U.S. government securities are subject to the same interest rate and credit risks as other fixed income securities. However, since U.S. government securities are of the highest quality, the credit risk is minimal. The U.S. government does not guarantee the net asset value of the assets of the Funds.
CORPORATE BONDS - Corporations issue bonds and notes to raise money for working capital or for capital expenditures such as plant construction, equipment purchases and expansion. In return for the money loaned to the corporation by investors, the corporation promises to pay investors interest, and repay the principal amount of the bond or note.
MORTGAGE-BACKED SECURITIES - Mortgage-backed securities are interests in pools of mortgage loans that various governmental, government-related and private organizations assemble as securities for sale to investors. Unlike most debt securities, which pay interest periodically and repay principal at maturity or on specified call dates, mortgage-backed securities make monthly payments that consist of both interest and principal payments. In effect, these payments are a "pass-through" of the monthly payments made by the individual borrowers on their mortgage loans, net of any fees paid to the issuer or guarantor of such securities. Since homeowners usually have the option of paying either part or all of the loan balance before maturity, the effective maturity of a mortgage-backed security is often shorter than is stated.
Governmental entities, private insurers and the mortgage poolers may insure or guarantee the timely payment of interest and principal of these pools through various forms of insurance or guarantees, including individual loan, title, pool and hazard insurance and letters of credit. The Adviser will consider such insurance and guarantees and the creditworthiness of the issuers thereof in determining whether a mortgage-related security meets its investment quality standards. It is possible that the private insurers or guarantors will not meet their obligations under the insurance policies or guarantee arrangements.
Although the market for such securities is becoming increasingly liquid, securities issued by certain private organizations may not be readily marketable.
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (GNMA) - GNMA is the principal governmental guarantor of mortgage-related securities. GNMA is a wholly-owned corporation of the U.S. government and it falls within the Department of Housing and Urban Development. Securities issued by GNMA are considered the equivalent
of treasury securities and are backed by the full faith and credit of the U.S. government. GNMA guarantees the timely payment of principal and interest on securities issued by institutions approved by GNMA and backed by pools of FHA-insured or VA-guaranteed mortgages. GNMA does not guarantee the market value or yield of mortgage-backed securities or the value of a Fund's shares. To buy GNMA securities, the Funds may have to pay a premium over the maturity value of the underlying mortgages, which the Fund may lose if prepayment occurs.
FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA) - FNMA is a government-sponsored corporation owned entirely by private stockholders. FNMA is regulated by the Secretary of Housing and Urban Development. FNMA purchases conventional mortgages from a list of approved sellers and service providers, including state and federally-chartered savings and loan associations, mutual savings banks, commercial banks and credit unions and mortgage bankers. Securities issued by FNMA are agency securities, which means FNMA, but not the U.S. government, guarantees their timely payment of principal and interest.
FEDERAL HOME LOAN MORTGAGE CORPORATION (FHLMC) - FHLMC is a stockholder owned corporation chartered by Congress in 1970 to increase the supply of funds that mortgage lenders, such as commercial banks, mortgage bankers, savings institutions and credit unions, can make available to homebuyers and multifamily investors. FHLMC issues Participation Certificates (PCs) which represent interests in conventional mortgages. FHLMC guarantees the timely payment of interest and ultimate collection of principal, but PCs are not backed by the full faith and credit of the U.S. government.
COMMERCIAL BANKS, SAVINGS AND LOAN INSTITUTIONS, PRIVATE MORTGAGE INSURANCE COMPANIES, MORTGAGE BANKERS AND OTHER SECONDARY MARKET ISSUERS - Commercial banks, savings and loan institutions, private mortgage insurance companies, mortgage bankers and other secondary market issuers also create pass-through pools of conventional mortgage loans. In addition to guaranteeing the mortgage-related security, such issuers may service and/or have originated the underlying mortgage loans. Pools created by these issuers generally offer a higher rate of interest than pools created by GNMA, FNMA & FHLMC because they are not guaranteed by a government agency.
RISKS OF MORTGAGE-BACKED SECURITIES - Yield characteristics of mortgage-backed securities differ from those of traditional debt securities in a variety of ways. For example, payments of interest and principal are more frequent (usually monthly) and their interest rates are sometimes adjustable. In addition, a variety of economic, geographic, social and other factors, such as the sale of the underlying property, refinancing or foreclosure, can cause investors to repay the loans underlying a mortgage-backed security sooner than expected. When prepayment occurs, the Funds may have to reinvest its principal at a rate of interest that is lower than the rate on existing mortgage-backed securities.
OTHER ASSET-BACKED SECURITIES - These securities are interests in pools of a broad range of assets other than mortgages, such as automobile loans, computer leases and credit card receivables. Like mortgage-backed securities, these securities are pass-through. In general, the collateral supporting these securities is of shorter maturity than mortgage loans and is less likely to experience substantial prepayments with interest rate fluctuations.
Asset-backed securities present certain risks that are not presented by mortgage-backed securities. Primarily, these securities may not have the benefit of any security interest in the related assets, which raises the possibility that recoveries on repossessed collateral may not be available to support payments on these securities. For example, credit card receivables are generally unsecured and the debtors are entitled to the protection of a number of state
and federal consumer credit laws, many of which allow debtors to reduce their balances by offsetting certain amounts owed on the credit cards. Most issuers of asset-backed securities backed by automobile receivables permit the servicers of such receivables to retain possession of the underlying obligations. If the servicer were to sell these obligations to another party, there is a risk that the purchaser would acquire an interest superior to that of the holders of the related asset-backed securities. Due to the quantity of vehicles involved and requirements under state laws, asset-backed securities backed by automobile receivables may not have a proper security interest in all of the obligations backing such receivables.
To lessen the effect of failures by obligors on underlying assets to make payments, the entity administering the pool of assets may agree to ensure the receipt of payments on the underlying pool occurs in a timely fashion ("liquidity protection"). In addition, asset-backed securities may obtain insurance, such as guarantees, policies or letters of credit obtained by the issuer or sponsor from third parties, for some or all of the assets in the pool ("credit support"). Delinquency or loss more than that anticipated or failure of the credit support could adversely affect the return on an investment in such a security.
The Funds may also invest in residual interests in asset-backed securities, which consist of the excess cash flow remaining after making required payments on the securities and paying related administrative expenses. The amount of residual cash flow resulting from a particular issue of asset-backed securities depends in part on the characteristics of the underlying assets, the coupon rates on the securities, prevailing interest rates, the amount of administrative expenses and the actual prepayment experience on the underlying assets.
COLLATERALIZED MORTGAGE OBLIGATIONS (CMOS) - CMOs are hybrids between mortgage-backed bonds and mortgage pass-through securities. Similar to a bond, CMOs usually pay interest monthly and have a more focused range of principal payment dates than pass-through securities. While whole mortgage loans may collateralize CMOs, mortgage-backed securities guaranteed by GNMA, FHLMC, or FNMA and their income streams more typically collateralize them.
A REMIC is a CMO that qualifies for special tax treatment under the Internal Revenue Code of 1986, as amended, and invests in certain mortgages primarily secured by interests in real property and other permitted investments.
CMOs are structured into multiple classes, each bearing a different stated maturity. Each class of CMO or REMIC certificate, often referred to as a "tranche," is issued at a specific interest rate and must be fully retired by its final distribution date. Generally, all classes of CMOs or REMIC certificates pay or accrue interest monthly. Investing in the lowest tranche of CMOs and REMIC certificates involves risks similar to those associated with investing in equity securities.
SHORT-TERM INVESTMENTS - To earn a return on uninvested assets, meet anticipated redemptions, or for temporary defensive purposes, a Fund may invest a portion of its assets in the short-term securities listed below, U.S. government securities and investment-grade corporate debt securities. Unless otherwise specified, a short-term debt security has a maturity of one year or less.
BANK OBLIGATIONS - The Funds will only invest in a security issued by a commercial bank if the bank:
o Has total assets of at least $1 billion, or the equivalent in other currencies;
o Is a U.S. bank and a member of the Federal Deposit Insurance Corporation; and
o Is a foreign branch of a U.S. bank and the Adviser believes the security is of an investment quality comparable with other debt securities that the Funds may purchase.
TIME DEPOSITS - Time deposits are non-negotiable deposits, such as savings accounts or certificates of deposit, held by a financial institution for a fixed term with the understanding that the depositor can withdraw its money only by giving notice to the institution. However, there may be early withdrawal penalties depending upon market conditions and the remaining maturity of the obligation. The Funds may only purchase time deposits maturing from two business days through seven calendar days.
CERTIFICATES OF DEPOSIT - Certificates of deposit are negotiable certificates issued against funds deposited in a commercial bank or savings and loan association for a definite period of time and earning a specified return.
BANKERS' ACCEPTANCE - A bankers' acceptance is a time draft drawn on a commercial bank by a borrower, usually in connection with an international commercial transaction (to finance the import, export, transfer or storage of goods).
COMMERCIAL PAPER - Commercial paper is a short-term obligation with a maturity ranging from 1 to 270 days issued by banks, corporations and other borrowers. Such investments are unsecured and usually discounted. The Funds may invest in commercial paper rated A-1 or A-2 by Standard and Poor's Ratings Services ("S&P") or Prime-1 or Prime-2 by Moody's Investors Service ("Moody's"), or, if not rated, issued by a corporation having an outstanding unsecured debt issue rated A or better by Moody's or by S&P. See "Appendix A - Ratings" for a description of commercial paper ratings.
STRIPPED MORTGAGE-BACKED SECURITIES - Stripped mortgage-backed securities are derivative multiple-class mortgage-backed securities. Stripped mortgage-backed securities usually have two classes that receive different proportions of interest and principal distributions on a pool of mortgage assets. Typically, one class will receive some of the interest and most of the principal, while the other class will receive most of the interest and the remaining principal. In extreme cases, one class will receive all of the interest ("interest only" or "IO" class) while the other class will receive the entire principal ("principal only" or "PO" class). The cash flow and yields on IOs and POs are extremely sensitive to the rate of principal payments (including prepayments) on the underlying mortgage loans or mortgage-backed securities. A rapid rate of principal payments may adversely affect the yield to maturity of IOs. Slower than anticipated prepayments of principal may adversely affect the yield to maturity of a PO. The yields and market risk of interest only and principal only stripped mortgage-backed securities, respectively, may be more volatile than those of other fixed income securities, including traditional mortgage-backed securities.
YANKEE BONDS - Yankee bonds are dollar-denominated bonds issued inside the U.S. by foreign entities. Investment in these securities involve certain risks which are not typically associated with investing in domestic securities. See "Foreign Securities."
ZERO COUPON BONDS - These securities make no periodic payments of interest, but instead are sold at a discount from their face value. When held to maturity, their entire income, which consists of accretion of discount, comes from the difference between the issue price and their value at maturity. The amount of the discount rate varies depending on factors including the time remaining until maturity, prevailing interest rates, the security's liquidity and the issuer's credit quality. The market value of zero coupon securities may exhibit greater price volatility than ordinary debt securities because a stripped security will have a longer duration than an ordinary debt security with the same maturity. A Fund's investments in pay-in-kind, delayed and zero coupon bonds may require it to sell certain of its portfolio securities to generate sufficient cash to satisfy certain income distribution requirements.
These securities may include treasury securities that have had their interest payments ("coupons") separated from the underlying principal ("corpus") by their holder, typically a custodian bank or investment brokerage firm. Once the holder of the security has stripped or separated corpus and coupons, it may sell each component separately. The principal or corpus is then sold at a deep discount because the buyer receives only the right to receive a future fixed payment on the security and does not receive any rights to periodic interest (cash) payments. Typically, the coupons are sold separately or grouped with other coupons with like maturity dates and sold bundled in such form. The underlying treasury security is held in book-entry form at the Federal Reserve Bank or, in the case of bearer securities (I.E., unregistered securities which are owned ostensibly by the bearer or holder thereof), in trust on behalf of the owners thereof. Purchasers of stripped obligations acquire, in effect, discount obligations that are economically identical to the zero coupon securities that the U.S. Treasury sells itself.
The U.S. Treasury has facilitated transfers of ownership of zero coupon securities by accounting separately for the beneficial ownership of particular interest coupon and corpus payments on Treasury securities through the Federal Reserve book-entry record keeping system. Under a Federal Reserve program known as "STRIPS" or "Separate Trading of Registered Interest and Principal of Securities," a Fund may record its beneficial ownership of the coupon or corpus directly in the book-entry record-keeping system.
TERMS TO UNDERSTAND:
MATURITY - Every debt security has a stated maturity date when the issuer must repay the amount it borrowed (principal) from investors. Some debt securities, however, are callable, meaning the issuer can repay the principal earlier, on or after specified dates (call dates). Debt securities are most likely to be called when interest rates are falling because the issuer can refinance at a lower rate, similar to a homeowner refinancing a mortgage. The effective maturity of a debt security is usually its nearest call date.
Mutual funds that invest in debt securities have no real maturity. Instead, they calculate their weighted average maturity. This number is an average of the effective or anticipated maturity of each debt security held by the mutual fund, with the maturity of each security weighted by the percentage of the assets of the mutual fund it represents.
DURATION - Duration is a calculation that seeks to measure the price sensitivity of a debt security, or of a mutual fund that invests in debt securities, to changes in interest rates. It measures sensitivity more accurately than maturity because it takes into account the time value of cash flows generated over the life of a debt security. Future interest payments and principal payments are discounted to reflect their present value and then are multiplied by the number of years they will be received to produce a value expressed in years -- the duration. Effective duration takes into account call features and sinking fund prepayments that may shorten the life of a debt security.
An effective duration of four years, for example, would suggest that for each 1% reduction in interest rates at all maturity levels, the price of a security is estimated to increase by 4%. An increase in rates by the same magnitude is estimated to reduce the price of the security by 4%. By knowing the yield and the effective duration of a debt security, one can estimate total return based on an expectation of how much interest rates, in general, will change. While serving as a good estimator of prospective returns, effective duration is an imperfect measure.
FACTORS AFFECTING THE VALUE OF DEBT SECURITIES - The total return of a debt instrument is composed of two elements: the percentage change in the security's price and interest income earned. The yield to maturity of a debt security estimates its total return only if the price of the debt security remains unchanged during the holding period and coupon interest is reinvested at the same yield to maturity. The total return of a debt instrument, therefore, will be determined not only by how much interest is earned, but also by how much the price of the security and interest rates change.
o INTEREST RATES
The price of a debt security generally moves in the opposite direction from interest rates (I.E., if interest rates go up, the value of the bond will go down, and vice versa).
o PREPAYMENT RISK
This risk effects mainly mortgage-backed securities. Unlike other debt securities, falling interest rates can reduce the value of mortgage-backed securities, which may cause your share price to fall. Lower rates may motivate people to pay off mortgage-backed and asset-backed securities earlier than expected. A Fund may then have to reinvest the proceeds from such prepayments at lower interest rates, which can reduce its yield. The unexpected timing of mortgage and asset-backed prepayments caused by the variations in interest rates may also shorten or lengthen the average maturity of a Fund. If left unattended, drifts in the average maturity of a Fund can have the unintended effect of increasing or reducing the effective duration of the Fund, which may adversely affect the expected performance of the Fund.
o EXTENSION RISK
The other side of prepayment risk occurs when interest rates are rising. Rising interest rates can cause a Fund's average maturity to lengthen unexpectedly due to a drop in mortgage prepayments. This would increase the sensitivity of a Fund to rising rates and its potential for price declines. Extending the average life of a mortgage-backed security increases the risk of depreciation due to future increases in market interest rates. For these reasons, mortgage-backed securities may be less effective than other types of U.S. Government Securities as a means of "locking in" interest rates.
o CREDIT RATING
Coupon interest is offered to investors of debt securities as compensation for assuming risk, although short-term Treasury securities, such as 3-month treasury bills, are considered "risk free." Corporate securities offer higher yields than Treasury securities because their payment of interest and complete repayment of principal is less certain. The credit rating or financial condition of an issuer may affect the value of a debt security. Generally, the lower the quality rating of a security, the greater the risks that the issuer will fail to pay interest and return principal. To compensate investors for taking on increased risk, issuers with lower credit ratings usually offer their investors a higher "risk premium" in the form of higher interest rates above comparable Treasury securities.
Changes in investor confidence regarding the certainty of interest and principal payments of a corporate debt security will result in an adjustment to this "risk premium." If an issuer's outstanding debt carries a fixed coupon, adjustments to the risk premium must occur in the price, which affects the yield to maturity of the bond. If an issuer defaults or becomes unable to honor its financial obligations, the bond may lose some or all of its value.
A security rated within the four highest rating categories by a rating agency is called investment-grade because its issuer is more likely to pay interest and repay principal than an issuer of a lower rated bond. Adverse economic conditions or changing circumstances, however, may weaken the capacity of the issuer to pay interest and repay principal. If a security is not rated or is rated under a different system, the Adviser may determine that it is of investment-grade. The Adviser may retain securities that are downgraded, if it believes that keeping those securities is warranted.
Debt securities rated below investment-grade (junk bonds) are highly speculative securities that are usually issued by smaller, less credit worthy and/or highly leveraged (indebted) companies. A corporation may issue a junk bond because of a corporate restructuring or other similar event. Compared with investment-grade bonds, junk bonds carry a greater degree of risk and are less likely to make payments of interest and principal. Market developments and the financial and business condition of the corporation issuing these securities influences their price and liquidity more than changes in interest rates, when compared to investment-grade debt securities. Insufficient liquidity in the junk bond market may make it more difficult to dispose of junk bonds and may cause the Funds to experience sudden and substantial price declines. A lack of reliable, objective data or market quotations may make it more difficult to value junk bonds accurately.
Rating agencies are organizations that assign ratings to securities based primarily on the rating agency's assessment of the issuer's financial strength. The Funds currently use ratings compiled by Moody's, S&P, and Fitch. Credit ratings are only an agency's opinion, not an absolute standard of quality, and they do not reflect an evaluation of market risk. The section "Appendix A - Ratings" contains further information concerning the ratings of certain rating agencies and their significance.
The Adviser may use ratings produced by ratings agencies as guidelines to determine the rating of a security at the time a Fund buys it. A ratings agency may change its credit ratings at any time. The Adviser monitors the rating of the security and will take appropriate actions if a rating agency reduces the security's rating. The Funds are not obligated to dispose of securities whose issuers subsequently are in default or which are downgraded. The Funds may invest in securities of any rating.
Derivatives are financial instruments whose value is based on an underlying asset, such as a stock or a bond, or an underlying economic factor, such as an interest rate or a market benchmark. Unless otherwise stated in the Funds' prospectus, the Funds may use derivatives for risk management purposes, including to gain exposure to various markets in a cost efficient manner, to reduce transaction costs or to remain fully invested. A Fund may also invest in derivatives to protect it from broad fluctuations in market prices, interest rates or foreign currency exchange rates (a practice known as "hedging"). When hedging is successful, a Fund will have offset any depreciation in the value of its portfolio securities by the appreciation in the value of the derivative position. Although techniques other than the sale and purchase of derivatives could be used to control the exposure of a Fund to market fluctuations, the use of derivatives may be a more effective means of hedging this exposure.
Because many derivatives have a leverage or borrowing component, adverse changes in the value or level of the underlying asset, reference rate, or index can result in a loss substantially greater than the amount invested in the derivative itself. Certain derivatives have the potential for unlimited loss, regardless of the size of the initial investment. Accordingly, certain derivative transactions may be considered to constitute borrowing transactions
for purposes of the 1940 Act. Such a derivative transaction will not be considered to constitute the issuance of a "senior security" by a Fund, and therefore such transaction will not be subject to the 300% asset coverage requirement otherwise applicable to borrowings by the Fund, if the Fund covers the transaction or segregates sufficient liquid assets in accordance with the requirements, and subject to certain risks.
TYPES OF DERIVATIVES:
FUTURES - A futures contract is an agreement between two parties whereby one party sells and the other party agrees to buy a specified amount of a financial instrument at an agreed upon price and time. The financial instrument underlying the contract may be a stock, stock index, bond, bond index, interest rate, foreign exchange rate or other similar instrument. Agreeing to buy the underlying financial information is called buying a futures contract or taking a long position in the contract. Likewise, agreeing to sell the underlying financial instrument is called selling a futures contract or taking a short position in the contract.
Futures contracts are traded in the U.S. on commodity exchanges or boards of trade -- known as "contract markets" -- approved for such trading and regulated by the CFTC, a federal agency. These contract markets standardize the terms, including the maturity date and underlying financial instrument, of all futures contracts.
Unlike other securities, the parties to a futures contract do not have to pay for or deliver the underlying financial instrument until some future date (the delivery date). Contract markets require both the purchaser and seller to deposit "initial margin" with a futures broker, known as a futures commission merchant or custodian bank, when they enter into the contract. Initial margin deposits are typically equal to a percentage of the contract's value. After they open a futures contract, the parties to the transaction must compare the purchase price of the contract to its daily market value. If the value of the futures contract changes in such a way that a party's position declines, that party must make additional "variation margin" payments so that the margin payment is adequate. On the other hand, the value of the contract may change in such a way that there is excess margin on deposit, possibly entitling the party that has a gain to receive all or a portion of this amount. This process is known as "marking to the market."
Although the actual terms of a futures contract calls for the actual delivery of and payment for the underlying security, in many cases the parties may close the contract early by taking an opposite position in an identical contract. If the sale price upon closing out the contract is less than the original purchase price, the person closing out the contract will realize a loss. If the sale price upon closing out the contract is more than the original purchase price, the person closing out the contract will realize a gain. If the purchase price upon closing out the contract is more than the original sale price, the person closing out the contract will realize a loss. If the purchase price upon closing out the contract is less than the original sale price, the person closing out the contract will realize a gain.
A Fund may incur commission expenses when it opens or closes a futures position.
OPTIONS - An option is a contract between two parties for the purchase and sale of a financial instrument for a specified price (known as the "strike price" or "exercise price") at any time during the option period. Unlike a futures contract, an option grants a right (not an obligation) to buy or sell a financial instrument. Generally, a seller of an option can grant a buyer two kinds of rights: a "call" (the right to buy the security) or a "put" (the right to sell the security). Options have various types of underlying instruments, including specific securities, indices of securities prices, foreign currencies, interest rates and futures contracts. Options may be traded on an exchange (exchange-traded-options) or may be customized agreements between the parties (over-the-counter or "OTC options"). Like futures, a financial intermediary, known as a clearing corporation, financially backs exchange-traded options.
However, OTC options have no such intermediary and are subject to the risk that the counter-party will not fulfill its obligations under the contract.
o PURCHASING PUT AND CALL OPTIONS
When a Fund purchases a put option, it buys the right to sell the instrument underlying the option at a fixed strike price. In return for this right, the Fund pays the current market price for the option (known as the "option premium"). A Fund may purchase put options to offset or hedge against a decline in the market value of its securities ("protective puts") or to benefit from a decline in the price of securities that it does not own. A Fund would ordinarily realize a gain if, during the option period, the value of the underlying securities decreased below the exercise price sufficiently to cover the premium and transaction costs. However, if the price of the underlying instrument does not fall enough to offset the cost of purchasing the option, a put buyer would lose the premium and related transaction costs.
Call options are similar to put options, except that a Fund obtains the right to purchase, rather than sell, the underlying instrument at the option's strike price. A Fund would normally purchase call options in anticipation of an increase in the market value of securities it owns or wants to buy. A Fund would ordinarily realize a gain if, during the option period, the value of the underlying instrument exceeded the exercise price plus the premium paid and related transaction costs. Otherwise, a Fund would realize either no gain or a loss on the purchase of the call option.
The purchaser of an option may terminate its position by:
o Allowing it to expire and losing its entire premium;
o Exercising the option and either selling (in the case of a put option) or buying (in the case of a call option) the underlying instrument at the strike price; or
o Closing it out in the secondary market at its current price.
o SELLING (WRITING) PUT AND CALL OPTIONS
When a Fund writes a call option it assumes an obligation to sell specified securities to the holder of the option at a specified price if the option is exercised at any time before the expiration date. Similarly, when a Fund writes a put option it assumes an obligation to purchase specified securities from the option holder at a specified price if the option is exercised at any time before the expiration date. A Fund may terminate its position in an exchange-traded put option before exercise by buying an option identical to the one it has written. Similarly, it may cancel an OTC option by entering into an offsetting transaction with the counter-party to the option.
A Fund could try to hedge against an increase in the value of securities it would like to acquire by writing a put option on those securities. If security prices rise, a Fund would expect the put option to expire and the premium it received to offset the increase in the security's value. If security prices remain the same over time, the Funds would hope to profit by closing out the put option at a lower price. If security prices fall, a Fund may lose an amount of money equal to the difference between the value of the security and the premium it received. Writing covered put options may deprive a Fund of the opportunity to profit from a decrease in the market price of the securities it would like to acquire.
The characteristics of writing call options are similar to those of writing put options, except that call writers expect to profit if prices remain the same or fall. A Fund could try to hedge against a decline in the value of securities it
already owns by writing a call option. If the price of that security falls as expected, the Fund would expect the option to expire and the premium it received to offset the decline of the security's value. However, a Fund must be prepared to deliver the underlying instrument in return for the strike price, which may deprive it of the opportunity to profit from an increase in the market price of the securities it holds.
The Funds are permitted only to write covered options. At the time of selling the call option, the Funds may cover the option by owning, among other things:
o The underlying security (or securities convertible into the underlying security without additional consideration), index, interest rate, foreign currency or futures contract;
o A call option on the same security or index with the same or lesser exercise price;
o A call option on the same security or index with a greater exercise price and segregating cash or liquid securities in an amount equal to the difference between the exercise prices;
o Cash or liquid securities equal to at least the market value of the optioned securities, interest rate, foreign currency or futures contract; or
o In the case of an index, the portfolio of securities that corresponds to the index.
At the time of selling a put option, a Fund may cover the put option by, among other things:
o Entering into a short position in the underlying security;
o Purchasing a put option on the same security, index, interest rate, foreign currency or futures contract with the same or greater exercise price;
o Purchasing a put option on the same security, index, interest rate, foreign currency or futures contract with a lesser exercise price and segregating cash or liquid securities in an amount equal to the difference between the exercise prices; or
o Maintaining the entire exercise price in liquid securities.
o OPTIONS ON SECURITIES INDICES
Options on securities indices are similar to options on securities, except that the exercise of securities index options requires cash settlement payments and does not involve the actual purchase or sale of securities. In addition, securities index options are designed to reflect price fluctuations in a group of securities or segment of the securities market rather than price fluctuations in a single security.
o OPTIONS ON FUTURES
An option on a futures contract provides the holder with the right to buy a futures contract (in the case of a call option) or sell a futures contract (in the case of a put option) at a fixed time and price. Upon exercise of the option by the holder, the contract market clearing house establishes a corresponding short position for the writer of the option (in the case of a call option) or a corresponding long position (in the case of a put option). If the option is exercised, the parties will be subject to the futures contracts. In addition, the writer of an option on a futures contract is subject to initial and variation margin requirements on the option position. Options on futures contracts are traded on the same contract market as the underlying futures contract.
The buyer or seller of an option on a futures contract may terminate the option early by purchasing or selling an option of the same series (I.E., the same exercise price and expiration date) as the option previously purchased or sold. The difference between the premiums paid and received represents the trader's profit or loss on the transaction.
A Fund may purchase put and call options on futures contracts instead of selling or buying futures contracts. A Fund may buy a put option on a futures contract for the same reasons it would sell a futures contract. It also may purchase such put options in order to hedge a long position in the underlying futures contract. A Fund may buy call options on futures contracts for the same purpose as the actual purchase of the futures contracts, such as in anticipation of favorable market conditions.
A Fund may write a call option on a futures contract to hedge against a decline in the prices of the instrument underlying the futures contracts. If the price of the futures contract at expiration were below the exercise price, the Fund would retain the option premium, which would offset, in part, any decline in the value of its portfolio securities.
The writing of a put option on a futures contract is similar to the purchase of the futures contracts, except that, if the market price declines, the Fund would pay more than the market price for the underlying instrument. The premium received on the sale of the put option, less any transaction costs, would reduce the net cost to the Funds.
o COMBINED POSITIONS
A Fund may purchase and write options in combination with each other, or in combination with futures or forward contracts, to adjust the risk and return characteristics of the overall position. For example, a Fund could construct a combined position whose risk and return characteristics are similar to selling a futures contract by purchasing a put option and writing a call option on the same underlying instrument. Alternatively, a Fund could write a call option at one strike price and buy a call option at a lower price to reduce the risk of the written call option in the event of a substantial price increase. Because combined options positions involve multiple trades, they result in higher transaction costs and may be more difficult to open and close out.
o FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
A forward foreign currency contract involves an obligation to purchase or sell a specific amount of currency at a future date or date range at a specific price. In the case of a cancelable forward contract, the holder has the unilateral right to cancel the contract at maturity by paying a specified fee. Forward foreign currency exchange contracts differ from foreign currency futures contracts in certain respects. Unlike futures contracts, forward contracts:
o Do not have standard maturity dates or amounts (I.E., the parties to the contract may fix the maturity date and the amount).
o Are traded in the inter-bank markets conducted directly between currency traders (usually large commercial banks) and their customers, as opposed to futures contracts which are traded only on exchanges regulated by the CFTC.
o Do not require an initial margin deposit.
o May be closed by entering into a closing transaction with the currency trader who is a party to the original forward contract, as opposed to a commodities exchange.
FOREIGN CURRENCY HEDGING STRATEGIES - A "settlement hedge" or "transaction hedge" is designed to protect a Fund against an adverse change in foreign currency values between the date a security is purchased or sold and the date on which payment is made or received. Entering into a forward contract for the purchase or sale of the amount of foreign currency involved in an underlying
security transaction for a fixed amount of U.S. dollars "locks in" the U.S. dollar price of the security. A Fund may also use forward contracts to purchase or sell a foreign currency when it anticipates purchasing or selling securities denominated in foreign currency, even if it has not yet selected the specific investments.
A Fund may use forward contracts to hedge against a decline in the value of existing investments denominated in foreign currency. Such a hedge, sometimes referred to as a "position hedge," would tend to offset both positive and negative currency fluctuations, but would not offset changes in security values caused by other factors. A Fund could also hedge the position by selling another currency expected to perform similarly to the currency in which a Fund's investment is denominated. This type of hedge, sometimes referred to as a "proxy hedge," could offer advantages in terms of cost, yield, or efficiency, but generally would not hedge currency exposure as effectively as a direct hedge into U.S. dollars. Proxy hedges may result in losses if the currency used to hedge does not perform similarly to the currency in which the hedged securities are denominated.
Transaction and position hedging do not eliminate fluctuations in the underlying prices of the securities that a Fund owns or intends to purchase or sell. They simply establish a rate of exchange that one can achieve at some future point in time. Additionally, these techniques tend to minimize the risk of loss due to a decline in the value of the hedged currency and to limit any potential gain that might result from the increase in value of such currency.
A Fund may enter into forward contracts to shift its investment exposure from one currency into another. Such transactions may call for the delivery of one foreign currency in exchange for another foreign currency, including currencies in which its securities are not then denominated. This may include shifting exposure from U.S. dollars to a foreign currency, or from one foreign currency to another foreign currency. This type of strategy, sometimes known as a "cross-hedge," will tend to reduce or eliminate exposure to the currency that is sold, and increase exposure to the currency that is purchased. Cross-hedges may protect against losses resulting from a decline in the hedged currency, but will cause a Fund to assume the risk of fluctuations in the value of the currency it purchases. Cross hedging transactions also involve the risk of imperfect correlation between changes in the values of the currencies involved.
It is difficult to forecast with precision the market value of portfolio securities at the expiration or maturity of a forward or futures contract. Accordingly, a Fund may have to purchase additional foreign currency on the spot market if the market value of a security it is hedging is less than the amount of foreign currency it is obligated to deliver. Conversely, a Fund may have to sell on the spot market some of the foreign currency it received upon the sale of a security if the market value of such security exceeds the amount of foreign currency it is obligated to deliver.
SWAP AGREEMENTS - A swap is a financial instrument that typically involves the exchange of cash flows between two parties on specified dates (settlement dates), where the cash flows are based on agreed-upon prices, rates, indices, etc. The nominal amount on which the cash flows are calculated is called the notional amount. Swaps are individually negotiated and structured to include exposure to a variety of different types of investments or market factors, such as interest rates, foreign currency rates, mortgage securities, corporate borrowing rates, security prices or inflation rates.
Swap agreements may increase or decrease the overall volatility of the investments of a Fund and its share price. The performance of swap agreements may be affected by a change in the specific interest rate, currency, or other factors that determine the amounts of payments due to and from a Fund. If a swap
agreement calls for payments by a Fund, the Fund must be prepared to make such payments when due. In addition, if the counter-party's creditworthiness declined, the value of a swap agreement would be likely to decline, potentially resulting in losses.
Generally, swap agreements have a fixed maturity date that will be agreed upon by the parties. The agreement can be terminated before the maturity date only under limited circumstances, such as default by one of the parties or insolvency, among others, and can be transferred by a party only with the prior written consent of the other party. A Fund may be able to eliminate its exposure under a swap agreement either by assignment or by other disposition, or by entering into an offsetting swap agreement with the same party or a similarly creditworthy party. If the counter-party is unable to meet its obligations under the contract, declares bankruptcy, defaults or becomes insolvent, the Funds may not be able to recover the money it expected to receive under the contract.
A swap agreement can be a form of leverage, which can magnify a Fund's gains or losses. In order to reduce the risk associated with leveraging, a Fund may cover its current obligations under swap agreements according to guidelines established by the SEC. If a Fund enters into a swap agreement on a net basis, it will segregate assets with a daily value at least equal to the excess, if any, of the Fund's accrued obligations under the swap agreement over the accrued amount the Fund is entitled to receive under the agreement. If a Fund enters into a swap agreement on other than a net basis, it will segregate assets with a value equal to the full amount of the Fund's accrued obligations under the agreement.
o EQUITY SWAPS
In a typical equity swap, one party agrees to pay another party the return on a stock, stock index or basket of stocks in return for a specified interest rate. By entering into an equity index swap, for example, the index receiver can gain exposure to stocks making up the index of securities without actually purchasing those stocks. Equity index swaps involve not only the risk associated with investment in the securities represented in the index, but also the risk that the performance of such securities, including dividends, will not exceed the return on the interest rate that a Fund will be committed to pay.
o INTEREST RATE SWAPS
Interest rate swaps are financial instruments that involve the exchange of one type of interest rate for another type of interest rate cash flow on specified dates in the future. Some of the different types of interest rate swaps are "fixed-for floating rate swaps," "termed basis swaps" and "index amortizing swaps." Fixed-for floating rate swaps involve the exchange of fixed interest rate cash flows for floating rate cash flows. Termed basis swaps entail cash flows to both parties based on floating interest rates, where the interest rate indices are different. Index amortizing swaps are typically fixed-for floating swaps where the notional amount changes if certain conditions are met.
Like a traditional investment in a debt security, a Fund could lose money by investing in an interest rate swap if interest rates change adversely. For example, if a Fund enters into a swap where it agrees to exchange a floating rate of interest for a fixed rate of interest, a Fund may have to pay more money than it receives. Similarly, if a Fund enters into a swap where it agrees to exchange a fixed rate of interest for a floating rate of interest, a Fund may receive less money than it has agreed to pay.
o CURRENCY SWAPS
A currency swap is an agreement between two parties in which one party agrees to make interest rate payments in one currency and the other promises to make
interest rate payments in another currency. A Fund may enter into a currency swap when it has one currency and desires a different currency. Typically the interest rates that determine the currency swap payments are fixed, although occasionally one or both parties may pay a floating rate of interest. Unlike an interest rate swap, however, the principal amounts are exchanged at the beginning of the contract and returned at the end of the contract. Changes in foreign exchange rates and changes in interest rates, as described above may negatively affect currency swaps.
CAPS, COLLARS AND FLOORS - Caps and floors have an effect similar to buying or writing options. In a typical cap or floor agreement, one party agrees to make payments only under specified circumstances, usually in return for payment of a fee by the other party. For example, the buyer of an interest rate cap obtains the right to receive payments to the extent that a specified interest rate exceeds an agreed-upon level. The seller of an interest rate floor is obligated to make payments to the extent that a specified interest rate falls below an agreed-upon level. An interest rate collar combines elements of buying a cap and selling a floor.
RISKS OF DERIVATIVES:
While transactions in derivatives may reduce certain risks, these transactions themselves entail certain other risks. For example, unanticipated changes in interest rates, securities prices or currency exchange rates may result in a poorer overall performance of a Fund than if it had not entered into any derivatives transactions. Derivatives may magnify a Fund's gains or losses, causing it to make or lose substantially more than it invested.
When used for hedging purposes, increases in the value of the securities a Fund holds or intends to acquire should offset any losses incurred with a derivative. Purchasing derivatives for purposes other than hedging could expose a Fund to greater risks.
CORRELATION OF PRICES - A Fund's ability to hedge its securities through derivatives depends on the degree to which price movements in the underlying index or instrument correlate with price movements in the relevant securities. In the case of poor correlation, the price of the securities a Fund is hedging may not move in the same amount, or even in the same direction as the hedging instrument. The Adviser will try to minimize this risk by investing only in those contracts whose behavior it expects to resemble with the portfolio securities it is trying to hedge. However, if a Fund's prediction of interest and currency rates, market value, volatility or other economic factors is incorrect, a Fund may lose money, or may not make as much money as it expected.
Derivative prices can diverge from the prices of their underlying instruments, even if the characteristics of the underlying instruments are very similar to the derivative. Listed below are some of the factors that may cause such a divergence:
o current and anticipated short-term interest rates, changes in volatility of the underlying instrument, and the time remaining until expiration of the contract;
o a difference between the derivatives and securities markets, including different levels of demand, how the instruments are traded, the imposition of daily price fluctuation limits or trading of an instrument stops; and
o differences between the derivatives, such as different margin requirements, different liquidity of such markets and the participation of speculators in such markets.
Derivatives based upon a narrower index of securities, such as those of a particular industry group, may present greater risk than derivatives based on a broad market index. Since narrower indices are made up of a smaller number of securities, they are more susceptible to rapid and extreme price fluctuations because of changes in the value of those securities.
While currency futures and options values are expected to correlate with exchange rates, they may not reflect other factors that affect the value of the investments of a Fund. A currency hedge, for example, should protect a yen-denominated security from a decline in the yen, but will not protect a Fund against a price decline resulting from deterioration in the issuer's creditworthiness. Because the value of a Fund's foreign-denominated investments changes in response to many factors other than exchange rates, it may not be possible to match the amount of currency options and futures to the value of a Fund's investments precisely over time.
LACK OF LIQUIDITY - Before a futures contract or option is exercised or expires, a Fund can terminate it only by entering into a closing purchase or sale transaction. Moreover, a Fund may close out a futures contract only on the exchange the contract was initially traded. Although a Fund intends to purchase options and futures only where there appears to be an active market, there is no guarantee that such a liquid market will exist. If there is no secondary market for the contract, or the market is illiquid, a Fund may not be able to close out its position. In an illiquid market, a Fund may:
o have to sell securities to meet its daily margin requirements at a time when it is disadvantageous to do so;
o have to purchase or sell the instrument underlying the contract;
o not be able to hedge its investments; and
o not be able to realize profits or limit its losses.
Derivatives may become illiquid (I.E., difficult to sell at a desired time and price) under a variety of market conditions. For example:
o an exchange may suspend or limit trading in a particular derivative instrument, an entire category of derivatives or all derivatives, which sometimes occurs because of increased market volatility;
o unusual or unforeseen circumstances may interrupt normal operations of an exchange;
o the facilities of the exchange may not be adequate to handle current trading volume;
o equipment failures, government intervention, insolvency of a brokerage firm or clearing house or other occurrences may disrupt normal trading activity; or
o investors may lose interest in a particular derivative or category of derivatives.
MANAGEMENT RISK - If the Adviser incorrectly predicts stock market and interest rate trends, a Fund may lose money by investing in derivatives. For example, if a Fund were to write a call option based on the Adviser's expectation that the price of the underlying security would fall, but the price were to rise instead, a Fund could be required to sell the security upon exercise at a price below the current market price. Similarly, if a Fund were to write a put option based on the Adviser's expectation that the price of the underlying security would rise, but the price were to fall instead, a Fund could be required to purchase the security upon exercise at a price higher than the current market price.
MARGIN - Because of the low margin deposits required upon the opening of a derivative position, such transactions involve an extremely high degree of
leverage. Consequently, a relatively small price movement in a derivative may result in an immediate and substantial loss (as well as gain) to a Fund and it may lose more than it originally invested in the derivative.
If the price of a futures contract changes adversely, a Fund may have to sell securities at a time when it is disadvantageous to do so to meet its minimum daily margin requirement. A Fund may lose its margin deposits if a broker with whom it has an open futures contract or related option becomes insolvent or declares bankruptcy.
VOLATILITY AND LEVERAGE - The prices of derivatives are volatile (I.E., they may change rapidly, substantially and unpredictably) and are influenced by a variety of factors, including:
o actual and anticipated changes in interest rates;
o fiscal and monetary policies; and
o national and international political events.
Most exchanges limit the amount by which the price of a derivative can change during a single trading day. Daily trading limits establish the maximum amount that the price of a derivative may vary from the settlement price of that derivative at the end of trading on the previous day. Once the price of a derivative reaches this value, the Funds may not trade that derivative at a price beyond that limit. The daily limit governs only price movements during a given day and does not limit potential gains or losses. Derivative prices have occasionally moved to the daily limit for several consecutive trading days, preventing prompt liquidation of the derivative.
Because of the low margin deposits required upon the opening of a derivative position, such transactions involve an extremely high degree of leverage. Consequently, a relatively small price movement in a derivative may result in an immediate and substantial loss (as well as gain) to a Fund and it may lose more than it originally invested in the derivative.
If the price of a futures contract changes adversely, a Fund may have to sell securities at a time when it is disadvantageous to do so to meet its minimum daily margin requirement. A Fund may lose its margin deposits if a broker-dealer with whom it has an open futures contract or related option becomes insolvent or declares bankruptcy.
TYPES OF EQUITY SECURITIES:
COMMON STOCKS - Common stocks represent units of ownership in a company. Common stocks usually carry voting rights and earn dividends. Unlike preferred stocks, which are described below, dividends on common stocks are not fixed but are declared at the discretion of the company's board of directors.
PREFERRED STOCKS - Preferred stocks are also units of ownership in a company. Preferred stocks normally have preference over common stock in the payment of dividends and the liquidation of the company. However, in all other respects, preferred stocks are subordinated to the liabilities of the issuer. Unlike common stocks, preferred stocks are generally not entitled to vote on corporate matters. Types of preferred stocks include adjustable-rate preferred stock,
fixed dividend preferred stock, perpetual preferred stock, and sinking fund preferred stock. Generally, the market values of preferred stock with a fixed dividend rate and no conversion element varies inversely with interest rates and perceived credit risk.
CONVERTIBLE SECURITIES - Convertible securities are securities that may be exchanged for, converted into, or exercised to acquire a predetermined number of shares of the issuer's common stock at a Fund's option during a specified time period (such as convertible preferred stocks, convertible debentures and warrants). A convertible security is generally a fixed income security that is senior to common stock in an issuer's capital structure, but is usually subordinated to similar non-convertible securities. In exchange for the conversion feature, many corporations will pay a lower rate of interest on convertible securities than debt securities of the same corporation. In general, the market value of a convertible security is at least the higher of its "investment value" (I.E., its value as a fixed income security) or its "conversion value" (I.E., its value upon conversion into its underlying common stock).
Convertible securities are subject to the same risks as similar securities without the convertible feature. The price of a convertible security is more volatile during times of steady interest rates than other types of debt securities. The price of a convertible security tends to increase as the market value of the underlying stock rises, whereas it tends to decrease as the market value of the underlying common stock declines.
A synthetic convertible security is a combination investment in which a Fund purchases both (i) high-grade cash equivalents or a high grade debt obligation of an issuer or U.S. government securities and (ii) call options or warrants on the common stock of the same or different issuer with some or all of the anticipated interest income from the associated debt obligation that is earned over the holding period of the option or warrant.
While providing a fixed income stream (generally higher in yield than the income derivable from common stock but lower than that afforded by a similar non-convertible security), a convertible security also affords an investor the opportunity, through its conversion feature, to participate in the capital appreciation attendant upon a market price advance in the convertible security's underlying common stock. A synthetic convertible position has similar investment characteristics, but may differ with respect to credit quality, time to maturity, trading characteristics, and other factors. Because a Fund will create synthetic convertible positions only out of high grade fixed income securities, the credit rating associated with a Fund's synthetic convertible investments is generally expected to be higher than that of the average convertible security, many of which are rated below high grade. However, because the options used to create synthetic convertible positions will generally have expirations between one month and three years of the time of purchase, the maturity of these positions will generally be shorter than average for convertible securities. Since the option component of a convertible security or synthetic convertible position is a wasting asset (in the sense of losing "time value" as maturity approaches), a synthetic convertible position may lose such value more rapidly than a convertible security of longer maturity; however, the gain in option value due to appreciation of the underlying stock may exceed such time value loss, the market price of the option component generally reflects these differences in maturities, and the Adviser takes such differences into account when evaluating such positions. When a synthetic convertible position "matures" because of the expiration of the associated option, a Fund may extend the maturity by investing in a new option with longer maturity on the common stock of the same or different issuer. If a Fund does not so extend the maturity of a position, it may continue to hold the associated fixed income security.
RIGHTS AND WARRANTS - A right is a privilege granted to existing shareholders of a corporation to subscribe to shares of a new issue of common stock before it is
issued. Rights normally have a short life, usually two to four weeks, are freely transferable and entitle the holder to buy the new common stock at a lower price than the public offering price. Warrants are securities that are usually issued together with a debt security or preferred stock and that give the holder the right to buy proportionate amount of common stock at a specified price. Warrants are freely transferable and are traded on major exchanges. Unlike rights, warrants normally have a life that is measured in years and entitles the holder to buy common stock of a company at a price that is usually higher than the market price at the time the warrant is issued. Corporations often issue warrants to make the accompanying debt security more attractive.
An investment in warrants and rights may entail greater risks than certain other types of investments. Generally, rights and warrants do not carry the right to receive dividends or exercise voting rights with respect to the underlying securities, and they do not represent any rights in the assets of the issuer. In addition, their value does not necessarily change with the value of the underlying securities, and they cease to have value if they are not exercised on or before their expiration date. Investing in rights and warrants increases the potential profit or loss to be realized from the investment as compared with investing the same amount in the underlying securities.
RISKS OF INVESTING IN EQUITY SECURITIES:
GENERAL RISKS OF INVESTING IN STOCKS - While investing in stocks allows investors to participate in the benefits of owning a company, such investors must accept the risks of ownership. Unlike bondholders, who have preference to a company's earnings and cash flow, preferred stockholders, followed by common stockholders in order of priority, are entitled only to the residual amount after a company meets its other obligations. For this reason, the value of a company's stock will usually react more strongly to actual or perceived changes in the company's financial condition or prospects than its debt obligations. Stockholders of a company that fares poorly can lose money.
Stock markets tend to move in cycles with short or extended periods of rising and falling stock prices. The value of a company's stock may fall because of:
o Factors that directly relate to that company, such as decisions made by its management or lower demand for the company's products or services;
o Factors affecting an entire industry, such as increases in production costs; and
o Changes in general financial market conditions that are relatively unrelated to the company or its industry, such as changes in interest rates, currency exchange rates or inflation rates.
Because preferred stock is generally junior to debt securities and other obligations of the issuer, deterioration in the credit quality of the issuer will cause greater changes in the value of a preferred stock than in a more senior debt security with similar stated yield characteristics.
SMALL AND MEDIUM-SIZED COMPANIES - Investors in small and medium-sized companies typically take on greater risk and price volatility than they would by investing in larger, more established companies. This increased risk may be due to the greater business risks of their small or medium size, limited markets and financial resources, narrow product lines and frequent lack of management depth. The securities of small and medium-sized companies are often traded in the over-the-counter market and might not be traded in volumes typical of securities traded on a national securities exchange. Thus, the securities of small and medium capitalization companies are likely to be less liquid, and subject to more abrupt or erratic market movements, than securities of larger, more established companies.
TECHNOLOGY COMPANIES - Stocks of technology companies have tended to be subject to greater volatility than securities of companies that are not dependent upon or associated with technological issues. Technology companies operate in various
industries. Since these industries frequently share common characteristics, an event or issue affecting one industry may significantly influence other, related industries. For example, technology companies may be strongly affected by worldwide scientific or technological developments and their products and services may be subject to governmental regulation or adversely affected by governmental policies.
INITIAL PUBLIC OFFERINGS ("IPO") - A Fund may invest a portion of its assets in securities of companies offering shares in IPOs. IPOs may have a magnified performance impact on a Fund with a small asset base. The impact of IPOs on a Fund's performance likely will decrease as the Fund's asset size increases, which could reduce the Fund's total returns. IPOs may not be consistently available to a Fund for investing, particularly as the Fund's asset base grows. Because IPO shares frequently are volatile in price, a Fund may hold IPO shares for a very short period of time. This may increase the turnover of a Fund's portfolio and may lead to increased expenses for a Fund, such as commissions and transaction costs. By selling IPO shares, a Fund may realize taxable gains it will subsequently distribute to shareholders. In addition, the market for IPO shares can be speculative and/or inactive for extended periods of time. The limited number of shares available for trading in some IPOs may make it more difficult for a Fund to buy or sell significant amounts of shares without an unfavorable impact on prevailing prices. Holders of IPO shares can be affected by substantial dilution in the value of their shares, by sales of additional shares and by concentration of control in existing management and principal shareholders.
A Fund's investment in IPO shares may include the securities of unseasoned companies (companies with less than three years of continuous operations), which presents risks considerably greater than common stocks of more established companies. These companies may have limited operating histories and their prospects for profitability may be uncertain. These companies may be involved in new and evolving businesses and may be vulnerable to competition and changes in technology, markets and economic conditions. They may be more dependent on key managers and third parties and may have limited product lines.
TYPES OF FOREIGN SECURITIES:
Foreign securities are debt and equity securities that are traded in markets outside of the U.S. The markets in which these securities are located can be developed or emerging. Investors can invest in foreign securities in a number of ways:
o They can invest directly in foreign securities denominated in a foreign currency;
o They can invest in American Depositary Receipts, European Depositary Receipts and other similar global instruments; and
o They can invest in investment funds.
AMERICAN DEPOSITARY RECEIPTS (ADRS) - American Depositary Receipts (ADRs) are certificates evidencing ownership of shares of a foreign issuer. These certificates are issued by depository banks and generally trade on an established market in the U.S. or elsewhere. A custodian bank or similar financial institution in the issuer's home country holds the underlying shares in trust. The depository bank may not have physical custody of the underlying securities at all times and may charge fees for various services, including forwarding dividends and interest and corporate actions. ADRs are alternatives to directly purchasing the underlying foreign securities in their national markets and currencies. ADRs are subject to many of the risks associated with investing directly in foreign securities. Europeans Depositary Receipts (EDRs) are similar to ADRs, except that they are typically issued by European banks or trust companies.
ADRs can be sponsored or unsponsored. While these types are similar, there are differences regarding a holder's rights and obligations and the practices of market participants. A depository may establish an unsponsored facility without participation by (or acquiescence of) the underlying issuer; typically, however, the depository requests a letter of non-objection from the underlying issuer prior to establishing the facility. Holders of unsponsored depositary receipts generally bear all the costs of the facility. The depository usually charges fees upon the deposit and withdrawal of the underlying securities, the conversion of dividends into U.S. dollars or other currency, the disposition of non-cash distributions, and the performance of other services. The depository of an unsponsored facility frequently is under no obligation to distribute shareholder communications received from the underlying issuer or to pass through voting rights to depositary receipt holders with respect to the underlying securities. Sponsored depositary receipt facilities are created in generally the same manner as unsponsored facilities, except that sponsored depositary receipts are established jointly by a depository and the underlying issuer through a deposit agreement. The deposit agreement sets out the rights and responsibilities of the underlying issuer, the depository, and the depositary receipt holders. With sponsored facilities, the underlying issuer typically bears some of the costs of the depositary receipts (such as dividend payment fees of the depository), although most sponsored depositary receipts holders may bear costs such as deposit and withdrawal fees. Depositories of most sponsored depositary receipts agree to distribute notices of shareholder meetings, voting instructions, and other shareholder communications and information to the depositary receipt holders at the underlying issuer's request. 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.
EMERGING MARKETS - An "emerging country" is generally a country that the International Bank for Reconstruction and Development (World Bank) and the International Finance Corporation would consider to be an emerging or developing country. Typically, emerging markets are in countries that are in the process of industrialization, with lower gross national products (GNP) than more developed countries. There are currently over 130 countries that the international financial community generally considers to be emerging or developing countries, approximately 40 of which currently have stock markets. These countries generally include every nation in the world except the U.S., Canada, Japan, Australia, New Zealand and most nations located in Western Europe.
INVESTMENT FUNDS - Some emerging countries currently prohibit direct foreign investment in the securities of their companies. Certain emerging countries, however, permit indirect foreign investment in the securities of companies listed and traded on their stock exchanges through investment funds that they have specifically authorized. A Fund's investment in these investment funds is subject to the provisions of the 1940 Act. Shareholders of a Fund that invests in such investment funds will bear not only their proportionate share of the expenses of the Fund (including operating expenses and the fees of the Adviser), but also will indirectly bear similar expenses of the underlying investment funds. In addition, these investment funds may trade at a premium over their net asset value.
RISKS OF FOREIGN SECURITIES:
Foreign securities, foreign currencies, and securities issued by U.S. entities with substantial foreign operations may involve significant risks in addition to the risks inherent in U.S. investments.
POLITICAL AND ECONOMIC FACTORS - Local political, economic, regulatory, or social instability, military action or unrest, or adverse diplomatic
developments may affect the value of foreign investments. Listed below are some of the more important political and economic factors that could negatively affect an investment in foreign securities:
o The economies of foreign countries may differ from the economy of the U.S. in such areas as growth of gross national product, rate of inflation, capital reinvestment, resource self-sufficiency, budget deficits and national debt;
o Foreign governments sometimes participate to a significant degree, through ownership interests or regulation, in their respective economies. Actions by these governments could significantly influence the market prices of securities and payment of dividends;
o The economies of many foreign countries are dependent on international trade and their trading partners and they could be severely affected if their trading partners were to enact protective trade barriers and economic conditions;
o The internal policies of a particular foreign country may be less stable than in the U.S. Other countries face significant external political risks, such as possible claims of sovereignty by other countries or tense and sometimes hostile border clashes; and
o A foreign government may act adversely to the interests of U.S. investors, including expropriation or nationalization of assets, confiscatory taxation and other restrictions on U.S. investment. A country may restrict or control foreign investments in its securities markets. These restrictions could limit a fund's ability to invest in a particular country or make it very expensive for a Fund to invest in that country. Some countries require prior governmental approval, limit the types or amount of securities or companies in which a foreigner can invest. Other companies may restrict the ability of foreign investors to repatriate their investment income and capital gains.
INFORMATION AND SUPERVISION - There is generally less publicly available information about foreign companies than companies based in the U.S. For example, there are often no reports and ratings published about foreign companies comparable to the ones written about U.S. companies. Foreign companies are typically not subject to uniform accounting, auditing and financial reporting standards, practices and requirements comparable to those applicable to U.S. companies. The lack of comparable information makes investment decisions concerning foreign companies more difficult and less reliable than domestic companies.
STOCK EXCHANGE AND MARKET RISK - The Adviser anticipates that in most cases an exchange or OTC market located outside of the U.S. will be the best available market for foreign securities. Foreign stock markets, while growing in volume and sophistication, are generally not as developed as the markets in the U.S. Foreign stock markets tend to differ from those in the U.S. in a number of ways.
Foreign stock markets:
o are generally more volatile than, and not as developed or efficient as, those in the U.S.;
o have substantially less volume;
o trade securities that tend to be less liquid and experience rapid and erratic price movements;
o have generally higher commissions and are subject to set minimum rates, as opposed to negotiated rates;
o employ trading, settlement and custodial practices less developed than those in U.S. markets; and
o may have different settlement practices, which may cause delays and increase the potential for failed settlements.
Foreign markets may offer less protection to shareholders than U.S. markets because:
o foreign accounting, auditing, and financial reporting requirements may render a foreign corporate balance sheet more difficult to understand and interpret than one subject to U.S. law and standards.
o adequate public information on foreign issuers may not be available, and it may be difficult to secure dividends and information regarding corporate actions on a timely basis.
o in general, there is less overall governmental supervision and regulation of securities exchanges, brokers, and listed companies than in the U.S.
o OTC markets tend to be less regulated than stock exchange markets and, in certain countries, may be totally unregulated.
o economic or political concerns may influence regulatory enforcement and may make it difficult for shareholders to enforce their legal rights.
o restrictions on transferring securities within the U.S. or to U.S. persons may make a particular security less liquid than foreign securities of the same class that are not subject to such restrictions.
FOREIGN CURRENCY RISK - While the Funds denominate their net asset value in U.S. dollars, the securities of foreign companies are frequently denominated in foreign currencies. Thus, a change in the value of a foreign currency against the U.S. dollar will result in a corresponding change in value of securities denominated in that currency. Some of the factors that may impair the investments denominated in a foreign currency are:
o It may be expensive to convert foreign currencies into U.S. dollars and vice versa;
o Complex political and economic factors may significantly affect the values of various currencies, including U.S. dollars, and their exchange rates;
o Government intervention may increase risks involved in purchasing or selling foreign currency options, forward contracts and futures contracts, since exchange rates may not be free to fluctuate in response to other market forces;
o There may be no systematic reporting of last sale information for foreign currencies or regulatory requirement that quotations available through dealers or other market sources be firm or revised on a timely basis;
o Available quotation information is generally representative of very large round-lot transactions in the inter-bank market and thus may not reflect exchange rates for smaller odd-lot transactions (less than $1 million) where rates may be less favorable; and
o The inter-bank market in foreign currencies is a global, around-the-clock market. To the extent that a market is closed while the markets for the underlying currencies remain open, certain markets may not always reflect significant price and rate movements.
TAXES - Certain foreign governments levy withholding taxes on dividend and interest income. Although in some countries it is possible for a Fund to recover
a portion of these taxes, the portion that cannot be recovered will reduce the income a Fund receives from its investments. The Funds do not expect such foreign withholding taxes to have a significant impact on performance.
EMERGING MARKETS - Investing in emerging markets may magnify the risks of foreign investing. Security prices in emerging markets can be significantly more volatile than those in more developed markets, reflecting the greater uncertainties of investing in less established markets and economies. In particular, countries with emerging markets may:
o Have relatively unstable governments;
o Present greater risks of nationalization of businesses, restrictions on foreign ownership and prohibitions on the repatriation of assets;
o Offer less protection of property rights than more developed countries; and
o Have economies that are based on only a few industries, may be highly vulnerable to changes in local or global trade conditions, and may suffer from extreme and volatile debt burdens or inflation rates.
Local securities markets may trade a small number of securities and may be unable to respond effectively to increases in trading volume, potentially making prompt liquidation of holdings difficult or impossible at times.
A Fund may buy and sell shares of other investment companies. Such investment companies may pay management and other fees that are similar to the fees currently paid by a Fund. Like other shareholders, a Fund would pay its proportionate share of those fees. Consequently, Fund shareholders would pay not only the management fees of the Fund, but also the management fees of the investment company in which the Fund invests. A Fund may invest up to 10% of its total assets in the securities of other investment companies, but may not invest more than 5% of its total assets in the securities of any one investment company or acquire more than 3% of the outstanding securities of any one investment company, unless it does so in reliance on a statutory exemption under the 1940 Act or rule or SEC staff interpretations thereunder.
In a repurchase agreement, an investor agrees to buy a security (underlying security) from a securities dealer or bank that is a member of the Federal Reserve System (counter-party). At the time, the counter-party agrees to repurchase the underlying security for the same price, plus interest. Repurchase agreements are generally for a relatively short period (usually not more than seven days). The Funds normally use repurchase agreements to earn income on assets that are not invested. When a Fund enters into a repurchase agreement it will:
o Pay for the underlying securities only upon physically receiving them or upon evidence of their receipt in book-entry form; and
o Require the counter party to add to the collateral whenever the price of the repurchase agreement rises above the value of the underlying security (I.E., it will require the borrower to "mark to the market" on a daily basis).
If the seller of the security declares bankruptcy or otherwise becomes financially unable to buy back the security, a Fund's right to sell the security may be restricted. In addition, the value of the security might decline before a Fund can sell it and the Fund might incur expenses in enforcing its rights.
While the Funds do not anticipate doing so, each Fund may purchase illiquid securities, including securities that are not readily marketable and securities that are not registered ("restricted securities") under the 1933 Act, but which can be offered and sold to "qualified institutional buyers" under Rule 144A under the 1933 Act. A Fund will not invest more than 15% of its net assets in illiquid securities. If the percentage of a Fund's net assets invested in illiquid securities exceeds 15% due to market activity, the Fund will take appropriate measures to reduce its holdings of illiquid securities. Illiquid securities are securities that can not be sold or disposed of in the ordinary course of business within seven business days at approximately the value at which they are being carried on the Fund's books. Illiquid securities may include a wide variety of investments, such as repurchase agreements maturing in more than seven days, OTC options contracts and certain other derivatives (including certain swap agreements), fixed time deposits that are not subject to prepayment or do not provide for withdrawal penalties upon prepayment (other than overnight deposits), participation interests in loans, commercial paper issued pursuant to Section 4(2) of the 1933 Act), and securities whose disposition is restricted under the federal securities laws. Illiquid securities include restricted, privately placed securities that, under the federal securities laws, generally may be resold only to qualified institutional buyers. If a substantial market develops for a restricted security (or other illiquid investment) held by the Fund, it may be treated as a liquid security, in accordance with procedures and guidelines approved by the Board. This generally includes securities that are unregistered that can be sold to qualified institutional buyers in accordance with Rule 144A under the 1933 Act or securities that are exempt from registration under the 1933 Act, such as commercial paper. While the Adviser monitors the liquidity of restricted securities on a daily basis, the Board oversees and retains ultimate responsibility for the Adviser's liquidity determinations. Several factors that the Board considers in monitoring these decisions include the valuation of a security, the availability of qualified institutional buyers, brokers and dealers that trade in the security, and the availability of information about the security's issuer.
The Fund may lend portfolio securities to brokers, dealers and other financial organizations that meet capital and other credit requirements or other criteria established by the Fund's Board of Trustees. These loans, if and when made, may not exceed 33 1/3% of the total asset value of the Fund (including the loan collateral). No Fund will lend portfolio securities to its investment adviser,
sub-adviser or their affiliates unless it has applied for and received specific authority to do so from the SEC. Loans of portfolio securities will be fully collateralized by cash, letters of credit or U.S. government securities, and the collateral will be maintained in an amount equal to at least 100% of the current market value of the loaned securities by marking to market daily. Any gain or loss in the market price of the securities loaned that might occur during the term of the loan would be for the account of the Fund.
The Fund may pay a part of the interest earned from the investment of collateral, or other fee, to an unaffiliated third party for acting as the Fund's securities lending agent.
By lending its securities, a Fund may increase its income by receiving payments from the borrower that reflect the amount of any interest or any dividends payable on the loaned securities as well as by either investing cash collateral received from the borrower in short-term instruments or obtaining a fee from the borrower when U.S. government securities or letters of credit are used as collateral. Each Fund will adhere to the following conditions whenever its portfolio securities are loaned: (i) the Fund must receive at least 100% cash collateral or equivalent securities of the type discussed in the preceding paragraph from the borrower; (ii) the borrower must increase such collateral whenever the market value of the securities rises above the level of such collateral; (iii) the Fund must be able to terminate the loan on demand; (iv) the Fund must receive reasonable interest on the loan, as well as any dividends, interest or other distributions on the loaned securities and any increase in market value; (v) the Fund may pay only reasonable fees in connection with the loan (which fees may include fees payable to the lending agent, the borrower, the administrator and the custodian); and (vi) voting rights on the loaned securities may pass to the borrower, provided, however, that if a material event adversely affecting the investment occurs, the Fund must terminate the loan and regain the right to vote the securities. The Board has adopted procedures reasonably designed to ensure that the foregoing criteria will be met. Loan agreements involve certain risks in the event of default or insolvency of the borrower, including possible delays or restrictions upon a Fund's ability to recover the loaned securities or dispose of the collateral for the loan, which could give rise to loss because of adverse market action, expenses and/or delays in connection with the disposition of the underlying securities.
DESCRIPTION OF SHORT SALES:
Selling a security short is when an investor sells a security it does not own. To sell a security short an investor must borrow the security from someone else to deliver to the buyer. The investor then replaces the security it borrowed by purchasing it at the market price at or before the time of replacement. Until it replaces the security, the investor repays the person that lent it the security for any interest or dividends that may have accrued during the period of the loan.
Investors typically sell securities short to:
o Take advantage of an anticipated decline in prices.
o Protect a profit in a security it already owns.
A Fund can lose money if the price of the security it sold short increases between the date of the short sale and the date on which the Fund replaces the borrowed security. Likewise, a Fund can profit if the price of the security declines between those dates. Because the market price of the security sold short could increase without limit, the Fund could also be subject to a theoretically unlimited loss.
To borrow the security, a Fund may be required to pay a premium, which would increase the cost of the security sold. The Fund will also incur transaction costs in effecting short sales. A Fund's gains and losses will be decreased or increased, as the case may be, by the amount of the premium, dividends, interest, or expenses the Fund may be required to pay in connection with a short sale.
The broker will retain the net proceeds of the short sale, to the extent necessary to meet margin requirements, until the short position is closed out.
SHORT SALES AGAINST THE BOX - In addition, a Fund may engage in short sales "against the box." In a short sale against the box, a Fund agrees to sell at a future date a security that it either currently owns or has the right to acquire at no extra cost. A Fund will incur transaction costs to open, maintain and close short sales against the box. For tax purposes, a short sale against the box may be a taxable event to a Fund.
RESTRICTIONS ON SHORT SALES:
A Fund will not short sell a security if:
o After giving effect to such short sale, the total market value of all securities sold short would exceed 25% of the value of a Fund's net assets. This limitation does not apply to the Global Long-Short Fund.
o The market value of the securities of any single issuer that have been sold short by a Fund would exceed three percent (3%) of the value of a Fund's net assets.
o Any security sold short would constitute more than two percent (2%) of any class of the issuer's securities.
Whenever a Fund sells a security short, its custodian segregates an amount of cash or liquid securities equal to the difference between (a) the market value of the securities sold short at the time they were sold short and (b) any cash or U.S. government securities the Fund is required to deposit with the broker in connection with the short sale (not including the proceeds from the short sale). The segregated assets are marked to market daily in an attempt to ensure that the amount deposited in the segregated account plus the amount deposited with the broker is at least equal to the market value of the securities at the time they were sold short.
A when-issued security is one whose terms are available and for which a market exists, but which have not been issued. In a forward delivery transaction, a Fund contracts to purchase securities for a fixed price at a future date beyond customary settlement time. "Delayed delivery" refers to securities transactions on the secondary market where settlement occurs in the future. In each of these transactions, the parties fix the payment obligation and the interest rate that they will receive on the securities at the time the parties enter the commitment; however, they do not pay money or deliver securities until a later date. Typically, no income accrues on securities a Fund has committed to purchase before the securities are delivered, although the Fund may earn income on securities it has in a segregated account to cover its position. A Fund will only enter into these types of transactions with the intention of actually acquiring the securities, but may sell them before the settlement date.
A Fund uses when-issued, delayed-delivery and forward delivery transactions to secure what it considers an advantageous price and yield at the time of purchase. When a Fund engages in when-issued, delayed-delivery or forward
delivery transactions, it relies on the other party to consummate the sale. If the other party fails to complete the sale, a Fund may miss the opportunity to obtain the security at a favorable price or yield.
When purchasing a security on a when-issued, delayed delivery, or forward delivery basis, a Fund assumes the rights and risks of ownership of the security, including the risk of price and yield changes. At the time of settlement, the market value of the security may be more or less than the purchase price. The yield available in the market when the delivery takes place also may be higher than those obtained in the transaction itself. Because a Fund does not pay for the security until the delivery date, these risks are in addition to the risks associated with its other investments.
A Fund will segregate cash or liquid securities equal in value to commitments for the when-issued, delayed delivery or forward delivery transactions. A Fund will segregate additional liquid assets daily so that the value of such assets is equal to the amount of the commitments.
INVESTMENT POLICIES OF THE FUNDS
A Fund will determine compliance with the investment limitation percentages below (with the exception of a limitation relating to borrowing) and other investment requirements in this SAI immediately after and as a result of its acquisition of such security or other asset. Accordingly, the Fund generally will not consider changes in values, net assets or other circumstances when determining whether the investment complies with its investment limitations.
The following investment limitations are fundamental, which means that the Funds cannot change them without approval by the vote of a majority of the outstanding voting securities of a Fund, as defined by the 1940 Act. No Fund may:
o Make any investment inconsistent with its classification as a diversified series of an open-end investment company under the 1940 Act. This restriction does not, however, apply to any Fund classified as a non-diversified series of an open-end investment company under the 1940 Act.
o Borrow money, except to the extent permitted by applicable law, as amended and interpreted or modified from time to time by any regulatory authority having jurisdiction and the guidelines set forth in a Fund's prospectus and SAI as they may be amended from time to time.
o Issue senior securities, except to the extent permitted by applicable law, as amended and interpreted or modified from time to time by any regulatory authority having jurisdiction.
o Underwrite securities of other issuers, except insofar as a Fund may technically be deemed to be an underwriter under the 1933 Act in connection with the purchase or sale of its portfolio securities.
o Concentrate its investments in the securities of one or more issuers conducting their principal business activities in the same industry (other than securities issued or guaranteed by the U.S. government or its agencies or instrumentalities).
o Purchase or sell real estate, except (1) to the extent permitted by applicable law, as amended and interpreted or modified from time to time by any regulatory authority having jurisdiction, (2) that a Fund may invest in securities of issuers that deal or invest in real estate and (3) that a Fund may purchase securities secured by real estate or interests therein.
o Purchase or sell commodities or contracts on commodities except that a Fund may engage in financial futures contracts and related options and currency contracts and related options and may otherwise do so in accordance with applicable law and without registering as a commodity pool operator under the Commodity Exchange Act.
o Make loans to other persons, except that a Fund may lend its portfolio securities in accordance with applicable law, as amended and interpreted or modified from time to time by any regulatory authority having jurisdiction and the guidelines set forth in a Fund's prospectus and statement of additional information as they may be amended from time to time. The acquisition of investment securities or other investment instruments shall not be deemed to be the making of a loan.
The following limitations are non-fundamental, which means a Fund may change them without shareholder approval. A Fund may:
o Not borrow money, except that (1) a Fund may borrow from banks (as defined in the 1940 Act) or enter into reverse repurchase agreements, in amounts up to 33 1/3% of its total assets (including the amount borrowed); (2) a Fund may borrow up to an additional 5% of its total assets for temporary purposes, (3) a Fund may obtain such short-term credit as may be necessary for the clearance of purchases and sales of portfolio securities, and (4) a Fund may purchase securities on margin and engage in short sales to the extent permitted by applicable law.
Notwithstanding the investment restrictions above, a Fund may not borrow amounts in excess of 33 1/3% of its total assets, taken at market value, and then only from banks as a temporary measure for extraordinary or emergency purposes such as the redemption of portfolio shares. A Fund will not purchase securities while borrowings are outstanding except to exercise prior commitments and to exercise subscription rights.
o Purchase and sell currencies or securities on a when-issued, delayed delivery or forward-commitment basis.
o Purchase and sell foreign currency, purchase options on foreign currency and foreign currency exchange contracts.
o Invest in the securities of foreign issuers.
o Purchase shares of other investment companies to the extent permitted by applicable law. A Fund may, notwithstanding any fundamental policy or other limitation, invest all of its investable assets in securities of a single open-end management investment company with substantially the same investment objectives, policies and limitations.
The 1940 Act currently permits a Fund to invest up to 10% of its total assets in the securities of other investment companies. However, a Fund may not invest more than 5% of its total assets in the securities of any one investment company or acquire more than 3% of the outstanding securities of one investment company.
o Invest in illiquid and restricted securities to the extent permitted by applicable law.
Each Fund intends to follow the policies of the SEC as they are adopted from time to time with respect to illiquid securities, including (1) treating as illiquid securities that may not be disposed of in the ordinary course of
business within seven days at approximately the value at which the Fund has valued the investment on its books; and (2) limiting its holdings of such securities to 15% of net assets. A Fund may:
o Write covered call options and may buy and sell put and call options.
o Enter into repurchase agreements.
o Lend portfolio securities to registered broker-dealers or other institutional investors. These loans may not exceed 33 1/3% of the Fund's total assets taken at market value. In addition, a Fund must receive at least 100% collateral.
o Sell securities short and engage in short sales "against the box."
o Enter into swap transactions.
Further,
1. The Defensive Equity Fund may not change its investment strategy to invest at least 80% of its net assets, including any borrowing for investment purposes, in equity securities without 60 days' prior written notice to shareholders.
2. The Short-Term Income Fund may not change its investment strategy to invest at least 80% of its net assets in "income producing" U.S. government securities without 60 days' prior written notice to shareholders.
INVESTMENT ADVISORY AND OTHER SERVICES
INVESTMENT ADVISER. Analytic Investors, Inc., located at 500 South Grand Avenue, 23rd Floor, Los Angeles, CA 90071, is the investment adviser to the Funds. The Adviser was founded in 1970 as Analytic Investment Management, Inc., one of the first independent investment counsel firms specializing in the creation and continuous management of optioned equity and optioned debt funds for fiduciaries and other long term shareholders. It is one of the oldest investment management firms in this specialized area. In 1985 it became a wholly-owned affiliate of Old Mutual (US) Holdings, Inc. ("Old Mutual US") (formerly named United Asset Management Corporation). In January 1996, Analytic Investment Management, Inc. acquired and merged with TSA Capital Management which emphasizes U.S. and global tactical asset allocation, currency management, quantitative equity and fixed income management, as well as option and yield curve strategies.
Old Mutual US is a holding company incorporated in Delaware in December 1980 (under the name United Asset Management Corporation) for the purpose of acquiring and owning firms engaged primarily in institutional investment management. In 2000, Old Mutual plc, a financial services group based in the United Kingdom, purchased all of the shares of United Asset Management Corporation. Subsequently, the name of United Asset Management Corporation was changed to Old Mutual (US) Holdings Inc. Since its first acquisition in August 1983, Old Mutual US acquired or organized more than 23 affiliated firms. The affiliated firms provide investment management to private accounts, mutual funds and other institutional and sophisticated investors. Investment strategies employed and securities selected by affiliated firms are separately chosen by each of them. Several affiliated firms also act as investment advisers to separate series or Funds of the Trust.
The Adviser utilizes state of the art quantitative investment management techniques in seeking to deliver superior investment performance. The Adviser believes that the use of such techniques allow it to fulfill its clients' objectives through rational, systematic identification of market opportunities, while minimizing the impact of human emotions which often dominate investment decision making. The firm has based its investment decisions on quantitative techniques for more than 25 years.
DEFENSIVE EQUITY FUND
The Fund is a stock portfolio that combines a quantitative approach to stock selection with a unique hedging style. As the name suggests, the goal of the portfolio is to allow shareholders to enjoy substantial protection against a declining stock market while still allowing for the shareholder to participate to a large degree in a rising stock market. The core strategy of the portfolio is based on a belief that there are five primary elements that drive an individual stock's performance: 1) relative valuation, 2) growth potential, 3) historical return momentum, 4) liquidity and 5) risk. The valuation process examines dozens of financial measures within these five elements. The Adviser accepts, however, that the predictive power of each of these financial measures has changed over time and will continue to change into the future. As a result, the Adviser has developed a unique weighting process for each of these financial measures which allows its approach to adapt to constantly changing market conditions. The adaptive approach increases the weight of those variables that have contributed most heavily to recent performance and decreases the weight to those measures that have lost their predictive capacity. The stock selection process commences by developing rankings for all the companies in the Equity Universe based on the combined attractiveness of the five elements. This requires extensive analysis and necessitates the assistance of a computer model to simultaneously evaluate all the data for each stock. Once the stocks are ranked, a highly diversified portfolio is constructed by selecting that combination of stocks which represents the best potential return while maintaining a risk profile that is similar to the Equity Universe. Individual security positions are limited to a maximum of a 3% active position relative to their respective weights in the Equity Universe. Once established, this portfolio is strategically hedged to reduce the risk to the overall portfolio when individual stocks become excessively volatile. In the process, the Adviser's quantitative approach greatly reduces the exposures to firm size, market style, and economic sector biases. This is referred to as being size neutral, style neutral and sector neutral.
GLOBAL LONG-SHORT FUND
The Adviser believes the characteristics that drive stock prices can be systematically identified and measured. There are several basic elements used to determine a stock's attractiveness, including relative valuation, growth potential, historical return momentum, liquidity, and risk. The valuation process examines dozens of financial measures within these five elements. The Adviser accepts, however, that the predictive power of each of these financial measures has changed over time and will continue to change into the future. As a result, the Adviser has developed a unique weighting process for each of these financial measures, which allows its approach to adapt to constantly changing market conditions. The adaptive approach increases the weight of those variables that have contributed most heavily to recent performance and decreases the weight to those measures that have lost their predictive capacity. The Global Equity process commences by developing rankings for all the companies in the Global Equity Universe based on the combined attractiveness of the basic elements. This requires extensive analysis and necessitates the assistance of a computer model to simultaneously evaluate all the data for each stock.
SHORT-TERM INCOME FUND
The Short-Term Income Fund is a fixed income fund that invests primarily in high-grade debt instruments of short maturities, three years or less. While the Fund invests more than half its assets in US Treasury and Agency securities, the portfolio management team may enhance performance through three sources of value: (1) selected use of short-term corporate securities; (2) a sophisticated approach to finding and exploiting yield curve arbitrage opportunities; and (3) tactical investments in short-term interest rate differentials between major global economies.
ADVISORY AGREEMENT WITH THE TRUST. The Trust and the Adviser have entered into an investment advisory agreement (the "Advisory Agreement"). Under the Advisory Agreement, the Adviser serves as the investment adviser and makes the investment decisions for each of the Funds and continuously reviews, supervises and administers the investment program of each Fund, subject to the supervision of, and policies established by, the Trustees of the Trust. After the initial two-year term, 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 Advisory Agreement or "interested persons" of any party thereto, cast in person at a meeting called for the purpose of voting on such approval. The Advisory Agreement will terminate automatically in the event of its assignment, and is terminable at any time without penalty by the Trustees of the Trust or, with respect to any Fund, by a majority of the outstanding shares of that Fund, on not less than 30 days' nor more than 60 days' written notice to the Adviser, or by the Adviser on 90 days' written notice to the Trust. The 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.
ADVISORY FEES PAID TO THE ADVISER. For its services, the Defensive Equity Fund and Short-Term Income Fund pay the Advisor a fee calculated at an annual rate of 0.60% and 0.30% of average net assets, respectively. The Global Long-Short Fund pays the Advisor a fee calculated at an annual rate of 1.00% for the first $100 million in average daily net assets. Due to the effect of fee waivers by the Adviser, the actual percentage of average net assets that a Fund pays in any given year may be different from the rate set forth in its contract with the Adviser. For the last three fiscal years, the Funds paid the following in management fees to the Adviser:
----------------------------------------------------------------------------------------------------------------------
FUND FEES PAID* FEES WAIVED*(1)
----------------------------------------------------------------------------------------------------------------------
2002 2003 2004 2002 2003 2004
----------------------------------------------------------------------------------------------------------------------
Defensive Equity $44,031 $14,149 $178,296 $230,412
----------------------------------------------------------------------------------------------------------------------
Global Long-Short $0 $0 $30,379 $19,406
----------------------------------------------------------------------------------------------------------------------
Short-Term Income $0 $0 $11,388 $23,465
----------------------------------------------------------------------------------------------------------------------
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* For periods prior to June 24, 2002, figures relate to payments made by the Predecessor Funds to the Predecessor Adviser.
(1) For the fiscal years ended December 31, 2002 and 2003, the Adviser additionally reimbursed fees of $146,248 and $85,015, respectively, for the Global Long-Short Fund and $129,357 and $106,444, respectively, for the Short-Term Income Fund, pursuant to the terms of its waiver agreement with the Funds. [insert for 2004]
This section includes information about the Fund's portfolio managers, including information about other accounts managed, the dollar range of Fund shares owned and how the portfolio manager is compensated.
COMPENSATION. The Adviser compensates the Fund's portfolio managers for their management of the Fund. The portfolio managers' compensation consists of an industry competitive base salary, discretionary bonus, and deferred compensation consisting of an allocation to the Adviser's commingled fund with a three-year vesting period. The Adviser considers three factors in awarding a discretionary bonus, including (i) performance results of the portfolio manager's investment strategy as compared to each strategy's specific benchmark, as well as the Adviser's annual performance targets, (ii) overall performance of the Adviser, in terms of profitability, and (iii) the individual portfolio manager's contribution, based on goals established during the performance period.
FUND SHARES OWNED BY THE PORTFOLIO MANAGER. The following table shows the dollar amount range of the portfolio manager's "beneficial ownership" of shares of the Fund as of the end of the most recently completed fiscal year. Dollar amount ranges disclosed are established by the SEC. "Beneficial ownership" is determined in accordance with Rule 16a-1(a)(2) under the 1934 Act.
------------------------------------------------------------------------------------------------------------------------
NAME DOLLAR RANGE OF FUND SHARES*
------------------------------------------------------------------------------------------------------------------------
Doug Savarese $10,001-$50,000 of the Analytic Global Long-Short Fund
------------------------------------------------------------------------------------------------------------------------
$100,001 - $500,000 of the Analytic Global Long-Short Fund
Robert Murdock $50,001-$100,000 of the Analytic Defensive Equity Fund
None of the Analytic Short-Term Income Fund
------------------------------------------------------------------------------------------------------------------------
$100,001 - $500,000 of the Analytic Global Long-Short Fund
Greg McMurran $100,001 - $500,000 of the Analytic Defensive Equity Fund
$500,001 - $1,000,000 of the Analytic Short-Term Income Fund
------------------------------------------------------------------------------------------------------------------------
$50,001-$100,000 of the Analytic Global Long-Short Fund
Harindra de Silva $100,001 - $500,000 of the Analytic Defensive Equity Fund
$10,001-$50,000 of the Analytic Short-Term Income Fund
------------------------------------------------------------------------------------------------------------------------
Steven Sapra $10,001-$50,000 of the Analytic Defensive Equity Fund
------------------------------------------------------------------------------------------------------------------------
Dennis Bein $10,001 - $50,000 of the Analytic Global Long-Short Fund
$50,001-$100,000 of the Analytic Defensive Equity Fund
------------------------------------------------------------------------------------------------------------------------
Scott Barker $100,001 - $500,000 of the Analytic Short-Term Income Fund
------------------------------------------------------------------------------------------------------------------------
|
* Valuation date is December 31, 2004.
OTHER ACCOUNTS. In addition to the Fund, the portfolio manager is responsible for the day-to-day management of certain other accounts, as follows (note that one of the accounts is subject to a performance-based advisory fee):
------------------------------------------------------------------------------------------------------------------------
REGISTERED INVESTMENT OTHER POOLED INVESTMENT OTHER ACCOUNTS
COMPANIES VEHICLES
------------------------------------------------------------------------------------------------------------------------
NUMBER OF TOTAL NUMBER OF TOTAL NUMBER OF TOTAL
NAME ACCOUNTS ASSETS ACCOUNTS ASSETS ACCOUNTS ASSETS
------------------------------------------------------------------------------------------------------------------------
Doug Savarese 0 $0 6* $214,900,000 0 $0
------------------------------------------------------------------------------------------------------------------------
Robert Murdock 0 $0 2 $91,400,000 8 $157,500,000
------------------------------------------------------------------------------------------------------------------------
Dennis Bein 8 $865,200,000 15(2)* $993,000,000 21(3)* $1,002,000,000
------------------------------------------------------------------------------------------------------------------------
Greg McMurran 0 $0 2 $91,400,000 11 $3,500,000,000
------------------------------------------------------------------------------------------------------------------------
Harindra de Silva 7 $862,000,000 15(2)* $1,000,000,000 21(3)* $1,200,000,000
------------------------------------------------------------------------------------------------------------------------
Steven Sapra 8 $865,200,000 11(4)* $814,000,000 21(3)* $1,002,000,000
------------------------------------------------------------------------------------------------------------------------
Scott Barker 0 0 0 0 3(5)* $3,230,000,000
------------------------------------------------------------------------------------------------------------------------
|
* Includes four accounts with aggregated assets under management of $179,000,000 that are subject to a performance-based advisory fee. 2* Includes nine accounts with aggregated assets under management of $276,900,000 that are subject to a performance-based advisory fee. 3* Includes six accounts with aggregated assets under management of $493,000,000 that are subject a performance-based advisory fee. 4* Includes six accounts with aggregated assets under management of $227,400,000 that are subject to a performance-based advisory fee. 5* Includes one account with assets under management of $3,200,000,000 that is subject to a performance-based advisory fee. |
CONFLICTS OF INTERESTS. The portfolio managers' management of "other accounts" may give rise to potential conflicts of interest in connection with his management of a Fund's investments, on the one hand, and the investments of the other accounts, on the other. The other accounts may have the same investment objective as the Fund. Therefore, a potential conflict of interest may arise as a result of the identical investment objectives, whereby the portfolio manager could favor one account over another. Another potential conflict could include the portfolio manager's knowledge about the size, timing and possible market impact of Fund trades, whereby the portfolio manager could use this information to the advantage of other accounts and to the disadvantage of the Fund. In addition, it is also possible that a potential conflict of interest may arise because the portfolio managers manage accounts with a performance-based management fee in addition to the Fund and other accounts without a performance-based fee. However, the Adviser has established policies and procedures to ensure that the purchase and sale of securities among all accounts it manages are fairly and equitably allocated.
THE ADMINISTRATOR
GENERAL. SEI Investments Global Funds Services (the "Administrator"), a Delaware statutory 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 other mutual funds.
ADMINISTRATION AGREEMENT WITH THE TRUST. The Trust and the Administrator have entered into an administration agreement (the "Administration Agreement"). Under the Administration Agreement, the Administrator provides the Trust with administrative services, including regulatory reporting and all necessary office space, equipment, personnel and facilities. The Administrator also serves as the shareholder servicing agent for each Fund under a shareholder servicing agreement with the Trust pursuant to which the Administrator provides certain shareholder services in addition to those set forth in 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 one year 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.
ADMINISTRATION FEES PAID TO THE ADMINISTRATOR. For its services under the Administration Agreement, the Administrator is entitled to a fee, which is calculated daily and paid monthly, at an annual rate of 0.12% for the first $250 million in assets, 0.10% for the next $250 million in assets, 0.08% for the next $250 million in assets and 0.04% for all assets greater than $750 million. The minimum fee is $125,000 for one portfolio, $250,000 for two portfolios, $350,000 for three portfolios, an additional $75,000 for each additional portfolio over three and $20,000 for each additional class per portfolio after the first class, apportioned to the Funds as a percentage of average daily net assets. Due to these minimums, the annual administration fee each Fund pays will exceed the above percentages at low asset levels. For the fiscal years ended October 31, 2002, 2003 and 2004, the Funds paid the following administration fees:
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FUND ADMINISTRATION FEE
-------------------------------------------------------------------------------------------------------------
2002 2003 2004
-------------------------------------------------------------------------------------------------------------
Defensive Equity $201,878 $282,368
-------------------------------------------------------------------------------------------------------------
Global Long-Short $36,780 $13,440
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Short-Term Income $42,010 $54,119
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THE DISTRIBUTOR
The Trust and SEI Investments Distribution Co. (the "Distributor"), a wholly owned subsidiary of SEI Investments and an affiliate of the Administrator, are parties to a distribution agreement (the "Distribution Agreement") whereby the Distributor acts as principal underwriter for the Trust's shares.
The continuance of the Distribution 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 Distribution Agreement or "interested persons" of any party thereto, cast in person at a meeting called for the purpose of voting on such approval. The Distribution 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 any Fund, by a majority of the outstanding shares of that Fund, upon not more than 60 days' written notice by either party. The Distribution Agreement provides that the Distributor 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.
TRANSFER AGENT
DST Systems, Inc., 330 W 9th Street, Kansas City, Missouri 64105 serves as the Funds' transfer agent (the "Transfer Agent").
CUSTODIAN
Union Bank of California, 475 Sansome Street 15th Floor, San Francisco, California 94111 (the "Custodian") acts as custodian for the Funds. The Custodian holds cash, securities and other assets of the Funds as required by the 1940 Act.
INDEPENDENT AUDITOR
[ ] serves as independent auditor for the Funds.
LEGAL COUNSEL
Morgan, Lewis & Bockius LLP serves as legal counsel to the Trust.
TRUSTEES AND OFFICERS OF THE TRUST
BOARD RESPONSIBILITIES. The management and affairs of the Trust and each of the Funds are supervised by the Trustees under the laws of the Commonwealth of Massachusetts. Each Trustee is responsible for overseeing each of the Funds and each of the Trust's additional 35 funds, which includes funds not described in this SAI. The Trustees have approved contracts, as described above, under which certain companies provide essential management services to the Trust.
MEMBERS OF THE BOARD. Set forth below are the names, dates of birth, position with the Trust, length of term of office, and the principal occupations for the last five years of each of the persons currently serving as Trustees of the Trust. Unless otherwise noted, the business address of each Trustee is SEI Investments Company, Oaks, Pennsylvania 19456.
INTERESTED TRUSTEES*
ROBERT A. NESHER (DOB 08/17/46) -- Chairman of the Board of Trustees* (since 1991) -- 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 SIMC, the Administrator and the Distributor, 1981-1994. Trustee of The Advisors' Inner Circle Fund II, Bishop Street Funds, The MDL Funds, SEI Global Master Fund, plc, SEI Global Assets Fund, plc, SEI Global Investments Fund, plc, SEI Investments Global, Limited, SEI Absolute Return Master Fund, L.P., SEI Opportunity Master Fund, L.P., SEI Absolute Return Fund, L.P., SEI Opportunity Fund, L.P., SEI Asset Allocation Trust, SEI Index Funds, SEI Daily Income Trust, SEI Institutional International Trust, SEI Institutional Investments Trust, SEI Institutional Managed Trust, SEI Liquid Asset Trust and SEI Tax Exempt Trust.
WILLIAM M. DORAN (DOB 05/26/40) -- Trustee* (since 1992) -- 1701 Market Street, Philadelphia, PA 19103. Self-employed Consultant since 2003. Partner, Morgan, Lewis & Bockius LLP (law firm) from 1976 to 2003, counsel to the Trust, SEI Investments, the Administrator and the Distributor. Director of the Distributor since 2003. Director of SEI Investments since 1974; Secretary of SEI Investments since 1978. Trustee of The Advisors' Inner Circle Fund II, The MDL 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 and SEI Tax Exempt Trust., SEI Investments - Global Fund Services Limited, SEI Investments Global Limited.
* Denotes Trustees who may be deemed to be "interested" persons of the Fund as that term is defined in the 1940 Act by virtue of their affiliation with the Distributor.
INDEPENDENT TRUSTEES
CHARLES E. CARLBOM (DOB 08/20/34) - Trustee (since 2005) - Self-Employed Business Consultant, Business Projects Inc. since 1997. Director, Crown Pacific Inc. CEO and President, United Grocers Inc. from 1997 to 2000. Trustee of The Advisors' Inner Circle Fund II and The MDL Funds.
JOHN T. COONEY (DOB 01/20/27) -- Trustee (since 1993)-- Vice Chairman of Ameritrust Texas N.A., 1989-1992, and MTrust Corp., 1985-1989. Trustee of The Advisors' Inner Circle Fund II and The MDL Funds.
MITCHELL A. JOHNSON (DOB 03/01/42) - Trustee (since 2005) - Retired. Director, Federal Agricultural Mortgage Corporation. Trustee of The Advisors' Inner Circle Fund II and The MDL Funds.
BETTY L. KRIKORIAN (DOB 01/23/43) - Trustee (since 2005) - Self-Employed Legal and Financial Services Consultant since 2003. State Street Bank Global Securities and Cash Operations from 1995 to 2003. Trustee of The Advisors' Inner Circle Fund II and The MDL Funds.
ROBERT A. PATTERSON (DOB 11/05/17) -- Trustee (Since 1993)-- Pennsylvania State University, Senior Vice President, Treasurer (Emeritus); Financial and Investment Consultant, Professor of Transportation since 1984; Vice President-Investments, Treasurer, Senior Vice President (Emeritus), 1982-1984. Director, Pennsylvania Research Corp.; Member and Treasurer (Emeritus), Board of Trustees of Grove City College. Trustee of The Advisors' Inner Circle Fund II and The MDL Funds.
EUGENE B. PETERS (DOB 06/03/29) -- Trustee (Since 1993) -- Private investor from 1987 to present. Vice President and Chief Financial Officer, Western Company of North America (petroleum service company), 1980-1986. President of Gene Peters and Associates (import company), 1978-1980. President and Chief Executive Officer of Jos Schlitz Brewing Company before 1978. Trustee of The Advisors' Inner Circle Fund II and The MDL Funds.
JAMES M. STOREY (DOB 04/12/31) -- Trustee (Since 1994) -- Attorney, Solo Practitioner since 1994. Trustee of The Advisors' Inner Circle Fund II, The MDL Funds, Massachusetts Health and Education Tax-Exempt Trust, 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 and SEI Tax Exempt Trust, U.S. Charitable Gift Trust.
GEORGE J. SULLIVAN, JR. (DOB 11/13/42) -- Trustee (Since 1999) -- Self-employed Consultant, Newfound Consultants Inc. since April 1997. Trustee, State Street Navigator Securities Lending Trust, The Advisors' Inner Circle Fund II, The MDL Funds, SEI Absolute Return Master Fund, LP, SEI Asset Allocation Trust, SEI Absolute Return Fund, L.P., SEI Opportunity Fund, SEI Daily Income Trust, SEI Index Funds, SEI Institutional International Trust, SEI Institutional Investments Trust, SEI Institutional Managed Trust, SEI Liquid Asset Trust, SEI Opportunity Master Fund and SEI Tax Exempt Trust.
BOARD STANDING COMMITTEES. The Board has established the following standing committees:
o AUDIT COMMITTEE. The Board has a standing Audit Committee that is composed of each of the independent Trustees of the Trust. The Audit Committee operates under a written charter approved by the Board. The principal responsibilities of the Audit Committee include: recommending which firm to engage as each fund's independent auditor and whether to terminate this relationship; reviewing the independent auditors' compensation, the proposed scope and terms of its engagement, and the firm's independence; pre-approving audit and non-audit services provided by each fund's independent auditor to the Trust and certain other affiliated entities; serving as a channel of communication between the independent auditor and the Trustees; reviewing the results of each external audit, including any qualifications in the independent auditors' opinion, any related management letter, management's responses to recommendations made by the independent auditors in connection with the audit, reports submitted to the Audit Committee by the internal auditing department of the Administrator that are material to the Trust as a whole, if any, and management's responses to any such reports; reviewing each fund's audited financial statements and considering any significant disputes between the Trust's management and the independent auditor that arose in connection with the preparation of those financial statements; considering, in consultation with the independent auditors and the Trust's senior internal accounting executive, if any, the independent auditors' report on the adequacy of the Trust's internal financial controls; reviewing, in consultation with each fund's independent auditors, major changes regarding auditing and accounting principles and practices to be followed when preparing each fund's financial statements; and other audit related matters. Messrs. Cooney, Patterson, Peters, Storey and Sullivan currently serve as members of the Audit Committee. The Audit Committee meets periodically, as necessary, and met five times in the most recently completed Trust fiscal year.
o FAIR VALUE PRICING COMMITTEE. The Board has a standing Fair Value Pricing Committee that is composed of at least one Trustee and various representatives of the Trust's service providers, as appointed by the Board. The Fair Value Pricing Committee operates under procedures approved by the Board. The principal responsibilities of the Fair Value Pricing Committee are to determine the fair value of securities for which current market quotations are not readily available. The Fair Value Pricing Committee's determinations are reviewed by the Board. Mr. Nesher, interested Trustee, currently serves as the Board's delegate on the Fair Value Pricing Committee. The Fair Value Pricing Committee meets periodically, as necessary, and met [ ] times in the most recently completed Trust fiscal year.
o NOMINATING COMMITTEE. The Board has a standing Nominating Committee that is composed of each of the independent Trustees of the Trust. The principal responsibilities of the Nominating Committee are to consider, recommend and nominate candidates to fill vacancies on the Trust's Board, if any. The Nominating Committee will consider nominees recommended by shareholders if such recommendations are submitted in writing and addressed to the Nominating Committee at the Trust's offices. Messrs. Cooney, Patterson, Peters, Storey and Sullivan currently serve as members of the Nominating Committee. The Nominating Committee meets periodically, as necessary, and did not meet in during the most recently completed Trust fiscal year.
BOARD CONSIDERATIONS IN APPROVING THE ADVISORY AGREEMENT. As discussed in the section of this SAI entitled "The Adviser," the Board continuance of the Advisory Agreement, after the initial two-year term, must be specifically
approved at least annually (i) by the vote of the Trustees or by a vote of the shareholders of the Fund and (ii) by the vote of a majority of the Trustees who are not parties to the Advisory Agreement or "interested persons" of any party thereto, cast in person at a meeting called for the purpose of voting on such approval. Each year, the Board of Trustees calls and holds a meeting to decide whether to renew the Advisory Agreement for the upcoming year. In preparation for the meeting, the Board requests and reviews a wide variety of information from the Adviser. The Trustees use this information, as well as other information that the Adviser and other Fund service providers may submit to the Board, to help them decide whether to renew the Advisory Agreement for another year.
Before approving the Advisory Agreement, the Board requested and received written materials from the Adviser about: (a) the quality of the Adviser's investment management and other services; (b) the Adviser's investment management personnel; (c) the Adviser's operations and financial condition; (d) the Adviser's brokerage practices (including any soft dollar arrangements) and investment strategies; (e) the level of the advisory fees that the Adviser charges each Fund compared with the fees it charges to comparable mutual funds or accounts (if any); (f) each Fund's overall fees and operating expenses compared with similar mutual funds; (g) the level of the Adviser's profitability from its Fund-related operations; (h) the Adviser's compliance systems; (i) the Adviser's policies on and compliance procedures for personal securities transactions; (j) the Adviser's reputation, expertise and resources in domestic financial markets; and (k) the Fund's performance compared with similar mutual funds.
At the meeting, representatives from the Adviser presented additional oral and written information to the Board to help the Board evaluate the Adviser's fee and other aspects of the Agreement. Other Fund service providers also provided the Board with additional information at the meeting. The Trustees then discussed the written materials that the Board received before the meeting and the Adviser's oral presentation and any other information that the Board received or discussed at the meeting, and deliberated on the renewal of the Advisory Agreement in light of this information. In its deliberations, the Board did not identify any single piece of information that was all-important, controlling or determinative of its decision.
Based on the Board's deliberations and its evaluation of the information
described above, the Board, including all of the independent Trustees,
unanimously: (a) concluded that terms of the Agreement are fair and reasonable;
(b) concluded that the Adviser's fees are reasonable in light of the services
that the Adviser provides to the Fund; and (c) agreed to renew the Agreement for
another year.
FUND SHARES OWNED BY BOARD MEMBERS. The following table shows the dollar amount range of each Trustee's "beneficial ownership" of shares of each of the Funds as of the end of the most recently completed calendar year. Dollar amount ranges disclosed are established by the SEC. "Beneficial ownership" is determined in accordance with Rule 16a-1(a)(2) under the 1934 Act. The Trustees and officers of the Trust own less than 1% of the outstanding shares of the Trust.
------------------------------------------------------------------------------------------------------------
DOLLAR RANGE OF FUND SHARES AGGREGATE DOLLAR RANGE OF SHARES
NAME (FUND)* (ALL FUNDS)*
------------------------------------------------------------------------------------------------------------
Cooney None None
------------------------------------------------------------------------------------------------------------
Carlbom** n/a n/a
------------------------------------------------------------------------------------------------------------
Doran None None
------------------------------------------------------------------------------------------------------------
Krikorian** n/a n/a
------------------------------------------------------------------------------------------------------------
Johnson** n/a n/a
------------------------------------------------------------------------------------------------------------
Nesher None None
------------------------------------------------------------------------------------------------------------
Patterson None None
------------------------------------------------------------------------------------------------------------
Peters None None
------------------------------------------------------------------------------------------------------------
Storey None None
------------------------------------------------------------------------------------------------------------
Sullivan None None
------------------------------------------------------------------------------------------------------------
|
* Valuation date is December 31, 2004. ** Elected in February 2005.
BOARD COMPENSATION. The Trust paid the following fees to the Trustees during its most recently completed fiscal year.
------------------------------------------------------------------------------------------------------------------------------------
PENSION OR RETIREMENT TOTAL COMPENSATION FROM
AGGREGATE BENEFITS ACCRUED AS PART ESTIMATED ANNUAL THE TRUST AND FUND
NAME COMPENSATION OF FUND EXPENSES BENEFITS UPON RETIREMENT COMPLEX*
------------------------------------------------------------------------------------------------------------------------------------
Carlbom** n/a n/a n/a n/a
------------------------------------------------------------------------------------------------------------------------------------
Cooney
------------------------------------------------------------------------------------------------------------------------------------
Doran
------------------------------------------------------------------------------------------------------------------------------------
Johnson** n/a n/a n/a n/a
------------------------------------------------------------------------------------------------------------------------------------
Krikorian** n/a n/a n/a n/a
------------------------------------------------------------------------------------------------------------------------------------
Nesher
------------------------------------------------------------------------------------------------------------------------------------
Patterson
------------------------------------------------------------------------------------------------------------------------------------
Peters
------------------------------------------------------------------------------------------------------------------------------------
Storey
------------------------------------------------------------------------------------------------------------------------------------
Sullivan
------------------------------------------------------------------------------------------------------------------------------------
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* The Trust is the only investment company in the "Fund Complex."
** Elected in February 2005.
TRUST OFFICERS. Set forth below are the names, dates of birth, position with the Trust, length of term of office, and the principal occupations for the last five years of each of the persons currently serving as Executive Officers of the Trust. Unless otherwise noted, the business address of each Officer is SEI Investments Company, Oaks, Pennsylvania 19456. The chief compliance officer is the only officer who receives compensation from the Trust for his services.
Certain officers of the Trust also serve as officers of one or more mutual funds for which SEI Investments Company or its affiliates act as investment manager, administrator or distributor.
JAMES F. VOLK (DOB 08/28/62)-- President (since 2003)-- Chief Accounting Officer and Chief Compliance Officer, SEI Investments since June 2004. Senior Operations Officer, SEI Investments, Funds Accounting and Administration since 1996. Assistant Chief Accountant for the U.S. Securities and Exchange Commission, 1993-1996.
PETER GOLDEN (DOB 06/27/64)-- Controller and Chief Financial Officer (since 2004)-- Director, SEI Investments, Funds Accounting and Administration since June 2001. Vice President of Funds Administration for J.P. Morgan Chase & Co., 2000-2001. Vice President of Pension and Mutual Fund Accounting for Chase Manhattan Bank, 1997-2000.
WILLIAM E. ZITELLI, JR. (DOB 6/14/68)-- Chief Compliance Officer (since 2004)-- Vice President and Assistant Secretary of the Administrator and Distributor, 2000-2004. Vice President, Merrill Lynch & Co. Asset Management Group, 1998-2000. Associate, Pepper Hamilton LLP (law firm), 1997-1998.
TIMOTHY D. BARTO (DOB 03/28/68)-- Vice President and Assistant Secretary (since 1999)-- General Counsel, Vice President and Secretary of the Administrator and Assistant Secretary of the Distributor since December 1999. Associate, Dechert, 1997-1999. Associate, Richter, Miller & Finn (law firm), 1994-1997.
JOHN MUNERA (DOB 01/14/63) - Vice President and Assistant Secretary (since 2002)
- Middle Office Compliance Officer at SEI Investments since 2000. Supervising
Examiner at Federal Reserve Bank of Philadelphia, 1998-2000.
JAMES NDIAYE (DOB 9/11/68) - Vice President and Secretary - Joined SEI Investments Company in 2004. Vice President, Deutsche Asset Management, 2003-2004. Associate, Morgan, Lewis & Bockius, LLP 2000-2003. Counsel, Assistant Vice President, ING Variable Annuities Group, 1999-2000. Senior Counsel, The Dreyfus Corporation, 1997-1999.
PHILIP T. MASTERSON (DOB 3/12/64) - Vice President and Assistant Secretary - Joined SEI Investments Company in 2004. General Counsel, CITCO Mutual Fund Services (2003-2004). Vice President and Assistant Counsel, Oppenheimer Funds, 1997-2001 and Vice President and Associate Counsel, 2001-2003.
PURCHASING AND REDEEMING SHARES
Purchases and redemptions may be made through the Transfer Agent on any day the NYSE is open for business. Shares of each Fund are offered and redeemed on a continuous basis. Currently, the Trust 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, Thanksgiving and Christmas.
It is currently the Trust's policy to pay all redemptions in cash. The Trust retains the right, however, to alter this policy to provide for redemptions in whole or in part by a distribution in-kind 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. A shareholder will at all times be entitled to aggregate cash redemptions from all Funds of the Trust up to the lesser of $250,000 or 1% of the Trust's net assets during any 90 day period. The Trust has obtained an exemptive order from the SEC that permits the Trust to make in-kind redemptions to those shareholders of the Trust that are affiliated with the Trust solely by their ownership of a certain percentage of the Trust's investment portfolios.
The Trust reserves the right to suspend the right of redemption and/or to postpone the date of payment upon redemption for any period on which trading on the NYSE 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 NYSE, the Adviser, the Administrator, the Transfer Agent and/or the custodian are not open for business.
DETERMINATION OF NET ASSET VALUE
GENERAL POLICY. Each of the Funds adheres to Section 2(a)(41), and Rule 2a-4 thereunder, of the 1940 Act with respect to the valuation of portfolio securities. In general, securities for which market quotations are readily available are valued at current market value, and all other securities are valued at fair value as determined in good faith by the Board. In complying with the 1940 Act, the Trust relies on guidance provided by the SEC and by the SEC staff in various interpretive letters and other guidance.
EQUITY SECURITIES. Securities listed on a securities exchange, market or automated quotation system for which quotations are readily available (except for securities traded on NASDAQ), including securities traded over the counter, are valued at the last quoted sale price on the primary exchange or market (foreign or domestic) on which they are traded on valuation date (or at approximately 4:00 p.m. ET if a security's primary exchange is normally open at that time), or, if there is no such reported sale on the valuation date, at the most recent quoted bid price. For securities traded on NASDAQ, the NASDAQ Official Closing Price will be used. If such prices are not available or determined to not represent the fair value of the security as of the Fund's pricing time, the security will be valued at fair value as determined in good faith by the Board.
MONEY MARKET SECURITIES AND OTHER DEBT SECURITIES. If available, money market securities and other debt securities are priced based upon valuations provided by recognized independent, third-party pricing agents. Such values generally reflect the last reported sales price if the security is actively traded. The third-party pricing agents may also value debt securities by employing methodologies that utilize actual market transactions, broker-supplied valuations, or other methodologies designed to identify the market value for such securities. Such methodologies generally consider such factors as security prices, yields, maturities, call features, ratings and developments relating to specific securities in arriving at valuations. Money market securities and other debt securities with remaining maturities of 60 days or less may be valued at their amortized cost, which approximates market value. If such prices are not available or determined to not represent the fair value of the security as of the Fund's pricing time, the security will be valued at fair value as determined in good faith by the Board.
USE OF THIRD-PARTY INDEPENDENT PRICING AGENTS. Pursuant to contracts with the Administrator, market prices for most securities held by the Funds are provided daily by third-party independent pricing agents that are approved by the Board. The valuations provided by third-party independent pricing agents are reviewed daily by the Administrator.
TAXES
The following is only a summary of certain additional federal income tax considerations generally affecting each Fund and its shareholders that is intended to supplement the discussion contained in the Funds' prospectus. No attempt is made to present a detailed explanation of the tax treatment of each Fund 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 with their tax advisors with specific reference to their own tax situations, including their state, local, and foreign tax liabilities.
The following general discussion of certain federal income tax consequences is based on 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.
QUALIFICATIONS AS A RIC. Each Fund intends to qualify and elects to be treated as a "regulated investment company" ("RIC") 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. The board reserves the right not to maintain the qualification of a Fund as a regulated investment company if it determines such course of action to be beneficial to shareholders.
In order to be taxable as a RIC, each Fund must distribute annually to its shareholders at least 90% of its net investment income (generally net investment income plus 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 ("Distribution Requirement") and also must meet several additional requirements. Among these requirements are the following: (i) at least 90% of each Fund's gross income each taxable year must be derived from dividends, interest, payments with respect to securities loans, gains from the sale or other disposition of stock, securities or foreign currencies, and certain other related income, including, generally, certain gains from options, futures, and forward contracts derived with respect to its business of investing in such stock, securities or currencies; (ii) at the end of each fiscal quarter of each Fund's taxable year, at least 50% of the market 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 not greater than 5% of the value of the Fund's total assets or more than 10% of the outstanding voting securities of such issuer, and (iii) at the end of each fiscal quarter of each Fund's taxable year, not more than 25% of the value of its total assets is invested in the securities (other than U.S. government securities or securities of other RICs) of any one issuer or two or more issuers that the Fund controls and which are engaged in the same, or similar, or related trades or businesses.
If a Fund fails to qualify as a RIC for any year, all of its income will be subject to federal income tax at regular corporate rates without any deduction for distributions to shareholders. In such case, its shareholders would be taxed as if they received ordinary dividends, although corporate shareholders could be eligible for the dividends received deduction and individuals may be able to benefit from the lower tax rates available to qualified dividend income.
FEDERAL EXCISE TAX. Notwithstanding the Distribution Requirement described above, which only requires a Fund to distribute at least 90% of its annual investment company income and does not require any minimum distribution of net capital gain, a Fund will be subject to a nondeductible 4% federal excise tax to the extent it fails to distribute, by the end of any calendar year, at least 98% of its ordinary income for that year and 98% of its capital gain net income (the excess of short- and long-term capital gain over short- and long-term capital loss) for the one-year period ending on October 31 of that year, plus certain other amounts. Each Fund intends to make sufficient distributions to avoid liability for federal excise tax, but can make no assurances that such tax will be completely eliminated. A Fund may in certain circumstances be required to liquidate Fund investments in order to make sufficient distributions to avoid federal excise tax liability at a time when the investment adviser might not otherwise have chosen to do so, and liquidation of investments in such circumstances may affect the ability of a Fund to satisfy the requirement for qualification as a RIC. If a Fund's distributions exceed its taxable income and capital gains realized during a taxable year, all or a portion of the distributions made in the same taxable year may be recharacterized as a return of capital to the shareholders. A return of capital distribution will generally
not be taxable, but will reduce each shareholder's cost basis in a Fund and result in a higher reported capital gain or lower reported capital loss when those shares on which the distribution was received are sold.
SHAREHOLDER TREATMENT. A Fund's dividends that are paid to their corporate shareholders and are attributable to qualifying dividends it received from U.S. domestic corporations may be eligible, in the hands of such shareholders, for the corporate dividends received deduction, subject to certain holding period requirements and debt financing limitations. Generally, and subject to certain limitations (including certain holding period limitations), a dividend will be treated as a qualifying dividend if it has been received from a domestic corporation. All dividends (including the deducted portion) must be included in your alternative minimum taxable income calculation.
Distributions by each Fund will be eligible for the reduced maximum tax rate to individuals of 15% (5% for individuals in lower tax brackets) to the extent that the Fund receives qualified dividend income on the securities it holds. Qualified dividend income is, in general, dividend income from taxable domestic corporations and certain foreign corporations (e.g., foreign corporations incorporated in a possession of the United States or in certain countries with a comprehensive tax treaty with the United States, or the stock of which is readily tradable on an established securities market in the United States). A dividend will not be treated as qualified dividend income to the extent that (i) the shareholder has not held the shares on which the dividend was paid for more than 60 days during the 120-day period that begins on the date that is 60 days before the date on which the shares become "ex-dividend" (which is the day on which declared distributions (dividends or capital gains) are deducted from the Fund's assets before it calculates the net asset value) with respect to such dividend (and the Fund also satisfies those holding period requirements with respect to the securities it holds that paid the dividends distributed to the shareholder), (ii) the shareholder is under an obligation (whether pursuant to a short sale or otherwise) to make related payments with respect to substantially similar or related property, or (iii) the shareholder elects to treat such dividend as investment income under section 163(d)(4)(B) of the Code. Absent further legislation, the maximum 15% rate on qualified dividend income will not apply to dividends received in taxable years beginning after December 31, 2008. Distributions by the Fund of its net short-term capital gains will be taxable as ordinary income. Capital gain distributions consisting of the Fund's net capital gains will be taxable as long-term capital gains. Each Fund will report annually to its shareholders the amount of the Fund's distributions that qualify for the reduced tax rates on qualified dividend income.
Distributions by a Fund will be eligible for the reduced maximum tax rate to individuals of 15% (5% for individuals in lower tax brackets) to the extent that the Fund receives qualified dividend income on the securities it holds. Qualified dividend income is, in general, dividend income from taxable domestic corporations and certain qualified foreign corporations. Qualified dividend income treatment requires that both a Fund and the shareholder satisfy certain holding period requirements and that the shareholder satisfy certain other conditions.
Any gain or loss recognized on a sale, exchange, or redemption of shares of a Fund by a shareholder who is not a dealer in securities will generally, for individual shareholders, be treated as a long-term capital gain or loss if the
shares have been held for more than twelve months and otherwise will be treated as a short-term capital gain or loss. However, if shares on which a shareholder has received a net capital gain distribution are subsequently sold, exchanged, or redeemed and such shares have been held for six months or less, any loss recognized will be treated as a long-term capital loss to the extent of the net capital gain distribution. In addition, the loss realized on a sale or other disposition of shares will be disallowed to the extent a shareholder repurchases (or enters into a contract to 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.
FOREIGN TAXES. If more than 50% of the value of a Fund's total assets at the close of its taxable year consists of stocks or securities of foreign corporations, the Fund will be eligible to, and will, file an election with the Internal Revenue Service that may enable shareholders, in effect, to receive either the benefit of a foreign tax credit, or a deduction from such taxes, with respect to any foreign and U.S. possessions income taxes paid by a Fund, subject to certain limitations. Pursuant to the election, a Fund will treat those taxes as dividends paid to its shareholders. Each such shareholder will be required to include a proportionate share of those taxes in gross income as income received from a foreign source and must treat the amount so included as if the shareholder had paid the foreign tax directly. The shareholder may then either deduct the taxes deemed paid by him or her in computing his or her taxable income or, alternatively, use the foregoing information in calculating any foreign tax credit they may be entitled to use against the shareholders' federal income tax. If a Fund makes the election, such Fund will report annually to its shareholders the respective amounts per share of the Fund's income from sources within, and taxes paid to, foreign countries and U.S. possessions.
STATE TAXES. Depending upon state and local law, distributions by a Fund to its shareholders and the ownership of such shares may be subject to state and local taxes. Rules of state and local taxation of dividend and capital gains distributions from RICs often differ from rules for federal income taxation described above. No Fund is liable for any income or franchise tax in Massachusetts if it qualifies as a RIC for federal income tax purposes. Shareholders are urged to consult their tax advisors regarding state and local taxes applicable to an investment in a Fund.
Many states grant tax-free status to dividends paid to you from interest earned on direct obligations of the U.S. government, subject in some states to minimum investment requirements that must be met by a fund. Investment in GNMA or FNMA securities, banker's acceptances, commercial paper, and repurchase agreements collateralized by U.S. government securities do not generally qualify for such tax-free treatment. The rules on exclusion of this income are different for corporate shareholders.
TAX TREATMENT OF COMPLEX SECURITIES. Each Fund may invest in complex securities. These investments may be subject to numerous special and complex tax rules. These rules could affect whether gains and losses recognized by a Fund are treated as ordinary income or capital gain, accelerate the recognition of income to the Fund and/or defer the Fund's ability to recognize losses, and, in limited cases, subject the Fund to U.S. federal income tax on income from certain of its foreign securities. In turn, these rules may affect the amount, timing or character of the income distributed to you by each Fund.
Most foreign exchange gains realized on the sale of debt securities are treated as ordinary income by each Fund. Similarly, foreign exchange losses realized by a Fund on the sale of debt securities are generally treated as ordinary losses by the Fund. These gains when distributed will be taxable to you as ordinary dividends, and any losses will reduce a Fund's ordinary income otherwise available for distribution to you. This treatment could increase or reduce a
Fund's ordinary income distributions to you, and may cause some or all of the Fund's previously distributed income to be classified as a return of capital.
OTHER TAX POLICIES. In certain cases, each Fund will be required to withhold at the applicable withholding rate, and remit to the U.S. Treasury, such withheld amounts on 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, (3) has not certified to that Fund that such shareholder is not subject to backup withholding, or (4) has not certified that such shareholder is a U.S. person or U.S. resident alien.
Non-U.S. investors in a Fund may be subject to U.S. withholding and estate tax and are encouraged to consult their tax advisors prior to investing in a Fund.
BROKERAGE ALLOCATION AND OTHER PRACTICES
BROKERAGE TRANSACTIONS. Generally, equity securities are bought and sold through brokerage transactions for which commissions are payable. Purchases from underwriters will include the underwriting commission or concession, and purchases from dealers serving as market makers will include a dealer's mark-up or reflect a dealer's mark-down. Money market securities and other debt securities are usually bought and sold directly from the issuer or an underwriter or market maker for the securities. Generally, a Fund will not pay brokerage commissions for such purchases. When a debt security is bought from an underwriter, the purchase price will usually include an underwriting commission or concession. The purchase price for securities bought from dealers serving as market makers will similarly include the dealer's mark up or reflect a dealer's mark down. When a Fund executes transactions in the OTC market, it will generally deal with primary market makers unless prices that are more favorable are otherwise obtainable.
In addition, the Adviser may place a combined order for two or more accounts it manages, including a Fund, 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. 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. Nonetheless, the Adviser believes that the ability of a Fund to participate in higher volume transactions will generally be beneficial to the Fund. For the fiscal years ended December 31, 2002, 2003 and 2004, the Funds paid the following aggregate brokerage commissions on portfolio transactions:
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FUND AGGREGATE DOLLAR AMOUNT OF BROKERAGE COMMISSIONS PAID*
-------------------------------------------------------------------------------------------------------------------
2002 2003 2004
-------------------------------------------------------------------------------------------------------------------
Defensive Equity $283,261 $6,062
-------------------------------------------------------------------------------------------------------------------
Global Long-Short $15,591 $353,885
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Short-Term Income $4,473 $10,712
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* For the periods prior to June 24, 2002, figures relate to the Predecessor Funds.
BROKERAGE SELECTION. The Trust does not expect to use one particular broker or dealer, and when one or more brokers is believed capable of providing the best combination of price and execution, the Funds' Adviser may select a broker based upon brokerage or research services provided to the Adviser. The Adviser may pay a higher commission than otherwise obtainable from other brokers in return for such services only if a good faith determination is made that the commission is reasonable in relation to the services provided.
Section 28(e) of the 1934 Act permits the Adviser, under certain circumstances, to cause each Fund to pay a broker or dealer a commission for effecting a transaction in excess of the amount of commission another broker or dealer would have charged for effecting the transaction in recognition of the value of brokerage and research services provided by the broker or dealer. In addition to agency transactions, the Adviser may receive brokerage and research services in connection with certain riskless principal transactions, in accordance with applicable SEC guidance. Brokerage and research services include: (1) furnishing advice 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; (2) furnishing analyses and reports concerning issuers, industries, securities, economic factors and trends, portfolio strategy, and the performance of accounts; and (3) effecting securities transactions and performing functions incidental thereto (such as clearance, settlement, and custody). In the case of research services, the Adviser believes that access to independent investment research is beneficial to their investment decision-making processes and, therefore, to each Fund.
To the extent research services may be a factor in selecting brokers, such services may be in written form or through direct contact with individuals and may include information as to particular companies and securities as well as market, economic, or institutional areas and information which assists in the valuation and pricing of investments. Examples of research-oriented services for which the adviser might utilize Fund commissions include research reports and other information on the economy, industries, sectors, groups of securities, individual companies, statistical information, political developments, technical market action, pricing and appraisal services, credit analysis, risk measurement analysis, performance and other analysis. The Adviser may use research services furnished by brokers in servicing all client accounts and not all services may necessarily be used in connection with the account that paid commissions to the broker providing such 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 Funds' Adviser under the Advisory Agreement. Any advisory or other fees paid to the Adviser are not reduced as a result of the receipt of research services.
In some cases the Adviser may receive a service from a broker that has both a "research" and a "non-research" use. When this occurs, the Adviser makes a good faith allocation, under all the circumstances, between the research and non-research uses of the service. The percentage of the service that is used for research purposes may be paid for with client commissions, while the Adviser will use its own funds to pay for the percentage of the service that is used for non-research purposes. In making this good faith allocation, the Adviser faces a potential conflict of interest, but the Adviser believes that its allocation procedures are reasonably designed to ensure that it appropriately allocates the anticipated use of such services to their research and non-research uses.
From time to time, a Fund may purchase new issues of securities for clients in a fixed price offering. In these situations, the seller may be a member of the selling group that will, in addition to selling securities, provide the adviser with research services. The National Association of Securities Dealers (the
"NASD") has adopted rules expressly permitting these types of arrangements under certain circumstances. Generally, the seller will provide research "credits" in these situations at a rate that is higher than that which is available for typical secondary market transactions. These arrangements may not fall within the safe harbor of Section 28(e).
For the Trust's most recently completed fiscal year, the Funds' paid the following commissions on brokerage transactions directed to brokers pursuant to an agreement or understanding whereby the broker provides research or other brokerage services to the Adviser:
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TOTAL DOLLAR AMOUNT OF TRANSACTIONS
TOTAL DOLLAR AMOUNT OF BROKERAGE INVOLVING BROKERAGE COMMISSIONS FOR
FUND COMMISSIONS FOR RESEARCH SERVICES RESEARCH SERVICES
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Defensive Equity $XXX $XXX
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Global Long-Short $XXX $XXX
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Short-Term Income $XXX $XXX
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BROKERAGE WITH FUND AFFILIATES. A Fund may execute brokerage or other agency transactions through registered broker-dealer affiliates of either the Fund, the Adviser or the Distributor for a commission in conformity with the 1940 Act, the 1934 Act and rules promulgated by the SEC. Under the 1940 Act and the 1934 Act, affiliated broker-dealers are 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 affiliate and the Fund expressly permitting the affiliate to receive and retain such compensation. These rules further require that commissions paid to the affiliate by the Fund for exchange transactions not exceed "usual and customary" brokerage commissions. The rules define "usual and customary" commissions to include amounts which are "reasonable and fair compared to the commission, fee or other remuneration received or to be received by other brokers in connection with comparable transactions involving similar securities being purchased or sold on a securities exchange during a comparable period of time." The Trustees, including those who are not "interested persons" of the Fund, have adopted procedures for evaluating the reasonableness of commissions paid to affiliates and review these procedures periodically.
For the fiscal years ended December 31, 2002, 2003, and 2004, the Funds paid the following brokerage commissions on portfolio transactions effected by affiliated brokers. The amounts disclosed in the table below relate to payments made to the Distributor acting as agent for repurchase agreements and transactions in equity securities. The Predecessor Funds' distributor did not execute brokerage transactions on behalf of the Predecessor Funds.
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PERCENTAGE OF TOTAL PERCENTAGE OF TOTAL
BROKERAGE COMMISSIONS BROKERAGE TRANSACTIONS
AGGREGATE DOLLAR AMOUNT OF BROKERAGE PAID TO AFFILIATED EFFECTED THROUGH AFFILIATED
FUND COMMISSIONS PAID TO AFFILIATED BROKERS BROKERS BROKERS
----------------------------------------------------------------------------------------------------------------------
2002 2003 2004 2004 2004
----------------------------------------------------------------------------------------------------------------------
Defensive Equity $247,290 $294,825 XXXX% XXXX%
Fund
----------------------------------------------------------------------------------------------------------------------
Global Long-Short $0 $0 XXXX% XXXX%
Fund
----------------------------------------------------------------------------------------------------------------------
Short-Term Income $90 $0 XXXX% XXXX%
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SECURITIES OF "REGULAR BROKER-DEALERS." The Funds are required to identify any securities of its "regular brokers and dealers" (as such term is defined in the 1940 Act) which the Funds may hold at the close of their most recent fiscal year. As of December 31, 2004, the Defensive Equity Fund held common stock valued at $[___________].
PORTFOLIO TURNOVER RATE. Portfolio turnover rate is defined under SEC rules as the value of the securities purchased or securities sold, excluding all securities whose maturities at the time of acquisition were one-year or less, divided by the average monthly value of such securities owned during the year. Based on this definition, instruments with remaining maturities of less than one-year are excluded from the calculation of the portfolio turnover rate. The Funds may at times hold investments in short-term instruments, which are excluded for purposes of computing portfolio turnover. For the Funds' two most recently completed fiscal years ended December 31, 2003 and 2004, the portfolio turnover rate for each of the Funds was as follows:
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FUND PORTFOLIO TURNOVER RATE
---------------------------------------------------------------------------------------------------------------
2003 2004
---------------------------------------------------------------------------------------------------------------
Defensive Equity 218%
---------------------------------------------------------------------------------------------------------------
Global Long-Short 63%
---------------------------------------------------------------------------------------------------------------
Short-Term Income 22%
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PORTFOLIO HOLDINGS
The Board has approved a policy and procedures that govern the timing and circumstances regarding the disclosure of Fund portfolio holdings information to shareholders and third parties. These policies and procedures are designed to ensure that disclosure of information regarding the Funds' portfolio securities is in the best interests of Fund shareholders, and include procedures to address conflicts between the interests of the Funds' shareholders and those of the Funds' Adviser, principal underwriter, or any affiliated person of the Funds, the Adviser, or the principal underwriter. Pursuant to such procedures, the Board has authorized the Adviser's Chief Compliance Officer ("Adviser CCO") to authorize the release of the Funds' portfolio holdings, as necessary, in conformity with the foregoing principles. The Adviser CCO, either directly or through reports by the Funds' Chief Compliance Officer reports quarterly to the Board regarding the operation and administration of such policies and procedures.
Pursuant to applicable law, the Funds are required to disclose its complete portfolio holdings quarterly, within 60 days of the end of each fiscal quarter (currently, each January 31, April 30, July 31, and October 31). Each Fund will disclose a complete or summary schedule of investments (which includes each Fund's 50 largest holdings in unaffiliated issuers and each investment in unaffiliated issuers that exceeds one percent of the Fund's net asset value ("Summary Schedule")) in its semi-annual and annual reports which are distributed to Fund shareholders. Each Fund's complete schedule of investments following the first and third fiscal quarters is available in quarterly holdings reports filed with the SEC on Form N-Q, and is available in semi-annual and annual reports filed with the SEC on Form N-CSR.
Fund filings on Form N-Q and Form N-CSR are not distributed to Fund shareholders but are available, free of charge, on the EDGAR database on the SEC's website at
WWW.SEC.GOV. Should a Fund include only a Summary Schedule rather than a complete schedule of investments in its semi-annual and annual reports, its Form N-CSR will be available without charge, upon request, by calling [ ].
In addition to information provided to shareholders and the general public, portfolio holdings information may be disclosed as frequently as daily to certain service providers, such as the custodian, administrator or transfer agent, in connection with their services to the Funds. [From time to time rating and ranking organizations, such as S&P, Lipper and Morningstar, Inc., may request non-public portfolio holdings information in connection with rating the Fund.] Similarly, institutional investors, financial planners, pension plan sponsors and/or their consultants or other third-parties may request portfolio holdings information in order to assess the risks of a Fund's portfolio along with related performance attribution statistics. The lag time for such disclosures will vary. The Funds believe that these third parties have legitimate objectives in requesting such portfolio holdings information. The Funds' Chief Compliance Officer will regularly review these arrangements and will make periodic reports to the Board regarding disclosure pursuant to such arrangements.
The Funds' policies and procedures provide that the Adviser's CCO may authorize disclosure of non-public portfolio holdings information to such parties at differing times and/or with different lag times. Prior to making any disclosure to a third party based on a determination that such disclosure serves a reasonable business purpose, is in the best interests of the Funds' shareholders and that conflicts between the interests of the Funds' shareholders and those of the Fund's Adviser, principal underwriter, or any affiliated person of the Funds are addressed. Portfolio holdings information may be disclosed no more frequently than [monthly] to [ratings agencies,] consultants and other qualified financial professionals or individuals. The monthly disclosures will not be made sooner than [three] days after the date of the information.
With the exception of disclosures to rating and ranking organizations as described above, the Funds require any third party receiving non-public holdings information to enter into a confidentiality agreement with the Adviser. The confidentiality agreement provides, among other things, that non-public portfolio holdings information will be kept confidential and that the recipient has a duty not to trade on the non-public information and will use such information solely to analyze and rank the Funds, or to perform due diligence and asset allocation, depending on the recipient of the information.
The Funds' policies and procedures prohibit any compensation or other consideration from being paid to or received by any party in connection with the disclosure of portfolio holdings information, including the Funds, Adviser and its affiliates or recipient of the Funds' portfolio holdings information.
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. The Trust has received a legal opinion to the effect that each Fund's shares are fully paid and non-assessable.
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. Nothing contained in this section attempts to disclaim a Trustee's individual liability in any manner inconsistent with the federal securities laws.
PROXY VOTING
The Board of Trustees of the Trust has delegated responsibility for decisions regarding proxy voting for securities held by each Fund to the Adviser. The Adviser will vote such proxies in accordance with its proxy policies and procedures, which are included in Appendix B to this SAI. The Board of Trustees will periodically review each Fund's proxy voting record.
A description of the policies and procedures that the Trust uses to determine how to vote proxies relating to portfolio securities, as well as information relating to how the Funds voted proxies relating to portfolio securities during the most recent 12-month period ended June 30, is available on Form N-PX (i) without charge, upon request, by calling (866)-777-7818; and (ii) on the SEC's website at HTTP://WWW.SEC.GOV.
CODES OF ETHICS
The Board of Trustees of the Trust has adopted a Code of Ethics pursuant to Rule 17j-1 under the 1940 Act. In addition, the Advisor and Distributor have adopted Codes of Ethics pursuant to Rule 17j-1. These Codes of Ethics (each a "Code of Ethics" and together the "Codes of Ethics") apply to the personal investing activities of trustees, officers and certain employees ("access persons"). Rule 17j-1 and the Codes of Ethics are designed to prevent unlawful practices in
connection with the purchase or sale of securities by access persons. Under each Code of Ethics, access persons are permitted to engage in personal securities transactions, but are required to report their personal securities transactions for monitoring purposes. The Codes of Ethics further require certain access persons to obtain approval before investing in initial public offerings and limited offerings. Copies of these Codes of Ethics are on file with the Securities and Exchange Commission, and are available to the public.
5% AND 25% SHAREHOLDERS
As of [ ], the following persons were record owners (or to the knowledge of the Trust, beneficial owners) of 5% to 25% or more of the shares of the Funds.
ANALYTIC DEFENSIVE EQUITY FUND SHAREHOLDER % ----------- - |
ANALYTIC GLOBAL LONG-SHORT FUND SHAREHOLDER % ----------- - |
ANALYTIC SHORT-TERM INCOME FUND
The Funds believe that most of the shares referred to above were held by the persons indicated in accounts for their fiduciary, agency or custodial customers. Any shareholder listed above as owning 25% or more of the outstanding shares of a Fund may be presumed to "control" (as that term is defined in the 1940 Act) the Fund. Shareholders controlling a Fund could have the ability to vote a majority of the shares of the Fund on any matter requiring the approval of shareholders of the Fund.
APPENDIX A - RATINGS
MOODY'S INVESTORS SERVICE, INC.
aaa An issue which is rated "aaa" is considered to be a top-quality preferred stock. This rating indicates good asset protection and the least risk of dividend impairment within the universe of preferred stocks.
aa An issue which is rated "aa" is considered a high-grade preferred stock. This rating indicates that there is a reasonable assurance the earnings and asset protection will remain relatively well-maintained in the foreseeable future.
a An issue which is rated "a" is considered to be an upper- medium grade preferred stock. While risks are judged to be somewhat greater than in the "aaa" and "aa" classification, earnings and asset protection are, nevertheless, expected to be maintained at adequate levels.
baa An issue that which is rated "baa" is considered to be a medium-grade preferred stock, neither highly protected nor poorly secured. Earnings and asset protection appear adequate at present but may be questionable over any great length of time.
ba An issue which is rated "ba" is considered to have speculative elements and its future cannot be considered well assured. Earnings and asset protection may be very moderate and not well safeguarded during adverse periods. Uncertainty of position characterizes preferred stocks in this class.
b An issue which is rated "b" generally lacks the characteristics of a desirable investment. Assurance of dividend payments and maintenance of other terms of the issue over any long period of time may be small.
caa An issue which is rated "caa" is likely to be in arrears on dividend payments. This rating designation does not purport to indicate the future status of payments.
ca An issue which is rated "ca" is speculative in a high degree and is likely to be in arrears on dividends with little likelihood of eventual payments.
c This is the lowest rated class of preferred or preference stock.
Issues so rated can thus be regarded as having extremely poor
prospects of ever attaining any real investment standing.
plus (+) or minus (-): Moody's applies numerical modifiers 1, 2, and 3 in each rating classification: the modifier 1 indicates that the security ranks in the higher end of its generic rating category; the modifier 2 indicates a mid-range ranking and the modifier 3 indicates that the issue ranks in the lower end of its generic rating category.
Aaa Bonds which are rated Aaa are judged to be of the best quality. They carry the smallest degree of investment risk and are generally
referred to as "gilt-edged." Interest payments are protected by a large or by an exceptionally stable margin and principal is secure. While the various protective elements are likely to change, such changes as can be visualized are most unlikely to impair the fundamentally strong position of such issues.
Aa Bonds which are rated Aa are judged to be of high quality by all standards. Together with the Aaa group they comprise what are generally known as high grade bonds. They are rated lower than the best bonds because margins of protection may not be as large as in Aaa securities or fluctuation of protective elements may be of greater amplitude or there may be other elements present which make the long-term risks appear somewhat larger than the Aaa securities.
A Bonds which are rated A possess many favorable investment attributes and are to be considered as upper-medium-grade obligations. Factors giving security to principal and interest are considered adequate, but elements may be present which suggest a susceptibility to impairment sometime in the future.
Baa Bonds which are rated Baa are considered as medium-grade obligations, (I.E., they are neither highly protected nor poorly secured). Interest payments and principal security appear adequate for the present but certain protective elements may be lacking or may be characteristically unreliable over any great length of time. Such bonds lack outstanding investment characteristics and in fact have speculative characteristics as well.
Ba Bonds which are rated Ba are judged to have speculative elements; their future cannot be considered as well-assured. Often the protection of interest and principal payments may be very moderate, and thereby not well safeguarded during both good and bad times over the future. Uncertainty of position characterizes bonds in this class.
B Bonds which are rated B generally lack characteristics of the desirable investment. Assurance of interest and principal payments or of maintenance of other terms of the contract over any long period of time may be small.
Caa Bonds which are rated Caa are of poor standing. Such issues may be in default or there may be present elements of danger with respect to principal or interest.
Ca Bonds which are rated Ca represent obligations which are speculative in a high degree. Such issues are often in default or have other marked shortcomings.
C Bonds which are rated C are the lowest rated class of bonds, and issues so rated can be regarded as having extremely poor prospects of ever attaining any real investment standing.
This rating applies only to U.S. Tax-Exempt Municipals Bonds for which the security depends upon the completion of some act or the fulfillment of some condition are rated conditionally. These are bonds secured by (a) earnings of projects under construction, (b) earnings of projects unseasoned in operating experience, (c) rentals that begin when facilities are completed, or (d) payments to which some other limiting condition attaches. Parenthetical rating denotes probable credit stature upon completion of construction or elimination of basis of condition.
Note: Moody's applies numerical modifiers 1, 2 and 3 in each generic rating classification from Aa through Caa. The modifier 1 indicates that the obligation ranks in the higher end of its generic rating category; modifier 2 indicates a mid-range ranking; and the modifier 3 indicates a ranking in the lower end of that generic rating category.
Moody's short-term debt ratings are opinions of the ability of issuers to repay punctually senior debt obligations. These obligations have an original maturity not exceeding one year, unless explicitly noted.
Moody's employs the following three designations, all judged to be investment grade, to indicate the relative repayment ability of rated issuers:
Prime-1 Issuers rated Prime-1 (or supporting institution) have a
superior ability for repayment of senior short-term debt
obligations. Prime-1 repayment ability will often be evidenced
by many of the following characteristics:
o Leading market positions in well-established industries.
o Conservative capitalization structure with moderate reliance on debt
and ample asset protection.
o Broad margins in earnings coverage of fixed financial charges and high
internal cash generation.
o Well-established access to a range of financial markets and assured
sources of alternate liquidity.
Prime-2 Issuers rated Prime-2 (or supporting institutions) have a
strong ability for repayment of senior short-term debt
obligations. This will normally be evidenced by many of the
characteristics cited above but to a lesser degree. Earnings
trends and coverage ratios, while sound, may be more subject
to variation. Capitalization characteristics, while still
appropriate, may be more affected by external conditions.
Ample alternate liquidity is maintained.
Prime-3 Issuers rated Prime-3 (or supporting institutions) have an
acceptable ability for repayment of senior short-term
obligation. The effect of industry characteristics and market
compositions may be more pronounced. Variability in earnings
and profitability may result in changes in the level of debt
protection measurements and may require relatively high
financial leverage. Adequate alternate liquidity is
maintained.
Not Prime Issuers rated Not Prime do not fall within any of the Prime
rating categories.
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STANDARD & POOR'S RATING SERVICES
Issue credit ratings are based, in varying degrees, on the following considerations:
1. Likelihood of payment-capacity and willingness of the obligor to meet its financial commitment on an obligation in accordance with the terms of the obligation;
2. Nature of and provisions of the obligation;
3. Protection afforded by, and relative position of, the obligation in the event of bankruptcy, reorganization, or other arrangement under the laws of bankruptcy and other laws affecting creditors' rights.
The issue rating definitions are expressed in terms of default risk. As such, they pertain to senior obligations of an entity. Junior obligations are typically rated lower than senior obligations, to reflect the lower priority in bankruptcy, as noted above. Accordingly, in the case of junior debt, the rating may not conform exactly to the category definition.
AAA An obligation rated "AAA" has the highest rating assigned by Standard & Poor's. The obligor's capacity to meet its financial commitment on the obligation is extremely strong.
AA An obligation rated "AA" differs from the highest rated obligations only in small degree. The obligor's capacity to meet its financial commitment on the obligation is very strong.
A An obligation rated "A" is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than obligations in higher rated categories. However, the obligor's capacity to meet its financial commitment on the obligation is still strong.
BBB An obligation rated "BBB" exhibits adequate protection parameters.
However, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity of the obligor to meet its
financial commitment on the obligation.
Obligations rated "BB," "B," "CCC," "CC" and "C" are regarded as having significant speculative characteristics. "BB" indicates the least degree of speculation and "C" the highest. While such obligations will likely have some quality and protective characteristics, these may be outweighed by large uncertainties or major risk exposures to adverse conditions.
BB An obligation rated "BB" is less vulnerable to nonpayment than other speculative issues. However, it faces major ongoing uncertainties or exposures to adverse business, financial, or economic conditions which could lead to the obligor's inadequate capacity to meet its financial commitment on the obligation.
B An obligation rated "B" is more vulnerable to nonpayment than obligations rated "BB," but the obligor currently has the capacity to meet its financial commitment on the obligation. Adverse business, financial, or economic conditions will likely impair the obligor's capacity or willingness to meet its financial commitment on the obligation.
CCC An obligation rated "CCC" is currently vulnerable to non-payment, and is dependent upon favorable business, financial, and economic conditions for the obligor to meet its financial commitment on the obligation. In the event of adverse business, financial, or economic conditions, the obligor is not likely to have the capacity to meet its financial commitment on the obligations.
CC An obligation rated "CC" is currently highly vulnerable to nonpayment.
C A subordinated debt or preferred stock obligation rated "C" is currently highly vulnerable to non-payment. The "C" rating may be used to cover a situation where a bankruptcy petition has been filed or similar action taken, but payments on this obligation are being continued. A "C" will also be assigned to a preferred stock issue in arrears on dividends or sinking portfolio payments, but that is currently paying.
D An obligation rated "D" is in payment default. The "D" rating category is used when payments on an obligation are not made on the date due even if the applicable grace period has not expired, unless Standard & Poor's believes that such payments will be made during such grace period. The "D" rating also will be used upon the filing of a bankruptcy petition or the taking of a similar action if payments on an obligation are jeopardized.
r This symbol is attached to the ratings of instruments with significant noncredit risks. It highlights risks to principal or volatility of expected returns which are not addressed in the credit rating. Examples include: obligation linked or indexed to equities, currencies, or commodities; obligations exposed to severe prepayment risk- such as interest-only or principal-only mortgage securities; and obligations with unusually risky interest terms, such as inverse floaters.
N.R. This indicates that no rating has been requested, that there is insufficient information on which to base a rating, or that Standard & Poor's does not rate a particular obligation as a matter of policy.
Plus (+) or minus (-): The ratings from "AA" to "CCC" may be modified by the addition of a plus or minus sign to show relative standing within the major rating categories.
A-1 A short-term obligation rated "A-1" is rated in the highest category by Standard & Poor's. The obligor's capacity to meet its financial commitment on the obligation is strong. Within this category, certain obligations are designated with a plus sign (+). This indicates that the obligor's capacity to meet its financial commitment on these obligations is extremely strong.
A-2 A short-term obligation rated "A-2" is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than obligations in higher rating categories. However, the obligor's capacity to meet its financial commitment on the obligation is satisfactory.
A-3 A short-term obligation rated "A-3" exhibits adequate protection parameters. However, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity of the obligor to meet its financial commitment on the obligation.
B A short-term obligation rated "B" is regarded as having significant speculative characteristics. The obligor currently has the capacity to meet its financial commitment on the obligation; however, it faces major ongoing uncertainties that could lead to the obligor's inadequate capacity to meet its financial commitment on the obligation.
C A short-term obligation rated "C" is currently vulnerable to nonpayment and is dependent upon favorable business, financial, and economic conditions for the obligor to meet its financial commitment on the obligation.
D A short-term obligation rated "D" is in payment default. The "D" rating category is used when payments on an obligation are not made on the date due even if the applicable grace period has not expired, unless Standard & Poors' believes that such payments will be made during such grace period. The "D" rating also will be used upon the filing of a bankruptcy petition or the taking of a similar action if payments on an obligation are jeopardized.
Country risks considerations are a standard part of Standard & Poor's analysis for credit ratings on any issuer or issue. Currency of repayment is a key factor in this analysis. An obligor's capacity to repay foreign currency obligations may be lower than its capacity to repay obligations in its local currency due to the sovereign government's own relatively lower capacity to repay external versus domestic debt. These sovereign risk considerations are incorporated in the debt ratings assigned to specific issues. Foreign currency issuer ratings are also distinguished from local currency issuer ratings to identity those instances where sovereign risks make them different for the same issuer.
FITCH INC. RATINGS
Investment Grade
AAA Highest credit quality. "AAA" ratings denote the lowest expectation of credit risk. They are assigned only in case of exceptionally strong capacity for timely payment of financial commitments. This capacity is highly unlikely to be adversely affected by foreseeable events.
AA Very high credit quality. "AA" ratings denote a very low expectation of credit risk. They indicate very strong capacity for timely payment of financial commitments. This capacity is not significantly vulnerable to foreseeable events.
A High credit quality. "A" ratings denote a low expectation of credit risk. The capacity for timely payment of financial commitments is considered strong. This capacity may, nevertheless, be more vulnerable to changes in circumstances or in economic conditions than is the case for higher ratings.
BBB Good credit quality. "BBB" ratings indicate that there is currently a low expectation of credit risk. The capacity for timely payment of financial commitments is considered adequate, but adverse changes in circumstances and in economic conditions are more likely to impair this capacity. This is the lowest investment-grade category.
Speculative Grade
BB Speculative. "BB" ratings indicate that there is a possibility of credit risk developing, particularly as the result of adverse economic change over time; however, business or financial alternatives may be available to allow financial commitments to be met. Securities rated in this category are not investment grade.
B Highly speculative. "B" ratings indicate that significant credit risk is present, but a limited margin of safety remains. Financial
commitments are currently being met; however, capacity for continued payment is contingent upon a sustained, favorable business and economic environment.
CCC,CC,C High default risk. Default is a real possibility.
Capacity for meeting financial commitments is solely
reliant upon sustained, favorable business or
economic developments. A "CC" rating indicates that
default of some kind appears probable. "C" ratings
signal imminent default.
DDD,DD,D Default. The ratings of obligations in this category
are based on their prospects for achieving partial or
full recovery in a reorganization or liquidation of
the obligor. While expected recovery values are
highly speculative and cannot be estimated with any
precision, the following serve as general guidelines.
"DDD" obligations have the highest potential for
recovery, around 90%-100% of outstanding amounts and
accrued interest. "D" indicates potential recoveries
in the range of 50%-90%, and "D" the lowest recovery
potential, I.E., below 50%.
Entities rated in this category have defaulted on
some or all of their obligations. Entities rated
"DDD" have the highest prospect for resumption of
performance or continued operation with or without a
formal reorganization process. Entities rated "DD"
and "D" are generally undergoing a formal
reorganization or liquidation process; those rated
"DD" are likely to satisfy a higher portion of their
outstanding obligations, while entities rated "D"
have a poor prospect for repaying all obligations.
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F1 Highest credit quality. Indicates the best capacity for timely
payment of financial commitments; may have an added "+" to
denote any exceptionally strong credit feature.
F2 Good credit quality. A satisfactory capacity for timely payment
of financial commitments, but the margin of safety is not as
great as in the case of the higher ratings.
F3 Fair credit quality. The capacity for timely payment of
financial commitments is adequate; however, near-term adverse
changes could result in a reduction to non- investment grade.
B Speculative. Minimal capacity for timely payment of financial
commitments, plus vulnerability to near-term adverse changes in
financial and economic conditions.
C High default risk. Default is a real possibility. Capacity for
meeting financial commitments is solely reliant upon a
sustained, favorable business and economic environment.
D Default. Denotes actual or imminent payment default.
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NOTES
"+" or "-" may be appended to a rating to denote relative status within major rating categories. Such suffixes are not added to the "AAA" long-term rating category, to categories below "CCC," or to short-term ratings other than "F1."
"NR" indicates that Fitch Inc. does not rate the issuer or issue in question.
"Withdrawn:" A rating is withdrawn when Fitch Inc. deems the amount of information available to be inadequate for rating purposes, or when an obligation matures, is called, or refinanced.
RatingAlert: Ratings are placed on RatingAlert to notify investors that there is a reasonable probability of a rating change and the likely direction of such change. These are designated as "Positive," indicating a potential upgrade, "Negative," for a potential downgrade, or "Evolving," if ratings may be raised, lowered or maintained. RatingAlert is typically resolved over a relatively short period.
APPENDIX B - PROXY VOTING POLICIES AND PROCEDURES
ANALYTIC INVESTORS
PROXY VOTING POLICY AND PROCEDURE
Analytic Investors assumes a fiduciary responsibility to vote proxies in the best interest of its clients. In addition, with respect to benefit plans under the Employee Retirement Income Securities Act (ERISA), Analytic Investors acknowledges its responsibility as a fiduciary to vote proxies prudently and solely in the best interest of plan participants and beneficiaries. So that it may fulfill these fiduciary responsibilities to clients, Analytic Investors has adopted and implemented these written policies and procedures reasonably designed to ensure that it votes proxies in the best interest of clients.
Analytic Investors acknowledges that it has a duty of care to its clients that requires it to monitor corporate events and vote client proxies. Analytic Investors has established a Proxy Oversight Committee (the "Committee"), to oversee the proxy voting process. The Committee consists of the Chief Investment Officer, the Compliance Officer, and the Proxy Coordinator. The Committee seeks to develop, recommend, and monitor policies governing proxy voting. The adopted guidelines for proxy voting have been developed to be consistent, wherever possible, with enhancing long-term shareholder value and leading corporate governance practices. Analytic Investors has a policy not to be unduly influenced by representatives of management or any public interest or other outside groups when voting proxies. To this end, Analytic Investors has contracted with an independent proxy voting service (the "Proxy Service").
By letter from the Proxy Coordinator, custodians are instructed to forward all proxy materials directly to the Proxy Service. Any proxy materials inadvertently sent to Analytic Investors are copied for file and then delivered to the Proxy Service. At any time of absence of the Proxy Coordinator, another member of the Proxy Committee will assume responsibilities for all proxy matters. To assure receipt of and compliance with the forwarding request, the Proxy Service receives a signed and dated confirmation of the instruction letter from the custodian. At the instruction of the Proxy Service, custodians transmit proxy information via automated electronic file.
The role of the Proxy Service includes researching proxy matters, executing the voting process, maintaining a record of all proxies voted on behalf of Analytic Investors, advising Analytic Investors of any material conflicts of interest (see below), and providing Analytic Investors with documentation of the voting record. Analytic Investors has opted to delegate all proxy voting to the Proxy Service except for those instances when a conflict of interest (see below) prevents the Proxy Service from voting according to its guidelines. A copy of the voting policy guidelines of the Proxy Service is attached.
Occasions may arise during the voting process in which the best interest of clients might conflict with the Proxy Service's interests. A conflict of interest would generally include (i) business relationships where the Proxy Service has a substantial business relationship with, or is actively soliciting business from, a company soliciting proxies, or (ii) personal or family relationships whereby an employee of the Proxy Service has a family member or other personal relationship that is affiliated with a company soliciting proxies, such as a spouse who serves as a director of a public company, or (iii) if a substantial business relationship exists with a proponent or opponent of a particular initiative.
At times of such conflict of interest, the Proxy Service will recuse
itself from voting a proxy and notify the Analytic Investors Proxy Coordinator.
Upon notification the Proxy Service's recusal from voting, Analytic Investors'
Proxy Coordinator will prepare a report to the Proxy Committee that identifies
(i) the details of the conflict of interest, (ii) whether or not the conflict is
material; and (iii) procedures to ensure that Analytic Investors makes proxy
voting decisions based on the best interest of clients, and (iv) a copy of the
voting guidelines of the Proxy Service. At least two members of Analytic
Investors' Proxy Committee will then vote the proxy, adhering to the original
voting policy guidelines provided by the Proxy Service. Analytic Investors'
Proxy Committee will not override the voting guidelines of the Proxy Service. A
record of the voting by the Proxy Committee will be retained by the Proxy
Coordinator. Another member of the Proxy Committee will assume the
responsibilities of the Proxy Coordinator in his/her absence.
Analytic Investors has reviewed the Proxy Service's voting recommendations and have determined that the policy provides guidance in the best interest of our clients. A copy of these guidelines is attached.
The Proxy Coordinator will maintain a record containing the following information regarding the voting of proxies: (i) the name of the issuer, (ii) the CUSIP number, (iii) the shareholder meeting date, (iv) number of shares voted, (v) a brief description of the matter brought to vote; (vi) whether the proposal was submitted by management or a shareholder, (vii) how the Service voted the proxy (for, against, abstained), and (viii) whether the proxy was voted for or against management.
Clients may request a copy of the guidelines governing proxy voting and/or a report on how their individual securities were voted by calling Analytic Investors' Proxy Coordinator at 1-800-618-1872. The report will be provided free of charge.
Pursuant to Rule 204-2 of the Investment Advisers Act of 1940, Analytic Investors will maintain the following records for five years in an easily accessible place, the first two years in its office:
o Analytic Investors' proxy voting policies and procedures, as well as the voting guidelines of the Proxy Service
o Proxy statements received regarding client securities (proxy statements filed via EDGAR will not be separately maintained by Analytic Investors)
o Records of votes cast on behalf of clients
o Records of written client requests for voting information
o Records of written responses from Analytic Investors to both written and verbal client requests
o Any other documents prepared that were material to Analytic Investors' decision to vote a proxy or that memorialized the basis for the decision.
STATEMENT OF ADDITIONAL INFORMATION
ANALYTIC DEFENSIVE EQUITY FUND
CLASS A AND C SHARES
SERIES OF THE ADVISORS' INNER CIRCLE FUND
MAY 1, 2005
INVESTMENT ADVISER:
ANALYTIC INVESTORS, INC.
This Statement of Additional Information ("SAI") is not a prospectus. This SAI is intended to provide additional information regarding the activities and operations of The Advisors' Inner Circle Fund (the "Trust") and the Analytic Defensive Equity Fund (the "Fund"). This SAI should be read in conjunction with the Fund's prospectus dated May 1, 2005. Capitalized terms not defined herein are defined in the prospectus. Shareholders may obtain copies of the Fund's prospectus free of charge by the Fund at 1-866-777-7818.
TABLE OF CONTENTS
THE TRUST...................................................................S-1 GLOSSARY....................................................................S-2 DESCRIPTION OF PERMITTED INVESTMENTS........................................S-2 INVESTMENT POLICIES OF THE FUND............................................S-28 INVESTMENT ADVISORY AND OTHER SERVICES.....................................S-30 PORTFOLIO MANAGERS.........................................................S-32 THE ADMINISTRATOR..........................................................S-34 THE DISTRIBUTOR............................................................S-35 TRANSFER AGENT.............................................................S-36 CUSTODIAN..................................................................S-36 INDEPENDENT AUDITOR........................................................S-36 LEGAL COUNSEL..............................................................S-36 TRUSTEES AND OFFICERS OF THE TRUST.........................................S-36 PURCHASING AND REDEEMING SHARES............................................S-43 DETERMINATION OF NET ASSET VALUE...........................................S-43 TAXES ..................................................................S-44 BROKERAGE ALLOCATION AND OTHER PRACTICES...................................S-47 PORTFOLIO HOLDINGS.........................................................S-49 DESCRIPTION OF SHARES......................................................S-52 SHAREHOLDER LIABILITY......................................................S-52 LIMITATION OF TRUSTEES' LIABILITY..........................................S-52 PROXY VOTING...............................................................S-52 CODES OF ETHICS............................................................S-53 APPENDIX A - RATINGS........................................................A-1 APPENDIX B - PROXY VOTING POLICIES AND PROCEDURES...........................B-1 |
May 1, 2005
THE TRUST
GENERAL. The Fund is a separate series of 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, as amended February 18, 1997. The Declaration of Trust permits the Trust to offer separate series ("funds") of shares of beneficial interest ("shares"). The Trust reserves the right to create and issue shares of additional funds. The Fund is a separate mutual fund, and each share of the Fund represents an equal proportionate interest in that Fund. All consideration received by the Trust for shares of any fund and all assets of such fund belong solely to that fund and would be subject to liabilities related thereto. Generally, 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, 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.
DESCRIPTION OF MULTIPLE CLASSES OF SHARES. The Trust is authorized to offer multiple classes of shares of its funds. The Fund currently offers Institutional, Class A and Class C shares. Additional classes may be created from time to time. The different classes provide for variations in certain distribution and shareholder servicing expenses and in the investor eligibility requirements. Sales charges and investor eligibility requirements are described in the Fund's prospectus. The different classes provide for variations in sales charges, certain distribution and shareholder servicing expenses and in the minimum initial investment requirements. Minimum investment requirements and investor eligibility are described in the prospectus. For more information on shareholder servicing and distribution expenses, see the "Distributor."
--------------------------------------------- --------------------- ------------------------- ----------------------
FUND INSTITUTIONAL CLASS A CLASS C
CLASS
--------------------------------------------- --------------------- ------------------------- ----------------------
Analytic Defensive Equity Fund X X X
--------------------------------------------- --------------------- ------------------------- ----------------------
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HISTORY OF THE FUND. The Analytic Defensive Equity Fund is a successor to the UAM Funds, Inc. II Analytic Defensive Equity Fund ("Predecessor Analytic Defensive Equity Fund"). The Predecessor Analytic Defensive Equity Fund's date of inception was July 1, 1978. The Predecessor Analytic Defensive Fund dissolved and reorganized into the Analytic Defensive Equity Fund on June 24, 2002 (the "Reorganization"). Substantially all of the assets of the Predecessor Analytic Defense Equity Fund were transferred to its successor in connection with the Fund's commencement of operations on June 24, 2002. The Predecessor Analytic Defensive Equity Fund was managed by Analytic Investors, Inc. ("Analytic" or the "Adviser") using the same investment objective, strategies, policies and restrictions as those used by the Fund following the Reorganization.
VOTING RIGHTS. Each shareholder of record is entitled to one vote for each dollar of net asset value of the shares held on the record date for the meeting. The Fund will vote separately on matters relating solely to it. As a Massachusetts business trust, the Trust is not required, and does not intend, to hold annual meetings of shareholders. Shareholders approval will be sought, however, for certain changes in the operation of the Trust and for the election of Trustees under certain circumstances. Under the Declaration of Trust, the Trustees have the power to liquidate one or more Funds without shareholder approval. While the Trustees have no present intention of exercising this power, they may do so if the Fund fails to reach a viable size within a reasonable amount of time or for some other extraordinary reason.
In addition, a Trustee may be removed by the remaining Trustees or by shareholders at a special meeting called upon written request of shareholders owning at least 10% of the outstanding shares of the Trust. In the event that such a meeting is requested, the Trust will provide appropriate assistance and information to the shareholders requesting the meeting.
GLOSSARY
All terms that this SAI does not otherwise define have the same meaning in the SAI as they do in the Fund's prospectus.
o 1933 ACT means the Securities Act of 1933, as amended.
o 1934 ACT means the Securities Exchange Act of 1934, as amended.
o 1940 ACT means the Investment Company Act of 1940, as amended.
o ADVISER means Analytic Investors, Inc., the investment adviser to the Fund.
o BOARD refers to the Trust's Board of Trustees as a group.
o TRUST refers to The Advisors' Inner Circle Fund.
o NAV is the net asset value per share of the Fund.
o NYSE is the New York Stock Exchange.
o SEC is the U.S. Securities and Exchange Commission.
o ADMINISTRATOR is SEI Investments Global Funds Services (formerly named SEI Investments Mutual Funds Services).
o DISTRIBUTOR is SEI Investments Distribution Co.
o CODE is the Internal Revenue Code of 1986, as amended.
o CFTC is the Commodity Futures Trading Commission.
Capitalized terms not defined herein are defined in the Fund's prospectus.
DESCRIPTION OF PERMITTED INVESTMENTS
WHAT INVESTMENT STRATEGIES MAY THE FUND USE?
The Fund's investment objectives and principal investment strategies are described in the prospectus(es). The following information supplements, and should be read in conjunction with, the prospectus. The Fund will only invest in any of the following instruments or engage in any of the following investment practices if such investment or activity is consistent with the Fund's investment objectives and as permitted by its stated investment policies. For a description of certain permitted investments discussed below, see "Description of Permitted Investments" in this SAI.
DEBT SECURITIES
Corporations and governments use debt securities to borrow money from investors. Most debt securities promise a variable or fixed rate of return and repayment of the amount borrowed at maturity. Some debt securities, such as zero-coupon bonds, do not pay current interest and are purchased at a discount from their face value.
TYPES OF DEBT SECURITIES:
U.S. GOVERNMENT SECURITIES - U.S. government securities are securities issued by the U.S. Treasury (treasury securities) and securities issued by a federal agency or a government-sponsored entity (agency securities). Treasury securities include treasury bills, which have initial maturities of less than one year, and treasury notes, which have initial maturities of one to ten years, and treasury bonds, which have initial maturities of at least ten years, and certain types of mortgage-backed securities that are described under "Mortgage-Backed Securities" and "Other Asset-Backed Securities." This SAI discusses mortgage-backed treasury and agency securities in detail in "Mortgage-Backed Securities" and "Other Asset-Backed Securities."
The full faith and credit of the U.S. government supports treasury securities. Unlike treasury securities, the full faith and credit of the U.S. government generally does not back agency securities. Agency securities are typically supported in one of three ways:
o By the right of the issuer to borrow from the U.S. Treasury;
o By the discretionary authority of the U.S. government to buy the obligations of the agency; or
o By the credit of the sponsoring agency.
While U.S. government securities are guaranteed as to principal and interest, their market value is not guaranteed. U.S. government securities are subject to the same interest rate and credit risks as other fixed income securities. However, since U.S. government securities are of the highest quality, the credit risk is minimal. The U.S. government does not guarantee the net asset value of the assets of the Fund.
CORPORATE BONDS - Corporations issue bonds and notes to raise money for working capital or for capital expenditures such as plant construction, equipment purchases and expansion. In return for the money loaned to the corporation by investors, the corporation promises to pay investors interest, and repay the principal amount of the bond or note.
MORTGAGE-BACKED SECURITIES - Mortgage-backed securities are interests in pools of mortgage loans that various governmental, government-related and private organizations assemble as securities for sale to investors. Unlike most debt securities, which pay interest periodically and repay principal at maturity or on specified call dates, mortgage-backed securities make monthly payments that consist of both interest and principal payments. In effect, these payments are a "pass-through" of the monthly payments made by the individual borrowers on their mortgage loans, net of any fees paid to the issuer or guarantor of such securities. Since homeowners usually have the option of paying either part or all of the loan balance before maturity, the effective maturity of a mortgage-backed security is often shorter than is stated.
Governmental entities, private insurers and the mortgage poolers may insure or guarantee the timely payment of interest and principal of these pools through various forms of insurance or guarantees, including individual loan, title, pool and hazard insurance and letters of credit. The Adviser will consider such insurance and guarantees and the creditworthiness of the issuers thereof in determining whether a mortgage-related security meets its investment quality standards. It is possible that the private insurers or guarantors will not meet their obligations under the insurance policies or guarantee arrangements.
Although the market for such securities is becoming increasingly liquid, securities issued by certain private organizations may not be readily marketable.
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (GNMA) - GNMA is the principal governmental guarantor of mortgage-related securities. GNMA is a wholly-owned corporation of the U.S. government
and it falls within the Department of Housing and Urban Development. Securities issued by GNMA are considered the equivalent of treasury securities and are backed by the full faith and credit of the U.S. government. GNMA guarantees the timely payment of principal and interest on securities issued by institutions approved by GNMA and backed by pools of FHA-insured or VA-guaranteed mortgages. GNMA does not guarantee the market value or yield of mortgage-backed securities or the value of the Fund's shares. To buy GNMA securities, the Fund may have to pay a premium over the maturity value of the underlying mortgages, which the Fund may lose if prepayment occurs.
FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA) - FNMA is a government-sponsored corporation owned entirely by private stockholders. FNMA is regulated by the Secretary of Housing and Urban Development. FNMA purchases conventional mortgages from a list of approved sellers and service providers, including state and federally-chartered savings and loan associations, mutual savings banks, commercial banks and credit unions and mortgage bankers. Securities issued by FNMA are agency securities, which means FNMA, but not the U.S. government, guarantees their timely payment of principal and interest.
FEDERAL HOME LOAN MORTGAGE CORPORATION (FHLMC) - FHLMC is a stockholder owned corporation chartered by Congress in 1970 to increase the supply of funds that mortgage lenders, such as commercial banks, mortgage bankers, savings institutions and credit unions, can make available to homebuyers and multifamily investors. FHLMC issues Participation Certificates (PCs) which represent interests in conventional mortgages. FHLMC guarantees the timely payment of interest and ultimate collection of principal, but PCs are not backed by the full faith and credit of the U.S. government.
COMMERCIAL BANKS, SAVINGS AND LOAN INSTITUTIONS, PRIVATE MORTGAGE INSURANCE COMPANIES, MORTGAGE BANKERS AND OTHER SECONDARY MARKET ISSUERS - Commercial banks, savings and loan institutions, private mortgage insurance companies, mortgage bankers and other secondary market issuers also create pass-through pools of conventional mortgage loans. In addition to guaranteeing the mortgage-related security, such issuers may service and/or have originated the underlying mortgage loans. Pools created by these issuers generally offer a higher rate of interest than pools created by GNMA, FNMA & FHLMC because they are not guaranteed by a government agency.
RISKS OF MORTGAGE-BACKED SECURITIES - Yield characteristics of mortgage-backed securities differ from those of traditional debt securities in a variety of ways. For example, payments of interest and principal are more frequent (usually monthly) and their interest rates are sometimes adjustable. In addition, a variety of economic, geographic, social and other factors, such as the sale of the underlying property, refinancing or foreclosure, can cause investors to repay the loans underlying a mortgage-backed security sooner than expected. When prepayment occurs, the Fund may have to reinvest its principal at a rate of interest that is lower than the rate on existing mortgage-backed securities.
OTHER ASSET-BACKED SECURITIES - These securities are interests in pools of a broad range of assets other than mortgages, such as automobile loans, computer leases and credit card receivables. Like mortgage-backed securities, these securities are pass-through. In general, the collateral supporting these securities is of shorter maturity than mortgage loans and is less likely to experience substantial prepayments with interest rate fluctuations.
Asset-backed securities present certain risks that are not presented by mortgage-backed securities. Primarily, these securities may not have the benefit of any security interest in the related assets, which raises the possibility that recoveries on repossessed collateral may not be available to support payments on these securities. For example, credit card receivables are generally unsecured and the debtors are entitled to the protection of a number of state and federal consumer credit laws, many of which allow debtors to reduce their balances by offsetting certain amounts owed on the credit cards. Most issuers of
asset-backed securities backed by automobile receivables permit the servicers of such receivables to retain possession of the underlying obligations. If the servicer were to sell these obligations to another party, there is a risk that the purchaser would acquire an interest superior to that of the holders of the related asset-backed securities. Due to the quantity of vehicles involved and requirements under state laws, asset-backed securities backed by automobile receivables may not have a proper security interest in all of the obligations backing such receivables.
To lessen the effect of failures by obligors on underlying assets to make payments, the entity administering the pool of assets may agree to ensure the receipt of payments on the underlying pool occurs in a timely fashion ("liquidity protection"). In addition, asset-backed securities may obtain insurance, such as guarantees, policies or letters of credit obtained by the issuer or sponsor from third parties, for some or all of the assets in the pool ("credit support"). Delinquency or loss more than that anticipated or failure of the credit support could adversely affect the return on an investment in such a security.
The Fund may also invest in residual interests in asset-backed securities, which consist of the excess cash flow remaining after making required payments on the securities and paying related administrative expenses. The amount of residual cash flow resulting from a particular issue of asset-backed securities depends in part on the characteristics of the underlying assets, the coupon rates on the securities, prevailing interest rates, the amount of administrative expenses and the actual prepayment experience on the underlying assets.
COLLATERALIZED MORTGAGE OBLIGATIONS (CMOS) - CMOs are hybrids between mortgage-backed bonds and mortgage pass-through securities. Similar to a bond, CMOs usually pay interest monthly and have a more focused range of principal payment dates than pass-through securities. While whole mortgage loans may collateralize CMOs, mortgage-backed securities guaranteed by GNMA, FHLMC, or FNMA and their income streams more typically collateralize them.
A REMIC is a CMO that qualifies for special tax treatment under the Internal Revenue Code of 1986, as amended, and invests in certain mortgages primarily secured by interests in real property and other permitted investments.
CMOs are structured into multiple classes, each bearing a different stated maturity. Each class of CMO or REMIC certificate, often referred to as a "tranche," is issued at a specific interest rate and must be fully retired by its final distribution date. Generally, all classes of CMOs or REMIC certificates pay or accrue interest monthly. Investing in the lowest tranche of CMOs and REMIC certificates involves risks similar to those associated with investing in equity securities.
SHORT-TERM INVESTMENTS - To earn a return on uninvested assets, meet anticipated redemptions, or for temporary defensive purposes, the Fund may invest a portion of its assets in the short-term securities listed below, U.S. Government Securities and investment-grade corporate debt securities. Unless otherwise specified, a short-term debt security has a maturity of one year or less.
BANK OBLIGATIONS - The Fund will only invest in a security issued by a commercial bank if the bank:
o Has total assets of at least $1 billion, or the equivalent in other currencies;
o Is a U.S. bank and a member of the Federal Deposit Insurance Corporation; and
o Is a foreign branch of a U.S. bank and the Adviser believes the security is of an investment quality comparable with other debt securities that the Fund may purchase.
TIME DEPOSITS - Time deposits are non-negotiable deposits, such as savings accounts or certificates of deposit, held by a financial institution for a fixed term with the understanding that the depositor can withdraw its money only by giving notice to the institution. However, there may be early withdrawal penalties depending upon market conditions and the remaining maturity of the obligation. The Fund may only purchase time deposits maturing from two business days through seven calendar days.
CERTIFICATES OF DEPOSIT - Certificates of deposit are negotiable certificates issued against funds deposited in a commercial bank or savings and loan association for a definite period of time and earning a specified return.
BANKERS' ACCEPTANCE - A bankers' acceptance is a time draft drawn on a commercial bank by a borrower, usually in connection with an international commercial transaction (to finance the import, export, transfer or storage of goods).
COMMERCIAL PAPER - Commercial paper is a short-term obligation with a maturity ranging from 1 to 270 days issued by banks, corporations and other borrowers. Such investments are unsecured and usually discounted. The Fund may invest in commercial paper rated A-1 or A-2 by Standard and Poor's Ratings Services ("S&P") or Prime-1 or Prime-2 by Moody's Investors Service ("Moody's"), or, if not rated, issued by a corporation having an outstanding unsecured debt issue rated A or better by Moody's or by S&P. See "Appendix A - Ratings" for a description of commercial paper ratings.
STRIPPED MORTGAGE-BACKED SECURITIES - Stripped mortgage-backed securities are derivative multiple-class mortgage-backed securities. Stripped mortgage-backed securities usually have two classes that receive different proportions of interest and principal distributions on a pool of mortgage assets. Typically, one class will receive some of the interest and most of the principal, while the other class will receive most of the interest and the remaining principal. In extreme cases, one class will receive all of the interest ("interest only" or "IO" class) while the other class will receive the entire principal ("principal only" or "PO" class). The cash flow and yields on IOs and POs are extremely sensitive to the rate of principal payments (including prepayments) on the underlying mortgage loans or mortgage-backed securities. A rapid rate of principal payments may adversely affect the yield to maturity of IOs. Slower than anticipated prepayments of principal may adversely affect the yield to maturity of a PO. The yields and market risk of interest only and principal only stripped mortgage-backed securities, respectively, may be more volatile than those of other fixed income securities, including traditional mortgage-backed securities.
YANKEE BONDS - Yankee bonds are dollar-denominated bonds issued inside the U.S. by foreign entities. Investment in these securities involve certain risks which are not typically associated with investing in domestic securities. See "Foreign Securities."
ZERO COUPON BONDS - These securities make no periodic payments of interest, but instead are sold at a discount from their face value. When held to maturity, their entire income, which consists of accretion of discount, comes from the difference between the issue price and their value at maturity. The amount of the discount rate varies depending on factors including the time remaining until maturity, prevailing interest rates, the security's liquidity and the issuer's credit quality. The market value of zero coupon securities may exhibit greater price volatility than ordinary debt securities because a stripped security will have a longer duration than an ordinary debt security with the same maturity. The Fund's investments in pay-in-kind, delayed and zero coupon bonds may require it to sell certain of its portfolio securities to generate sufficient cash to satisfy certain income distribution requirements.
These securities may include treasury securities that have had their interest payments ("coupons") separated from the underlying principal ("corpus") by their holder, typically a custodian bank or
investment brokerage firm. Once the holder of the security has stripped or separated corpus and coupons, it may sell each component separately. The principal or corpus is then sold at a deep discount because the buyer receives only the right to receive a future fixed payment on the security and does not receive any rights to periodic interest (cash) payments. Typically, the coupons are sold separately or grouped with other coupons with like maturity dates and sold bundled in such form. The underlying treasury security is held in book-entry form at the Federal Reserve Bank or, in the case of bearer securities (I.E., unregistered securities which are owned ostensibly by the bearer or holder thereof), in trust on behalf of the owners thereof. Purchasers of stripped obligations acquire, in effect, discount obligations that are economically identical to the zero coupon securities that the U.S. Treasury sells itself.
The U.S. Treasury has facilitated transfers of ownership of zero coupon securities by accounting separately for the beneficial ownership of particular interest coupon and corpus payments on Treasury securities through the Federal Reserve book-entry record keeping system. Under a Federal Reserve program known as "STRIPS" or "Separate Trading of Registered Interest and Principal of Securities," the Fund may record its beneficial ownership of the coupon or corpus directly in the book-entry record-keeping system.
TERMS TO UNDERSTAND:
MATURITY - Every debt security has a stated maturity date when the issuer must repay the amount it borrowed (principal) from investors. Some debt securities, however, are callable, meaning the issuer can repay the principal earlier, on or after specified dates (call dates). Debt securities are most likely to be called when interest rates are falling because the issuer can refinance at a lower rate, similar to a homeowner refinancing a mortgage. The effective maturity of a debt security is usually its nearest call date.
Mutual funds that invest in debt securities have no real maturity. Instead, they calculate their weighted average maturity. This number is an average of the effective or anticipated maturity of each debt security held by the mutual fund, with the maturity of each security weighted by the percentage of the assets of the mutual fund it represents.
DURATION - Duration is a calculation that seeks to measure the price sensitivity of a debt security, or of a mutual fund that invests in debt securities, to changes in interest rates. It measures sensitivity more accurately than maturity because it takes into account the time value of cash flows generated over the life of a debt security. Future interest payments and principal payments are discounted to reflect their present value and then are multiplied by the number of years they will be received to produce a value expressed in years -- the duration. Effective duration takes into account call features and sinking fund prepayments that may shorten the life of a debt security.
An effective duration of four years, for example, would suggest that for each 1% reduction in interest rates at all maturity levels, the price of a security is estimated to increase by 4%. An increase in rates by the same magnitude is estimated to reduce the price of the security by 4%. By knowing the yield and the effective duration of a debt security, one can estimate total return based on an expectation of how much interest rates, in general, will change. While serving as a good estimator of prospective returns, effective duration is an imperfect measure.
FACTORS AFFECTING THE VALUE OF DEBT SECURITIES - The total return of a debt instrument is composed of two elements: the percentage change in the security's price and interest income earned. The yield to maturity of a debt security estimates its total return only if the price of the debt security remains unchanged during the holding period and coupon interest is reinvested at the same yield to maturity. The
total return of a debt instrument, therefore, will be determined not only by how much interest is earned, but also by how much the price of the security and interest rates change.
o INTEREST RATES
The price of a debt security generally moves in the opposite direction from interest rates (I.E., if interest rates go up, the value of the bond will go down, and vice versa).
o PREPAYMENT RISK
This risk effects mainly mortgage-backed securities. Unlike other debt securities, falling interest rates can reduce the value of mortgage-backed securities, which may cause your share price to fall. Lower rates may motivate people to pay off mortgage-backed and asset-backed securities earlier than expected. The Fund may then have to reinvest the proceeds from such prepayments at lower interest rates, which can reduce its yield. The unexpected timing of mortgage and asset-backed prepayments caused by the variations in interest rates may also shorten or lengthen the average maturity of the Fund. If left unattended, drifts in the average maturity of the Fund can have the unintended effect of increasing or reducing the effective duration of the Fund, which may adversely affect the expected performance of the Fund.
o EXTENSION RISK
The other side of prepayment risk occurs when interest rates are rising. Rising interest rates can cause the Fund's average maturity to lengthen unexpectedly due to a drop in mortgage prepayments. This would increase the sensitivity of the Fund to rising rates and its potential for price declines. Extending the average life of a mortgage-backed security increases the risk of depreciation due to future increases in market interest rates. For these reasons, mortgage-backed securities may be less effective than other types of U.S. Government securities as a means of "locking in" interest rates.
o CREDIT RATING
Coupon interest is offered to investors of debt securities as compensation for assuming risk, although short-term Treasury securities, such as 3-month treasury bills, are considered "risk free." Corporate securities offer higher yields than Treasury securities because their payment of interest and complete repayment of principal is less certain. The credit rating or financial condition of an issuer may affect the value of a debt security. Generally, the lower the quality rating of a security, the greater the risks that the issuer will fail to pay interest and return principal. To compensate investors for taking on increased risk, issuers with lower credit ratings usually offer their investors a higher "risk premium" in the form of higher interest rates above comparable Treasury securities.
Changes in investor confidence regarding the certainty of interest and principal payments of a corporate debt security will result in an adjustment to this "risk premium." If an issuer's outstanding debt carries a fixed coupon, adjustments to the risk premium must occur in the price, which affects the yield to maturity of the bond. If an issuer defaults or becomes unable to honor its financial obligations, the bond may lose some or all of its value.
A security rated within the four highest rating categories by a rating agency is called investment-grade because its issuer is more likely to pay interest and repay principal than an issuer of a lower rated bond. Adverse economic conditions or changing circumstances, however, may weaken the capacity of the issuer to pay interest and repay principal. If a security is not rated or is rated under a different system, the
Adviser may determine that it is of investment-grade. The Adviser may retain securities that are downgraded, if it believes that keeping those securities is warranted.
Debt securities rated below investment-grade (junk bonds) are highly speculative securities that are usually issued by smaller, less credit worthy and/or highly leveraged (indebted) companies. A corporation may issue a junk bond because of a corporate restructuring or other similar event. Compared with investment-grade bonds, junk bonds carry a greater degree of risk and are less likely to make payments of interest and principal. Market developments and the financial and business condition of the corporation issuing these securities influences their price and liquidity more than changes in interest rates, when compared to investment-grade debt securities. Insufficient liquidity in the junk bond market may make it more difficult to dispose of junk bonds and may cause the Fund to experience sudden and substantial price declines. A lack of reliable, objective data or market quotations may make it more difficult to value junk bonds accurately.
Rating agencies are organizations that assign ratings to securities based primarily on the rating agency's assessment of the issuer's financial strength. The Fund currently use ratings compiled by Moody's, S&P, and Fitch. Credit ratings are only an agency's opinion, not an absolute standard of quality, and they do not reflect an evaluation of market risk. The section "Appendix A - Ratings" contains further information concerning the ratings of certain rating agencies and their significance.
The Adviser may use ratings produced by ratings agencies as guidelines to determine the rating of a security at the time the Fund buys it. A rating agency may change its credit ratings at any time. The Adviser monitors the rating of the security and will take appropriate actions if a rating agency reduces the security's rating. The Fund is not obligated to dispose of securities whose issuers subsequently are in default or which are downgraded. The Fund may invest in securities of any rating.
DERIVATIVES
Derivatives are financial instruments whose value is based on an underlying asset, such as a stock or a bond, or an underlying economic factor, such as an interest rate or a market benchmark. Unless otherwise stated in the Fund's prospectus, the Fund may use derivatives for risk management purposes, including to gain exposure to various markets in a cost efficient manner, to reduce transaction costs or to remain fully invested. The Fund may also invest in derivatives to protect it from broad fluctuations in market prices, interest rates or foreign currency exchange rates (a practice known as "hedging"). When hedging is successful, the Fund will have offset any depreciation in the value of its portfolio securities by the appreciation in the value of the derivative position. Although techniques other than the sale and purchase of derivatives could be used to control the exposure of the Fund to market fluctuations, the use of derivatives may be a more effective means of hedging this exposure.
Because many derivatives have a leverage or borrowing component, adverse changes in the value or level of the underlying asset, reference rate, or index can result in a loss substantially greater than the amount invested in the derivative itself. Certain derivatives have the potential for unlimited loss, regardless of the size of the initial investment. Accordingly, certain derivative transactions may be considered to constitute borrowing transactions for purposes of the 1940 Act. Such a derivative transaction will not be considered to constitute the issuance of a "senior security" by the Fund, and therefore such transaction will not be subject to the 300% asset coverage requirement otherwise applicable to borrowings by the Fund, if the Fund covers the transaction or segregates sufficient liquid assets in accordance with the requirements, and subject to certain risks.
TYPES OF DERIVATIVES:
FUTURES - A futures contract is an agreement between two parties whereby one party sells and the other party agrees to buy a specified amount of a financial instrument at an agreed upon price and time. The financial instrument underlying the contract may be a stock, stock index, bond, bond index, interest rate, foreign exchange rate or other similar instrument. Agreeing to buy the underlying financial information is called buying a futures contract or taking a long position in the contract. Likewise, agreeing to sell the underlying financial instrument is called selling a futures contract or taking a short position in the contract.
Futures contracts are traded in the U.S. on commodity exchanges or boards of trade -- known as "contract markets" -- approved for such trading and regulated by the CFTC, a federal agency. These contract markets standardize the terms, including the maturity date and underlying financial instrument, of all futures contracts.
Unlike other securities, the parties to a futures contract do not have to pay for or deliver the underlying financial instrument until some future date (the delivery date). Contract markets require both the purchaser and seller to deposit "initial margin" with a futures broker, known as a futures commission merchant or custodian bank, when they enter into the contract. Initial margin deposits are typically equal to a percentage of the contract's value. After they open a futures contract, the parties to the transaction must compare the purchase price of the contract to its daily market value. If the value of the futures contract changes in such a way that a party's position declines, that party must make additional "variation margin" payments so that the margin payment is adequate. On the other hand, the value of the contract may change in such a way that there is excess margin on deposit, possibly entitling the party that has a gain to receive all or a portion of this amount. This process is known as "marking to the market."
Although the actual terms of a futures contract calls for the actual delivery of and payment for the underlying security, in many cases the parties may close the contract early by taking an opposite position in an identical contract. If the sale price upon closing out the contract is less than the original purchase price, the person closing out the contract will realize a loss. If the sale price upon closing out the contract is more than the original purchase price, the person closing out the contract will realize a gain. If the purchase price upon closing out the contract is more than the original sale price, the person closing out the contract will realize a loss. If the purchase price upon closing out the contract is less than the original sale price, the person closing out the contract will realize a gain.
The Fund may incur commission expenses when it opens or closes a futures position.
OPTIONS - An option is a contract between two parties for the purchase and sale of a financial instrument for a specified price (known as the "strike price" or "exercise price") at any time during the option period. Unlike a futures contract, an option grants a right (not an obligation) to buy or sell a financial instrument. Generally, a seller of an option can grant a buyer two kinds of rights: a "call" (the right to buy the security) or a "put" (the right to sell the security). Options have various types of underlying instruments, including specific securities, indices of securities prices, foreign currencies, interest rates and futures contracts. Options may be traded on an exchange (exchange-traded-options) or may be customized agreements between the parties (over-the-counter or "OTC" options). Like futures, a financial intermediary, known as a clearing corporation, financially backs exchange-traded options. However, OTC options have no such intermediary and are subject to the risk that the counter-party will not fulfill its obligations under the contract.
o PURCHASING PUT AND CALL OPTIONS
When the Fund purchases a put option, it buys the right to sell the instrument underlying the option at a fixed strike price. In return for this right, the Fund pays the current market price for the option (known as the "option premium"). The Fund may purchase put options to offset or hedge against a decline in the market value of its securities ("protective puts") or to benefit from a decline in the price of securities that it does not own. The Fund would ordinarily realize a gain if, during the option period, the value of the underlying securities decreased below the exercise price sufficiently to cover the premium and transaction costs. However, if the price of the underlying instrument does not fall enough to offset the cost of purchasing the option, a put buyer would lose the premium and related transaction costs.
Call options are similar to put options, except that the Fund obtains the right to purchase, rather than sell, the underlying instrument at the option's strike price. The Fund would normally purchase call options in anticipation of an increase in the market value of securities it owns or wants to buy. The Fund would ordinarily realize a gain if, during the option period, the value of the underlying instrument exceeded the exercise price plus the premium paid and related transaction costs. Otherwise, the Fund would realize either no gain or a loss on the purchase of the call option.
The purchaser of an option may terminate its position by:
o Allowing it to expire and losing its entire premium;
o Exercising the option and either selling (in the case of a put option) or buying (in the case of a call option) the underlying instrument at the strike price; or
o Closing it out in the secondary market at its current price.
o SELLING (WRITING) PUT AND CALL OPTIONS
When the Fund writes a call option it assumes an obligation to sell specified securities to the holder of the option at a specified price if the option is exercised at any time before the expiration date. Similarly, when the Fund writes a put option it assumes an obligation to purchase specified securities from the option holder at a specified price if the option is exercised at any time before the expiration date. The Fund may terminate its position in an exchange-traded put option before exercise by buying an option identical to the one it has written. Similarly, it may cancel an OTC option by entering into an offsetting transaction with the counter-party to the option.
The Fund could try to hedge against an increase in the value of securities it would like to acquire by writing a put option on those securities. If security prices rise, the Fund would expect the put option to expire and the premium it received to offset the increase in the security's value. If security prices remain the same over time, the Fund would hope to profit by closing out the put option at a lower price. If security prices fall, the Fund may lose an amount of money equal to the difference between the value of the security and the premium it received. Writing covered put options may deprive the Fund of the opportunity to profit from a decrease in the market price of the securities it would like to acquire.
The characteristics of writing call options are similar to those of writing put options, except that call writers expect to profit if prices remain the same or fall. The Fund could try to hedge against a decline in the value of securities it already owns by writing a call option. If the price of that security falls as expected, the Fund would expect the option to expire and the premium it received to offset the decline of the security's value. However, the Fund must be prepared to deliver the underlying instrument in return
for the strike price, which may deprive it of the opportunity to profit from an increase in the market price of the securities it holds.
The Fund is permitted only to write covered options. At the time of selling the call option, the Fund may cover the option by owning, among other things:
o The underlying security (or securities convertible into the underlying security without additional consideration), index, interest rate, foreign currency or futures contract;
o A call option on the same security or index with the same or lesser exercise price;
o A call option on the same security or index with a greater exercise price and segregating cash or liquid securities in an amount equal to the difference between the exercise prices;
o Cash or liquid securities equal to at least the market value of the optioned securities, interest rate, foreign currency or futures contract; or
o In the case of an index, the portfolio of securities that corresponds to the index.
At the time of selling a put option, the Fund may cover the put option by, among other things:
o Entering into a short position in the underlying security;
o Purchasing a put option on the same security, index, interest rate, foreign currency or futures contract with the same or greater exercise price;
o Purchasing a put option on the same security, index, interest rate, foreign currency or futures contract with a lesser exercise price and segregating cash or liquid securities in an amount equal to the difference between the exercise prices; or
o Maintaining the entire exercise price in liquid securities.
o OPTIONS ON SECURITIES INDICES
Options on securities indices are similar to options on securities, except that the exercise of securities index options requires cash settlement payments and does not involve the actual purchase or sale of securities. In addition, securities index options are designed to reflect price fluctuations in a group of securities or segment of the securities market rather than price fluctuations in a single security.
o OPTIONS ON FUTURES
An option on a futures contract provides the holder with the right to buy a futures contract (in the case of a call option) or sell a futures contract (in the case of a put option) at a fixed time and price. Upon exercise of the option by the holder, the contract market clearing house establishes a corresponding short position for the writer of the option (in the case of a call option) or a corresponding long position (in the case of a put option). If the option is exercised, the parties will be subject to the futures contracts. In addition, the writer of an option on a futures contract is subject to initial and variation margin requirements on the option position. Options on futures contracts are traded on the same contract market as the underlying futures contract.
The buyer or seller of an option on a futures contract may terminate the option early by purchasing or selling an option of the same series (I.E., the same exercise price and expiration date) as the option previously purchased or sold. The difference between the premiums paid and received represents the trader's profit or loss on the transaction.
The Fund may purchase put and call options on futures contracts instead of selling or buying futures contracts. The Fund may buy a put option on a futures contract for the same reasons it would sell a
futures contract. It also may purchase such put options in order to hedge a long position in the underlying futures contract. The Fund may buy call options on futures contracts for the same purpose as the actual purchase of the futures contracts, such as in anticipation of favorable market conditions.
The Fund may write a call option on a futures contract to hedge against a decline in the prices of the instrument underlying the futures contracts. If the price of the futures contract at expiration were below the exercise price, the Fund would retain the option premium, which would offset, in part, any decline in the value of its portfolio securities.
The writing of a put option on a futures contract is similar to the purchase of the futures contracts, except that, if the market price declines, the Fund would pay more than the market price for the underlying instrument. The premium received on the sale of the put option, less any transaction costs, would reduce the net cost to the Fund.
o COMBINED POSITIONS
The Fund may purchase and write options in combination with each other, or in combination with futures or forward contracts, to adjust the risk and return characteristics of the overall position. For example, the Fund could construct a combined position whose risk and return characteristics are similar to selling a futures contract by purchasing a put option and writing a call option on the same underlying instrument. Alternatively, the Fund could write a call option at one strike price and buy a call option at a lower price to reduce the risk of the written call option in the event of a substantial price increase. Because combined options positions involve multiple trades, they result in higher transaction costs and may be more difficult to open and close out.
o FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
A forward foreign currency contract involves an obligation to purchase or sell a specific amount of currency at a future date or date range at a specific price. In the case of a cancelable forward contract, the holder has the unilateral right to cancel the contract at maturity by paying a specified fee. Forward foreign currency exchange contracts differ from foreign currency futures contracts in certain respects. Unlike futures contracts, forward contracts:
o Do not have standard maturity dates or amounts (I.E., the parties to the contract may fix the maturity date and the amount).
o Are traded in the inter-bank markets conducted directly between currency traders (usually large commercial banks) and their customers, as opposed to futures contracts which are traded only on exchanges regulated by the CFTC.
o Do not require an initial margin deposit.
o May be closed by entering into a closing transaction with the currency trader who is a party to the original forward contract, as opposed to a commodities exchange.
FOREIGN CURRENCY HEDGING STRATEGIES - A "settlement hedge" or "transaction hedge" is designed to protect the Fund against an adverse change in foreign currency values between the date a security is purchased or sold and the date on which payment is made or received. Entering into a forward contract for the purchase or sale of the amount of foreign currency involved in an underlying security transaction for a fixed amount of U.S. dollars "locks in" the U.S. dollar price of the security. The Fund may also use forward contracts to purchase or sell a foreign currency when it anticipates purchasing or selling securities denominated in foreign currency, even if it has not yet selected the specific investments.
The Fund may use forward contracts to hedge against a decline in the value of existing investments denominated in foreign currency. Such a hedge, sometimes referred to as a "position hedge," would tend to offset both positive and negative currency fluctuations, but would not offset changes in security values caused by other factors. The Fund could also hedge the position by selling another currency expected to perform similarly to the currency in which the Fund's investment is denominated. This type of hedge, sometimes referred to as a "proxy hedge," could offer advantages in terms of cost, yield, or efficiency, but generally would not hedge currency exposure as effectively as a direct hedge into U.S. dollars. Proxy hedges may result in losses if the currency used to hedge does not perform similarly to the currency in which the hedged securities are denominated.
Transaction and position hedging do not eliminate fluctuations in the underlying prices of the securities that the Fund owns or intends to purchase or sell. They simply establish a rate of exchange that one can achieve at some future point in time. Additionally, these techniques tend to minimize the risk of loss due to a decline in the value of the hedged currency and to limit any potential gain that might result from the increase in value of such currency.
The Fund may enter into forward contracts to shift its investment exposure from one currency into another. Such transactions may call for the delivery of one foreign currency in exchange for another foreign currency, including currencies in which its securities are not then denominated. This may include shifting exposure from U.S. dollars to a foreign currency, or from one foreign currency to another foreign currency. This type of strategy, sometimes known as a "cross-hedge," will tend to reduce or eliminate exposure to the currency that is sold, and increase exposure to the currency that is purchased. Cross-hedges may protect against losses resulting from a decline in the hedged currency, but will cause the Fund to assume the risk of fluctuations in the value of the currency it purchases. Cross hedging transactions also involve the risk of imperfect correlation between changes in the values of the currencies involved.
It is difficult to forecast with precision the market value of portfolio securities at the expiration or maturity of a forward or futures contract. Accordingly, the Fund may have to purchase additional foreign currency on the spot market if the market value of a security it is hedging is less than the amount of foreign currency it is obligated to deliver. Conversely, the Fund may have to sell on the spot market some of the foreign currency it received upon the sale of a security if the market value of such security exceeds the amount of foreign currency it is obligated to deliver.
SWAPS, CAPS, COLLARS AND FLOORS
SWAP AGREEMENTS - A swap is a financial instrument that typically involves the exchange of cash flows between two parties on specified dates (settlement dates), where the cash flows are based on agreed-upon prices, rates, indices, etc. The nominal amount on which the cash flows are calculated is called the notional amount. Swaps are individually negotiated and structured to include exposure to a variety of different types of investments or market factors, such as interest rates, foreign currency rates, mortgage securities, corporate borrowing rates, security prices or inflation rates.
Swap agreements may increase or decrease the overall volatility of the investments of the Fund and its share price. The performance of swap agreements may be affected by a change in the specific interest rate, currency, or other factors that determine the amounts of payments due to and from the Fund. If a swap agreement calls for payments by the Fund, the Fund must be prepared to make such payments when due. In addition, if the counter-party's creditworthiness declined, the value of a swap agreement would be likely to decline, potentially resulting in losses.
Generally, swap agreements have a fixed maturity date that will be agreed upon by the parties. The agreement can be terminated before the maturity date only under limited circumstances, such as default
by one of the parties or insolvency, among others, and can be transferred by a party only with the prior written consent of the other party. The Fund may be able to eliminate its exposure under a swap agreement either by assignment or by other disposition, or by entering into an offsetting swap agreement with the same party or a similarly creditworthy party. If the counter-party is unable to meet its obligations under the contract, declares bankruptcy, defaults or becomes insolvent, the Fund may not be able to recover the money it expected to receive under the contract.
A swap agreement can be a form of leverage, which can magnify the Fund's gains or losses. In order to reduce the risk associated with leveraging, the Fund may cover its current obligations under swap agreements according to guidelines established by the SEC. If the Fund enters into a swap agreement on a net basis, it will segregate assets with a daily value at least equal to the excess, if any, of the Fund's accrued obligations under the swap agreement over the accrued amount the Fund is entitled to receive under the agreement. If the Fund enters into a swap agreement on other than a net basis, it will segregate assets with a value equal to the full amount of the Fund's accrued obligations under the agreement.
o EQUITY SWAPS
In a typical equity swap, one party agrees to pay another party the return on a stock, stock index or basket of stocks in return for a specified interest rate. By entering into an equity index swap, for example, the index receiver can gain exposure to stocks making up the index of securities without actually purchasing those stocks. Equity index swaps involve not only the risk associated with investment in the securities represented in the index, but also the risk that the performance of such securities, including dividends, will not exceed the return on the interest rate that the Fund will be committed to pay.
o INTEREST RATE SWAPS
Interest rate swaps are financial instruments that involve the exchange of one type of interest rate for another type of interest rate cash flow on specified dates in the future. Some of the different types of interest rate swaps are "fixed-for floating rate swaps," "termed basis swaps" and "index amortizing swaps." Fixed-for floating rate swaps involve the exchange of fixed interest rate cash flows for floating rate cash flows. Termed basis swaps entail cash flows to both parties based on floating interest rates, where the interest rate indices are different. Index amortizing swaps are typically fixed-for floating swaps where the notional amount changes if certain conditions are met.
Like a traditional investment in a debt security, the Fund could lose money by investing in an interest rate swap if interest rates change adversely. For example, if the Fund enters into a swap where it agrees to exchange a floating rate of interest for a fixed rate of interest, the Fund may have to pay more money than it receives. Similarly, if the Fund enters into a swap where it agrees to exchange a fixed rate of interest for a floating rate of interest, the Fund may receive less money than it has agreed to pay.
o CURRENCY SWAPS
A currency swap is an agreement between two parties in which one party agrees to make interest rate payments in one currency and the other promises to make interest rate payments in another currency. The Fund may enter into a currency swap when it has one currency and desires a different currency. Typically the interest rates that determine the currency swap payments are fixed, although occasionally one or both parties may pay a floating rate of interest. Unlike an interest rate swap, however, the principal amounts are exchanged at the beginning of the contract and returned at the end of the contract. Changes in foreign exchange rates and changes in interest rates, as described above may negatively affect currency swaps.
CAPS, COLLARS AND FLOORS - Caps and floors have an effect similar to buying or writing options. In a typical cap or floor agreement, one party agrees to make payments only under specified circumstances, usually in return for payment of a fee by the other party. For example, the buyer of an interest rate cap obtains the right to receive payments to the extent that a specified interest rate exceeds an agreed-upon level. The seller of an interest rate floor is obligated to make payments to the extent that a specified interest rate falls below an agreed-upon level. An interest rate collar combines elements of buying a cap and selling a floor.
RISKS OF DERIVATIVES:
While transactions in derivatives may reduce certain risks, these transactions themselves entail certain other risks. For example, unanticipated changes in interest rates, securities prices or currency exchange rates may result in a poorer overall performance of the Fund than if it had not entered into any derivatives transactions. Derivatives may magnify the Fund's gains or losses, causing it to make or lose substantially more than it invested.
When used for hedging purposes, increases in the value of the securities the Fund holds or intends to acquire should offset any losses incurred with a derivative. Purchasing derivatives for purposes other than hedging could expose the Fund to greater risks.
CORRELATION OF PRICES - The Fund's ability to hedge its securities through derivatives depends on the degree to which price movements in the underlying index or instrument correlate with price movements in the relevant securities. In the case of poor correlation, the price of the securities the Fund is hedging may not move in the same amount, or even in the same direction as the hedging instrument. The Adviser will try to minimize this risk by investing only in those contracts whose behavior it expects to resemble with the portfolio securities it is trying to hedge. However, if the Fund's prediction of interest and currency rates, market value, volatility or other economic factors is incorrect, the Fund may lose money, or may not make as much money as it expected.
Derivative prices can diverge from the prices of their underlying instruments, even if the characteristics of the underlying instruments are very similar to the derivative. Listed below are some of the factors that may cause such a divergence:
o current and anticipated short-term interest rates, changes in volatility of the underlying instrument, and the time remaining until expiration of the contract;
o a difference between the derivatives and securities markets, including different levels of demand, how the instruments are traded, the imposition of daily price fluctuation limits or trading of an instrument stops; and
o differences between the derivatives, such as different margin requirements, different liquidity of such markets and the participation of speculators in such markets.
Derivatives based upon a narrower index of securities, such as those of a particular industry group, may present greater risk than derivatives based on a broad market index. Since narrower indices are made up of a smaller number of securities, they are more susceptible to rapid and extreme price fluctuations because of changes in the value of those securities.
While currency futures and options values are expected to correlate with exchange rates, they may not reflect other factors that affect the value of the investments of the Fund. A currency hedge, for example, should protect a yen-denominated security from a decline in the yen, but will not protect the Fund against a price decline resulting from deterioration in the issuer's creditworthiness. Because the value of the
Fund's foreign-denominated investments changes in response to many factors other than exchange rates, it may not be possible to match the amount of currency options and futures to the value of the Fund's investments precisely over time.
LACK OF LIQUIDITY - Before a futures contract or option is exercised or expires, the Fund can terminate it only by entering into a closing purchase or sale transaction. Moreover, the Fund may close out a futures contract only on the exchange the contract was initially traded. Although the Fund intends to purchase options and futures only where there appears to be an active market, there is no guarantee that such a liquid market will exist. If there is no secondary market for the contract, or the market is illiquid, the Fund may not be able to close out its position. In an illiquid market, the Fund may:
o have to sell securities to meet its daily margin requirements at a time when it is disadvantageous to do so;
o have to purchase or sell the instrument underlying the contract;
o not be able to hedge its investments; and
o not be able to realize profits or limit its losses.
Derivatives may become illiquid (I.E., difficult to sell at a desired time and price) under a variety of market conditions. For example:
o an exchange may suspend or limit trading in a particular derivative instrument, an entire category of derivatives or all derivatives, which sometimes occurs because of increased market volatility;
o unusual or unforeseen circumstances may interrupt normal operations of an exchange;
o the facilities of the exchange may not be adequate to handle current trading volume;
o equipment failures, government intervention, insolvency of a brokerage firm or clearing house or other occurrences may disrupt normal trading activity; or
o investors may lose interest in a particular derivative or category of derivatives.
MANAGEMENT RISK - If the Adviser incorrectly predicts stock market and interest rate trends, the Fund may lose money by investing in derivatives. For example, if the Fund were to write a call option based on the Adviser's expectation that the price of the underlying security would fall, but the price were to rise instead, the Fund could be required to sell the security upon exercise at a price below the current market price. Similarly, if the Fund were to write a put option based on the Adviser's expectation that the price of the underlying security would rise, but the price were to fall instead, the Fund could be required to purchase the security upon exercise at a price higher than the current market price.
MARGIN - Because of the low margin deposits required upon the opening of a derivative position, such transactions involve an extremely high degree of leverage. Consequently, a relatively small price movement in a derivative may result in an immediate and substantial loss (as well as gain) to the Fund and it may lose more than it originally invested in the derivative.
If the price of a futures contract changes adversely, the Fund may have to sell securities at a time when it is disadvantageous to do so to meet its minimum daily margin requirement. The Fund may lose its margin deposits if a broker with whom it has an open futures contract or related option becomes insolvent or declares bankruptcy.
VOLATILITY AND LEVERAGE - The prices of derivatives are volatile (I.E., they may change rapidly, substantially and unpredictably) and are influenced by a variety of factors, including:
o actual and anticipated changes in interest rates;
o fiscal and monetary policies; and
o national and international political events.
Most exchanges limit the amount by which the price of a derivative can change during a single trading day. Daily trading limits establish the maximum amount that the price of a derivative may vary from the settlement price of that derivative at the end of trading on the previous day. Once the price of a derivative reaches this value, the Fund may not trade that derivative at a price beyond that limit. The daily limit governs only price movements during a given day and does not limit potential gains or losses. Derivative prices have occasionally moved to the daily limit for several consecutive trading days, preventing prompt liquidation of the derivative.
Because of the low margin deposits required upon the opening of a derivative position, such transactions involve an extremely high degree of leverage. Consequently, a relatively small price movement in a derivative may result in an immediate and substantial loss (as well as gain) to the Fund and it may lose more than it originally invested in the derivative.
If the price of a futures contract changes adversely, the Fund may have to sell securities at a time when it is disadvantageous to do so to meet its minimum daily margin requirement. The Fund may lose its margin deposits if a broker-dealer with whom it has an open futures contract or related option becomes insolvent or declares bankruptcy.
EQUITY SECURITIES
TYPES OF EQUITY SECURITIES:
COMMON STOCKS - Common stocks represent units of ownership in a company. Common stocks usually carry voting rights and earn dividends. Unlike preferred stocks, which are described below, dividends on common stocks are not fixed but are declared at the discretion of the company's board of directors.
PREFERRED STOCKS - Preferred stocks are also units of ownership in a company. Preferred stocks normally have preference over common stock in the payment of dividends and the liquidation of the company. However, in all other respects, preferred stocks are subordinated to the liabilities of the issuer. Unlike common stocks, preferred stocks are generally not entitled to vote on corporate matters. Types of preferred stocks include adjustable-rate preferred stock, fixed dividend preferred stock, perpetual preferred stock, and sinking fund preferred stock. Generally, the market values of preferred stock with a fixed dividend rate and no conversion element varies inversely with interest rates and perceived credit risk.
CONVERTIBLE SECURITIES - Convertible securities are securities that may be exchanged for, converted into, or exercised to acquire a predetermined number of shares of the issuer's common stock at the Fund's option during a specified time period (such as convertible preferred stocks, convertible debentures and warrants). A convertible security is generally a fixed income security that is senior to common stock in an issuer's capital structure, but is usually subordinated to similar non-convertible securities. In exchange for the conversion feature, many corporations will pay a lower rate of interest on convertible securities than debt securities of the same corporation. In general, the market value of a convertible security is at least the
higher of its "investment value" (I.E., its value as a fixed income security) or its "conversion value" (I.E., its value upon conversion into its underlying common stock).
Convertible securities are subject to the same risks as similar securities without the convertible feature. The price of a convertible security is more volatile during times of steady interest rates than other types of debt securities. The price of a convertible security tends to increase as the market value of the underlying stock rises, whereas it tends to decrease as the market value of the underlying common stock declines.
A synthetic convertible security is a combination investment in which the Fund purchases both (i) high-grade cash equivalents or a high grade debt obligation of an issuer or U.S. government securities and (ii) call options or warrants on the common stock of the same or different issuer with some or all of the anticipated interest income from the associated debt obligation that is earned over the holding period of the option or warrant.
While providing a fixed income stream (generally higher in yield than the income derivable from common stock but lower than that afforded by a similar non-convertible security), a convertible security also affords an investor the opportunity, through its conversion feature, to participate in the capital appreciation attendant upon a market price advance in the convertible security's underlying common stock. A synthetic convertible position has similar investment characteristics, but may differ with respect to credit quality, time to maturity, trading characteristics, and other factors. Because the Fund will create synthetic convertible positions only out of high grade fixed income securities, the credit rating associated with the Fund's synthetic convertible investments is generally expected to be higher than that of the average convertible security, many of which are rated below high grade. However, because the options used to create synthetic convertible positions will generally have expirations between one month and three years of the time of purchase, the maturity of these positions will generally be shorter than average for convertible securities. Since the option component of a convertible security or synthetic convertible position is a wasting asset (in the sense of losing "time value" as maturity approaches), a synthetic convertible position may lose such value more rapidly than a convertible security of longer maturity; however, the gain in option value due to appreciation of the underlying stock may exceed such time value loss, the market price of the option component generally reflects these differences in maturities, and the Adviser takes such differences into account when evaluating such positions. When a synthetic convertible position "matures" because of the expiration of the associated option, the Fund may extend the maturity by investing in a new option with longer maturity on the common stock of the same or different issuer. If the Fund does not so extend the maturity of a position, it may continue to hold the associated fixed income security.
RIGHTS AND WARRANTS - A right is a privilege granted to existing shareholders of a corporation to subscribe to shares of a new issue of common stock before it is issued. Rights normally have a short life, usually two to four weeks, are freely transferable and entitle the holder to buy the new common stock at a lower price than the public offering price. Warrants are securities that are usually issued together with a debt security or preferred stock and that give the holder the right to buy proportionate amount of common stock at a specified price. Warrants are freely transferable and are traded on major exchanges. Unlike rights, warrants normally have a life that is measured in years and entitles the holder to buy common stock of a company at a price that is usually higher than the market price at the time the warrant is issued. Corporations often issue warrants to make the accompanying debt security more attractive.
An investment in warrants and rights may entail greater risks than certain other types of investments. Generally, rights and warrants do not carry the right to receive dividends or exercise voting rights with respect to the underlying securities, and they do not represent any rights in the assets of the issuer. In addition, their value does not necessarily change with the value of the underlying securities, and they cease to have value if they are not exercised on or before their expiration date. Investing in rights and
warrants increases the potential profit or loss to be realized from the investment as compared with investing the same amount in the underlying securities.
RISKS OF INVESTING IN EQUITY SECURITIES:
GENERAL RISKS OF INVESTING IN STOCKS - While investing in stocks allows investors to participate in the benefits of owning a company, such investors must accept the risks of ownership. Unlike bondholders, who have preference to a company's earnings and cash flow, preferred stockholders, followed by common stockholders in order of priority, are entitled only to the residual amount after a company meets its other obligations. For this reason, the value of a company's stock will usually react more strongly to actual or perceived changes in the company's financial condition or prospects than its debt obligations. Stockholders of a company that fares poorly can lose money.
Stock markets tend to move in cycles with short or extended periods of rising and falling stock prices. The value of a company's stock may fall because of:
o Factors that directly relate to that company, such as decisions made by its management or lower demand for the company's products or services;
o Factors affecting an entire industry, such as increases in production costs; and
o Changes in general financial market conditions that are relatively unrelated to the company or its industry, such as changes in interest rates, currency exchange rates or inflation rates.
Because preferred stock is generally junior to debt securities and other obligations of the issuer, deterioration in the credit quality of the issuer will cause greater changes in the value of a preferred stock than in a more senior debt security with similar stated yield characteristics.
SMALL AND MEDIUM-SIZED COMPANIES - Investors in small and medium-sized companies typically take on greater risk and price volatility than they would by investing in larger, more established companies. This increased risk may be due to the greater business risks of their small or medium size, limited markets and financial resources, narrow product lines and frequent lack of management depth. The securities of small and medium-sized companies are often traded in the OTC market and might not be traded in volumes typical of securities traded on a national securities exchange. Thus, the securities of small and medium capitalization companies are likely to be less liquid, and subject to more abrupt or erratic market movements, than securities of larger, more established companies.
TECHNOLOGY COMPANIES - Stocks of technology companies have tended to be subject to greater volatility than securities of companies that are not dependent upon or associated with technological issues. Technology companies operate in various industries. Since these industries frequently share common characteristics, an event or issue affecting one industry may significantly influence other, related industries. For example, technology companies may be strongly affected by worldwide scientific or technological developments and their products and services may be subject to governmental regulation or adversely affected by governmental policies.
INITIAL PUBLIC OFFERINGS ("IPO") - The Fund may invest a portion of its assets in securities of companies offering shares in IPOs. IPOs may have a magnified performance impact on the Fund with a small asset base. The impact of IPOs on the Fund's performance likely will decrease as the Fund's asset size increases, which could reduce the Fund's total returns. IPOs may not be consistently available to the Fund for investing, particularly as the Fund's asset base grows. Because IPO shares frequently are volatile in price, the Fund may hold IPO shares for a very short period of time. This may increase the turnover of the Fund's portfolio and may lead to increased expenses for the Fund, such as commissions and transaction costs. By selling IPO shares, the Fund may realize taxable gains it will subsequently distribute to shareholders. In addition, the market for IPO shares can be speculative and/or inactive for
extended periods of time. The limited number of shares available for trading in some IPOs may make it more difficult for the Fund to buy or sell significant amounts of shares without an unfavorable impact on prevailing prices. Holders of IPO shares can be affected by substantial dilution in the value of their shares, by sales of additional shares and by concentration of control in existing management and principal shareholders.
The Fund's investment in IPO shares may include the securities of unseasoned companies (companies with less than three years of continuous operations), which presents risks considerably greater than common stocks of more established companies. These companies may have limited operating histories and their prospects for profitability may be uncertain. These companies may be involved in new and evolving businesses and may be vulnerable to competition and changes in technology, markets and economic conditions. They may be more dependent on key managers and third parties and may have limited product lines.
FOREIGN SECURITIES
TYPES OF FOREIGN SECURITIES:
Foreign securities are debt and equity securities that are traded in markets outside of the U.S. The markets in which these securities are located can be developed or emerging. Investors can invest in foreign securities in a number of ways:
o They can invest directly in foreign securities denominated in a foreign currency;
o They can invest in American Depositary Receipts, European Depositary Receipts and other similar global instruments; and
o They can invest in investment funds.
AMERICAN DEPOSITARY RECEIPTS (ADRS) - American Depositary Receipts (ADRs) are certificates evidencing ownership of shares of a foreign issuer. These certificates are issued by depository banks and generally trade on an established market in the U.S. or elsewhere. A custodian bank or similar financial institution in the issuer's home country holds the underlying shares in trust. The depository bank may not have physical custody of the underlying securities at all times and may charge fees for various services, including forwarding dividends and interest and corporate actions. ADRs are alternatives to directly purchasing the underlying foreign securities in their national markets and currencies. ADRs are subject to many of the risks associated with investing directly in foreign securities. Europeans Depositary Receipts (EDRs) are similar to ADRs, except that they are typically issued by European banks or trust companies.
ADRs can be sponsored or unsponsored. While these types are similar, there are differences regarding a holder's rights and obligations and the practices of market participants. A depository may establish an unsponsored facility without participation by (or acquiescence of) the underlying issuer; typically, however, the depository requests a letter of non-objection from the underlying issuer prior to establishing the facility. Holders of unsponsored depositary receipts generally bear all the costs of the facility. The depository usually charges fees upon the deposit and withdrawal of the underlying securities, the conversion of dividends into U.S. dollars or other currency, the disposition of non-cash distributions, and the performance of other services. The depository of an unsponsored facility frequently is under no obligation to distribute shareholder communications received from the underlying issuer or to pass through voting rights to depositary receipt holders with respect to the underlying securities. Sponsored depositary receipt facilities are created in generally the same manner as unsponsored facilities, except that sponsored depositary receipts are established jointly by a depository and the underlying issuer through a deposit agreement. The deposit agreement sets out the rights and responsibilities of the underlying issuer, the depository, and the depositary receipt holders. With sponsored facilities, the underlying issuer
typically bears some of the costs of the depositary receipts (such as dividend payment fees of the depository), although most sponsored depositary receipts holders may bear costs such as deposit and withdrawal fees. Depositories of most sponsored depositary receipts agree to distribute notices of shareholder meetings, voting instructions, and other shareholder communications and information to the depositary receipt holders at the underlying issuer's request. 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.
EMERGING MARKETS - An "emerging country" is generally a country that the International Bank for Reconstruction and Development (World Bank) and the International Finance Corporation would consider to be an emerging or developing country. Typically, emerging markets are in countries that are in the process of industrialization, with lower gross national products (GNP) than more developed countries. There are currently over 130 countries that the international financial community generally considers to be emerging or developing countries, approximately 40 of which currently have stock markets. These countries generally include every nation in the world except the U.S., Canada, Japan, Australia, New Zealand and most nations located in Western Europe.
INVESTMENT FUNDS - Some emerging countries currently prohibit direct foreign investment in the securities of their companies. Certain emerging countries, however, permit indirect foreign investment in the securities of companies listed and traded on their stock exchanges through investment funds that they have specifically authorized. Investments in these investment funds are subject to the provisions of the 1940 Act. Shareholders of the Fund that invests in such investment funds will bear not only their proportionate share of the expenses of the Fund (including operating expenses and the fees of the Adviser), but also will indirectly bear similar expenses of the underlying investment funds. In addition, these investment funds may trade at a premium over their net asset value.
RISKS OF FOREIGN SECURITIES:
Foreign securities, foreign currencies, and securities issued by U.S. entities with substantial foreign operations may involve significant risks in addition to the risks inherent in U.S. investments.
POLITICAL AND ECONOMIC FACTORS - Local political, economic, regulatory, or social instability, military action or unrest, or adverse diplomatic developments may affect the value of foreign investments. Listed below are some of the more important political and economic factors that could negatively affect an investment in foreign securities:
o The economies of foreign countries may differ from the economy of the U.S. in such areas as growth of gross national product, rate of inflation, capital reinvestment, resource self-sufficiency, budget deficits and national debt;
o Foreign governments sometimes participate to a significant degree, through ownership interests or regulation, in their respective economies. Actions by these governments could significantly influence the market prices of securities and payment of dividends;
o The economies of many foreign countries are dependent on international trade and their trading partners and they could be severely affected if their trading partners were to enact protective trade barriers and economic conditions;
o The internal policies of a particular foreign country may be less stable than in the U.S. Other countries face significant external political risks, such as possible claims of sovereignty by other countries or tense and sometimes hostile border clashes; and
o A foreign government may act adversely to the interests of U.S. investors, including expropriation or nationalization of assets, confiscatory taxation and other restrictions on U.S. investment. A country may restrict or control foreign investments in its securities markets. These restrictions could limit the Fund's ability to invest in a particular country or make it very expensive for the Fund to invest in that country. Some countries require prior governmental approval, limit the types or amount of securities or companies in which a foreigner can invest. Other companies may restrict the ability of foreign investors to repatriate their investment income and capital gains.
INFORMATION AND SUPERVISION - There is generally less publicly available information about foreign companies than companies based in the U.S. For example, there are often no reports and ratings published about foreign companies comparable to the ones written about U.S. companies. Foreign companies are typically not subject to uniform accounting, auditing and financial reporting standards, practices and requirements comparable to those applicable to U.S. companies. The lack of comparable information makes investment decisions concerning foreign companies more difficult and less reliable than domestic companies.
STOCK EXCHANGE AND MARKET RISK - The Adviser anticipates that in most cases an exchange or OTC market located outside of the U.S. will be the best available market for foreign securities. Foreign stock markets, while growing in volume and sophistication, are generally not as developed as the markets in the U.S. Foreign stock markets tend to differ from those in the U.S. in a number of ways.
Foreign stock markets:
o are generally more volatile than, and not as developed or efficient as, those in the U.S.;
o have substantially less volume;
o trade securities that tend to be less liquid and experience rapid and erratic price movements;
o have generally higher commissions and are subject to set minimum rates, as opposed to negotiated rates;
o employ trading, settlement and custodial practices less developed than those in U.S. markets; and
o may have different settlement practices, which may cause delays and increase the potential for failed settlements.
Foreign markets may offer less protection to shareholders than U.S. markets because:
o foreign accounting, auditing, and financial reporting requirements may render a foreign corporate balance sheet more difficult to understand and interpret than one subject to U.S. law and standards.
o adequate public information on foreign issuers may not be available, and it may be difficult to secure dividends and information regarding corporate actions on a timely basis.
o in general, there is less overall governmental supervision and regulation of securities exchanges, brokers, and listed companies than in the U.S.
o OTC markets tend to be less regulated than stock exchange markets and, in certain countries, may be totally unregulated.
o economic or political concerns may influence regulatory enforcement and may make it difficult for shareholders to enforce their legal rights.
o restrictions on transferring securities within the U.S. or to U.S. persons may make a particular security less liquid than foreign securities of the same class that are not subject to such restrictions.
FOREIGN CURRENCY RISK - While the Fund denominates its net asset value in U.S. dollars, the securities of foreign companies are frequently denominated in foreign currencies. Thus, a change in the value of a foreign currency against the U.S. dollar will result in a corresponding change in value of securities denominated in that currency. Some of the factors that may impair the investments denominated in a foreign currency are:
o It may be expensive to convert foreign currencies into U.S. dollars and vice versa;
o Complex political and economic factors may significantly affect the values of various currencies, including U.S. dollars, and their exchange rates;
o Government intervention may increase risks involved in purchasing or selling foreign currency options, forward contracts and futures contracts, since exchange rates may not be free to fluctuate in response to other market forces;
o There may be no systematic reporting of last sale information for foreign currencies or regulatory requirement that quotations available through dealers or other market sources be firm or revised on a timely basis;
o Available quotation information is generally representative of very large round-lot transactions in the inter-bank market and thus may not reflect exchange rates for smaller odd-lot transactions (less than $1 million) where rates may be less favorable; and
o The inter-bank market in foreign currencies is a global, around-the-clock market. To the extent that a market is closed while the markets for the underlying currencies remain open, certain markets may not always reflect significant price and rate movements.
TAXES - Certain foreign governments levy withholding taxes on dividend and interest income. Although in some countries it is possible for the Fund to recover a portion of these taxes, the portion that cannot be recovered will reduce the income the Fund receives from its investments. The Fund does not expect such foreign withholding taxes to have a significant impact on performance.
EMERGING MARKETS - Investing in emerging markets may magnify the risks of foreign investing. Security prices in emerging markets can be significantly more volatile than those in more developed markets, reflecting the greater uncertainties of investing in less established markets and economies. In particular, countries with emerging markets may:
o Have relatively unstable governments;
o Present greater risks of nationalization of businesses, restrictions on foreign ownership and prohibitions on the repatriation of assets;
o Offer less protection of property rights than more developed countries; and
o Have economies that are based on only a few industries, may be highly vulnerable to changes in local or global trade conditions, and may suffer from extreme and volatile debt burdens or inflation rates.
Local securities markets may trade a small number of securities and may be unable to respond effectively to increases in trading volume, potentially making prompt liquidation of holdings difficult or impossible at times.
INVESTMENT COMPANIES
The Fund may buy and sell shares of other investment companies. Such investment companies may pay management and other fees that are similar to the fees currently paid by the Fund. Like other shareholders, the Fund would pay its proportionate share of those fees. Consequently, shareholders of the Fund would pay not only the management fees of the Fund, but also the management fees of the investment company in which the Fund invests. The Fund may invest up to 10% of its total assets in the securities of other investment companies, but may not invest more than 5% of its total assets in the securities of any one investment company or acquire more than 3% of the outstanding securities of any one investment company, unless it does so in reliance on a statutory exemption under the 1940 Act or rule or SEC staff interpretations thereunder.
REPURCHASE AGREEMENTS
In a repurchase agreement, an investor agrees to buy a security (underlying security) from a securities dealer or bank that is a member of the Federal Reserve System (counter-party). At the time, the counter-party agrees to repurchase the underlying security for the same price, plus interest. Repurchase agreements are generally for a relatively short period (usually not more than seven days). The Fund normally uses repurchase agreements to earn income on assets that are not invested. When the Fund enters into a repurchase agreement it will:
o Pay for the underlying securities only upon physically receiving them or upon evidence of their receipt in book-entry form; and
o Require the counter party to add to the collateral whenever the price of the repurchase agreement rises above the value of the underlying security (I.E., it will require the borrower to "mark to the market" on a daily basis).
If the seller of the security declares bankruptcy or otherwise becomes financially unable to buy back the security, the Fund's right to sell the security may be restricted. In addition, the value of the security might decline before the Fund can sell it and the Fund might incur expenses in enforcing its rights.
RESTRICTED AND ILLIQUID SECURITIES
While the Fund does not anticipate doing so, it may purchase illiquid securities, including securities that are not readily marketable and securities that are not registered ("restricted securities") under the Securities Act of 1933, as amended (the "1933 Act"), but which can be offered and sold to "qualified institutional buyers" under Rule 144A under the 1933 Act. The Fund will not invest more than 15% of its net assets in illiquid securities. If the percentage of the Fund's net assets invested in illiquid securities exceeds 15% due to market activity, the Fund will take appropriate measures to reduce its holdings of illiquid securities. The term "illiquid securities" for this purpose means securities that cannot be disposed of within seven days in the ordinary course of business at approximately the amount at which the Fund has valued the securities. Under the current guidelines of the staff of the SEC, illiquid securities also are considered to include, among other securities, purchased over-the-counter options, certain cover for over-the-counter options, repurchase agreements with maturities in excess of seven days, and certain securities whose disposition is restricted under the federal securities laws. The Fund may not be able to sell illiquid securities when the Adviser considers it desirable to do so or may have to sell such securities at a price that is lower than the price that could be obtained if the securities were more liquid. In addition, the sale of illiquid securities also may require more time and may result in higher dealer discounts and other
selling expenses than does the sale of securities that are not illiquid. Illiquid securities also may be more difficult to value due to the unavailability of reliable market quotations for such securities, and investment in illiquid securities may have an adverse impact on net asset value.
Institutional markets for restricted securities have developed as a result of the promulgation of Rule 144A under the 1933 Act, which provides a "safe harbor" from 1933 Act registration requirements for qualifying sales to institutional investors. When Rule 144A restricted securities present an attractive investment opportunity and meet other selection criteria, the Fund may make such investments whether or not such securities are "illiquid" depending on the market that exists for the particular security. The Board has delegated the responsibility for determining the liquidity of Rule 144A restricted securities which may be invested in by the Fund to the Adviser.
SECURITIES LENDING
The Fund may lend portfolio securities to brokers, dealers and other financial organizations that meet capital and other credit requirements or other criteria established by the Fund's Board of Trustees. These loans, if and when made, may not exceed 33 1/3% of the total asset value of the Fund (including the loan collateral). The Fund will not lend portfolio securities to its Adviser or its affiliates unless it has applied for and received specific authority to do so from the SEC. Loans of portfolio securities will be fully collateralized by cash, letters of credit or U.S. government securities, and the collateral will be maintained in an amount equal to at least 100% of the current market value of the loaned securities by marking to market daily. Any gain or loss in the market price of the securities loaned that might occur during the term of the loan would be for the account of the Fund.
The Fund may pay a part of the interest earned from the investment of collateral, or other fee, to an unaffiliated third party for acting as the Fund's securities lending agent.
By lending its securities, the Fund may increase its income by receiving payments from the borrower that reflect the amount of any interest or any dividends payable on the loaned securities as well as by either investing cash collateral received from the borrower in short-term instruments or obtaining a fee from the borrower when U.S. government securities or letters of credit are used as collateral. The Fund will adhere to the following conditions whenever its portfolio securities are loaned: (i) the Fund must receive at least 100% cash collateral or equivalent securities of the type discussed in the preceding paragraph from the borrower; (ii) the borrower must increase such collateral whenever the market value of the securities rises above the level of such collateral; (iii) the Fund must be able to terminate the loan on demand; (iv) the Fund must receive reasonable interest on the loan, as well as any dividends, interest or other distributions on the loaned securities and any increase in market value; (v) the Fund may pay only reasonable fees in connection with the loan (which fees may include fees payable to the lending agent, the borrower, the Fund's administrator and the custodian); and (vi) voting rights on the loaned securities may pass to the borrower, provided, however, that if a material event adversely affecting the investment occurs, the Fund must terminate the loan and regain the right to vote the securities. The Board has adopted procedures reasonably designed to ensure that the foregoing criteria will be met. Loan agreements involve certain risks in the event of default or insolvency of the borrower, including possible delays or restrictions upon the Fund's ability to recover the loaned securities or dispose of the collateral for the loan, which could give rise to loss because of adverse market action, expenses and/or delays in connection with the disposition of the underlying securities.
SHORT SALES
DESCRIPTION OF SHORT SALES:
Selling a security short is when an investor sells a security it does not own. To sell a security short an investor must borrow the security from someone else to deliver to the buyer. The investor then replaces the security it borrowed by purchasing it at the market price at or before the time of replacement. Until it replaces the security, the investor repays the person that lent it the security for any interest or dividends that may have accrued during the period of the loan.
Investors typically sell securities short to:
o Take advantage of an anticipated decline in prices.
o Protect a profit in a security it already owns.
The Fund can lose money if the price of the security it sold short increases between the date of the short sale and the date on which the Fund replaces the borrowed security. Because the market price of the security sold short could increase without limit, the Fund could also be subject to a theoretically unlimited loss. Likewise, the Fund can profit if the price of the security declines between those dates.
To borrow the security, the Fund may be required to pay a premium, which would increase the cost of the security sold. The Fund will also incur transaction costs in effecting short sales. The Fund's gains and losses will be decreased or increased, as the case may be, by the amount of the premium, dividends, interest, or expenses the Fund may be required to pay in connection with a short sale.
The broker will retain the net proceeds of the short sale, to the extent necessary to meet margin requirements, until the short position is closed out.
SHORT SALES AGAINST THE BOX - In addition, the Fund may engage in short sales "against the box." In a short sale against the box, the Fund agrees to sell at a future date a security that it either currently owns or has the right to acquire at no extra cost. The Fund will incur transaction costs to open, maintain and close short sales against the box. For tax purposes, a short sale against the box may be a taxable event to the Fund.
RESTRICTIONS ON SHORT SALES:
The Fund will not short sell a security if:
o After giving effect to such short sale, the total market value of all securities sold short would exceed 25% of the value of the Fund's net assets.
o The market value of the securities of any single issuer that have been sold short by the Fund would exceed three percent (3%) of the value of the Fund's net assets.
o Any security sold short would constitute more than two percent (2%) of any class of the issuer's securities.
Whenever the Fund sells a security short, its custodian segregates an amount of cash or liquid securities equal to the difference between (a) the market value of the securities sold short at the time they were sold short and (b) any cash or U.S. government securities the Fund is required to deposit with the broker in connection with the short sale (not including the proceeds from the short sale). The segregated assets are marked to market daily in an attempt to ensure that the amount deposited in the segregated account plus the amount deposited with the broker is at least equal to the market value of the securities at the time they were sold short.
WHEN ISSUED, DELAYED - DELIVERY AND FORWARD TRANSACTIONS
A when-issued security is one whose terms are available and for which a market exists, but which have not been issued. In a forward delivery transaction, the Fund contracts to purchase securities for a fixed price at a future date beyond customary settlement time. "Delayed delivery" refers to securities transactions on the secondary market where settlement occurs in the future. In each of these transactions, the parties fix the payment obligation and the interest rate that they will receive on the securities at the time the parties enter the commitment; however, they do not pay money or deliver securities until a later date. Typically, no income accrues on securities the Fund has committed to purchase before the securities are delivered, although the Fund may earn income on securities it has in a segregated account to cover its position. The Fund will only enter into these types of transactions with the intention of actually acquiring the securities, but may sell them before the settlement date.
The Fund uses when-issued, delayed-delivery and forward delivery transactions to secure what it considers an advantageous price and yield at the time of purchase. When the Fund engages in when-issued, delayed-delivery or forward delivery transactions, it relies on the other party to consummate the sale. If the other party fails to complete the sale, the Fund may miss the opportunity to obtain the security at a favorable price or yield.
When purchasing a security on a when-issued, delayed delivery, or forward delivery basis, the Fund assumes the rights and risks of ownership of the security, including the risk of price and yield changes. At the time of settlement, the market value of the security may be more or less than the purchase price. The yield available in the market when the delivery takes place also may be higher than those obtained in the transaction itself. Because the Fund does not pay for the security until the delivery date, these risks are in addition to the risks associated with its other investments.
The Fund will segregate cash or liquid securities equal in value to commitments for the when-issued, delayed delivery or forward delivery transactions. The Fund will segregate additional liquid assets daily so that the value of such assets is equal to the amount of the commitments.
INVESTMENT POLICIES OF THE FUND
The Fund will determine compliance with the investment limitation percentages below (with the exception of a limitation relating to borrowing and illiquid securities) and other investment requirements in this SAI immediately after and as a result of its acquisition of such security or other asset. Accordingly, the Fund generally will not consider changes in values, net assets or other circumstances when determining whether the investment complies with its investment limitations.
FUNDAMENTAL POLICIES
The following investment limitations are fundamental, which means that the Fund cannot change them without approval by the vote of a majority of the outstanding voting securities of the Fund, as defined by the 1940 Act. The Fund may not:
o Make any investment inconsistent with its classification as a diversified series of an open-end investment company under the 1940 Act. This restriction does not, however, apply if the Fund is classified as a non-diversified series of an open-end investment company under the 1940 Act.
o Borrow money, except to the extent permitted by applicable law, as amended and interpreted or modified from time to time by any regulatory authority having jurisdiction and the guidelines set forth in the Fund's prospectus and SAI as they may be amended from time to time.
o Issue senior securities, except to the extent permitted by applicable law, as amended and interpreted or modified from time to time by any regulatory authority having jurisdiction.
o Underwrite securities of other issuers, except insofar as the Fund may technically be deemed to be an underwriter under the 1933 Act in connection with the purchase or sale of its portfolio securities.
o Concentrate its investments in the securities of one or more issuers conducting their principal business activities in the same industry (other than securities issued or guaranteed by the U.S. government or its agencies or instrumentalities).
o Purchase or sell real estate, except (1) to the extent permitted by applicable law, as amended and interpreted or modified from time to time by any regulatory authority having jurisdiction, (2) that the Fund may invest in securities of issuers that deal or invest in real estate and (3) that the Fund may purchase securities secured by real estate or interests therein.
o Purchase or sell commodities or contracts on commodities except that the Fund may engage in financial futures contracts and related options and currency contracts and related options and may otherwise do so in accordance with applicable law and without registering as a commodity pool operator under the Commodity Exchange Act.
o Make loans to other persons, except that the Fund may lend its portfolio securities in accordance with applicable law, as amended and interpreted or modified from time to time by any regulatory authority having jurisdiction and the guidelines set forth in the Fund's prospectus and statement of additional information as they may be amended from time to time. The acquisition of investment securities or other investment instruments shall not be deemed to be the making of a loan.
NON-FUNDAMENTAL POLICIES
The following limitations are non-fundamental, which means the Fund may change them without shareholder approval. The Fund may:
o Not borrow money, except that (1) the Fund may borrow from banks (as defined in the 1940 Act) or enter into reverse repurchase agreements, in amounts up to 33 1/3% of its total assets (including the amount borrowed); (2) the Fund may borrow up to an additional 5% of its total assets for temporary purposes, (3) the Fund may obtain such short-term credit as may be necessary for the clearance of purchases and sales of portfolio securities, and (4) the Fund may purchase securities on margin and engage in short sales to the extent permitted by applicable law.
Notwithstanding the investment restrictions above, the Fund may not borrow amounts in excess of 33 1/3% of its total assets, taken at market value, and then only from banks as a temporary measure for extraordinary or emergency purposes such as the redemption of portfolio shares. The Fund will not purchase securities while borrowings are outstanding except to exercise prior commitments and to exercise subscription rights.
o Purchase and sell currencies or securities on a when-issued, delayed delivery or forward-commitment basis.
o Purchase and sell foreign currency, purchase options on foreign currency and foreign currency exchange contracts.
o Invest in the securities of foreign issuers.
o Purchase shares of other investment companies to the extent permitted by applicable law. The Fund may, notwithstanding any fundamental policy or other limitation, invest all of its investable assets in securities of a single open-end management investment company with substantially the same investment objectives, policies and limitations.
The 1940 Act currently permits the Fund to invest up to 10% of its total assets in the securities of other investment companies. However, the Fund may not invest more than 5% of its total assets in the securities of any one investment company or acquire more than 3% of the outstanding securities of one investment company.
o Invest in illiquid and restricted securities to the extent permitted by applicable law.
The Fund intends to follow the policies of the SEC as they are adopted from time to time with respect to illiquid securities, including (1) treating as illiquid securities that may not be disposed of in the ordinary course of business within seven days at approximately the value at which the Fund has valued the investment on its books; and (2) limiting its holdings of such securities to 15% of net assets. The Fund may:
o Write covered call options and may buy and sell put and call options.
o Enter into repurchase agreements.
o Lend portfolio securities to registered broker-dealers or other institutional investors. These loans may not exceed 33 1/3% of the Fund's total assets taken at market value. In addition, the Fund must receive at least 100% collateral.
o Sell securities short and engage in short sales "against the box."
o Enter into swap transactions.
Further,
The Fund may not change its investment strategy to invest at least 80% of its net assets, including any borrowing for investment purposes, in equity securities without 60 days' prior written notice to shareholders.
INVESTMENT ADVISORY AND OTHER SERVICES
INVESTMENT ADVISER. Analytic Investors, Inc., located at 500 South Grand Avenue, 23rd Floor, Los Angeles, CA 90071, is the investment adviser to the Fund. The adviser was founded in 1970 as Analytic Investment Management, Inc., one of the first independent investment counsel firms specializing in the creation and continuous management of optioned equity and optioned debt funds for fiduciaries and other long term shareholders. It is one of the oldest investment management firms in this specialized area. In 1985 it became a wholly-owned affiliate of Old Mutual (US) Holdings, Inc. ("Old Mutual US") (formerly named United Asset Management Corporation). In January 1996, Analytic Investment Management, Inc. acquired and merged with TSA Capital Management which emphasizes U.S. and global tactical asset allocation, currency management, quantitative equity and fixed income management, as well as option and yield curve strategies.
Old Mutual US is a holding company incorporated in Delaware in December 1980 (under the name United Asset Management Corporation) for the purpose of acquiring and owning firms engaged primarily in institutional investment management. In 2000, Old Mutual plc, a financial services group based in the United Kingdom, purchased all of the shares of United Asset Management Corporation. Subsequently, the name of United Asset Management Corporation was changed to Old Mutual (US) Holdings Inc.
Since its first acquisition in August 1983, Old Mutual US acquired or organized more than 23 affiliated firms. The affiliated firms provide investment management to private accounts, mutual funds and other institutional and sophisticated investors. Investment strategies employed and securities selected by affiliated firms are separately chosen by each of them. Several affiliated firms also act as investment advisers to separate series or Funds of the Trust.
The Adviser utilizes state of the art quantitative investment management techniques in seeking to deliver consistent investment performance. The Adviser believes that the use of such techniques allow it to fulfill its clients' objectives through rational, systematic identification of market opportunities, while minimizing the impact of human emotions which often dominate investment decision making. The firm has based its investment decisions on quantitative techniques for more than 25 years.
DEFENSIVE EQUITY FUND
The Fund is a stock portfolio that combines a quantitative approach to stock selection with a unique hedging style. As the name suggests, the goal of the portfolio is to allow shareholders to enjoy substantial protection against a declining stock market while still allowing for the shareholder to participate to a large degree in a rising stock market. The core strategy of the portfolio is based on a belief that there are five primary elements that drive an individual stock's performance: 1) relative valuation, 2) growth potential, 3) historical return momentum, 4) liquidity and 5) risk. The valuation process examines dozens of financial measures within these five elements. The Adviser accepts, however, that the predictive power of each of these financial measures has changed over time and will continue to change into the future. As a result, the Adviser has developed a unique weighting process for each of these financial measures which allows its approach to adapt to constantly changing market conditions. The adaptive approach increases the weight of those variables that have contributed most heavily to recent performance and decreases the weight to those measures that have lost their predictive capacity. The stock selection process commences by developing rankings for all the companies in the Equity Universe based on the combined attractiveness of the five elements. This requires extensive analysis and necessitates the assistance of a computer model to simultaneously evaluate all the data for each stock. Once the stocks are ranked, a highly diversified portfolio is constructed by selecting that combination of stocks which represents the best potential return while maintaining a risk profile that is similar to the Equity Universe. Individual security positions are limited to a maximum of a 3% active position relative to their respective weights in the Equity Universe. Once established, this portfolio is strategically hedged to reduce the risk to the overall portfolio when individual stocks become excessively volatile. In the process, the Adviser's quantitative approach greatly reduces the exposures to firm size, market style, and economic sector biases. This is referred to as being size neutral, style neutral and sector neutral.
ADVISORY AGREEMENT WITH THE TRUST. The Trust and the Adviser have entered into an investment advisory agreement (the "Advisory Agreement"). Under the Advisory Agreement, the Adviser serves as the investment adviser and makes the investment decisions for the Fund and continuously reviews, supervises and administers the investment program of the Fund, subject to the supervision of, and policies established by, the Trustees of the Trust. After the initial two year term, 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 Advisory Agreement or "interested persons" of any party thereto, cast in person at a meeting called for the purpose of voting on such approval. The Advisory Agreement will terminate automatically in the event of its assignment, and is terminable at any time without penalty by the Trustees of the Trust or, 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 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.
ADVISORY FEES PAID TO THE ADVISER. For its services, the Fund pays the Advisor a fee calculated at an annual rate of 0.60% of average net assets. Due to the effect of fee waivers by the Adviser, the actual percentage of average net assets that the Fund pays in any given year may be different from the rate set forth in its contract with the Adviser. For the last three fiscal years, the Fund paid the following in management fees to the Adviser:
--------------------------- ------------------------------------------- ----------------------------------------------
FUND FEES PAID* FEES WAIVED*
--------------------------- ------------------------------------------- ----------------------------------------------
2002 2003 2004 2002 2003 2004
--------------------------- ------------- -------------- -------------- --------------- ---------------- -------------
Defensive Equity $44,031 $14,149 $178,296 $230,412
--------------------------- ------------- -------------- -------------- --------------- ---------------- -------------
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* For periods prior to June 24, 2002, figures relate to payments made by the Predecessor Analytic Defensive Equity Fund to the Predecessor Adviser.
PORTFOLIO MANAGERS
This section includes information about the Fund's portfolio managers, including information about other accounts managed, the dollar range of Fund shares owned and how the portfolio manager is compensated.
COMPENSATION. The Adviser compensates the Fund's portfolio managers for their management of the Fund. The portfolio managers' compensation consists of an industry competitive base salary, discretionary bonus, and deferred compensation consisting of an allocation to the Adviser's commingled fund with a three-year vesting period. The Adviser considers three factors in awarding a discretionary bonus, including (i) performance results of the portfolio manager's investment strategy as compared to each strategy's specific benchmark, as well as the Adviser's annual performance targets, (ii) overall performance of the Adviser, in terms of profitability, and (iii) the individual portfolio manager's contribution, based on goals established during the performance period.
FUND SHARES OWNED BY THE PORTFOLIO MANAGER. The following table shows the dollar amount range of the portfolio manager's "beneficial ownership" of shares of the Fund as of the end of the most recently completed fiscal year. Dollar amount ranges disclosed are established by the SEC. "Beneficial ownership" is determined in accordance with Rule 16a-1(a)(2) under the 1934 Act.
---------------------------------- ------------------------------------------------------------------------------------- NAME DOLLAR RANGE OF FUND SHARES* ---------------------------------- ------------------------------------------------------------------------------------- ---------------------------------- ------------------------------------------------------------------------------------- Robert Murdock $50,001-$100,000 of the Analytic Defensive Equity Fund ---------------------------------- ------------------------------------------------------------------------------------- Greg McMurran $100,001-$500,000 of the Analytic Defensive Equity Fund ---------------------------------- ------------------------------------------------------------------------------------- Harindra de Silva $100,001-$500,000 of the Analytic Defensive Equity Fund ---------------------------------- ------------------------------------------------------------------------------------- |
---------------------------------- -------------------------------------------------------------------------------------
Steven Sapra $10,001-$50,000 of the Analytic Defensive Equity Fund
---------------------------------- -------------------------------------------------------------------------------------
Dennis Bein $10,001 - $50,000 of the Analytic Global Long-Short Fund
$50,001-$100,000 of the Analytic Defensive Equity Fund
---------------------------------- -------------------------------------------------------------------------------------
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* Valuation date is December 31, 2004.
OTHER ACCOUNTS. In addition to the Fund, the portfolio manager is responsible for the day-to-day management of certain other accounts, as follows (note that one of the accounts is subject to a performance-based advisory fee):
---------------- ------------------------------- ------------------------------ ----------------------------------------
NAME REGISTERED INVESTMENT OTHER POOLED INVESTMENT OTHER ACCOUNTS
COMPANIES VEHICLES
---------------- ------------------------------- ------------------------------ ----------------------------------------
NUMBER OF TOTAL ASSETS NUMBER OF TOTAL ASSETS NUMBER OF TOTAL ASSETS
ACCOUNTS ACCOUNTS ACCOUNTS
---------------- ------------- ----------------- ------------- ---------------- -------------- -------------------------
Robert Murdock 0 $0 2 $91,400,000 8 $157,500,000
---------------- ------------- ----------------- ------------- ---------------- -------------- -------------------------
Dennis Bein 8 $865,200,000 152* $993,000,000 213* $1,002,000,000
---------------- ------------- ----------------- ------------- ---------------- -------------- -------------------------
Greg McMurran 0 $0 2 $91,400,000 11 $3,500,000,000
---------------- ------------- ----------------- ------------- ---------------- -------------- -------------------------
Harindra de 7 $862,000,000 152* $1,000,000,000 213* $1,200,000,000
Silva
---------------- ------------- ----------------- ------------- ---------------- -------------- -------------------------
Steven Sapra 8 $865,200,000 114* $814,000,000 213* $1,002,000,000
---------------- ------------- ----------------- ------------- ---------------- -------------- -------------------------
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* Includes four accounts with aggregated assets under management of
$179,000,000 that are subject to a performance-based advisory fee.
2* Includes nine accounts with aggregated assets under management of
$276,900,000 that are subject to a performance-based advisory fee.
3* Includes six accounts with aggregated assets under management of
$493,000,000 that are subject a performance-based advisory fee.
4* Includes six accounts with aggregated assets under management of
$227,400,000 that are subject to a performance-based advisory fee.
5* Includes one account with assets under management of $3,200,000,000 that is
subject to a performance-based advisory fee.
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CONFLICTS OF INTERESTS. The portfolio managers' management of "other accounts" may give rise to potential conflicts of interest in connection with his management of a Fund's investments, on the one hand, and the investments of the other accounts, on the other. The other accounts may have the same
investment objective as the Fund. Therefore, a potential conflict of interest may arise as a result of the identical investment objectives, whereby the portfolio manager could favor one account over another. Another potential conflict could include the portfolio manager's knowledge about the size, timing and possible market impact of Fund trades, whereby the portfolio manager could use this information to the advantage of other accounts and to the disadvantage of the Fund. In addition, it is also possible that a potential conflict of interest may arise because the portfolio managers manage accounts with a performance-based management fee in addition to the Fund and other accounts without a performance-based fee. However, the Adviser has established policies and procedures to ensure that the purchase and sale of securities among all accounts it manages are fairly and equitably allocated.
THE ADMINISTRATOR
GENERAL. SEI Investments Global Funds Services (the "Administrator"), a Delaware statutory 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 other mutual funds.
ADMINISTRATION AGREEMENT WITH THE TRUST. The Trust and the Administrator have entered into an administration agreement (the "Administration Agreement"). Under the Administration Agreement, the Administrator provides the Trust with administrative services, including regulatory reporting and all necessary office space, equipment, personnel and facilities. The Administrator also serves as the shareholder servicing agent for the Fund under a shareholder servicing agreement with the Trust pursuant to which the Administrator provides certain shareholder services in addition to those set forth in 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 one year 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.
ADMINISTRATION FEES PAID TO THE ADMINISTRATOR. For its services under the Administration Agreement, the Administrator is entitled to a fee, which is calculated daily and paid monthly, at an annual rate of 0.12% for the first $250 million in assets, 0.10% for the next $250 million in assets, 0.08% for the next $250 million in assets and 0.04% for all assets greater than $750 million. The minimum fee is $125,000 for one portfolio, $250,000 for two portfolios, $350,000 for three portfolios, an additional $75,000 for each additional portfolio over three and $20,000 for each additional class per portfolio after the first class, apportioned to the Fund as a percentage of average daily net assets. Due to these minimums, the annual administration fee the Fund pays will exceed the above percentages at low asset levels. For the fiscal years ended December 31, 2002, 2003 and 2004, the Fund paid the following administration fees:
---------------------------- --------------------------------------------------------------------------------
FUND ADMINISTRATION FEE
---------------------------- --------------------------------------------------------------------------------
2002 2003 2004
---------------------------- -------------------------- -------------------------- --------------------------
Defensive Equity $201,878 $282,368
---------------------------- -------------------------- -------------------------- --------------------------
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THE DISTRIBUTOR
The Trust and SEI Investments Distribution Co. (the "Distributor"), a wholly owned subsidiary of SEI Investments and an affiliate of the Administrator, are parties to a distribution agreement (the "Distribution Agreement") whereby the Distributor acts as principal underwriter for the Trust's shares.
The continuance of the Distribution 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 Distribution Agreement or "interested persons" of any party thereto, cast in person at a meeting called for the purpose of voting on such approval. The Distribution 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, upon not more than 60 days' written notice by either party. The Distribution Agreement provides that the Distributor 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.
DISTRIBUTION PLAN. The Trust has adopted a Distribution Plan (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 that may be spent thereunder without approval by a majority of the outstanding shares of the Trust. All material amendments of the Plan will require approval by a majority of the Trustees of the Trust and of the Qualified Trustees.
o CLASS A SHARES. Under the Plan, the Distributor, or third parties that enter into agreements with the Distributor ("Service Providers"), may receive up to 0.25% of the Fund's assets attributable to Class A Shares as compensation for distribution services pursuant to Rule 12b-1 of the 1940 Act.
o CLASS C SHARES. Under the Plan, the Distributor, or designated Service Providers, may receive up to 1.00% of the Fund's assets attributable to Class C Shares as compensation for distribution and shareholder services pursuant to Rule 12b-1 of the 1940 Act. The Plan allows for payment of up to 0.75% of the Fund's assets attributable to Class C Shares as compensation for distribution services and up to 0.25% of the Fund's assets attributable to Class C Shares as compensation for shareholder services.
DESCRIPTION OF DISTRIBUTION AND SHAREHOLDER SERVICES. Distribution services may include: (i) services in connection with distribution assistance, or (ii) payments to financial institutions and other financial intermediaries, such as banks, savings and loan associations, insurance companies, investment counselors, broker-dealers, mutual fund "supermarkets" and the Distributor's affiliates and subsidiaries, as
compensation for services or reimbursement of expenses incurred in connection with distribution assistance. The Distributor may, at its discretion, retain a portion of such payments to compensate itself for distribution services and distribution related expenses such as the costs of preparation, printing, mailing or otherwise disseminating sales literature, advertising, and prospectuses (other than those furnished to current shareholders of the Fund), promotional and incentive programs, and such other marketing expenses that the Distributor may incur.
Shareholder services may include: (i) maintaining accounts relating to clients that invest in shares; (ii) arranging for bank wires; (iii) responding to client inquiries relating to the services performed by the Services Provider; (iv) responding to inquiries from clients concerning their investment in shares; (v) assisting clients in changing dividend options, account designations and addresses; (vi) providing information periodically to clients showing their position in shares; (vii) forwarding shareholder communications from the Funds such as proxies, shareholder reports, annual reports, and dividend distribution and tax notices to clients; and (viii) processing dividend payments from the Funds on behalf of clients.
PAYMENTS UNDER THE DISTRIBUTION PLAN. Class A and C shares were first offered beginning [_________, 2004], and, therefore, had not made any payments under the Distribution Plan during the fiscal year ended December 31, 2004.
TRANSFER AGENT
DST Systems, Inc., 330 W 9th Street, Kansas City, Missouri 64105 serves as the Fund's transfer agent.
CUSTODIAN
Union Bank of California, 475 Sansome Street 15th Floor, San Francisco, California 94111 (the "Custodian") acts as custodian for the Fund. The Custodian holds cash, securities and other assets of the Fund as required by the 1940 Act.
INDEPENDENT AUDITOR
[________________] serves as independent auditor for the Fund.
LEGAL COUNSEL
Morgan, Lewis & Bockius LLP serves as legal counsel to the Trust.
TRUSTEES AND OFFICERS OF THE TRUST
BOARD RESPONSIBILITIES. The management and affairs of the Trust and the Fund are supervised by the Trustees under the laws of the Commonwealth of Massachusetts. Each Trustee is responsible for overseeing the Fund and each of the Trust's additional 37 funds, which includes funds not described in this SAI. The Trustees have approved contracts, as described above, under which certain companies provide essential management services to the Trust.
MEMBERS OF THE BOARD. Set forth below are the names, dates of birth, position with the Trust, length of term of office, and the principal occupations for the last five years of each of the persons currently serving as Trustees of the Trust. Unless otherwise noted, the business address of each Trustee is SEI Investments Company, Oaks, Pennsylvania 19456.
INTERESTED TRUSTEES*
ROBERT A. NESHER (DOB 08/17/46) -- Chairman of the Board of Trustees* (since 1991) -- 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 SIMC, the Administrator and the Distributor, 1981-1994. Trustee of The Advisors' Inner Circle Fund II, Bishop Street Funds, The MDL Funds, SEI Global Master Fund, plc, SEI Global Assets Fund, plc, SEI Global Investments Fund, plc, SEI Investments Global, Limited, SEI Absolute Return Master Fund, L.P., SEI Opportunity Master Fund, L.P., SEI Absolute Return Fund, L.P., SEI Opportunity Fund, L.P., SEI Asset Allocation Trust, SEI Index Funds, SEI Daily Income Trust, SEI Institutional International Trust, SEI Institutional Investments Trust, SEI Institutional Managed Trust, SEI Liquid Asset Trust and SEI Tax Exempt Trust.
WILLIAM M. DORAN (DOB 05/26/40) -- Trustee* (since 1992) -- 1701 Market Street, Philadelphia, PA 19103. Self-employed Consultant since 2003. Partner, Morgan, Lewis & Bockius LLP (law firm) from 1976 to 2003, counsel to the Trust, SEI Investments, the Administrator and the Distributor. Director of the Distributor since 2003. Director of SEI Investments since 1974; Secretary of SEI Investments since 1978. Trustee of The Advisors' Inner Circle Fund II, The MDL 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 and SEI Tax Exempt Trust., SEI Investments - Global Fund Services Limited, SEI Investments Global Limited.
* Denotes Trustees who may be deemed to be "interested" persons of the Fund as that term is defined in the 1940 Act by virtue of their affiliation with the Distributor.
INDEPENDENT TRUSTEES
CHARLES E. CARLBOM (DOB 08/20/34) - Trustee (since 2005) - Self-Employed Business Consultant, Business Projects Inc. since 1997. Director, Crown Pacific Inc. CEO and President, United Grocers Inc. from 1997 to 2000. Trustee of The Advisors' Inner Circle Fund II and The MDL Funds.
JOHN T. COONEY (DOB 01/20/27) -- Trustee (since 1993) -- Vice Chairman of Ameritrust Texas N.A., 1989-1992, and MTrust Corp., 1985-1989. Trustee of The Advisors' Inner Circle Fund II and The MDL Funds.
MITCHELL A. JOHNSON (DOB 03/01/42) - Trustee (since 2005) - Retired. Director, Federal Agricultural Mortgage Corporation. Trustee of The Advisors' Inner Circle Fund II and The MDL Funds.
BETTY L. KRIKORIAN (DOB 01/23/43) - Trustee (since 2005) - Self-Employed Legal and Financial Services Consultant since 2003. State Street Bank Global Securities and Cash Operations from 1995 to 2003. Trustee of The Advisors' Inner Circle Fund II and The MDL Funds.
ROBERT A. PATTERSON (DOB 11/05/17) -- Trustee (Since 1993) -- Pennsylvania State University, Senior Vice President, Treasurer (Emeritus); Financial and Investment Consultant, Professor of Transportation since 1984; Vice President-Investments, Treasurer, Senior Vice President (Emeritus), 1982-1984. Director, Pennsylvania Research Corp.; Member and Treasurer (Emeritus), Board of Trustees of Grove City College. Trustee of The Advisors' Inner Circle Fund II and The MDL Funds.
EUGENE B. PETERS (DOB 06/03/29) -- Trustee (Since 1993) -- Private investor from 1987 to present. Vice President and Chief Financial Officer, Western Company of North America (petroleum
service company), 1980-1986. President of Gene Peters and Associates (import company), 1978-1980. President and Chief Executive Officer of Jos Schlitz Brewing Company before 1978. Trustee of The Advisors' Inner Circle Fund II and The MDL Funds.
JAMES M. STOREY (DOB 04/12/31) -- Trustee (Since 1994) -- Attorney, Solo Practitioner since 1994. Trustee of The Advisors' Inner Circle Fund II, The MDL Funds, Massachusetts Health and Education Tax-Exempt Trust, 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 and SEI Tax Exempt Trust, U.S. Charitable Gift Trust.
GEORGE J. SULLIVAN, JR. (DOB 11/13/42) -- Trustee (Since 1999) -- Self-employed Consultant, Newfound Consultants Inc. since April 1997. Trustee, State Street Navigator Securities Lending Trust, The Advisors' Inner Circle Fund II, The MDL Funds, SEI Absolute Return Master Fund, LP, SEI Asset Allocation Trust, SEI Absolute Return Fund, L.P., SEI Opportunity Fund, SEI Daily Income Trust, SEI Index Funds, SEI Institutional International Trust, SEI Institutional Investments Trust, SEI Institutional Managed Trust, SEI Liquid Asset Trust, SEI Opportunity Master Fund and SEI Tax Exempt Trust.
BOARD STANDING COMMITTEES. The Board has established the following standing committees:
o AUDIT COMMITTEE. The Board has a standing Audit Committee that is
composed of each of the independent Trustees of the Trust. The Audit
Committee operates under a written charter approved by the Board. The
principal responsibilities of the Audit Committee include:
recommending which firm to engage as the Fund's independent auditor
and whether to terminate this relationship; reviewing the independent
auditors' compensation, the proposed scope and terms of its
engagement, and the firm's independence; pre-approving audit and
non-audit services provided by the Fund's independent auditor to the
Trust and certain other affiliated entities; serving as a channel of
communication between the independent auditor and the Trustees;
reviewing the results of each external audit, including any
qualifications in the independent auditors' opinion, any related
management letter, management's responses to recommendations made by
the independent auditors in connection with the audit, reports
submitted to the Committee by the internal auditing department of the
Trust's Administrator that are material to the Trust as a whole, if
any, and management's responses to any such reports; reviewing the
Fund's audited financial statements and considering any significant
disputes between the Trust's management and the independent auditor
that arose in connection with the preparation of those financial
statements; considering, in consultation with the independent auditors
and the Trust's senior internal accounting executive, if any, the
independent auditors' report on the adequacy of the Trust's internal
financial controls; reviewing, in consultation with the Fund's
independent auditors, major changes regarding auditing and accounting
principles and practices to be followed when preparing the Fund's
financial statements; and other audit related matters. Messrs. Cooney,
Patterson, Peters, Storey and Sullivan currently serve as members of
the Audit Committee. The Audit Committee meets periodically, as
necessary, and met [four] times in the most recently completed Trust
fiscal year.
o FAIR VALUE PRICING COMMITTEE. The Board has a standing Fair Value
Pricing Committee that is composed of at least one Trustee and various
representatives of the Trust's service providers, as appointed by the
Board. The Fair Value Pricing Committee operates under procedures
approved by the Board. The principal responsibilities of the Fair
Value Pricing Committee are to determine the fair value of securities
for which current market quotations are not readily available. The
Fair Value Pricing Committee's determinations are reviewed by the
Board. Mr. Nesher, interested Trustee, currently serves as the
Board's delegate on the Fair Value Pricing Committee. The Fair Value
Pricing Committee meets periodically, as necessary, and met
[nineteen] times in the most recently completed Trust fiscal year.
o NOMINATING COMMITTEE. The Board has a standing Nominating Committee that is composed of each of the independent Trustees of the Trust. The principal responsibilities of the Nominating Committee are to consider, recommend and nominate candidates to fill vacancies on the Trust's Board, if any. The Nominating Committee does not have specific procedures in place to consider nominees recommended by shareholders, but would consider such nominees if submitted in accordance with Rule 14a-8 of the 1934 Act in conjunction with a shareholder meeting to consider the election of Trustees. Messrs. Cooney, Patterson, Peters, Storey and Sullivan currently serve as members of the Nominating Committee. The Nominating Committee meets periodically, as necessary, and [did not meet] in during the most recently completed Trust fiscal year.
BOARD CONSIDERATIONS IN APPROVING THE ADVISORY AGREEMENT. As discussed in the section of this SAI entitled "The Adviser," the Board continuance of the Advisory Agreement, after the initial two-year term, must be specifically approved at least annually (i) by the vote of the Trustees or by a vote of the shareholders of the Fund and (ii) by the vote of a majority of the Trustees who are not parties to the Advisory Agreement or "interested persons" of any party thereto, cast in person at a meeting called for the purpose of voting on such approval. Each year, the Board of Trustees calls and holds a meeting to decide whether to renew the Advisory Agreement for the upcoming year. In preparation for the meeting, the Board requests and reviews a wide variety of information from the Adviser. The Trustees use this information, as well as other information that the Adviser and other Fund service providers may submit to the Board, to help them decide whether to renew the Advisory Agreement for another year.
Before approving the Advisory Agreement, the Board requested and received written materials from the Adviser about: (a) the quality of the Adviser's investment management and other services; (b) the Adviser's investment management personnel; (c) the Adviser's operations and financial condition; (d) the Adviser's brokerage practices (including any soft dollar arrangements) and investment strategies; (e) the level of the advisory fees that the Adviser charges the Fund compared with the fees it charges to comparable mutual funds or accounts (if any); (f) the Fund's overall fees and operating expenses compared with similar mutual funds; (g) the level of the Adviser's profitability from its Fund-related operations; (h) the Adviser's compliance systems; (i) the Adviser's policies on and compliance procedures for personal securities transactions; (j) the Adviser' reputation, expertise and resources in domestic financial markets; and (k) the Fund's performance compared with similar mutual funds.
At the meeting, representatives from the Adviser presented additional oral and written information to the Board to help the Board evaluate the Adviser's fee and other aspects of the Agreement. Other Fund service providers also provided the Board with additional information at the meeting. The Trustees then discussed the written materials that the Board received before the meeting and the Adviser's oral presentation and any other information that the Board received or discussed at the meeting, and deliberated on the renewal of the Advisory Agreement in light of this information. In its deliberations, the Board did not identify any single piece of information that was all-important, controlling or determinative of its decision.
Based on the Board's deliberations and its evaluation of the information
described above, the Board, including all of the independent Trustees,
unanimously: (a) concluded that terms of the Agreement are fair and reasonable;
(b) concluded that the Adviser's fees are reasonable in light of the services
that the Adviser provides to the Fund; and (c) agreed to renew the Agreement for
another year.
FUND SHARES OWNED BY BOARD MEMBERS. The following table shows the dollar amount range of each Trustee's "beneficial ownership" of shares of the Fund as of the end of the most recently completed calendar year. Dollar amount ranges disclosed are established by the SEC. "Beneficial ownership" is
determined in accordance with Rule 16a-1(a)(2) under the 1934 Act. The Trustees and officers of the Trust own less than 1% of the outstanding shares of the Trust.
---------------------- ------------------------------------------------------ ----------------------------------------------
NAME DOLLAR RANGE OF FUND SHARES (FUND)* AGGREGATE DOLLAR RANGE OF SHARES (ALL FUNDS)*
---------------------- ------------------------------------------------------ ----------------------------------------------
Carlbom** n/a n/a
---------------------- ------------------------------------------------------ ----------------------------------------------
Cooney None None
---------------------- ------------------------------------------------------ ----------------------------------------------
Doran None None
---------------------- ------------------------------------------------------ ----------------------------------------------
Johnson** n/a n/a
---------------------- ------------------------------------------------------ ----------------------------------------------
Krikorian** n/a n/a
---------------------- ------------------------------------------------------ ----------------------------------------------
Nesher None None
---------------------- ------------------------------------------------------ ----------------------------------------------
Patterson None None
---------------------- ------------------------------------------------------ ----------------------------------------------
Peters None None
---------------------- ------------------------------------------------------ ----------------------------------------------
Storey None None
---------------------- ------------------------------------------------------ ----------------------------------------------
Sullivan None None
---------------------- ------------------------------------------------------ ----------------------------------------------
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* Valuation date is December 31, 2004. ** Elected February 2005.
BOARD COMPENSATION. The Trust paid the following fees to the Trustees during its most recently completed fiscal year.
---------------------- --------------------------- --------------------------- -------------------------- ---------------------
NAME AGGREGATE PENSION OR RETIREMENT ESTIMATED ANNUAL TOTAL COMPENSATION
COMPENSATION BENEFITS ACCRUED AS PART BENEFITS UPON RETIREMENT FROM THE TRUST AND
OF FUND EXPENSES FUND COMPLEX*
---------------------- --------------------------- --------------------------- -------------------------- ---------------------
Carlbom** n/a n/a n/a n/a
---------------------- --------------------------- --------------------------- -------------------------- ---------------------
Cooney $38,456 n/a n/a $38,456
---------------------- --------------------------- --------------------------- -------------------------- ---------------------
Doran $0 n/a n/a $0
---------------------- --------------------------- --------------------------- -------------------------- ---------------------
Johnson** n/a n/a n/a n/a
---------------------- --------------------------- --------------------------- -------------------------- ---------------------
Krikorian** n/a n/a n/a n/a
---------------------- --------------------------- --------------------------- -------------------------- ---------------------
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---------------------- --------------------------- --------------------------- -------------------------- ---------------------
Nesher $0 n/a n/a $0
---------------------- --------------------------- --------------------------- -------------------------- ---------------------
Patterson $38,456 n/a n/a $38,456
---------------------- --------------------------- --------------------------- -------------------------- ---------------------
Peters $38,456 n/a n/a $38,456
---------------------- --------------------------- --------------------------- -------------------------- ---------------------
Storey $38,456 n/a n/a $38,456
---------------------- --------------------------- --------------------------- -------------------------- ---------------------
Sullivan $38,456 n/a n/a $38,456
---------------------- --------------------------- --------------------------- -------------------------- ---------------------
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* The Trust is the only investment company in the "Fund Complex." ** Elected February 2005.
TRUST OFFICERS. Set forth below are the names, dates of birth, position with the Trust, length of term of office, and the principal occupations for the last five
years of each of the persons currently serving as executive officers of the Trust. Unless otherwise noted, the business address of each officer is SEI Investments Company, Oaks, Pennsylvania 19456. The Chief Compliance Officer is the only officer who receives compensation from the Trust for his services.
Certain officers of the Trust also serve as officers of one or more mutual funds for which SEI Investments Company or its affiliates act as investment manager, administrator or distributor.
JAMES F. VOLK (DOB 08/28/62) -- President (since 2003) -- Chief Accounting Officer and Chief Compliance Officer, SEI Investments since June 2004. Senior Operations Officer, SEI Investments, Funds Accounting and Administration since 1996. Assistant Chief Accountant for the U.S. Securities and Exchange Commission, 1993-1996.
PETER GOLDEN (DOB 06/27/64) -- Controller and Chief Financial Officer (since 2003) -- Director, SEI Investments, Funds Accounting and Administration since June 2001. Vice President of Funds Administration for J.P. Morgan Chase & Co., 2000-2001. Vice President of Pension and Mutual Fund Accounting for Chase Manhattan Bank, 1997-2000.
WILLIAM E. ZITELLI, JR. (DOB 6/14/68) -- Chief Compliance Officer (since 2004) -- Vice President and Assistant Secretary of the Administrator and Distributor, 2000-2004. Vice President, Merrill Lynch & Co. Asset Management Group, 1998-2000. Associate, Pepper Hamilton LLP (law firm), 1997-1998.
TIMOTHY D. BARTO (DOB 03/28/68) -- Vice President and Assistant Secretary (since 1999) -- General Counsel, Vice President and Secretary of the Administrator and Assistant Secretary of the Distributor since December 1999. Associate, Dechert, 1997-1999. Associate, Richter, Miller & Finn (law firm), 1994-1997.
JOHN MUNERA (DOB 01/14/63) - Vice President and Assistant Secretary (since 2002)
- Middle Office Compliance Officer at SEI Investments since 2000. Supervising
Examiner at Federal Reserve Bank of Philadelphia, 1998-2000.
JAMES NDIAYE (DOB 9/11/68) - Vice President and Secretary - Joined SEI Investments Company in 2004. Vice President, Deutsche Asset Management, 2003-2004. Associate, Morgan, Lewis & Bockius, LLP 2000-2003. Counsel, Assistant Vice President, ING Variable Annuities Group, 1999-2000. Senior Counsel, The Dreyfus Corporation, 1997-1999.
PHILIP T. MASTERSON (DOB 3/12/64) - Vice President and Assistant Secretary - Joined SEI Investments Company in 2004. General Counsel, CITCO Mutual Fund Services (2003-2004). Vice President and Assistant Counsel, Oppenheimer Funds, 1997-2001 and Vice President and Associate Counsel, 2001-2003.
PURCHASING AND REDEEMING SHARES
Purchases and redemptions may be made through the Transfer Agent on any day the NYSE is open for business. Shares of the Fund are offered and redeemed on a continuous basis. Currently, the Trust 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, Thanksgiving and Christmas.
It is currently the Trust's policy to pay all redemptions in cash. The Trust retains the right, however, to alter this policy to provide for redemptions in whole or in part by a distribution in-kind 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. A shareholder will at all times be entitled to aggregate cash redemptions from all Funds of the Trust up to the lesser of $250,000 or 1% of the Trust's net assets during any 90-day period. The Trust has obtained an exemptive order from the SEC that permits the Trust to make in-kind redemptions to those shareholders of the Trust that are affiliated with the Trust solely by their ownership of a certain percentage of the Trust's investment portfolios.
The Trust reserves the right to suspend the right of redemption and/or to postpone the date of payment upon redemption for any period on which trading on the NYSE is restricted, or during the existence of an emergency (as determined by the SEC by rule or regulation) as a result of which disposal or valuation of the Fund's securities is not reasonably practicable, or for such other periods as the SEC has by order permitted. The Trust also reserves the right to suspend sales of shares of the Fund for any period during which the NYSE, the Adviser, the Administrator, the Transfer Agent and/or the Custodian are not open for business.
DETERMINATION OF NET ASSET VALUE
GENERAL POLICY. The Fund adheres to Section 2(a)(41), and Rule 2a-4 thereunder, of the 1940 Act with respect to the valuation of portfolio securities. In general, securities for which market quotations are readily available are valued at current market value, and all other securities are valued at fair value as determined in good faith by the Trusts' Board of Trustees. In complying with the 1940 Act, the Trust relies on guidance provided by the SEC and by the SEC staff in various interpretive letters and other guidance.
EQUITY SECURITIES. Securities listed on a securities exchange, market or automated quotation system for which quotations are readily available (except for securities traded on NASDAQ), including securities traded over the counter, are valued at the last quoted sale price on the primary exchange or market (foreign or domestic) on which they are traded on valuation date (or at approximately 4:00 p.m. ET if a security's primary exchange is normally open at that time), or, if there is no such reported sale on the valuation date, at the most recent quoted bid price. For securities traded on NASDAQ, the NASDAQ Official Closing Price will be used. If such prices are not available or determined to not represent the fair value of the security as of the Fund's pricing time, the security will be valued at fair value as determined in good faith by the Trust's Board of Trustees.
MONEY MARKET SECURITIES AND OTHER DEBT SECURITIES. If available, money market securities and other debt securities are priced based upon valuations provided by recognized independent, third-party pricing agents. Such values generally reflect the last reported sales price if the security is actively traded. The third-party pricing agents may also value debt securities by employing methodologies that utilize actual market transactions, broker-supplied valuations, or other methodologies designed to identify the market value for such securities. Such methodologies generally consider such factors as security prices, yields,
maturities, call features, ratings and developments relating to specific securities in arriving at valuations. Money market securities and other debt securities with remaining maturities of 60 days or less may be valued at their amortized cost, which approximates market value. If such prices are not available or determined to not represent the fair value of the security as of the Fund's pricing time, the security will be valued at fair value as determined in good faith by the Trust's Board of Trustees.
USE OF THIRD-PARTY INDEPENDENT PRICING AGENTS. Pursuant to contracts with the Trust's Administrator, market prices for most securities held by the Fund are provided daily by third-party independent pricing agents that are approved by the Board of Trustees of the Trust. The valuations provided by third-party independent pricing agents are reviewed daily by the Administrator.
TAXES
The following is only a summary of certain additional federal income tax considerations generally affecting the Fund and its shareholders that is intended to supplement the discussion contained 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 with their tax advisors with specific reference to their own tax situations, including their state, local, and foreign tax liabilities.
The following general discussion of certain federal income tax consequences is based on 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.
QUALIFICATIONS AS A RIC. The Fund intends to qualify and elects 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. The board reserves the right not to maintain the qualification of the Fund as a regulated investment company if it determines such course of action to be beneficial to shareholders.
In order to be taxable as a RIC, the Fund must distribute annually to its shareholders at least 90% of its net investment income (generally net investment income plus 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 ("Distribution Requirement") and also must meet several additional requirements. Among these requirements are the following: (i) at least 90% of the Fund's gross income each taxable year must be derived from dividends, interest, payments with respect to securities loans, gains from the sale or other disposition of stock, securities or foreign currencies, and certain other related income, including, generally, certain gains from options, futures, and forward contracts derived with respect to its business of investing in such stock, securities or currencies; (ii) at the end of each fiscal quarter of the Fund's taxable year, at least 50% of the market 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 not greater than 5% of the value of the Fund's total assets or more than 10% of the outstanding voting securities of such issuer, and (iii) at the end of each fiscal quarter of the Fund's taxable year, not more than 25% of the value of its total assets is invested in the securities (other than U.S. government securities or securities of other RICs) of any one issuer or two or more issuers that the Fund controls and which are engaged in the same, or similar, or related trades or businesses.
If the Fund fails to qualify as a RIC for any year, all of its income will be subject to federal income tax at regular corporate rates without any deduction for distributions to shareholders. In such case, its shareholders would be taxed as if they received ordinary dividends, although corporate shareholders could be eligible for the dividends received deduction and individuals may be able to benefit from the lower tax rates available to qualified dividend income.
FEDERAL EXCISE TAX. Notwithstanding the Distribution Requirement described above, which only requires the Fund to distribute at least 90% of its annual investment company income and does not require any minimum distribution of net capital gain, the Fund will be subject to a nondeductible 4% federal excise tax to the extent it fails to distribute, by the end of any calendar year, at least 98% of its ordinary income for that year and 98% of its capital gain net income (the excess of short- and long-term capital gain over short- and long-term capital loss) for the one-year period ending on October 31 of that year, plus certain other amounts. The Fund intends to make sufficient distributions to avoid liability for federal excise tax, but can make no assurances that such tax will be completely eliminated. The Fund may in certain circumstances be required to liquidate Fund investments in order to make sufficient distributions to avoid federal excise tax liability at a time when the investment adviser might not otherwise have chosen to do so, and liquidation of investments in such circumstances may affect the ability of the Fund to satisfy the requirement for qualification as a RIC. If the Fund's distributions exceed its taxable income and capital gains realized during a taxable year, all or a portion of the distributions made in the same taxable year may be recharacterized as a return of capital to the shareholders. A return of capital distribution will generally not be taxable, but will reduce each shareholder's cost basis in the Fund and result in a higher reported capital gain or lower reported capital loss when those shares on which the distribution was received are sold.
SHAREHOLDER TREATMENT. The Fund's dividends that are paid to their corporate shareholders and are attributable to qualifying dividends it received from U.S. domestic corporations may be eligible, in the hands of such shareholders, for the corporate dividends received deduction, subject to certain holding period requirements and debt financing limitations. Generally, and subject to certain limitations (including certain holding period limitations), a dividend will be treated as a qualifying dividend if it has been received from a domestic corporation. All dividends (including the deducted portion) must be included in your alternative minimum taxable income calculation.
The Fund receives income generally in the form of dividends and interest on investments. This income, plus net short-term capital gains, if any, less expenses incurred in the operation of the Fund, constitutes the Fund's net investment income from which dividends may be paid to you. Any distributions by the Fund from such income will be taxable to you as ordinary income or at the lower capital gains rates that apply to individuals receiving qualified dividend income, whether you take them in cash or in additional shares.
Distributions by the Fund will be eligible for the reduced maximum tax rate to individuals of 15% (5% for individuals in lower tax brackets) to the extent that the Fund receives qualified dividend income on the securities it holds. Qualified dividend income is, in general, dividend income from taxable domestic corporations and certain foreign corporations (e.g., foreign corporations incorporated in a possession of the United States or in certain countries with a comprehensive tax treaty with the United States, or the stock of which is readily tradable on an established securities market in the United States). A dividend will not be treated as qualified dividend income to the extent that (i) the shareholder has not held the shares on which the dividend was paid for more than 60 days during the 120-day period that begins on the date that is 60 days before the date on which the shares become "ex-dividend" (which is the day on which declared distributions (dividends or capital gains) are deducted from the Fund's assets before it calculates the net asset value) with respect to such dividend (and the Fund also satisfies those holding period
requirements with respect to the securities it holds that paid the dividends distributed to the shareholder), (ii) the shareholder is under an obligation (whether pursuant to a short sale or otherwise) to make related payments with respect to substantially similar or related property, or (iii) the shareholder elects to treat such dividend as investment income under section 163(d)(4)(B) of the Code. Absent further legislation, the maximum 15% rate on qualified dividend income will not apply to dividends received in taxable years beginning after December 31, 2008. Distributions by the Fund of its net short-term capital gains will be taxable as ordinary income. Capital gain distributions consisting of the Fund's net capital gains will be taxable as long-term capital gains. The Fund will report annually to its shareholders the amount of the Fund's distributions that qualify for the reduced tax rates on qualified dividend income.
Any gain or loss recognized on a sale, exchange, or redemption of shares of the Fund by a shareholder who is not a dealer in securities will generally, for individual shareholders, be treated as a long-term capital gain or loss if the shares have been held for more than twelve months and otherwise will be treated as a short-term capital gain or loss. However, if shares on which a shareholder has received a net capital gain distribution are subsequently sold, exchanged, or redeemed and such shares have been held for six months or less, any loss recognized will be treated as a long-term capital loss to the extent of the net capital gain distribution. In addition, the loss realized on a sale or other disposition of shares will be disallowed to the extent a shareholder repurchases (or enters into a contract to 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.
FOREIGN TAXES. If more than 50% of the value of the Fund's total assets at the close of its taxable year consists of stocks or securities of foreign corporations, the Fund will be eligible to, and will, file an election with the Internal Revenue Service that may enable shareholders, in effect, to receive either the benefit of a foreign tax credit, or a deduction from such taxes, with respect to any foreign and U.S. possessions income taxes paid by the Fund, subject to certain limitations. Pursuant to the election, the Fund will treat those taxes as dividends paid to its shareholders. Each such shareholder will be required to include a proportionate share of those taxes in gross income as income received from a foreign source and must treat the amount so included as if the shareholder had paid the foreign tax directly. The shareholder may then either deduct the taxes deemed paid by him or her in computing his or her taxable income or, alternatively, use the foregoing information in calculating any foreign tax credit they may be entitled to use against the shareholders' federal income tax. If the Fund makes the election, such Fund will report annually to its shareholders the respective amounts per share of the Fund's income from sources within, and taxes paid to, foreign countries and U.S. possessions.
STATE TAXES. Depending upon state and local law, distributions by the Fund to its shareholders and the ownership of such shares may be subject to state and local taxes. Rules of state and local taxation of dividend and capital gains distributions from RICs often differ from rules for federal income taxation described above. No Fund is liable for any income or franchise tax in Massachusetts if it qualifies as a RIC for federal income tax purposes. Shareholders are urged to consult their tax advisors regarding state and local taxes applicable to an investment in the Fund.
Many states grant tax-free status to dividends paid to you from interest earned on direct obligations of the U.S. government, subject in some states to minimum investment requirements that must be met by the Fund. Investment in GNMA or FNMA securities, banker's acceptances, commercial paper, and repurchase agreements collateralized by U.S. government securities do not generally qualify for such tax-free treatment. The rules on exclusion of this income are different for corporate shareholders.
TAX TREATMENT OF COMPLEX SECURITIES. The Fund may invest in complex securities. These investments may be subject to numerous special and complex tax rules. These rules could affect whether gains and losses recognized by the Fund are treated as ordinary income or capital gain, accelerate the recognition of income to the Fund and/or defer the Fund's ability to recognize losses, and, in limited cases, subject the Fund to U.S. federal income tax on income from certain of its foreign securities. In turn, these rules may affect the amount, timing or character of the income distributed to you by the Fund.
Most foreign exchange gains realized on the sale of debt securities are treated as ordinary income by the Fund. Similarly, foreign exchange losses realized by the Fund on the sale of debt securities are generally treated as ordinary losses by the Fund. These gains when distributed will be taxable to you as ordinary dividends, and any losses will reduce the Fund's ordinary income otherwise available for distribution to you. This treatment could increase or reduce the Fund's ordinary income distributions to you, and may cause some or all of the Fund's previously distributed income to be classified as a return of capital.
OTHER TAX POLICIES. In certain cases, the Fund will be required to withhold at the applicable withholding rate, and remit to the U.S. Treasury, such withheld amounts on 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, (3) has not certified to the Fund that such shareholder is not subject to backup withholding, or (4) has not certified that such shareholder is a U.S. person or U.S. resident alien.
Non-U.S. investors in the Fund may be subject to U.S. withholding and estate tax and are encouraged to consult their tax advisors prior to investing in the Fund.
BROKERAGE ALLOCATION AND OTHER PRACTICES
BROKERAGE TRANSACTIONS. Generally, equity securities are bought and sold through brokerage transactions for which commissions are payable. Purchases from underwriters will include the underwriting commission or concession, and purchases from dealers serving as market makers will include a dealer's mark-up or reflect a dealer's mark-down. Money market securities and other debt securities are usually bought and sold directly from the issuer or an underwriter or market maker for the securities. Generally, the Fund will not pay brokerage commissions for such purchases. When a debt security is bought from an underwriter, the purchase price will usually include an underwriting commission or concession. The purchase price for securities bought from dealers serving as market makers will similarly include the dealer's mark up or reflect a dealer's mark down. When the Fund executes transactions in the OTC market, it will generally deal with primary market makers unless prices that are more favorable are otherwise obtainable.
In addition, the Adviser may place a combined order for two or more accounts it manages, including the Fund, 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. 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. Nonetheless, the Adviser believes that the ability of the Fund to participate in higher volume transactions will generally be beneficial to the Fund. For the fiscal years ended December 31, 2002, 2003 and 2004, the Fund paid the following aggregate brokerage commissions on portfolio transactions:
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FUND AGGREGATE DOLLAR AMOUNT OF BROKERAGE COMMISSIONS PAID*
------------------------------ ------------------------------------------------------------------------------------
2002 2003 2004
------------------------------ ----------------------- ------------------------------- ----------------------------
Defensive Equity $283,261 $6,062
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* For the periods prior to June 24, 2002, figures relate to the Predecessor Analytic Defensive Equity Fund.
BROKERAGE SELECTION. The Trust does not expect to use one particular broker or dealer, and when one or more brokers is believed capable of providing the best combination of price and execution, the Fund's Adviser may select a broker based upon brokerage or research services provided to the Adviser. The Adviser may pay a higher commission than otherwise obtainable from other brokers in return for such services only if a good faith determination is made that the commission is reasonable in relation to the services provided.
Section 28(e) of the 1934 Act permits the Adviser, under certain circumstances, to cause the Fund to pay a broker or dealer a commission for effecting a transaction in excess of the amount of commission another broker or dealer would have charged for effecting the transaction in recognition of the value of brokerage and research services provided by the broker or dealer. In addition to agency transactions, the Adviser may receive brokerage and research services in connection with certain riskless principal transactions, in accordance with applicable SEC guidance. Brokerage and research services include: (1) furnishing advice 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; (2) furnishing analyses and reports concerning issuers, industries, securities, economic factors and trends, portfolio strategy, and the performance of accounts; and (3) effecting securities transactions and performing functions incidental thereto (such as clearance, settlement, and custody). In the case of research services, the Adviser believes that access to independent investment research is beneficial to their investment decision-making processes and, therefore, to the Fund.
To the extent research services may be a factor in selecting brokers, such services may be in written form or through direct contact with individuals and may include information as to particular companies and securities as well as market, economic, or institutional areas and information which assists in the valuation and pricing of investments. Examples of research-oriented services for which the adviser might utilize Fund commissions include research reports and other information on the economy, industries, sectors, groups of securities, individual companies, statistical information, political developments, technical market action, pricing and appraisal services, credit analysis, risk measurement analysis, performance and other analysis. The Adviser may use research services furnished by brokers in servicing all client accounts and not all services may necessarily be used in connection with the account that paid commissions to the broker providing such 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 Fund's Adviser under the Advisory Agreement. Any advisory or other fees paid to the Adviser are not reduced as a result of the receipt of research services.
In some cases the Adviser may receive a service from a broker that has both a "research" and a "non-research" use. When this occurs, the Adviser makes a good faith allocation, under all the circumstances, between the research and non-research uses of the service. The percentage of the service that is used for research purposes may be paid for with client commissions, while the Adviser will use its own funds to pay for the percentage of the service that is used for non-research purposes. In making this good faith allocation, the Adviser faces a potential conflict of interest, but the Adviser believes that its allocation procedures are reasonably designed to ensure that it appropriately allocates the anticipated use of such services to their research and non-research uses.
From time to time, the Fund may purchase new issues of securities for clients in a fixed price offering. In these situations, the seller may be a member of the selling group that will, in addition to selling securities, provide the adviser with research services. The National Association of Securities Dealers has adopted rules expressly permitting these types of arrangements under certain circumstances. Generally, the seller will provide research "credits" in these situations at a rate that is higher than that which is available for typical secondary market transactions. These arrangements may not fall within the safe harbor of Section 28(e).
For the Trust's most recently completed fiscal year, the Fund paid the following commissions on brokerage transactions directed to brokers pursuant to an agreement or understanding whereby the broker provides research or other brokerage services to the Adviser:
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FUND TOTAL DOLLAR AMOUNT OF BROKERAGE TOTAL DOLLAR AMOUNT OF TRANSACTIONS
COMMISSIONS FOR RESEARCH SERVICES INVOLVING BROKERAGE COMMISSIONS FOR
RESEARCH SERVICES
-------------------------------- --------------------------------------- -------------------------------------------
Defensive Equity
-------------------------------- --------------------------------------- -------------------------------------------
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BROKERAGE WITH FUND AFFILIATES. The Fund may execute brokerage or other agency transactions through registered broker-dealer affiliates of either the Fund, the Adviser or the Distributor for a commission in conformity with the 1940 Act, the 1934 Act and rules promulgated by the SEC. Under the 1940 Act and the 1934 Act, affiliated broker-dealers are 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 affiliate and the Fund expressly permitting the affiliate to receive and retain such compensation. These rules further require that commissions paid to the affiliate by the Fund for exchange transactions not exceed "usual and customary" brokerage commissions. The rules define "usual and customary" commissions to include amounts which are "reasonable and fair compared to the commission, fee or other remuneration received or to be received by other brokers in connection with comparable transactions involving similar securities being purchased or sold on a securities exchange during a comparable period of time." The Trustees, including those who are not "interested persons" of the Fund, have adopted procedures for evaluating the reasonableness of commissions paid to affiliates and review these procedures periodically.
For the fiscal years ended December 31, 2002, 2004, and 2004, the Fund paid the following brokerage commissions on portfolio transactions effected by affiliated brokers. The amounts disclosed in the table below relate to payments made to the Distributor acting as agent for repurchase agreements and transactions in equity securities. The Predecessor Analytic Defensive Equity Fund's distributor did not execute brokerage transactions on behalf of the Predecessor Analytic Defensive Equity Fund.
-------------------- ---------------------------------------- -------------------------- -----------------------------
FUND AGGREGATE DOLLAR AMOUNT OF BROKERAGE PERCENTAGE OF TOTAL PERCENTAGE OF TOTAL
BROKERAGE COMMISSIONS BROKERAGE TRANSACTIONS
PAID TO AFFILIATED EFFECTED THROUGH AFFILIATED
COMMISSIONS PAID TO AFFILIATED BROKERS BROKERS BROKERS
-------------------- ---------------------------------------- -------------------------- -----------------------------
2002 2003 2004 2004
-------------------- ------------- ------------ ------------- -------------------------- -----------------------------
Defensive Equity $247,290 $294,825
Fund
-------------------- ------------- ------------ ------------- -------------------------- -----------------------------
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SECURITIES OF "REGULAR BROKER-DEALERS." The Fund is required to identify any securities of its "regular brokers and dealers" (as such term is defined in the 1940 Act) which the Fund may hold at the close of its most recent fiscal year. As of December 31, 2004, the Fund held [ ].
PORTFOLIO TURNOVER RATE. Portfolio turnover rate is defined under SEC rules as the value of the securities purchased or securities sold, excluding all securities whose maturities at the time of acquisition were one-year or less, divided by the average monthly value of such securities owned during the year. Based on this definition, instruments with remaining maturities of less than one-year are excluded from the calculation of the portfolio turnover rate. The Fund may at times hold investments in short-term instruments, which are excluded for purposes of computing portfolio turnover. For the Fund's two most recently completed fiscal years ended December 31, 2003 and 2004, the portfolio turnover rate for the Fund was as follows:
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FUND PORTFOLIO TURNOVER RATE
----------------------------- ---------------------------------------------------------------------------------
2003 2004
----------------------------- ------------------------------------- -------------------------------------------
Defensive Equity 218%
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PORTFOLIO HOLDINGS
The Board has approved a policy and procedures that govern the timing and circumstances regarding the disclosure of Fund portfolio holdings information to shareholders and third parties. These policies and procedures are designed to ensure that disclosure of information regarding the Fund's portfolio securities is in the best interests of Fund shareholders, and include procedures to address conflicts between the interests of the Fund's shareholders and those of the Fund's Adviser, principal underwriter, or any affiliated person of the Fund, the Adviser, or the principal underwriter. Pursuant to such procedures, the Board has authorized the Adviser's Chief Compliance Officer ("Adviser CCO") to authorize the release of the Fund's portfolio holdings, as necessary, in conformity with the foregoing principles. The Adviser CCO, either directly or through reports by the Fund's Chief Compliance Officer reports quarterly to the Board regarding the operation and administration of such policies and procedures.
Pursuant to applicable law, the Fund is required to disclose its complete portfolio holdings quarterly, within 60 days of the end of each fiscal quarter (currently, each January 31, April 30, July 31, and October 31). The Fund will disclose a complete or summary schedule of investments (which includes the Fund's 50 largest holdings in unaffiliated issuers and each investment in unaffiliated issuers that exceeds one percent of the Fund's net asset value ("Summary Schedule")) in its semi-annual and annual reports which are distributed to Fund shareholders. The Fund's complete schedule of investments following the first and third fiscal quarters is available in quarterly holdings reports filed with the SEC on Form N-Q, and is available in semi-annual and annual reports filed with the SEC on Form N-CSR.
Fund filings on Form N-Q and Form N-CSR are not distributed to Fund shareholders but are available, free of charge, on the EDGAR database on the SEC's website at WWW.SEC.GOV. Should the Fund include only a Summary Schedule rather than a complete schedule of investments in its semi-annual and annual reports, its Form N-CSR will be available without charge, upon request, by calling [ ].
In addition to information provided to shareholders and the general public, portfolio holdings information may be disclosed as frequently as daily to certain service providers, such as the custodian, administrator or transfer agent, in connection with their services to the Fund. From time to time rating and ranking organizations, such as S&P, Lipper and Morningstar, Inc., may request non-public portfolio holdings information in connection with rating the Fund. Similarly, institutional investors, financial planners, pension plan sponsors and/or their consultants or other third-parties may request portfolio holdings information in order to assess the risks of the Fund's portfolio along with related performance attribution statistics. The lag time for such disclosures will vary. The Fund believes that these third parties have legitimate objectives in requesting such portfolio holdings information. The Fund's Chief Compliance Officer will regularly review these arrangements and will make periodic reports to the Board regarding disclosure pursuant to such arrangements.
The Fund's policies and procedures provide that the Adviser's CCO may authorize disclosure of non-public portfolio holdings information to such parties at differing times and/or with different lag times. Prior to making any disclosure to a third party based on a determination that such disclosure serves a reasonable business purpose, is in the best interests of the Fund's shareholders and that conflicts between the interests of the Fund's shareholders and those of the Fund's Adviser, principal underwriter, or any affiliated person of the Fund are addressed. Portfolio holdings information may be disclosed no more frequently than [monthly] to [ratings agencies,] consultants and other qualified financial professionals or individuals. The monthly disclosures will not be made sooner than [three] days after the date of the information.
With the exception of disclosures to rating and ranking organizations as described above, the Fund requires any third party receiving non-public holdings information to enter into a confidentiality agreement with the Adviser. The confidentiality agreement provides, among other things, that non-public
portfolio holdings information will be kept confidential and that the recipient has a duty not to trade on the non-public information and will use such information solely to analyze and rank the Fund, or to perform due diligence and asset allocation, depending on the recipient of the information.
The Fund's policies and procedures prohibit any compensation or other consideration from being paid to or received by any party in connection with the disclosure of portfolio holdings information, including the Fund, Adviser and its affiliates or recipient of the Fund's portfolio holdings information.
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. The Trust has received a legal opinion to the effect that the Fund's shares are fully paid and non-assessable.
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. Nothing contained in this section attempts to disclaim a Trustee's individual liability in any manner inconsistent with the federal securities laws.
PROXY VOTING
The Board of Trustees of the Trust has delegated responsibility for decisions regarding proxy voting for securities held by the Fund to the Adviser. The Adviser will vote such proxies in accordance with its proxy policies and procedures, which are included in Appendix B to this SAI. The Board of Trustees will periodically review the Fund's proxy voting record.
A description of the policies and procedures that the Trust uses to determine how to vote proxies relating to portfolio securities, as well as information relating to how the Funds voted proxies relating to portfolio securities during the most recent 12-month period ended June 30, is available on Form N-PX (i) without charge, upon request, by calling (866)-777-7818; and (ii) on the SEC's website at HTTP://WWW.SEC.GOV.
CODES OF ETHICS
The Board of Trustees of the Trust has adopted a Code of Ethics pursuant to Rule 17j-1 under the 1940 Act. In addition, the Advisor and Distributor have adopted Codes of Ethics pursuant to Rule 17j-1. These Codes of Ethics (each a "Code" and together the "Codes") apply to the personal investing activities of trustees, officers and certain employees ("access persons"). Rule 17j-1 and the Codes are designed to prevent unlawful practices in connection with the purchase or sale of securities by access persons. Under each Code, access persons are permitted to engage in personal securities transactions, but are required to report their personal securities transactions for monitoring purposes. The Codes further require certain access persons to obtain approval before investing in initial public offerings and limited offerings. Copies of these Codes of Ethics are on file with the Securities and Exchange Commission, and are available to the public.
APPENDIX A - RATINGS
MOODY'S INVESTORS SERVICE, INC.
PREFERRED STOCK RATINGS
aaa An issue which is rated "aaa" is considered to be a
top-quality preferred stock. This rating indicates good asset
protection and the least risk of dividend impairment within
the universe of preferred stocks.
aa An issue which is rated "aa" is considered a high-grade
preferred stock. This rating indicates that there is a
reasonable assurance the earnings and asset protection will
remain relatively well-maintained in the foreseeable future.
a An issue which is rated "a" is considered to be an upper-
medium grade preferred stock. While risks are judged to be
somewhat greater than in the "aaa" and "aa" classification,
earnings and asset protection are, nevertheless, expected to
be maintained at adequate levels.
baa An issue that which is rated "baa" is considered to be a
medium-grade preferred stock, neither highly protected nor
poorly secured. Earnings and asset protection appear adequate
at present but may be questionable over any great length of
time.
ba An issue which is rated "ba" is considered to have speculative
elements and its future cannot be considered well assured.
Earnings and asset protection may be very moderate and not
well safeguarded during adverse periods. Uncertainty of
position characterizes preferred stocks in this class.
b An issue which is rated "b" generally lacks the
characteristics of a desirable investment. Assurance of
dividend payments and maintenance of other terms of the issue
over any long period of time may be small.
caa An issue which is rated "caa" is likely to be in arrears on
dividend payments. This rating designation does not purport to
indicate the future status of payments.
ca An issue which is rated "ca" is speculative in a high degree
and is likely to be in arrears on dividends with little
likelihood of eventual payments.
c This is the lowest rated class of preferred or preference
stock. Issues so rated can thus be regarded as having
extremely poor prospects of ever attaining any real investment
standing.
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plus (+) or minus (-): Moody's applies numerical modifiers 1, 2, and 3 in each rating classification: the modifier 1 indicates that the security ranks in the higher end of its generic rating category; the modifier 2 indicates a mid-range ranking and the modifier 3 indicates that the issue ranks in the lower end of its generic rating category.
DEBT RATINGS - TAXABLE DEBT & DEPOSITS GLOBALLY
Aaa Bonds which are rated Aaa are judged to be of the best quality. They carry the smallest
degree of investment risk and are generally referred to as
"gilt-edged." Interest payments are protected by a large or by
an exceptionally stable margin and principal is secure. While
the various protective elements are likely to change, such
changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa Bonds which are rated Aa are judged to be of high quality by
all standards. Together with the Aaa group they comprise what
are generally known as high grade bonds. They are rated lower
than the best bonds because margins of protection may not be
as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other
elements present which make the long-term risks appear
somewhat larger than the Aaa securities.
A Bonds which are rated A possess many favorable investment
attributes and are to be considered as upper-medium-grade
obligations. Factors giving security to principal and interest
are considered adequate, but elements may be present which
suggest a susceptibility to impairment sometime in the future.
Baa Bonds which are rated Baa are considered as medium-grade
obligations, (I.E., they are neither highly protected nor
poorly secured). Interest payments and principal security
appear adequate for the present but certain protective
elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack
outstanding investment characteristics and in fact have
speculative characteristics as well.
Ba Bonds which are rated Ba are judged to have speculative
elements; their future cannot be considered as well-assured.
Often the protection of interest and principal payments may be
very moderate, and thereby not well safeguarded during both
good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal
payments or of maintenance of other terms of the contract over
any long period of time may be small.
Caa Bonds which are rated Caa are of poor standing. Such issues
may be in default or there may be present elements of danger
with respect to principal or interest.
Ca Bonds which are rated Ca represent obligations which are
speculative in a high degree. Such issues are often in default
or have other marked shortcomings.
C Bonds which are rated C are the lowest rated class of bonds,
and issues so rated can be regarded as having extremely poor
prospects of ever attaining any real investment standing.
This rating applies only to U.S. Tax-Exempt Municipals Bonds
for which the security depends upon the completion of some act
or the fulfillment of some condition are rated conditionally.
These are bonds secured by (a) earnings of projects under
construction, (b) earnings of projects unseasoned in operating
experience, (c) rentals that begin when facilities are
completed, or (d) payments to which some other limiting
condition attaches. Parenthetical rating denotes probable
credit stature upon completion of construction or elimination
of basis of condition.
A-2
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Note: Moody's applies numerical modifiers 1, 2 and 3 in each generic
rating classification from Aa through Caa. The modifier 1
indicates that the obligation ranks in the higher end of its
generic rating category; modifier 2 indicates a mid-range
ranking; and the modifier 3 indicates a ranking in the lower
end of that generic rating category.
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SHORT-TERM PRIME RATING SYSTEM - TAXABLE DEBT & DEPOSITS GLOBALLY
Moody's short-term debt ratings are opinions of the ability of issuers to repay punctually senior debt obligations. These obligations have an original maturity not exceeding one year, unless explicitly noted.
Moody's employs the following three designations, all judged to be investment grade, to indicate the relative repayment ability of rated issuers:
Prime-1 Issuers rated Prime-1 (or supporting institution) have a
superior ability for repayment of senior short-term debt
obligations. Prime-1 repayment ability will often be evidenced
by many of the following characteristics:
o Leading market positions in well-established industries.
o Conservative capitalization structure with moderate reliance on debt
and ample asset protection.
o Broad margins in earnings coverage of fixed financial charges and high
internal cash generation.
o Well-established access to a range of financial markets and assured
sources of alternate liquidity.
Prime-2 Issuers rated Prime-2 (or supporting institutions) have a
strong ability for repayment of senior short-term debt
obligations. This will normally be evidenced by many of the
characteristics cited above but to a lesser degree. Earnings
trends and coverage ratios, while sound, may be more subject
to variation. Capitalization characteristics, while still
appropriate, may be more affected by external conditions.
Ample alternate liquidity is maintained.
Prime-3 Issuers rated Prime-3 (or supporting institutions) have an
acceptable ability for repayment of senior short-term
obligation. The effect of industry characteristics and market
compositions may be more pronounced. Variability in earnings
and profitability may result in changes in the level of debt
protection measurements and may require relatively high
financial leverage. Adequate alternate liquidity is
maintained.
Not Prime Issuers rated Not Prime do not fall within any of the Prime
rating categories.
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STANDARD & POOR'S RATING SERVICES
LONG-TERM ISSUE CREDIT RATINGS
Issue credit ratings are based, in varying degrees, on the following considerations:
1. Likelihood of payment-capacity and willingness of the obligor to meet its financial commitment on an obligation in accordance with the terms of the obligation;
2. Nature of and provisions of the obligation;
3. Protection afforded by, and relative position of, the obligation in the event of bankruptcy, reorganization, or other arrangement under the laws of bankruptcy and other laws affecting
creditors' rights.
The issue rating definitions are expressed in terms of default risk. As such, they pertain to senior obligations of an entity. Junior obligations are typically rated lower than senior obligations, to reflect the lower priority in bankruptcy, as noted above. Accordingly, in the case of junior debt, the rating may not conform exactly to the category definition.
AAA An obligation rated "AAA" has the highest rating assigned by
Standard & Poor's. The obligor's capacity to meet its
financial commitment on the obligation is extremely strong.
AA An obligation rated "AA" differs from the highest rated
obligations only in small degree. The obligor's capacity to
meet its financial commitment on the obligation is very
strong.
A An obligation rated "A" is somewhat more susceptible to the
adverse effects of changes in circumstances and economic
conditions than obligations in higher rated categories.
However, the obligor's capacity to meet its financial
commitment on the obligation is still strong.
BBB An obligation rated "BBB" exhibits adequate protection
parameters. However, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity
of the obligor to meet its financial commitment on the
obligation.
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Obligations rated "BB," "B," "CCC," "CC" and "C" are regarded as having significant speculative characteristics. "BB" indicates the least degree of speculation and "C" the highest. While such obligations will likely have some quality and protective characteristics, these may be outweighed by large uncertainties or major risk exposures to adverse conditions.
BB An obligation rated "BB" is less vulnerable to nonpayment than
other speculative issues. However, it faces major ongoing
uncertainties or exposures to adverse business, financial, or
economic conditions which could lead to the obligor's
inadequate capacity to meet its financial commitment on the
obligation.
B An obligation rated "B" is more vulnerable to nonpayment than
obligations rated "BB," but the obligor currently has the
capacity to meet its financial commitment on the obligation.
Adverse business, financial, or economic conditions will
likely impair the obligor's capacity or willingness to meet
its financial commitment on the obligation.
CCC An obligation rated "CCC" is currently vulnerable to non-
payment, and is dependent upon favorable business, financial,
and economic conditions for the obligor to meet its financial
commitment on the obligation. In the event of adverse
business, financial, or economic conditions, the obligor is
not likely to have the capacity to meet its financial
commitment on the obligations.
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CC An obligation rated "CC" is currently highly vulnerable to nonpayment.
C A subordinated debt or preferred stock obligation rated "C" is
currently highly vulnerable to non-payment. The "C" rating may
be used to cover a situation where a bankruptcy petition has
been filed or similar action taken, but payments on this
obligation are being continued. A "C" will also be assigned to
a preferred stock issue in arrears on dividends or sinking
portfolio payments, but that is currently paying.
A-4
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D An obligation rated "D" is in payment default. The "D" rating
category is used when payments on an obligation are not made
on the date due even if the applicable grace period has not
expired, unless Standard & Poor's believes that such payments
will be made during such grace period. The "D" rating also
will be used upon the filing of a bankruptcy petition or the
taking of a similar action if payments on an obligation are
jeopardized.
r This symbol is attached to the ratings of instruments with
significant noncredit risks. It highlights risks to principal
or volatility of expected returns which are not addressed in
the credit rating. Examples include: obligation linked or
indexed to equities, currencies, or commodities; obligations
exposed to severe prepayment risk- such as interest-only or
principal-only mortgage securities; and obligations with
unusually risky interest terms, such as inverse floaters.
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N.R. This indicates that no rating has been requested, that there is insufficient information on which to base a rating, or that Standard & Poor's does not rate a particular obligation as a matter of policy.
Plus (+) or minus (-): The ratings from "AA" to "CCC" may be modified by the addition of a plus or minus sign to show relative standing within the major rating categories.
SHORT-TERM ISSUE CREDIT RATINGS
A-1 A short-term obligation rated "A-1" is rated in the highest
category by Standard & Poor's. The obligor's capacity to meet
its financial commitment on the obligation is strong. Within
this category, certain obligations are designated with a plus
sign (+). This indicates that the obligor's capacity to meet
its financial commitment on these obligations is extremely
strong.
A-2 A short-term obligation rated "A-2" is somewhat more
susceptible to the adverse effects of changes in circumstances
and economic conditions than obligations in higher rating
categories. However, the obligor's capacity to meet its
financial commitment on the obligation is satisfactory.
A-3 A short-term obligation rated "A-3" exhibits adequate
protection parameters. However, adverse economic conditions or
changing circumstances are more likely to lead to a weakened
capacity of the obligor to meet its financial commitment on
the obligation.
B A short-term obligation rated "B" is regarded as having
significant speculative characteristics. The obligor currently
has the capacity to meet its financial commitment on the
obligation; however, it faces major ongoing uncertainties that
could lead to the obligor's inadequate capacity to meet its
financial commitment on the obligation.
C A short-term obligation rated "C" is currently vulnerable to
nonpayment and is dependent upon favorable business,
financial, and economic conditions for the obligor to meet its
financial commitment on the obligation.
D A short-term obligation rated "D" is in payment default. The
"D" rating category is used when payments on an obligation are
not made on the date due even if the applicable grace period
has not expired, unless Standard & Poors' believes that such
payments will be
A-5
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made during such grace period. The "D" rating also will be
used upon the filing of a bankruptcy petition or the taking of
a similar action if payments on an obligation are jeopardized.
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LOCAL CURRENCY AND FOREIGN CURRENCY RISKS
Country risks considerations are a standard part of Standard & Poor's analysis for credit ratings on any issuer or issue. Currency of repayment is a key factor in this analysis. An obligor's capacity to repay foreign currency obligations may be lower than its capacity to repay obligations in its local currency due to the sovereign government's own relatively lower capacity to repay external versus domestic debt. These sovereign risk considerations are incorporated in the debt ratings assigned to specific issues. Foreign currency issuer ratings are also distinguished from local currency issuer ratings to identity those instances where sovereign risks make them different for the same issuer.
FITCH INC. RATINGS
INTERNATIONAL LONG-TERM CREDIT RATINGS
Investment Grade
AAA Highest credit quality. "AAA" ratings denote the lowest
expectation of credit risk. They are assigned only in case of
exceptionally strong capacity for timely payment of financial
commitments. This capacity is highly unlikely to be adversely
affected by foreseeable events.
AA Very high credit quality. "AA" ratings denote a very low
expectation of credit risk. They indicate very strong capacity
for timely payment of financial commitments. This capacity is
not significantly vulnerable to foreseeable events.
A High credit quality. "A" ratings denote a low expectation of
credit risk. The capacity for timely payment of financial
commitments is considered strong. This capacity may,
nevertheless, be more vulnerable to changes in circumstances
or in economic conditions than is the case for higher ratings.
BBB Good credit quality. "BBB" ratings indicate that there is
currently a low expectation of credit risk. The capacity for
timely payment of financial commitments is considered
adequate, but adverse changes in circumstances and in economic
conditions are more likely to impair this capacity. This is
the lowest investment-grade category.
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Speculative Grade
BB Speculative. "BB" ratings indicate that there is a possibility
of credit risk developing, particularly as the result of
adverse economic change over time; however, business or
financial alternatives may be available to allow financial
commitments to be met. Securities rated in this category are
not investment grade.
B Highly speculative. "B" ratings indicate that significant
credit risk is present, but a limited margin of safety
remains. Financial commitments are currently being met;
however, capacity for continued payment is contingent upon a
sustained, favorable business and economic environment.
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CCC,CC,C High default risk. Default is a real possibility.
Capacity for meeting financial commitments is solely
reliant upon sustained, favorable business or
economic developments. A "CC" rating indicates that
default of some kind appears probable. "C" ratings
signal imminent default.
DDD,DD,D Default. The ratings of obligations in this category
are based on their prospects for achieving partial or
full recovery in a reorganization or liquidation of
the obligor. While expected recovery values are
highly speculative and cannot be estimated with any
precision, the following serve as general guidelines.
"DDD" obligations have the highest potential for
recovery, around 90%-100% of outstanding amounts and
accrued interest. "D" indicates potential recoveries
in the range of 50%-90%, and "D" the lowest recovery
potential, I.E., below 50%.
Entities rated in this category have defaulted on
some or all of their obligations. Entities rated
"DDD" have the highest prospect for resumption of
performance or continued operation with or without a
formal reorganization process. Entities rated "DD"
and "D" are generally undergoing a formal
reorganization or liquidation process; those rated
"DD" are likely to satisfy a higher portion of their
outstanding obligations, while entities rated "D"
have a poor prospect for repaying all obligations.
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INTERNATIONAL SHORT-TERM CREDIT RATINGS
F1 Highest credit quality. Indicates the Best capacity for timely
payment of financial commitments; may have an added "+" to
denote any exceptionally strong credit feature.
F2 Good credit quality. A satisfactory capacity for timely
payment of financial commitments, but the margin of safety is
not as great as in the case of the higher ratings.
F3 Fair credit quality. The capacity for timely payment of
financial commitments is adequate; however, near-term
adverse changes could result in a reduction to non-
investment grade.
B Speculative. Minimal capacity for timely payment of financial
commitments, plus vulnerability to near-term adverse changes
in financial and economic conditions.
C High default risk. Default is a real possibility. Capacity for
meeting financial commitments is solely reliant upon a
sustained, favorable business and economic environment.
D Default. Denotes actual or imminent payment default.
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NOTES
"+" or "-" may be appended to a rating to denote relative status within major rating categories. Such suffixes are not added to the "AAA" long-term rating category, to categories below "CCC," or to short-term ratings other than "F1."
"NR" indicates that Fitch Inc. does not rate the issuer or issue in question.
"Withdrawn:" A rating is withdrawn when Fitch Inc. deems the amount of information available to be inadequate for rating purposes, or when an obligation matures, is called, or refinanced.
RatingAlert: Ratings are placed on RatingAlert to notify investors that there is a reasonable probability of a rating change and the likely direction of such change. These are designated as "Positive," indicating a potential upgrade, "Negative," for a potential downgrade, or "Evolving," if ratings may be raised, lowered or maintained. RatingAlert is typically resolved over a relatively short period.
APPENDIX B - PROXY VOTING POLICIES AND PROCEDURES
ANALYTIC INVESTORS
PROXY VOTING POLICY AND PROCEDURE
Analytic Investors assumes a fiduciary responsibility to vote proxies in the best interest of its clients. In addition, with respect to benefit plans under the Employee Retirement Income Securities Act (ERISA), Analytic Investors acknowledges its responsibility as a fiduciary to vote proxies prudently and solely in the best interest of plan participants and beneficiaries. So that it may fulfill these fiduciary responsibilities to clients, Analytic Investors has adopted and implemented these written policies and procedures reasonably designed to ensure that it votes proxies in the best interest of clients.
PROXY OVERSIGHT COMMITTEE
Analytic Investors acknowledges that it has a duty of care to its clients that requires it to monitor corporate events and vote client proxies. Analytic Investors has established a Proxy Oversight Committee (the "Committee"), to oversee the proxy voting process. The Committee consists of the Chief Investment Officer, the Compliance Officer, and the Proxy Coordinator. The Committee seeks to develop, recommend, and monitor policies governing proxy voting. The adopted guidelines for proxy voting have been developed to be consistent, wherever possible, with enhancing long-term shareholder value and leading corporate governance practices. Analytic Investors has a policy not to be unduly influenced by representatives of management or any public interest or other outside groups when voting proxies. To this end, Analytic Investors has contracted with an independent proxy voting service (the "Proxy Service").
By letter from the Proxy Coordinator, custodians are instructed to forward all proxy materials directly to the Proxy Service. Any proxy materials inadvertently sent to Analytic Investors are copied for file and then delivered to the Proxy Service. At any time of absence of the Proxy Coordinator, another member of the Proxy Committee will assume responsibilities for all proxy matters. To assure receipt of and compliance with the forwarding request, the Proxy Service receives a signed and dated confirmation of the instruction letter from the custodian. At the instruction of the Proxy Service, custodians transmit proxy information via automated electronic file.
PROXY VOTING SERVICE
The role of the Proxy Service includes researching proxy matters, executing the voting process, maintaining a record of all proxies voted on behalf of Analytic Investors, advising Analytic Investors of any material conflicts of interest (see below), and providing Analytic Investors with documentation of the voting record. Analytic Investors has opted to delegate all proxy voting to the Proxy Service except for those instances when a conflict of interest (see below) prevents the Proxy Service from voting according to its guidelines. A copy of the voting policy guidelines of the Proxy Service is attached.
CONFLICTS OF INTEREST
Occasions may arise during the voting process in which the best interest of clients might conflict with the Proxy Service's interests. A conflict of interest would generally include (i) business relationships where the Proxy Service has a substantial business relationship with, or is actively soliciting business from, a company soliciting proxies, or (ii) personal or family relationships whereby an employee of the Proxy Service has a family member or other personal relationship that is affiliated with a company soliciting proxies, such as a spouse who serves as a director of a public company, or (iii) if a substantial business relationship exists with a proponent or opponent of a particular initiative.
At times of such conflict of interest, the Proxy Service will recuse
itself from voting a proxy and notify the Analytic Investors Proxy Coordinator.
Upon notification the Proxy Service's recusal from voting, Analytic Investors'
Proxy Coordinator will prepare a report to the Proxy Committee that identifies
(i) the details of the conflict of interest, (ii) whether or not the conflict is
material; and (iii) procedures to ensure that Analytic Investors makes proxy
voting decisions based on the best interest of clients, and (iv) a copy of the
voting guidelines of the Proxy Service. At least two members of Analytic
Investors' Proxy Committee will then vote the proxy, adhering to the original
voting policy guidelines provided by the Proxy Service. Analytic Investors'
Proxy Committee will not override the voting guidelines of the Proxy Service. A
record of the voting by the Proxy Committee will be retained by the Proxy
Coordinator. Another member of the Proxy Committee will assume the
responsibilities of the Proxy Coordinator in his/her absence.
VOTING GUIDELINES
Analytic Investors has reviewed the Proxy Service's voting recommendations and have determined that the policy provides guidance in the best interest of our clients. A copy of these guidelines is attached.
PROXY VOTING RECORD
The Proxy Coordinator will maintain a record containing the following information regarding the voting of proxies: (i) the name of the issuer, (ii) the CUSIP number, (iii) the shareholder meeting date, (iv) number of shares voted, (v) a brief description of the matter brought to vote; (vi) whether the proposal was submitted by management or a shareholder, (vii) how the Service voted the proxy (for, against, abstained), and (viii) whether the proxy was voted for or against management.
OBTAINING A VOTING PROXY REPORT
Clients may request a copy of the guidelines governing proxy voting and/or a report on how their individual securities were voted by calling Analytic Investors' Proxy Coordinator at 1-800-618-1872. The report will be provided free of charge.
RECORDKEEPING
Pursuant to Rule 204-2 of the Investment Advisers Act of 1940, Analytic Investors will maintain the following records for five years in an easily accessible place, the first two years in its office: o Analytic Investors' proxy voting policies and procedures, as well as the voting guidelines of the Proxy Service o Proxy statements received regarding client securities (proxy statements filed via EDGAR will not be separately maintained by Analytic Investors)
o Records of votes cast on behalf of clients
o Records of written client requests for voting information
o Records of written responses from Analytic Investors to both written and verbal client requests
o Any other documents prepared that were material to Analytic Investors' decision to vote a proxy or that memorialized the basis for the decision.
PART C: OTHER INFORMATION
POST EFFECTIVE AMENDMENT NO. 7
Item 23. Exhibits:
(a)(1) The Advisors' Inner Circle Fund (the "Registrant") Agreement
and Declaration of Trust dated July 18, 1991, as originally
filed with the U.S. Securities and Exchange Commission ("SEC")
on August 29, 1991, is incorporated herein by reference to
exhibit (1)(a) of Post-Effective Amendment No. 32 to the
Registrant's Registration Statement on Form N-1A (File
No.33-42484), filed with the SEC 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 exhibit (1)(a) of Post-Effective Amendment No. 27
to the Registrant's Registration Statement on Form N-1A (File
No. 33-42484), filed with the SEC 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 exhibit (1)(b) of Post-Effective Amendment No. 28
to the Registrant's Registration Statement on Form N-1A (File
No. 33-42484), filed with the SEC on February 27, 1997.
(b)(1) Registrant's By-Laws are incorporated herein by reference to
the Registrant's Registration Statement on Form N-1A (File No.
33-42484), filed with the SEC on August 29, 1991.
(b)(2) Registrant's Amended and Restated By-Laws are incorporated
herein by reference to Exhibit (b)(2) of Post-Effective
Amendment No. 46 to the Registrant's Registration Statement on
Form N-1A (File No. 33-42484), filed with the SEC on June 22,
2001.
(c) Not Applicable.
(d)(1) Investment Advisory Agreement between the Registrant and HGK
Asset Management, Inc. dated August 15, 1994 as originally
filed with Post-Effective Amendment No. 15 to the Registrant's
Registration Statement on Form N-1A (File No. 33-42484), filed
with the SEC on June 15, 1994, is incorporated herein by
reference to exhibit (5)(e) of Post-Effective Amendment No. 24
to the Registrant's Registration Statement on Form N-1A (File
No. 33-42484), filed with the SEC on February 28, 1996.
(d)(2) Investment Advisory Agreement between the Registrant and AIG
Capital Management Corp. as originally filed with
Post-Effective Amendment No. 17 to the Registrant's
Registration Statement on Form N-1A (File No. 33-42484), filed
with the SEC on September 19, 1994, is incorporated herein by
reference to exhibit (5)(f) of Post-Effective Amendment No. 28
to the Registrant's Registration Statement on Form N-1A (File
No. 33-42484), filed with the SEC on February 27, 1997.
(d)(3) Investment Advisory Agreement between the Registrant and First
Manhattan Co. dated May 3, 1995 as originally filed with
Post-Effective Amendment No. 19 to the Registrant's
Registration Statement on Form N-1A (File No. 33-42484), filed
with the SEC on February 1, 1995, is incorporated herein by
reference to exhibit (5)(g) of Post-Effective Amendment No. 24
to the Registrant's Registration Statement on Form N-1A (File
No. 33-42484), filed with the SEC on February 28, 1996.
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(d)(4) Investment Advisory Agreement between the Registrant and LSV
Asset Management Company is incorporated herein by reference
to exhibit (d)(8) of Post-Effective Amendment No. 46 to the
Registrant's Registration Statement on Form N-1A (File No.
33-42484), filed with the SEC on June 22, 2001.
(d)(5) Amended and Restated Schedule to the Investment Advisory
Agreement dated May 3, 1995 between the Registrant and First
Manhattan Company is incorporated herein by reference to
exhibit (d)(9) of Post-Effective Amendment No. 34 to the
Registrant's Registration Statement on Form N-1A (File No.
33-42484), filed with the SEC on December 29, 1998.
(d)(6) Investment Advisory Agreement between the Registrant and
Sterling Partners Capital Management is incorporated herein by
reference to exhibit (d)(10) of Post-Effective Amendment No.
45 to the Registrant's Registration Statement on Form N-1A
(File No. 33-42484), filed with the SEC on April 12, 2001.
(d)(7) Investment Advisory Agreement between the Registrant and Toews
Corporation is incorporated herein by reference to exhibit
(d)(12) of Post-Effective Amendment No. 46 to the Registrant's
Registration Statement on Form N-1A (File No. 33-42484), filed
with the SEC on June 22, 2001.
(d)(8) Investment Advisory Agreement between the Registrant and
Prospect Asset Management is incorporated herein by reference
to exhibit (d)(13) of Post-Effective Amendment No. 46 to the
Registrant's Registration Statement on Form N-1A (File No.
33-42484), filed with the SEC on June 22, 2001.
(d)(9) Investment Advisory Agreement dated August 13, 2001 between
the Registrant and Synovus Funds Investment Advisors is
incorporated herein by reference to exhibit (d)(14) of
Post-Effective Amendment No. 48 to the Registrant's
Registration Statement on Form N-1A (File No. 33-42484), filed
with the SEC on November 5, 2001.
(d)(10) Investment Sub-Advisory Agreement dated August 13, 2001
between the Registrant, Synovus Funds Investment Advisors and
Steinberg Priest Capital Management, Co., Inc. is incorporated
herein by reference to exhibit (d)(15) of Post-Effective
Amendment No. 48 to the Registrant's Registration Statement on
Form N-1A (File No. 33-42484), filed with the SEC on November
5, 2001.
(d)(11) Investment Advisory Agreement between the Registrant and
Acadian Asset Management, Inc. is incorporated herein by
reference to exhibit (d)(17) of Post-Effective Amendment No.
55 to the Registrant's Registration Statement on Form N-1A
(File No. 33-42484), filed with the SEC on August 30, 2002.
(d)(12) Investment Advisory Agreement between the Registrant and
Analytic Investors, Inc. is incorporated herein by reference
to exhibit (d)(18) of Post-Effective Amendment No. 55 to the
Registrant's Registration Statement on Form N-1A (File No.
33-42484), filed with the SEC on August 30, 2002.
(d)(13) Investment Advisory Agreement between the Registrant and
Cambiar Investors LLC is incorporated herein by reference to
exhibit (d)(19) of Post-Effective Amendment No. 55 to the
Registrant's Registration Statement on Form N-1A (File No.
33-42484), filed with the SEC on August 30, 2002.
(d)(14) Investment Advisory Agreement between the Registrant and
Chicago Asset Management Company is incorporated herein by
reference to exhibit (d)(20) of Post-Effective Amendment No.
55 to the Registrant's Registration Statement on Form N-1A
(File No. 33-42484), filed with the SEC on August 30, 2002.
(d)(15) Investment Advisory Agreement between the Registrant and
Investment Counselors of Maryland, LLC is incorporated herein
by reference to exhibit (d)(23) of Post-Effective Amendment
No. 55 to the Registrant's Registration Statement on Form N-1A
(File No. 33-42484), filed with the SEC on August 30, 2002.
(d)(16) Investment Advisory Agreement between the Registrant and C.S.
McKee, LLP is incorporated herein by reference to exhibit
(d)(24) of Post-Effective Amendment No. 55 to the Registrant's
Registration Statement on Form N-1A (File No. 33-42484), filed
with the SEC on August 30, 2002.
(d)(17) Investment Advisory Agreement between the Registrant and Rice
Hall James & Associates is incorporated herein by reference to
exhibit (d)(25) of Post-Effective Amendment No. 55 to the
Registrant's Registration Statement on Form N-1A (File No.
33-42484), filed with the SEC on August 30, 2002.
(d)(18) Investment Advisory Agreement between the Registrant and
Sirach Capital Management, Inc. is incorporated herein by
reference to exhibit (d)(26) of Post-Effective Amendment No.
55 to the Registrant's Registration Statement on Form N-1A
(File No. 33-42484), filed with the SEC on August 30, 2002.
(d)(19) Investment Advisory Agreement between the Registrant and
Thompson, Siegel & Walmsley, Inc. is incorporated herein by
reference to exhibit (d)(27) of Post-Effective Amendment No.
55 to the Registrant's Registration Statement on Form N-1A
(File No. 33-42484), filed with the SEC on August 30, 2002.
(d)(20) Investment Advisory Agreement between the Registrant and
Commerce Capital Markets, Inc. is incorporated herein by
reference to exhibit (d)(28) of Post-Effective Amendment No.
59 to the Registrant's Registration Statement on Form N-1A
(File No. 33-42484), filed with the SEC on December 9, 2002.
(d)(21) Investment Advisory Agreement between the Registrant and
Chartwell Investment Partners is incorporated herein by
reference to exhibit (d)(30) of Post-Effective Amendment No.
59 to the Registrant's Registration Statement on Form N-1A
(File No. 33-42484), filed with the SEC on December 9, 2002.
(d)(22) Investment Advisory Agreement between the Registrant and
National City Investment Management Co. is incorporated herein
by reference to exhibit (d)(31) of Post-Effective Amendment
No. 66 to the Registrant's Registration Statement on Form N-1A
(File No. 33-42484), filed with the SEC on April 30, 2003.
(d)(23) Schedule dated February 19, 2003 to the Investment Advisory
Agreement dated September 3, 2002 between the Registrant and
Commerce Capital Markets, Inc. is incorporated herein by
reference to exhibit (d)(33) of Post-Effective Amendment No.
68 to the Registrant's Registration Statement on Form N-1A
(File No. 33-42484), filed with the SEC on December 29, 2003.
(d)(24) Assignment and Assumption Agreement between AIG Capital
Management Corp. and AIG Global Investment Corp. dated
December 31, 2003 is incorporated herein by reference to
exhibit (d)(31) of Post-Effective Amendment No. 69 to the
Registrant's Registration Statement on Form N-1A (File No.
33-42484), filed with the SEC on March 1, 2004.
(d)(25) Investment Advisory Agreement between the Registrant and
Fiduciary Management Associates, Inc. is incorporated herein
by reference to exhibit (d)(31) of Post-Effective Amendment
No. 72 to the Registrant's Registration Statement on Form N-1A
(File No. 33-42484), filed with the SEC on April 29, 2004.
(d)(26) Investment Advisory Agreement between the Registrant and CB
Investment Managers, LLC is incorporated herein by reference
to exhibit (d)(32) of Post-Effective Amendment No. 72 to the
Registrant's Registration Statement on Form N-1A (File No.
33-42484), filed with the SEC on April 29, 2004.
(d)(27) Amendment dated May 18, 2004 to the Investment Sub-Advisory
Agreement dated August 13, 2001 between the Registrant,
Synovus Investment Advisors, Inc. and Steinberg Priest &
Sloane Capital Management, LLC is incorporated herein by
reference to exhibit (d)(33) of Post-Effective Amendment No.
75 to the Registrant's Registration Statement on Form N-1A
(File No. 33-42484), filed with the SEC on June 17, 2004.
(d)(28) Amended Schedule dated July 31, 2004 to the Investment
Advisory Agreement dated June 24, 2002 between the Registrant
and Rice Hall James & Associates is incorporated herein by
reference to exhibit (d)(29) of Post-Effective Amendment No.
78 to the Registrant's Registration Statement on Form N-1A
(File No. 33-42484), filed with the SEC on December 23, 2004.
(d)(29) Amended Schedule dated August 31, 2004 to the Investment
Advisory Agreement dated June 24, 2002 between the Registrant
and Cambiar Investors LLC is incorporated herein by reference
to exhibit (d)(30) of Post-Effective Amendment No. 78 to the
Registrant's Registration Statement on Form N-1A (File No.
33-42484), filed with the SEC on December 23, 2004.
(d)(30) Investment Advisory Agreement between the Registrant and
Haverford Investment Management, Inc. is filed herewith.
(e)(1) Amended and Restated Distribution Agreement between the
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 SEC on September 19, 1994, is
incorporated herein by reference to exhibit (6) of
Post-Effective Amendment No. 24 to the Registrant's
Registration Statement on Form N-1A (File No. 33-42484), filed
with the SEC on February 28, 1996.
(e)(2) Amended and Restated Sub-Distribution and Servicing Agreement
between SEI Investments Company and AIG Equity Sales
Corporation is incorporated herein by reference to exhibit
(6)(c) to Post-Effective Amendment No. 32 to the Registrant's
Registration Statement on Form N-1A (File No. 33-42484), filed
with the SEC on February 27, 1998.
(e)(3) Amended and Restated Distribution Agreement between the
Registrant and SEI Investments Distribution Co. dated November
12, 2002 is incorporated herein by reference to exhibit (e)(4)
of Post-Effective Amendment No. 62 to the Registrant's
Registration Statement on Form N-1A (File No. 33-42484), filed
with the SEC on February 28, 2003.
(f) Not Applicable.
(g)(1) Custodian Agreement between the Registrant and CoreStates Bank
N.A. as originally filed with Pre-Effective Amendment No. 1 to
the Registrant's Registration Statement on Form N-1A (File No.
33-42484), filed with the SEC on October 28, 1991 is
incorporated herein by reference to exhibit (8) of
Post-Effective Amendment No. 28 to the Registrant's
Registration Statement on Form N-1A (File No. 33-42484), filed
with the SEC on February 27, 1997.
(g)(2) Amended Custodian Agreement between the Registrant and
CoreStates Bank, N.A. is incorporated herein by reference to
exhibit (g)(2) of Post-Effective Amendment No. 39 to the
Registrant's Registration Statement on Form N-1A (File No.
33-42484), filed with the SEC on February 25, 2000.
(g)(3) Custodian Agreement between the Registrant and Union Bank of
California is incorporated herein by reference to exhibit
(g)(3) of Post-Effective Amendment No. 51 to the Registrant's
Registration Statement on Form N-1A (File No. 33-42484), filed
with the SEC on June 14, 2002.
(g)(4) Amendment dated May 21, 2001 to the Custody Agreement dated
August 12, 1991 between the Registrant and First Union
National Bank (now known as Wachovia Bank, National
Association) is incorporated herein by reference to exhibit
(g)(4) of Post-Effective Amendment No. 51 to the Registrant's
Registration Statement on Form N-1A (File No. 33-42484), filed
with the SEC on June 14, 2002.
(g)(5) Custodian Agreement dated February 3, 2003 between the
Registrant and National City Bank is incorporated herein by
reference to exhibit (g)(5) of Post-Effective Amendment No. 66
to the Registrant's Registration Statement on Form N-1A (File
No. 33-42484), filed with the SEC on April 30, 2003.
(g)(6) Amended Fee Schedule dated February 19, 2003 to the Custody
Agreement dated February 3, 2003 between the Registrant and
National City Bank is incorporated herein by reference to
exhibit (g)(6) of Post-Effective Amendment No. 68 to the
Registrant's Registration Statement on Form N-1A (File No.
33-42484), filed with the SEC on December 29, 2003.
(g)(7) Amended Fee Schedule dated February 18, 2004 to the Custody
Agreement dated May 21, 2001 between the Registrant and
Wachovia Bank, National Association is incorporated herein by
reference to exhibit (g)(7) of Post-Effective Amendment No. 69
to the Registrant's Registration Statement on Form N-1A (File
No. 33-42484), filed with the SEC on March 1, 2004.
(h)(1) Administration Agreement dated November 14, 1991 as amended
and restated May 17, 1994 between the Registrant and SEI
Financial Management Corporation (now SEI Investments Global
Funds Services) as originally filed with Post-Effective
Amendment No. 15 to the Registrant's Registration Statement on
Form N-1A (File No. 33-42484), filed with the SEC on June 15,
1994, is incorporated herein by reference to exhibit (9) of
Post-Effective Amendment No. 24 to the Registrant's
Registration Statement on Form N-1A (File No. 33-42484), filed
with the SEC on February 28, 1996.
|
(h)(2) Consent to Assignment and Assumption of Administration
Agreement dated June 1, 1996 is incorporated herein by
reference to exhibit (9)(f) of Post-Effective Amendment No. 28
to the Registrant's Registration Statement on Form N-1A (File
No. 33-42484), filed with the SEC on February 27, 1997.
(h)(3) Shareholder Servicing Agreement for the AIG Money Market Fund
is incorporated herein by reference to Post-Effective
Amendment No. 32 to the Registrant's Registration Statement on
Form N-1A (File No. 33-42484), filed with the SEC on February
27, 1998.
(h)(4) Transfer Agency Agreement between the Registrant and
Supervised Service Company, Inc. dated November 30, 1994 is
incorporated herein by reference to exhibit (9)(k) of
Post-Effective Amendment No. 32 to the Registrant's
Registration Statement on Form N-1A (File No. 33-42484), filed
with the SEC on February 27, 1998.
(h)(5) 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 the Registrant
and SEI Financial Management Corporation (now SEI Investments
Global Funds Services) relating to the FMC Select Fund and the
FMC Strategic Value Fund is incorporated herein by reference
to exhibit (h)(12) of Post-Effective Amendment No. 34 to the
Registrant's Registration Statement on Form N-1A (File No.
33-42484), filed with the SEC on December 29, 1998.
(h)(6) Amended Schedule dated March 15, 1999 to the Administration
Agreement dated November 14, 1991 as amended and restated May
17, 1994, relating to the LSV Value Equity Fund, between the
Registrant and SEI Fund Resources(now SEI Investments Global
Funds Services) is incorporated herein by reference to exhibit
(h)(14) of Post-Effective Amendment No. 39 to the Registrant's
Registration Statement on Form N-1A (File No. 33-42484), filed
with the SEC on February 25, 2000.
(h)(7) Amended Schedule dated August 15, 1999 to the Administration
Agreement dated November 14, 1991 as amended and restated May
17, 1994, relating to the HGK Fixed Income Fund, HGK Equity
Value Fund and HGK Mid Cap Value Fund, between the Registrant
and SEI Investments Mutual Funds Services(now SEI Investments
Global Funds Services) is incorporated herein by reference to
exhibit (h)(15) of Post-Effective Amendment No. 39 to the
Registrant's Registration Statement on Form N-1A (File No.
33-42484), filed with the SEC on February 25, 2000.
(h)(8) Administration Agreement dated August 20, 1999 between the
Registrant, LSV Asset Management, Fidelity Brokerage Services,
Inc., and National Financial Services Corporation is
incorporated herein by reference to exhibit (h)(16) of
Post-Effective Amendment No. 39 to the Registrant's
Registration Statement on Form N-1A (File No. 33-42484), filed
with the SEC on February 25, 2000.
(h)(9) Amendment dated August 18, 1999 to the Operating Agreement
dated January 5, 1996, relating to the LSV Value Equity Fund,
between the Registrant, LSV Asset Management and Charles
Schwab & Co., Inc. is incorporated herein by reference to
exhibit (h)(18) of Post-Effective Amendment No. 39 to the
Registrant's Registration Statement on Form N-1A (File No.
33-42484), filed with the SEC on February 25, 2000.
(h)(10) Schedule dated May 19, 2000 to the Administration Agreement
dated November 14, 1991 as amended and restated May 17, 1994
between the Registrant and SEI Investments Mutual Funds
Services (now SEI Investments Global Funds Services) relating
to the AIG Money Market Fund is incorporated herein by
reference to exhibit (h)(19) of Post-Effective Amendment No.
40 to the Registrant's Registration Statement on Form N-1A
(File No. 33-42484), filed with the SEC on July 17, 2000.
(h)(11) Schedule dated May 22, 2000 to the Administration Agreement
dated November 14, 1991 as amended and restated May 17, 1994
between the Registrant and SEI Investments Mutual Funds
Services (now SEI Investments Global Funds Services) relating
to the FMC Select Fund and Strategic Value Fund is
incorporated herein by reference to exhibit (h)(20) of
Post-Effective Amendment No. 40 to the Registrant's
Registration Statement on Form N-1A (File No. 33-42484), filed
with the SEC on July 17, 2000.
(h)(12) Transfer Agency and Services Agreement dated October 1, 2000,
between the Registrant and Forum Shareholder Services, LLC, is
incorporated herein by reference to exhibit (h)(21) of
Post-Effective Amendment No. 41 to the Registrant's
Registration Statement on Form N-1A (File No. 33-42484), filed
with the SEC on December 13, 2000.
(h)(13) Schedule dated March 31, 2001 to the Administration Agreement
dated November 14, 1991 as amended and restated May 17, 1994
between the Registrant and SEI Investments Mutual Funds
Services (now SEI Investments Global Funds Services) relating
to the Sterling Partners' Balanced Portfolio and Sterling
Partners' Small Cap Value Portfolio is incorporated herein by
reference to exhibit (h)(23) of Post-Effective Amendment No.
42 to the Registrant's Registration Statement on Form N-1A
(File No. 33-42484), filed with the SEC on February 26, 2001.
(h)(14) Schedule dated July 1, 2001 to the Administration Agreement
dated November 14, 1991 as amended and restated May 17, 1994
between the Registrant and SEI Investments Mutual Funds
Services (now SEI Investments Global Funds Services) relating
to the Toews S&P 500(R) Hedged Index Portfolio and Toews
NASDAQ-100(R) Hedged Index Portfolio is incorporated herein by
reference to exhibit (h)(24) of Post-Effective Amendment No.
42 to the Registrant's Registration Statement on Form N-1A
(File No. 33-42484), filed with the SEC on February 26, 2001.
(h)(15) Schedule dated May 21, 2001 to the Administration Agreement
dated November 14, 1991 as amended and restated May 17, 1994
between the Registrant and SEI Fund Resources (now SEI
Investments Global Funds Services) relating to the Japan
Smaller Companies Fund is incorporated herein by reference to
exhibit (h)(27) of Post-Effective Amendment No. 46 to the
Registrant's Registration Statement on Form N-1A (File No.
33-42484), filed with the SEC on June 22, 2001.
(h)(16) Schedule dated February 20, 2002 to the Administration
Agreement dated November 14, 1991 as amended and restated May
17, 1994 between the Registrant and SEI Investments Mutual
Funds Services (now SEI Investments Global Funds Services)
relating to the Sirach Portfolios is incorporated herein by
reference to exhibit (h)(31) of Post-Effective Amendment No.
51 to the Registrant's Registration Statement on Form N-1A
(File No. 33-42484), filed with the SEC on June 14, 2002.
(h)(17) Schedule dated February 20, 2002 to the Administration
Agreement dated November 14, 1991 as amended and restated May
17, 1994 between the Registrant and SEI Investments Mutual
Funds Services (now SEI Investments Global Funds Services)
relating to the TS&W Portfolios is incorporated herein by
reference to exhibit (h)(32) of Post-Effective Amendment No.
55 to the Registrant's Registration Statement on Form N-1A
(File No. 33-42484), filed with the SEC on August 30, 2002.
(h)(18) Schedule dated February 20, 2002 to the Administration
Agreement dated November 14, 1991 as amended and restated May
17, 1994 between the Registrant and SEI Investments Mutual
Funds Services (now SEI Investments Global Funds Services)
relating to the ICM Small Company Portfolio is incorporated
herein by reference to exhibit (h)(33) of Post-Effective
Amendment No. 51 to the Registrant's Registration Statement on
Form N-1A (File No. 33-42484), filed with the SEC on June 14,
2002.
(h)(19) Schedule dated February 20, 2002 to the Administration
Agreement dated November 14, 1991 as amended and restated May
17, 1994 between the Registrant and SEI Investments Mutual
Funds Services (now SEI Investments Global Funds Services)
relating to the Analytic Portfolios is incorporated herein by
reference to exhibit (h)(34) of Post-Effective Amendment No.
55 to the Registrant's Registration Statement on Form N-1A
(File No. 33-42484), filed with the SEC on August 30, 2002.
(h)(20) Schedule dated February 20, 2002 to the Administration
Agreement dated November 14, 1991 as amended and restated May
17, 1994 between the Registrant and SEI Investments Mutual
Funds Services (now SEI Investments Global Funds Services)
relating to the Cambiar Opportunity Portfolio is incorporated
herein by reference to exhibit (h)(35) of Post-Effective
Amendment No. 51 to the Registrant's Registration Statement on
Form N-1A (File No. 33-42484), filed with the SEC on June 14,
2002.
(h)(21) Schedule dated June 6, 2002 to the Administration Agreement
dated November 14, 1991 as amended and restated May 17, 1994
between the Registrant and SEI Investments Mutual Funds
Services (now SEI Investments Global Funds Services) relating
to the Chicago Asset Management Value Portfolio is
incorporated herein by reference to exhibit (h)(36) of
Post-Effective Amendment No. 55 to the Registrant's
Registration Statement on Form N-1A (File No. 33-42484), filed
with the SEC on August 30, 2002.
(h)(22) Schedule dated February 20, 2002 to the Administration
Agreement dated November 14, 1991 as amended and restated May
17, 1994 between the Registrant and SEI Investments Mutual
Funds Services (now SEI Investments Global Funds Services)
relating to the FMA Small Company Portfolio is incorporated
herein by reference to exhibit (h)(37) of Post-Effective
Amendment No. 51 to the Registrant's Registration Statement on
Form N-1A (File No. 33-42484), filed with the SEC on June 14,
2002.
(h)(23) Schedule dated February 20, 2002 to the Administration
Agreement dated November 14, 1991 as amended and restated May
17, 1994 between the Registrant and SEI Investments Mutual
Funds Services (now SEI Investments Global Funds Services)
relating to the Rice Hall James Portfolios is incorporated
herein by reference to exhibit (h)(38) of Post-Effective
Amendment No. 51 to the Registrant's Registration Statement on
Form N-1A (File No. 33-42484), filed with the SEC on June 14,
2002.
(h)(24) Schedule dated February 20, 2002 to the Administration
Agreement dated November 14, 1991 as amended and restated May
17, 1994 between the Registrant and SEI Investments Mutual
Funds Services (now SEI Investments Global Funds Services)
relating to the Acadian Emerging Markets Portfolio is
incorporated herein by reference to exhibit (h)(40) of
Post-Effective Amendment No. 51 to the Registrant's
Registration Statement on Form N-1A (File No. 33-42484), filed
with the SEC on June 14, 2002.
(h)(25) Schedule dated February 20, 2002 to the Administration
Agreement dated November 14, 1991 as amended and restated May
17, 1994 between the Registrant and SEI Investments Mutual
Funds Services (now SEI Investments Global Funds Services)
relating to the McKee International Equity Portfolio is
incorporated herein by reference to exhibit (h)(41) of
Post-Effective Amendment No. 51 to the Registrant's
Registration Statement on Form N-1A (File No. 33-42484), filed
with the SEC on June 14, 2002.
(h)(26) Schedule dated November 9, 2001 to the Transfer Agency
Agreement between the Registrant and DST Systems, Inc.
relating to the Sirach Growth, Sirach Equity, Sirach Special
Equity, Sirach Bond, Sirach Strategic Balanced, Rice Hall
James Micro Cap, Rice Hall James Small/Mid Cap, McKee
International Equity, TS&W Equity, TS&W Fixed Income, TS&W
International Equity, Analytic Defensive Equity, Analytic
International, Analytic Short-Term Income, FMA Small Company,
ICM Small Company, Cambiar Opportunity, Independence Small
Cap, Acadian Emerging Markets and Chicago Asset Management
Value Portfolios is incorporated herein by reference to
exhibit (h)(42) of Post-Effective Amendment No. 51 to the
Registrant's Registration Statement on Form N-1A (File No.
33-42484), filed with the SEC on June 14, 2002.
(h)(27) Schedule dated August 12, 2002 to the Administration Agreement
dated November 14, 1991 as amended and restated May 17, 1994
between the Registrant and SEI Investments Mutual Funds
Services (now SEI Investments Global Funds Services) relating
to the Commerce Capital Government Money Market Fund is
incorporated herein by reference to exhibit (h)(43) of
Post-Effective Amendment No. 59 to the Registrant's
Registration Statement on Form N-1A (File No. 33-42484), filed
with the SEC on December 9, 2002.
(h)(28) Schedule dated September 17, 2002 to the Administration
Agreement dated November 14, 1991 as amended and restated May
17, 1994 between the Registrant and SEI Investments Mutual
Funds Services (now SEI Investments Global Funds Services)
relating to the Chartwell Large Cap Value Fund and Chartwell
Small Cap Value Fund is incorporated herein by reference to
exhibit (h)(45) of Post-Effective Amendment No. 59 to the
Registrant's Registration Statement on Form N-1A (File No.
33-42484), filed with the SEC on December 9, 2002.
(h)(29) Schedule dated October 23, 2002 to the Transfer Agency
Agreement dated October 1, 2000 between the Registrant and
Forum Shareholder Services relating to Commerce Bank is
incorporated herein by reference to exhibit (h)(46) of
Post-Effective Amendment No. 59 to the Registrant's
Registration Statement on Form N-1A (File No. 33-42484), filed
with the SEC on December 9, 2002.
(h)(30) Schedule dated December 9, 2002 to the Transfer Agency
Agreement between the Registrant and Forum Shareholder
Services relating to the Chartwell Funds is incorporated
herein by reference to exhibit (h)(48) of Post-Effective
Amendment No. 60 to the Registrant's Registration Statement on
Form N-1A (File No. 33-42484), filed with the SEC on December
20, 2002.
(h)(31) Administration Agreement dated November 14, 1991 as amended
and restated May 17, 1994 and November 12, 2002 between the
Registrant and SEI Investments Global Funds Services is
incorporated herein by reference to exhibit (h)(50) of
Post-Effective Amendment No. 62 to the Registrant's
Registration Statement on Form N-1A (File No. 33-42484), filed
with the SEC on February 28, 2003.
(h)(32) Licensing Agreement dated May 14, 2001 between the Registrant
and Standard & Poor's relating to the Toews Funds is
incorporated herein by reference to exhibit (h)(51) of
Post-Effective Amendment No. 62 to the Registrant's
Registration Statement on Form N-1A (File No. 33-42484), filed
with the SEC on February 28, 2003.
(h)(33) Licensing Agreement dated May 17, 2001 between the Registrant
and the Nasdaq Stock Market, Inc. relating to the Toews Funds
is incorporated herein by reference to exhibit (h)(52) of
Post-Effective Amendment No. 62 to the Registrant's
Registration Statement on Form N-1A (File No. 33-42484), filed
with the SEC on February 28, 2003.
(h)(34) Amended Schedule dated May 20, 2002 to the Administration
Agreement dated November 14, 1991 as amended and restated May
17, 1994 between the Registrant and SEI Financial Management
Corporation (now SEI Investments Global Funds Services)
relating to the FMC Select and FMC Strategic Value Funds is
incorporated herein by reference to exhibit (h)(59) of
Post-Effective Amendment No. 67 to the Registrant's
Registration Statement on Form N-1A (File No. 33-42484), filed
with the SEC on August 28, 2003.
(h)(35) Schedule dated March 31, 2001 to the Administration Agreement
dated November 14, 1991 as amended and restated May 17, 1994
between the Registrant and SEI Fund Resources (now SEI
Investments Global Funds Services) relating to the Sterling
Partners Portfolios is incorporated herein by reference to
exhibit (h)(60) of Post-Effective Amendment No. 67 to the
Registrant's Registration Statement on Form N-1A (File No.
33-42484), filed with the SEC on August 28, 2003.
(h)(36) Schedule dated February 19, 2003 to the Administration
Agreement dated November 14, 1991 as amended and restated
November 12, 2002 between the Registrant and SEI Investments
Global Funds Services relating to the CB Core Equity Fund is
incorporated herein by reference to exhibit (h)(61) of
Post-Effective Amendment No. 67 to the Registrant's
Registration Statement on Form N-1A (File No. 33-42484), filed
with the SEC on August 28, 2003.
(h)(37) Transfer Agency and Service Agreement dated January 15, 2003
between the Registrant and State Street Bank and Trust Company
is incorporated herein by reference to exhibit (h)(62) of
Post-Effective Amendment No. 67 to the Registrant's
Registration Statement on Form N-1A (File No. 33-42484), filed
with the SEC on August 28, 2003.
(h)(38) Amendment dated February 19, 2003 to the Transfer Agency and
Service Agreement dated November 30, 1994 between the
Registrant and DST Systems, Inc. is incorportated herein by
reference to exhibit (h)(63) of Post-Effective Amendment No.
68 to the Registrant's Registration Statement on Form N-1A
(File No. 33-42484), filed with the SEC on December 29, 2003.
(h)(39) Amendment dated May 20, 2003 to the Transfer Agency and
Service Agreement dated October 1, 2000 as amended and
restated February 21, 2001 between the Registrant and Forum
Shareholder Services, LLC is incorporated herein by reference
to exhibit (h)(64) of Post-Effective Amendment No. 68 to the
Registrant's Registration Statement on Form N-1A (File No.
33-42484), filed with the SEC on December 29, 2003.
(h)(40) Amendment dated May 20, 2003 to the Transfer Agency and
Service Agreement dated January 15, 2003 between the
Registrant and State Street Bank and Trust Company is
incorporated herein by reference to exhibit (h)(65) of
Post-Effective Amendment No. 68 to the Registrant's
Registration Statement on Form N-1A (File No. 33-42484), filed
with the SEC on December 29, 2003.
(h)(41) HGK Asset Management, Inc. Contractual Fee Waiver Agreement is
incorporated herein by reference to exhibit (h)(48) of
Post-Effective Amendment No. 69 to the Registrant's
Registration Statement on Form N-1A (File No. 33-42484), filed
with the SEC on March 1, 2004.
(h)(42) LSV Asset Management Company Contractual Fee Waiver Agreement
is incorporated herein by reference to exhibit (h)(50) of
Post-Effective Amendment No. 69 to the Registrant's
Registration Statement on Form N-1A (File No. 33-42484), filed
with the SEC on March 1, 2004.
(h)(43) Toews Corporation Contractual Fee Waiver Agreement is
incorporated herein by reference to exhibit (h)(51) of
Post-Effective Amendment No. 69 to the Registrant's
Registration Statement on Form N-1A (File No. 33-42484), filed
with the SEC on March 1, 2004.
(h)(44) Chartwell Investment Partners Contractual Fee Waiver Agreement
is incorporated herein by reference to exhibit (h)(52) of
Post-Effective Amendment No. 69 to the Registrant's
Registration Statement on Form N-1A (File No. 33-42484), filed
with the SEC on March 1, 2004.
(h)(45) Schedule dated February 18, 2004 to the Administration
Agreement dated November 14, 1991 as amended and restated
November 12, 2002 between the Registrant and SEI Investments
Global Funds Services relating to the Haverford Quality Growth
Stock Fund is incorporated herein by reference to exhibit
(h)(53) of Post-Effective Amendment No. 70 to the Registrant's
Registration Statement on Form N-1A (File No. 33-42484), filed
with the SEC on March 17, 2004.
(h)(46) Transfer Agency Agreement dated February 5, 2004 between the
Registrant and DST Systems, Inc. is incorporated herein by
reference to exhibit (h)(54) of Post-Effective Amendment No.
70 to the Registrant's Registration Statement on Form N-1A
(File No. 33-42484), filed with the SEC on March 17, 2004.
(h)(47) Shareholder Servicing Agreement for the Commerce Capital Funds
is incorporated herein by reference to exhibit (h)(55) of
Post-Effective Amendment No. 72 to the Registrant's
Registration Statement on Form N-1A (File No. 33-42484), filed
with the SEC on April 29, 2004.
(h)(48) Schedule dated August 13, 2001 to the Administration Agreement
dated November 14, 1991 as amended and restated November 12,
2002 between the Registrant and SEI Investments Mutual Funds
Services (now SEI Investments Global Funds Services) relating
to the Synovus Funds is incorporated herein by reference to
exhibit (h)(56) of Post-Effective Amendment No. 72 to the
Registrant's Registration Statement on Form N-1A (File No.
33-42484), filed with the SEC on April 29, 2004.
(h)(49) Haverford Investment Management, Inc. Contractual Fee Waiver
Agreement is incorporated herein by reference to exhibit
(h)(57) of Post-Effective Amendment No. 76 to the Registrant's
Registration Statement on Form N-1A (File No. 33-42484), filed
with the SEC on August 27, 2004.
(h)(50) Amendment dated June 30, 2004 to the Amended and Restated
Administration Agreement dated November 12, 2004 between the
Registrant and SEI Investments Global Funds Services relating
to the Cambiar Funds is incorporated herein by reference to
exhibit (h)(58) of Post-Effective Amendment No. 76 to the
Registrant's Registration Statement on Form N-1A (File No.
33-42484), filed with the SEC on August 27, 2004.
(h)(51) Amendment dated July 30, 2004 to the Amended and Restated
Administration Agreement dated November 12, 2004 between the
Registrant and SEI Investments Global Funds Services relating
to the Rice Hall James Funds is incorporated herein by
reference to exhibit (h)(59) of Post-Effective Amendment No.
76 to the Registrant's Registration Statement on Form N-1A
(File No. 33-42484), filed with the SEC on August 27, 2004.
(i) Opinion and Consent of Counsel (Morgan, Lewis & Bockius LLP)
to be filed by amendment.
(j) Not Applicable.
(k) Not Applicable.
(l) Not Applicable.
(m)(1) Distribution Plan for The Advisors' Inner Circle Fund is
incorporated herein by reference to exhibit (m) of
Post-Effective Amendment No. 41 to the Registrant's
Registration Statement on Form N-1A (File No. 33-42484), filed
with the SEC on December 13, 2000.
(m)(2) Distribution and Shareholder Servicing Plan for the Toews
Funds is incorporated herein by reference to exhibit (m)(2) of
Post-Effective Amendment No. 42 to the Registrant's
Registration Statement on Form N-1A (File No. 33-42484), filed
with the SEC on February 26, 2001.
|
(m)(3) Schedule dated November 12, 2002 to the Distribution Plan
dated August 8, 1994 as amended August 14, 2000 for The
Advisors' Inner Circle Fund is incorporated by reference to
exhibit (m)(5) of Post-Effective Amendment No. 68 to the
Registrant's Registration Statement on Form N-1A (File No.
33-42484), filed with the SEC on December 29, 2003.
(m)(4) Shareholder Servicing Plan with respect to the Cambiar
Opportunity Fund and Cambiar International Fund is
incorporated herein by reference to exhibit (m)(6) of
Post-Effective Amendment No. 71 to the Registrant's
Registration Statement on Form N-1A (File No. 33-42484), filed
with the SEC on April 16, 2004.
(m)(5) Distribution Plan dated September 17, 2002 as amended with
respect to the Chartwell Large Cap Value Fund, Chartwell Small
Cap Value Fund and Rice Hall James Mid Cap Portfolio is
incorporated herein by reference to exhibit (m)(6) of
Post-Effective Amendment No. 74 to the Registrant's
Registration Statement on Form N-1A (File No. 33-42484), filed
with the SEC on June 1, 2004.
(m)(6) Distribution and Shareholder Servicing Plan dated August 13,
2001 with respect to the Synovus Funds is incorporated herein
by reference to exhibit (m)(7) of Post-Effective Amendment No.
77 to the Registrant's Registration Statement on Form N-1A
(File No. 33-42484), filed with the SEC on October 21, 2004.
(m)(7) Amended Schedule to the Distribution and Shareholder Servicing
Plan dated August 13, 2001 with respect to the Synovus Funds
and Analytic Defensive Equity Fund is incorporated herein by
reference to exhibit (m)(7) of Post-Effective Amendment No. 78
to the Registrant's Registration Statement on Form N-1A (File
No. 33-42484), filed with the SEC on December 23, 2004.
(m)(8) Amended Schedule to the Distribution Plan dated September 17,
2002 with respect to the Chartwell U.S. Equity Fund, Chartwell
Small Cap Value Fund, Rice Hall James Mid Cap Portfolio and
United Association S&P 500 Index Fund is incorporated herein
by reference to exhibit (m)(8) of Post-Effective Amendment No.
78 to the Registrant's Registration Statement on Form N-1A
(File No. 33-42484), filed with the SEC on December 23, 2004.
(n) Not Applicable.
(o) Amended and Restated Rule 18f-3 Plan for The Advisors' Inner
Circle Fund is incorporated herein by reference to exhibit (o)
of Post-Effective Amendment No. 78 to the Registrant's
Registration Statement on Form N-1A (File No. 33-42484), filed
with the SEC on December 23, 2004.
(p)(1) The Advisors' Inner Circle Fund Code of Ethics is incorporated
herein by reference to exhibit (p)(10) of Post-Effective
Amendment No. 28 to The Advisors' Inner Circle Fund II
Registration Statement on Form N-1A (File No. 33-50718), filed
with the SEC on May 30, 2000.
(p)(2) HGK Asset Management, Inc., Code of Ethics is incorporated
herein by reference to exhibit (p)(6) of Post-Effective
Amendment No. 40 to the Registrant's Registration Statement on
Form N-1A (File No. 33-42484), filed with the SEC on July 17,
2000.
(p)(3) LSV Asset Management, L.P., Code of Ethics is incorporated
herein by reference to exhibit (p)(9) of Post-Effective
Amendment No. 33 to SEI Institutional Managed Trust's
Registration Statement on Form N-1A (File No. 33-9504), filed
with the SEC on July 3, 2000.
|
(p)(4) Toews Corporation Code of Ethics is incorporated herein by
reference to exhibit (p)(10) of Post-Effective Amendment No.
42 to the Registrant's Registration Statement on Form N-1A
(File No. 33-42484), filed with the SEC on February 26, 2001.
(p)(5) Prospect Asset Management Code of Ethics is incorporated
herein by reference to exhibit (p)(11) of Post-Effective
Amendment No. 42 to the Registrant's Registration Statement on
Form N-1A (File No. 33-42484), filed with the SEC on June 22,
2001.
(p)(6) Steinberg Priest & Sloane Capital Management, LLC (now known
as Steinberg Asset Management, LLC) Code of Ethics is
incorporated herein by reference to exhibit (p)(13) of
Post-Effective Amendment No. 49 to the Registrant's
Registration Statement on Form N-1A (File No. 33-42484), filed
with the SEC on February 28, 2002.
(p)(7) Analytic Investors, Inc. Code of Ethics is incorporated herein
by reference to exhibit (p)(16) of Post-Effective Amendment
No. 50 to the Registrant's Registration Statement on Form N-1A
(File No. 33-42484), filed with the SEC on April 3, 2002.
(p)(8) Cambiar Investors LLC Code of Ethics is incorporated herein by
reference to exhibit (p)(17) of Post-Effective Amendment No.
50 to the Registrant's Registration Statement on Form N-1A
(File No. 33-42484), filed with the SEC on April 3, 2002.
(p)(9) Chicago Asset Management Company Code of Ethics is
incorporated herein by reference to exhibit (p)(18) of
Post-Effective Amendment No. 50 to the Registrant's
Registration Statement on Form N-1A (File No. 33-42484), filed
with the SEC on April 3, 2002.
(p)(10) Investment Counselors of Maryland, LLC Code of Ethics is
incorporated herein by reference to exhibit (p)(21) of
Post-Effective Amendment No. 50 to the Registrant's
Registration Statement on Form N-1A (File No. 33-42484), filed
with the SEC on April 3, 2002.
(p)(11) C.S. McKee, LLP Code of Ethics is incorporated herein by
reference to exhibit (p)(22) of Post-Effective Amendment No.
50 to the Registrant's Registration Statement on Form N-1A
(File No. 33-42484), filed with the SEC on April 3, 2002.
(p)(12) Sirach Capital Management, Inc. Code of Ethics is incorporated
herein by reference to exhibit (p)(24) of Post-Effective
Amendment No. 50 to the Registrant's Registration Statement on
Form N-1A (File No. 33-42484), filed with the SEC on April 3,
2002.
(p)(13) Thompson, Siegel & Walmsley, Inc. Code of Ethics is
incorporated herein by reference to exhibit (p)(25) of
Post-Effective Amendment No. 50 to the Registrant's
Registration Statement on Form N-1A (File No. 33-42484), filed
with the SEC on April 3, 2002.
(p)(14) National City Investment Management Company Code of Ethics is
incorporated herein by reference to exhibit (p)(28) of
Post-Effective Amendment No. 67 to the Registrant's
Registration Statement on Form N-1A (File No. 33-42484), filed
with the SEC on August 28, 2003.
(p)(15) Revised Sterling Capital Management LLC and Sterling Capital
Distributors Inc. Code of Ethics is incorporated herein by
reference to exhibit (p)(29) of Post-Effective Amendment No.
67 to the Registrant's Registration Statement on Form N-1A
(File No. 33-42484), filed with the SEC on August 28, 2003.
(p)(16) Revised Chartwell Investment Partners Code of Ethics is
incorporated herein by reference to exhibit (p)(31) of
Post-Effective Amendment No. 68 to the Registrant's
Registration Statement on Form N-1A (File No. 33-42484), filed
with the SEC on December 29, 2003.
(p)(17) Revised First Manhattan Co. Code of Ethics is incorporated
herein by reference to exhibit (p)(30) of Post-Effective
Amendment No. 69 to the Registrant's Registration Statement on
Form N-1A (File No. 33-42484), filed with the SEC on March 1,
2004.
(p)(18) Revised Synovus Investment Advisors, Inc. Code of Ethics is
incorporated herein by reference to exhibit (p)(31) of
Post-Effective Amendment No. 69 to the Registrant's
Registration Statement on Form N-1A (File No. 33-42484), filed
with the SEC on March 1, 2004.
(p)(19) Haverford Investment Management, Inc. Code of Ethics is
incorporated herein by reference to exhibit (p)(28) of
Post-Effective Amendment No. 74 to the Registrant's
Registration Statement on Form N-1A (File 33-42484), filed
with the SEC on June 1, 2004.
(p)(20) Revised AIG Global Investment Corp. Code of Ethics is
incorporated herein by reference to exhibit (p)(25) of
Post-Effective Amendment No. 76 to the Registrant's
Registration Statement on Form N-1A (File 33-42484), filed
with the SEC on August 27, 2004.
(p)(21) Revised Fiduciary Management Associates Code of Ethics is
incorporated herein by reference to exhibit (p)(26) of
Post-Effective Amendment No. 76 to the Registrant's
Registration Statement on Form N-1A (File 33-42484), filed
with the SEC on August 27, 2004.
(p)(22) Revised Rice Hall James & Associates Code of Ethics is
incorporated herein by reference to exhibit (p)(28) of
Post-Effective Amendment No. 76 to the Registrant's
Registration Statement on Form N-1A (File 33-42484), filed
with the SEC on August 27, 2004.
(p)(23) CB Investment Managers, LLC Code of Ethics is incorporated
herein by reference to exhibit (p)(29) of Post Effective
Amendment No. 79 to the Registrants Registration Statement on
Form N1-A (File 33-42484), filed with the SEC on October 21,
2004.
(p)(24) Revised SEI Investments Global Funds Services and SEI
Investments Funds Management Joint Code of Ethics dated August
10, 2004 is incorporated herein by reference to exhibit
(p)(25) of Post-Effective Amendment No. 78 to the Registrant's
Registration Statement on Form N-1A (File No. 33-42484), filed
with the SEC on December 23, 2004.
(p)(25) Revised Acadian Asset Management, Inc. Code of Ethics is filed
herewith.
Item 24. Persons Controlled by or under Common Control with Registrant:
Not Applicable.
Item 25. Indemnification:
Article VIII of the Agreement and Declaration of Trust filed as Exhibit
(a)(1) to the Registrant's Registration Statement is incorporated herein by
reference. Insofar as indemnification for liabilities arising under the
Securities Act of 1933 (the "Act") 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 SEC, such indemnification is against public policy as expressed
in the Act and, therefore, is unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by trustees, directors, officers or
controlling persons of the Registrant in connection with the successful defense
of any act, suit or proceeding) is asserted by such trustees, directors,
officers or controlling persons in connection with the shares being registered,
the Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issues.
Item 26. Business and Other Connections of Investment Advisers:
Other business, profession, vocation, or employment of a substantial nature in which each director or principal officer of each 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:
---------------------------------------- -------------------------------------- -------------------------------------- Name and Position with Investment Name of Other Company Connection with Other Company Adviser ---------------------------------------- -------------------------------------- -------------------------------------- Jeffrey Theodore Harris, Managing Director (Fixed Income) -- -- ---------------------------------------- -------------------------------------- -------------------------------------- Joseph Edward Kutzel, Managing Director (Marketing) -- -- ---------------------------------------- -------------------------------------- -------------------------------------- Michael Pendergast, Managing Director, Senior Equity Manager -- -- ---------------------------------------- -------------------------------------- -------------------------------------- Gregory Walter Lobo, Managing Director, Senior Fixed Income Manager -- -- ---------------------------------------- -------------------------------------- -------------------------------------- Arthur Ettore Coia, II, Managing Director, Mid Cap Equity Manager ---------------------------------------- -------------------------------------- -------------------------------------- |
------------------------------------- ----------------------------------- -----------------------------------
Name and Position with Investment Name of Other Company Connection with Other Company
Adviser
------------------------------------- ----------------------------------- -----------------------------------
Win Jay Neuger American International Group Executive Vice President and
Director Chief Investment Officer
Chairman of Board of Directors
Chief Executive Officer AIG Global Asset Management Director/Chief Executive
Holdings Co. Officer/Chairman of Board of
Directors
AIG Global Investment Fund Director
Management Ltd.
AIG Global Investment Corp. Director
(Europe), Ltd
------------------------------------- ----------------------------------- -----------------------------------
|
Helen Stefanis Financial Services Div. American Senior Vice President
Managing Director International Group
AIG Equity Sales Corp. Director
------------------------------------- ----------------------------------- -----------------------------------
George Coheleach American International Group. Assistant Treasurer
Portfolio Manager
------------------------------------- ----------------------------------- -----------------------------------
Mark P. Gross N/A N/A
Managing Director
------------------------------------- ----------------------------------- -----------------------------------
Richard W. Scott AIG Global Asset Management Director
Director Holdings Co.
Senior Managing Director
------------------------------------- ----------------------------------- -----------------------------------
Richard Biegen AIG Global Asset Management Managing Director
Managing Director Holdings Co.
Chief Compliance Officer
------------------------------------- ----------------------------------- -----------------------------------
|
---------------------------------------- -------------------------------------- --------------------------------------- Name and Position with Investment Name of Other Company Connection with Other Company Adviser ---------------------------------------- -------------------------------------- --------------------------------------- David Sanford Gottesman, Senior Sequa Corporation Member, Board of Directors Managing Director Berkshire Hathaway, Inc. Member, Board of Directors ---------------------------------------- -------------------------------------- --------------------------------------- Daniel Rosenbloom, Senior Managing -- -- Director ---------------------------------------- -------------------------------------- --------------------------------------- Jack H. Varon, Senior Managing Director -- -- ---------------------------------------- -------------------------------------- --------------------------------------- Allan Howard Glick, Senior Managing -- -- Director ---------------------------------------- -------------------------------------- --------------------------------------- Bernard C. Groveman, Senior Managing -- -- Director ---------------------------------------- -------------------------------------- --------------------------------------- Charles M. Rosenthal, Senior Managing -- -- Director ---------------------------------------- -------------------------------------- --------------------------------------- David M. Manischewitz, Senior Managing -- -- Director ---------------------------------------- -------------------------------------- --------------------------------------- Arthur Joel Stainman, Senior Managing Ark Restaurants Corp. Member, Board of Directors Director ---------------------------------------- -------------------------------------- --------------------------------------- John R. Loomis, Senior Managing -- -- Director ---------------------------------------- -------------------------------------- --------------------------------------- Michael P. Helmick, Senior Managing -- -- Director ---------------------------------------- -------------------------------------- --------------------------------------- Robert W. Gottesman, Chief Executive -- -- Officer ---------------------------------------- -------------------------------------- --------------------------------------- A. Byron Nimocks, III, Senior Managing -- -- Director ---------------------------------------- -------------------------------------- --------------------------------------- Neal K. Stearns, Chief Compliance -- -- Officer ---------------------------------------- -------------------------------------- --------------------------------------- Carrol A. Muccia, Jr., Senior Managing -- -- Director ---------------------------------------- -------------------------------------- --------------------------------------- Richard A. Pearl, Senior Managing -- -- Director ---------------------------------------- -------------------------------------- --------------------------------------- Keith B. Josephson, Senior Managing -- -- Director ---------------------------------------- -------------------------------------- --------------------------------------- |
---------------------------------------- -------------------------------------- --------------------------------------- William F. Guardenier, Senior Managing -- -- Director ---------------------------------------- -------------------------------------- --------------------------------------- Todd W. Green, Senior Managing Director -- -- ---------------------------------------- -------------------------------------- --------------------------------------- Samuel Flug Colin, Senior Managing -- -- Director ---------------------------------------- -------------------------------------- --------------------------------------- Jay Vodofsky, Senior Managing Director -- -- ---------------------------------------- -------------------------------------- --------------------------------------- Cheryl M. Kallem, Senior Managing Director and Chief Financial Officer ---------------------------------------- -------------------------------------- --------------------------------------- Edward I. Lefferman, Senior Managing Director (subject to NYSE approval) ---------------------------------------- -------------------------------------- --------------------------------------- |
---------------------------------------- -------------------------------------- -------------------------------------- Name and Position with Investment Name of Other Company Connection with Other Company Adviser ---------------------------------------- -------------------------------------- -------------------------------------- Josef Lakonishok, CEO, Portfolio University of Illinois Professor of Finance Manager ---------------------------------------- -------------------------------------- -------------------------------------- Robert Vishny, Partner, Portfolio University of Chicago Professor of Finance Manager ---------------------------------------- -------------------------------------- -------------------------------------- Menno Vermeulen, Partner, Portfolio -- -- Manager ---------------------------------------- -------------------------------------- -------------------------------------- Tremaine Atkinson, Partner, COO -- -- ---------------------------------------- -------------------------------------- -------------------------------------- Christopher LaCroix, Partner, Managing Director of Business Development -- -- ---------------------------------------- -------------------------------------- -------------------------------------- SEI Funds, Inc., General Partner -- -- ---------------------------------------- -------------------------------------- -------------------------------------- |
---------------------------------------- -------------------------------------- -------------------------------------- Name and Position with Investment Name of Other Company Connection with Other Company Adviser ---------------------------------------- -------------------------------------- -------------------------------------- Mark Whitaker Whalen, Managing Director -- -- ---------------------------------------- -------------------------------------- -------------------------------------- David Michael Ralston, Managing -- -- Director ---------------------------------------- -------------------------------------- -------------------------------------- Alexander Worth McAlister, Managing -- -- Director ---------------------------------------- -------------------------------------- -------------------------------------- Eduardo Alejandro Brea, Managing -- -- Director ---------------------------------------- -------------------------------------- -------------------------------------- Brian R. Walton, Managing Director ---------------------------------------- -------------------------------------- -------------------------------------- Mary Weeks Fountain, Director -- -- ---------------------------------------- -------------------------------------- -------------------------------------- Mark Montgomery, Director -- -- ---------------------------------------- -------------------------------------- -------------------------------------- Robert Bridges, Director -- -- ---------------------------------------- -------------------------------------- -------------------------------------- Rose Ezarsky, Director -- -- ---------------------------------------- -------------------------------------- -------------------------------------- Tony Corallo, Director -- -- ---------------------------------------- -------------------------------------- -------------------------------------- Robert Clark, Director ---------------------------------------- -------------------------------------- -------------------------------------- Kenneth Cotner, Director -- -- ---------------------------------------- -------------------------------------- -------------------------------------- Patrick Rau, Director -- -- ---------------------------------------- -------------------------------------- -------------------------------------- Neil Grant, Director ---------------------------------------- -------------------------------------- -------------------------------------- Timothy Beyer, Director ---------------------------------------- -------------------------------------- -------------------------------------- Will Thompson, Director ---------------------------------------- -------------------------------------- -------------------------------------- Robert Rasile, Director ---------------------------------------- -------------------------------------- -------------------------------------- Hung Bui, Director ---------------------------------------- -------------------------------------- -------------------------------------- Cathy Sawyer, Associate Director ---------------------------------------- -------------------------------------- -------------------------------------- Michael McVicker, Associate Director -- -- ---------------------------------------- -------------------------------------- -------------------------------------- Raleigh Shoemaker, Associate Director -- -- ---------------------------------------- -------------------------------------- -------------------------------------- Lisa Blankenship, Associate Director -- -- ---------------------------------------- -------------------------------------- -------------------------------------- Mitch Kaczmarek, Associate Director ---------------------------------------- -------------------------------------- -------------------------------------- Tricia Tauzin, Associate Director ---------------------------------------- -------------------------------------- -------------------------------------- Jamie Mcneilis, Associate Director ---------------------------------------- -------------------------------------- -------------------------------------- T Brett Schweizer, Associate Director ---------------------------------------- -------------------------------------- -------------------------------------- |
---------------------------------------- -------------------------------------- -------------------------------------- Name and Position with Investment Name of Other Company Connection with Other Company Adviser ---------------------------------------- -------------------------------------- -------------------------------------- Michael T. DiMarco, Associated Person N/A N/A ---------------------------------------- -------------------------------------- -------------------------------------- Phillip R. Toews, President N/A N/A ---------------------------------------- -------------------------------------- -------------------------------------- Alex J. Rigolizzo, Associated Person N/A N/A ---------------------------------------- -------------------------------------- -------------------------------------- Randall D. Schroeder, Associated Person N/A N/A ---------------------------------------- -------------------------------------- -------------------------------------- |
---------------------------------------- -------------------------------------- -------------------------------------- Name and Position with Investment Name of Other Company Connection with Other Company Adviser ---------------------------------------- -------------------------------------- -------------------------------------- Curtis Freeze -- -- ---------------------------------------- -------------------------------------- -------------------------------------- Wolf Reitsberger, Director -- -- ---------------------------------------- -------------------------------------- -------------------------------------- Robert Priske, Director Robert Priske LLC President ---------------------------------------- -------------------------------------- -------------------------------------- |
---------------------------------------- -------------------------------------- -------------------------------------- Name and Position with Investment Name of Other Company Connection with Other Company Adviser ---------------------------------------- -------------------------------------- -------------------------------------- William Perkins -- -- President ---------------------------------------- -------------------------------------- -------------------------------------- Beth E. Burns Synovus Securities, Inc. Director of Compliance Director of Compliance Synovus Financial Management Services Director of Compliance ---------------------------------------- -------------------------------------- -------------------------------------- Megan L Busby -- -- Senior Portfolio Manager, Vice President ---------------------------------------- -------------------------------------- -------------------------------------- Shirley Cargill Synovus Trust Company, N.A. Controller Finance Officer ---------------------------------------- -------------------------------------- -------------------------------------- Daniel E. Davidson -- -- Senior Portfolio Manager, Vice-President ---------------------------------------- -------------------------------------- -------------------------------------- John G. Gross -- -- Senior Portfolio Manager, Vice President ---------------------------------------- -------------------------------------- -------------------------------------- Zachary D. Farmer -- -- Portfolio Manager II, Assistant Vice President ---------------------------------------- -------------------------------------- -------------------------------------- Nathan C. Love -- -- Portfolio Manager I, Investment Officer ---------------------------------------- -------------------------------------- -------------------------------------- A. Daniel Mallard Synovus Securities, Inc. President Managing Director, Director Synovus Investment Management Managing Director ---------------------------------------- -------------------------------------- -------------------------------------- |
---------------------------------------- -------------------------------------- -------------------------------------- Eric Johnson -- -- Chief Compliance Officer ---------------------------------------- -------------------------------------- -------------------------------------- B. Randall Merchant -- -- Senior Portfolio Manager, Vice President ---------------------------------------- -------------------------------------- -------------------------------------- Charles A. Moore Synovus Trust Company, N.A. Chief Investment Officer, Senior Chief Investment Advisor, Senior Vice Vice President President ---------------------------------------- -------------------------------------- -------------------------------------- James K. Newman -- -- Portfolio Manager I, Investment Officer ---------------------------------------- -------------------------------------- -------------------------------------- Greg Day, Senior Portfolio Manager, -- -- Vice President ---------------------------------------- -------------------------------------- -------------------------------------- William N. Price, Jr. -- -- Senior Portfolio Manager, Vice President ---------------------------------------- -------------------------------------- -------------------------------------- Mark Robinson Synovus Financial Corp. Director of Taxation Tax Officer ---------------------------------------- -------------------------------------- -------------------------------------- Charles R. Sheffield Synovus Trust Company, N.A. Senior Investment Manager, Vice FAM Senior Investment Manager, Vice President President ---------------------------------------- -------------------------------------- -------------------------------------- Michael T. Upshaw -- -- Portfolio Manager III, Vice President ---------------------------------------- -------------------------------------- -------------------------------------- Teddie L. Ussery Synovus Trust Company, N.A. Director of Family Asset Management, Director Senior Vice President ---------------------------------------- -------------------------------------- -------------------------------------- Matthew D. Weatherly -- -- Portfolio Manager I, Investment Officer ---------------------------------------- -------------------------------------- -------------------------------------- Patricia L. Whipple Synovus Securities, Inc. Chief Operating Officer Director Synovus Financial Management Services Chief Operating Officer ---------------------------------------- -------------------------------------- -------------------------------------- Bill Roach Globalt Investments President ---------------------------------------- -------------------------------------- -------------------------------------- |
---------------------------------------- -------------------------------------- -------------------------------------- Name and Position with Investment Name of Other Company Connection with Other Company Adviser ---------------------------------------- -------------------------------------- -------------------------------------- Michael A. Steinberg Michael A. Steinberg & Co., Inc. President, Secretary, Treasurer and President, Secretary, Treasurer and Director since 1982 - Present Director ---------------------------------------- -------------------------------------- -------------------------------------- Steven L. Feld Michael A. Steinberg & Co., Inc. Vice President since August 1990 Managing Director ---------------------------------------- -------------------------------------- -------------------------------------- Janet Kappenberg Navon N/A N/A Portfolio Manager & Analyst Managing Director ---------------------------------------- -------------------------------------- -------------------------------------- Donald Schultheis Credit Suisse Asset Management, LLC Managing Director, Relationship Managing Director, Marketing and Manager and Head of Consultant Client Relationship Manager Development July 1999 - August 2004 ---------------------------------------- -------------------------------------- -------------------------------------- |
------------------------------ --------------------------------- ---------------------------- ------------------------
Position with Investment Name of Other Connection with Other
Name Adviser Company Company
------------------------------ --------------------------------- ---------------------------- ------------------------
Stuart M. Christhilf, III Principal - Director -- --
------------------------------ --------------------------------- ---------------------------- ------------------------
Donald J. Hoelting Principal - Director -- --
------------------------------ --------------------------------- ---------------------------- ------------------------
Robert D. McDorman, Jr. Principal - Director -- --
------------------------------ --------------------------------- ---------------------------- ------------------------
Paul L. Borssuck Principal -- --
------------------------------ --------------------------------- ---------------------------- ------------------------
Andrew L. Gilchrist Principal -- --
------------------------------ --------------------------------- ---------------------------- ------------------------
William V. Heaphy Principal -- --
------------------------------ --------------------------------- ---------------------------- ------------------------
Stephen T. Scott Principal -- --
------------------------------ --------------------------------- ---------------------------- ------------------------
Simeon F. Wooten, III Principal -- --
------------------------------ --------------------------------- ---------------------------- ------------------------
David G. Robertson Senior Vice President -- --
------------------------------ --------------------------------- ---------------------------- ------------------------
Linda L. Rosatelli Vice President of Operations -- --
------------------------------ --------------------------------- ---------------------------- ------------------------
Edward W. Brown, Jr. Vice President -- --
------------------------------ --------------------------------- ---------------------------- ------------------------
Elizabeth A. Dannettel Vice President -- --
------------------------------ --------------------------------- ---------------------------- ------------------------
Svietlana T. Franke Vice President -- --
------------------------------ --------------------------------- ---------------------------- ------------------------
Wendy E. Brown Operations Manager -- --
------------------------------ --------------------------------- ---------------------------- ------------------------
Kanda K. Harp Marketing Associate -- --
------------------------------ --------------------------------- ---------------------------- ------------------------
Marketing Associate & Client
Caroline N. Johnson Service Rep. -- --
------------------------------ --------------------------------- ---------------------------- ------------------------
Joan Bielski Operation Administrator -- --
------------------------------ --------------------------------- ---------------------------- ------------------------
Daisy Vega-Galarza Portfolio Accountant -- --
------------------------------ --------------------------------- ---------------------------- ------------------------
Daniel Amoss Research Assistant -- --
------------------------------ --------------------------------- ---------------------------- ------------------------
Gary Merwitz Senior Vice President -- --
------------------------------ --------------------------------- ---------------------------- ------------------------
|
---------------------------------------- -------------------------------------- -------------------------------------- Name and Position with Investment Name of Other Company Connection with Other Company Adviser ---------------------------------------- -------------------------------------- -------------------------------------- Gary Leonard Bergstrom - Chairman, -- -- Director & Treasurer ---------------------------------------- -------------------------------------- -------------------------------------- Ronald Dickson Frashure - President & -- -- Director ---------------------------------------- -------------------------------------- -------------------------------------- Churchill Gibson Franklin - Executive -- -- Vice President & Director ---------------------------------------- -------------------------------------- -------------------------------------- John Robert Chisholm - Executive Vice -- -- President & Director ---------------------------------------- -------------------------------------- -------------------------------------- Barry Bennett White - Clerk -- -- ---------------------------------------- -------------------------------------- -------------------------------------- Scott Francis Powers - Member of Old Mutual U.S. Holdings, Inc. CEO Acadian's board of directors ---------------------------------------- -------------------------------------- -------------------------------------- |
-------------------------------------------- ---------------------------------- -------------------------------------- Name and Position with Investment Adviser Name of Other Company Connection with Other Company -------------------------------------------- ---------------------------------- -------------------------------------- Thao Buu-Hoan, Partner -- -- -------------------------------------------- ---------------------------------- -------------------------------------- Kevin Hamilton, Partner & President -- -- -------------------------------------------- ---------------------------------- -------------------------------------- Charles G. King, Partner -- -- -------------------------------------------- ---------------------------------- -------------------------------------- Thomas McDowell, Partner, Chief Executive -- -- Officer & Chief Investment Officer -------------------------------------------- ---------------------------------- -------------------------------------- Gary S. Rice, Partner -- -- -------------------------------------------- ---------------------------------- -------------------------------------- Douglas Sheres, Partner -- -- -------------------------------------------- ---------------------------------- -------------------------------------- David P. Tessmer, Partner -- -- -------------------------------------------- ---------------------------------- -------------------------------------- Cara Thome, Partner -- -- -------------------------------------------- ---------------------------------- -------------------------------------- Timothy A. Todaro, Partner -- -- -------------------------------------------- ---------------------------------- -------------------------------------- |
-------------------------------------------------------------------------------------------------------------------------------
Name and Position Name of Other Connection with
with Investment Adviser Company Other Company
-------------------------------------------------------------------------------------------------------------------------------
-- --
Eugene M. Natali, President, CEO
-------------------------------------------------------------------------------------------------------------------------------
Gregory M. Melvin, EVP, CIO Dartmouth Capital Advisor's Inc. President
-------------------------------------------------------------------------------------------------------------------------------
Norman S. Allan, EVP -- --
-------------------------------------------------------------------------------------------------------------------------------
Lloyd F. Stamy, Jr., SVP -- --
-------------------------------------------------------------------------------------------------------------------------------
Joseph A. Buongiorno, SVP -- --
-------------------------------------------------------------------------------------------------------------------------------
Boyd M. Hanson, SVP -- --
-------------------------------------------------------------------------------------------------------------------------------
Jack P. White, VP -- --
-------------------------------------------------------------------------------------------------------------------------------
Brian S. Allen, VP -- --
-------------------------------------------------------------------------------------------------------------------------------
Bryan R. Johanson, SVP -- --
-------------------------------------------------------------------------------------------------------------------------------
Suda Vatsan, VP -- --
-------------------------------------------------------------------------------------------------------------------------------
Robert A. McGee, SVP -- --
-------------------------------------------------------------------------------------------------------------------------------
Nicholas A. Navari, VP -- --
-------------------------------------------------------------------------------------------------------------------------------
Christy S. Brenza, VP -- --
-------------------------------------------------------------------------------------------------------------------------------
William J. Andrews, VP -- --
-------------------------------------------------------------------------------------------------------------------------------
Eugene M. Natali, Jr. -- --
Third Party Solicitor
-------------------------------------------------------------------------------------------------------------------------------
|
-------------------------------------------------------------------------------------------------------------------------------
Name and Position Name of Other Connection with
with Investment Adviser Company Other Company
-------------------------------------------------------------------------------------------------------------------------------
Dr. Roger Glen Clarke, Ensign Peak Advisors President(September 1997 - present)
Chairman Bonneville Holding Corporation Director (January 2000 - present)
Deseret Trust Company Director(September 1996 - present)
-------------------------------------------------------------------------------------------------------------------------------
Harindra de Silva, Director Analytic US Market Neutral, Ltd. Director (January 1999 - present)
and President Analytic US Market Offshore Master, Ltd. Director (November 2000 - present)
Analytic US Market Neutral Offshore II, Ltd. Director (May 2002 - present) Analytic US
Market Neutral Offshore Master II, Ltd. Director (May 2002 - present)
-------------------------------------------------------------------------------------------------------------------------------
|
-------------------------------------------------------------------------------------------------------------------------------
Name and Position Name of Other Connection with
with Investment Adviser Company Other Company
-------------------------------------------------------------------------------------------------------------------------------
Marie Nastasi Arlt, Director, Analytic US Market Neutral Offshore, Ltd. Director (November 2001 - present)
Treasurer, Vice President, Analytic US Market Neutral Offshore II, Ltd. Director (May 2002 - present)
Chief Operating Officer and
Corporate Secretary
-------------------------------------------------------------------------------------------------------------------------------
Scott F. Powers, Director Old Mutual US Holdings, Inc. Chief Executive Officer
(September 2001 - present)
Old Mutual Asset Managers (US) LLC Chief Executive Officer
(September 2001 - present)
-------------------------------------------------------------------------------------------------------------------------------
|
--------------------------------------------------------------------------------------------------------------
Position with Name of Connection with
Employee Name Investment Advisor Other Company Other Company
--------------------------------------------------------------------------------------------------------------
Jon F. Holsteen Principal/Chairman -- --
--------------------------------------------------------------------------------------------------------------
William W. Zimmer Principal/President -- --
--------------------------------------------------------------------------------------------------------------
Thomas F. Harmon Principal/Senior V.P. -- --
--------------------------------------------------------------------------------------------------------------
Donna L. Minnich Principal/Senior V.P. -- --
--------------------------------------------------------------------------------------------------------------
Gary R. Dhein Principal/Senior V.P. -- --
--------------------------------------------------------------------------------------------------------------
Frank F. Holsteen Principal/Senior V.P. -- --
--------------------------------------------------------------------------------------------------------------
J. Scott Sindelar Principal/Senior V.P. -- --
--------------------------------------------------------------------------------------------------------------
Leslie D. Makovic Principal/Vice President -- --
--------------------------------------------------------------------------------------------------------------
Peter L. Goldman* Principal/Senior V.P. Vincent Capital Managing Member
--------------------------------------------------------------------------------------------------------------
|
* Vincent Capital has withdrawn its registration as an Investment Adviser with the State of Illinois effective August 2003. The corporation is still in existence, but currently has no business/clients.
--------------------------------------------------------------------------------------------------------------------------------
Name and Position Name of Other Connection with
with Investment Adviser Company Other Company
--------------------------------------------------------------------------------------------------------------------------------
Brian M. Barish, President, -- --
Director Research
--------------------------------------------------------------------------------------------------------------------------------
Nancy H. Wigton, Principal,
Director Marketing -- --
--------------------------------------------------------------------------------------------------------------------------------
Michael J. Gardner, Principal Mountain States Bank Board of Directors - effective
April 2002
--------------------------------------------------------------------------------------------------------------------------------
|
-------------------------------------------------------------------------------------------------------------------------------- Name and Position Name of Other Connection with with Investment Adviser Company Other Company -------------------------------------------------------------------------------------------------------------------------------- Maria L. Azari, Principal -- -- -------------------------------------------------------------------------------------------------------------------------------- Anna A. Aldrich, Principal -- -- -------------------------------------------------------------------------------------------------------------------------------- Julie Goodrum, Vice President -- -- -------------------------------------------------------------------------------------------------------------------------------- Christine M. Simon, Vice President, -- -- Director Operations & Finance -------------------------------------------------------------------------------------------------------------------------------- Tim Beranek, Vice President -- -- -------------------------------------------------------------------------------------------------------------------------------- Karl Engelmann, Vice President -- -- -------------------------------------------------------------------------------------------------------------------------------- Rod Hostetler, Vice President -- -- -------------------------------------------------------------------------------------------------------------------------------- Carol VanSickle,Vice President -- -- -------------------------------------------------------------------------------------------------------------------------------- |
-------------------------------------------------------------------------------------------------------------------------------- Name and Position Name of Other Connection with with Investment Adviser Company Other Company -------------------------------------------------------------------------------------------------------------------------------- Robert F. Carr, III, Senior Greentech Advisory Board-Director Managing Director Vista Petroleum Advisory Board -------------------------------------------------------------------------------------------------------------------------------- Kathryn A. Vorisek, Senior -- -- Managing Director ` -------------------------------------------------------------------------------------------------------------------------------- Robert F. Carr, IV, Managing Director -- -- -------------------------------------------------------------------------------------------------------------------------------- Terry B. French, Managing Director -- -- -------------------------------------------------------------------------------------------------------------------------------- David J. Meyer, Managing Director -- -- -------------------------------------------------------------------------------------------------------------------------------- Lloyd J. Spicer, Managing Director -- -- -------------------------------------------------------------------------------------------------------------------------------- Robert W. Thornburgh, Managing Director -- -- -------------------------------------------------------------------------------------------------------------------------------- Leo Harmon, Senior Director -- -- -------------------------------------------------------------------------------------------------------------------------------- Edward S. Borland, Director -- -- -------------------------------------------------------------------------------------------------------------------------------- Holly R. Carlini, Director -- -- -------------------------------------------------------------------------------------------------------------------------------- Anne T. Durkin, Director -- -- -------------------------------------------------------------------------------------------------------------------------------- Nancy A. Fisher, Director -- -- -------------------------------------------------------------------------------------------------------------------------------- Andrew S. Hadland, Director -- -- -------------------------------------------------------------------------------------------------------------------------------- Greeta E. Hootman, Director -- -- -------------------------------------------------------------------------------------------------------------------------------- |
-------------------------------------------------------------------------------------------------------------------------------- Name and Position Name of Other Connection with with Investment Adviser Company Other Company -------------------------------------------------------------------------------------------------------------------------------- Matthew G. Thompson, -- -- President -------------------------------------------------------------------------------------------------------------------------------- Horace P. Whitworth, -- -- Vice President, CFO -------------------------------------------------------------------------------------------------------------------------------- Lawrence Gibson, Secretary -- -- -------------------------------------------------------------------------------------------------------------------------------- Cheryl Mounce, Treasurer -- -- -------------------------------------------------------------------------------------------------------------------------------- Scott Powers, Director -- -- -------------------------------------------------------------------------------------------------------------------------------- |
-------------------------------------------------------------------------------------------------------------------------------- Name and Position Name of Other Connection with with Investment Adviser Company Other Company -------------------------------------------------------------------------------------------------------------------------------- Vincent J. Stafford, Chairman Commerce Capital Investments, Inc Chairman -------------------------------------------------------------------------------------------------------------------------------- Terrence J. Malloy, Director Commerce Capital Investments, Inc Director -------------------------------------------------------------------------------------------------------------------------------- Marc A. Rubinsohn, Accounting Commerce Capital Investments, Inc Accounting Manager/FINOP Manager/FINOP -------------------------------------------------------------------------------------------------------------------------------- Maria F. Lutzker, Chief Compliance Commerce Capital Investments, Inc Chief Compliance Officer Officer -------------------------------------------------------------------------------------------------------------------------------- Joseph D. Blair Commerce Capital Invetments, Inc President/CEO/Director President/CEO/Director -------------------------------------------------------------------------------------------------------------------------------- |
--------------------------------------------------------------------------------------------------------------------------------
Position with Name of Connection with
Name Investment Advisor Other Company Other Company
--------------------------------------------------------------------------------------------------------------------------------
John E. Andress, Jr. Partner, Marketing & -- --
Client Service
--------------------------------------------------------------------------------------------------------------------------------
Managing Partner, Senior Zeke LP General Partner, Portfolio
Edward N. Antoian Portfolio Mgr Manager
--------------------------------------------------------------------------------------------------------------------------------
Managing Partner, Senior -- --
Richard M. Behler Portfolio Mgr
--------------------------------------------------------------------------------------------------------------------------------
Partner, Senior Portfolio -- --
George H. Burwell Mgr
--------------------------------------------------------------------------------------------------------------------------------
Partner, Senior Portfolio -- --
Mark J. Cunneen Mgr
--------------------------------------------------------------------------------------------------------------------------------
Managing Partner, Senior -- --
David C. Dalrymple Portfolio Mgr
--------------------------------------------------------------------------------------------------------------------------------
Partner, Chief Financial Chartwell Dividend & Vice President
G. Gregory Hagar Officer Income Fund, Inc.
--------------------------------------------------------------------------------------------------------------------------------
Chartwell Dividend & President, Chairman and
Winthrop S. Jessup Managing Partner, Chairman Income Fund, Inc. Director
--------------------------------------------------------------------------------------------------------------------------------
Partner, Senior Portfolio -- --
Michael D. Jones Mgr
--------------------------------------------------------------------------------------------------------------------------------
Michael J. McCloskey Managing Partner, President -- --
--------------------------------------------------------------------------------------------------------------------------------
Managing Partner, Senior Chartwell Dividend & Vice President and Director
Kevin A. Melich Portfolio Mgr Income Fund, Inc.
--------------------------------------------------------------------------------------------------------------------------------
Partner, Director of -- --
Michael J. Nalevanko Equity Trading
--------------------------------------------------------------------------------------------------------------------------------
Managing Partner, Senior -- --
Harold A. Ofstie Portfolio Mgr
--------------------------------------------------------------------------------------------------------------------------------
Partner, Director of Chartwell Dividend & Vice President
Maria E. Pollack Client Administration Income Fund, Inc.
--------------------------------------------------------------------------------------------------------------------------------
Managing Partner, Chief Chartwell Dividend & Vice President and
Timothy J. Riddle Executive Officer Income Fund, Inc. Treasurer
--------------------------------------------------------------------------------------------------------------------------------
Partner, Marketing & -- --
Edward A. Rittenhouse III Client Service
--------------------------------------------------------------------------------------------------------------------------------
Managing Partner, Senior Chartwell Dividend & Vice President and Director
Bernard P. Schaffer Portfolio Mgr Income Fund, Inc.
--------------------------------------------------------------------------------------------------------------------------------
Partner, Senior Portfolio -- --
Christine F. Williams Mgr
--------------------------------------------------------------------------------------------------------------------------------
Babak Zenouzi Partner, Senior Portfolio -- --
Mgr
--------------------------------------------------------------------------------------------------------------------------------
|
----------------------------------------------------------------------------------------------------------------------
Connection with Other
Name & Position with Investment Adviser Name of Other Company Company
----------------------------------------------------------------------------------------------------------------------
Paul Clark - Director National Processing Corp. Director
----------------------------------------------------------------------------------------------------------------------
National City Mortgage Co. Director
----------------------------------------------------------------------------------------------------------------------
|
----------------------------------------------------------------------------------------------------------------------
Connection with Other
Name & Position with Investment Adviser Name of Other Company Company
----------------------------------------------------------------------------------------------------------------------
R. Kevin Stortzum, Officer Central Bank & Trust Senior Vice President
----------------------------------------------------------------------------------------------------------------------
Marcia Wade, Officer Central Bank & Trust Vice President
----------------------------------------------------------------------------------------------------------------------
|
----------------------------------------------------------------------------------------------------------------------
Connection with Other
Name & Position with Investment Adviser Name of Other Company Company
----------------------------------------------------------------------------------------------------------------------
George Connell-Chairman/CEO The Haverford Trust Company Chairman/CEO
Haverford Financial Services Chairman/CEO
----------------------------------------------------------------------------------------------------------------------
Joseph J. McLaughlin Jr. - President The Haverford Trust Company President
----------------------------------------------------------------------------------------------------------------------
|
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.
The 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 Advisors' Inner Circle Fund II January 28, 1993 Bishop Street Funds January 27, 1995 SEI Asset Allocation Trust April 1, 1996 SEI Institutional Investments Trust June 14, 1996 HighMark Funds February 15, 1997 Expedition Funds June 9, 1997 Oak Associates Funds February 27, 1998 The Nevis Fund, Inc. June 29, 1998 CNI Charter Funds April 1, 1999 Amerindo Funds Inc. July 13, 1999 iShares Inc. January 28, 2000 iShares Trust April 25, 2000 JohnsonFamily Funds, Inc. November 1, 2000 The MDL Funds January 24, 2001 Causeway Capital Management Trust September 20, 2001 The Japan Fund, Inc. October 7, 2002 TT International U.S.A. Master Trust October 6, 2003 TT International U.S.A. Feeder Trust October 6, 2003 |
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 20 of Part B. Unless otherwise noted, the business address of each director or officer is One Freedom Valley Drive, Oaks, PA 19456.
Position and Office Positions and Offices
NAME WITH UNDERWRITER WITH REGISTRANT
---- ---------------- ---------------
William M. Doran Director --
Carl A. Guarino Director --
Edward D. Loughlin Director --
Wayne M. Withrow Director --
Kevin Barr President & Chief Operating Officer --
Maxine Chou Chief Financial Officer & Treasurer --
John Munch General Counsel & Secretary --
Karen LaTourette Chief Compliance Officer & Assistant Secretary --
Mark J. Held Senior Vice President --
Lori L. White Assistant Secretary --
Robert Silvestri Senior Financial Officer --
Michael Farrell Vice President --
Maria Rinehart Vice President --
Mark Greco Chief Operating Officer --
|
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-1 (d), the required books and records are maintained at
the offices of Registrant's custodians:
First Union National Bank Union Bank of California 125 Broad Street 475 Sansome Street, 15th Floor Philadelphia, PA 19109 San Francisco, CA 94111 |
(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 Global Funds Services One Freedom Valley Drive 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 investment advisers:
HGK Asset Management, Inc.
Newport Tower
525 Washington Blvd.
Jersey City, NJ 07310
AIG Global Investment Corp.
70 Pine Street
20th Floor
New York, NY 10270
First Manhattan Co.
437 Madison Avenue
New York, NY 10022-7022
LSV Asset Management Company
1 North Wacker Drive
Chicago, IL 60606
Sterling Capital Management Company
Two Morrocroft Centre
4064 Colony Road
Suite 300
Charlotte, NC 28211
Toews Corporation
1500 Market Street, 12th Floor
East Tower
Philadelphia, PA 19102
Prospect Asset Management, Inc.
6700 Kalanianaole Highway
Suite 122
Honolulu, HI 96825
Synovus Investment Advisors, Inc.
P.O. Box 23024
Columbus, GA 31902-1313
Steinberg Asset Management, LLC 12 East 49th Street, Suite 1202 New York, NY 10017
Investment Counselors of Maryland, LLC
803 Cathedral Street
Baltimore, MD 21201
Acadian Asset Management, Inc. Ten Post Office Square, 8th Floor Boston, MA 02109
Rice Hall James & Associates 600 West Broadway, Suite 1000 San Diego, CA 92101-3383
C.S. McKee, LLP
One Gateway Center
Pittsburgh, PA 15222
Analytic Investors, Inc. 500 South Grand Avenue, 23rd Floor Los Angeles, CA 90071
Chicago Asset Management Company 70 West Madison Street, Suite 400 Chicago, IL 60602
Cambiar Investors LLC
2401 East Second Street, Suite 400
Denver, CO 80206
Fiduciary Management Associates, LLC 55 West Monroe Street, Suite 2550 Chicago, IL 60603
Thompson, Siegel & Walmsley, Inc. 5000 Monument Avenue, P.O. Box 6883 Richmond, VA 23230
Commerce Capital Markets, Inc
One Commerce Square
2005 Market Street, Suite 200
Philadelphia, PA 19103
Chartwell Investment Partners 1235 Westlakes Drive, Suite 400 Berwyn, PA 19312
National City Investment Management Company 1900 East Ninth Street Cleveland, OH 44114
CB Investment Managers, LLC
300 West Vine Street
Lexington, KY 40507
Haverford Investment Management, Inc. Three Radnor Corporate Center, Suite 450 Radnor, PA 19087-4546
Item 29. Management Services: None.
Item 30. Undertakings: None.
NOTICE
A copy of the Agreement and Declaration of Trust for The Advisors' Inner Circle Fund (the "Trust") 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 Trust by an officer of the Trust 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 Trust.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, and the Investment Company Act of 1940, as amended, the Registrant has duly caused this Post-Effective Amendment No. 79 to Registration Statement No. 33-42484 to be signed on its behalf by the undersigned, thereto duly authorized in the City of Oaks, and Commonwealth of Pennsylvania on the 25th day of February 2005.
THE ADVISORS' INNER CIRCLE FUND
By: /S/ JAMES F. VOLK
---------------------------
James F. Volk, President
|
Pursuant to the requirements of the Securities Act of 1933, this Amendment to the Registration Statement has been signed below by the following persons in the capacity and on the dates indicated.
* Trustee February 25, 2005
--------------------------------------------
Charles E. Carlbom
* Trustee February 25, 2005
--------------------------------------------
John T. Cooney
* Trustee February 25, 2005
--------------------------------------------
William M. Doran
* Trustee February 25, 2005
--------------------------------------------
Mitchell A. Johnson
* Trustee February 25, 2005
--------------------------------------------
Betty L. Krikorian
* Trustee February 25, 2005
--------------------------------------------
Robert A. Nesher
* Trustee February 25, 2005
--------------------------------------------
Robert A. Patterson
* Trustee February 25, 2005
--------------------------------------------
Eugene Peters
* Trustee February 25, 2005
--------------------------------------------
George J. Sullivan, Jr.
* Trustee February 25, 2005
--------------------------------------------
James M. Storey
/S/ JAMES F. VOLK President February 25, 2005
--------------------------------------------
James F. Volk
* Controller & February 25, 2005
-------------------------------------------- Chief Financial Officer
Peter Golden
*By: /s/ JAMES F. VOLK
---------------------------------------
James F. Volk
Attorney-in-Fact, pursuant to the powers of attorney filed herewith.
|
THE ADVISORS' INNER CIRCLE FUND
THE ADVISORS' INNER CIRCLE FUND II
THE MDL FUNDS
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned trustee and/or officer of the above referenced funds (each, a "Trust"), business trusts organized under the laws of The Commonwealth of Massachusetts, hereby constitutes and appoints James Ndiaye, 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 or all amendments (including post-effective amendments) to each Trust's registration statement on Form N-1A under the provisions of the Investment Company Act of 1940 and 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 F. VOLK Date: JANUARY 25, 2005 ---------------------------- -------------------- James F. Volk President |
THE ADVISORS' INNER CIRCLE FUND
THE ADVISORS' INNER CIRCLE FUND II
THE MDL FUNDS
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned trustee and/or officer of the above referenced funds (each, a "Trust"), business trusts organized under the laws of The Commonwealth of Massachusetts, hereby constitutes and appoints James F. Volk and James Ndiaye, and each of them singly, his true and lawful attorney-in-fact and agent with full power of substitution and resubstitution, to sign for him and in his name, place and stead, and in the capacity indicated below, to sign any or all amendments (including post-effective amendments) to each Trust's registration statement on Form N-1A under the provisions of the Investment Company Act of 1940 and 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/ PETER GOLDEN Date: JANUARY 31, 2005 -------------------------------------- ------------------------- Peter Golden Controller and Chief Financial Officer |
THE ADVISORS' INNER CIRCLE FUND
THE ADVISORS' INNER CIRCLE FUND II
THE MDL FUNDS
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned trustee and/or officer of the above referenced funds (each, a "Trust"), business trusts organized under the laws of The Commonwealth of Massachusetts, hereby constitutes and appoints James F. Volk and James Ndiaye, and each of them singly, his true and lawful attorney-in-fact and agent with full power of substitution and resubstitution, to sign for him and in his name, place and stead, and in the capacity indicated below, to sign any or all amendments (including post-effective amendments) to each Trust's registration statement on Form N-1A under the provisions of the Investment Company Act of 1940 and 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: JANUARY 29, 2005 ------------------------------- ----------------- Robert A. Nesher Trustee |
THE ADVISORS' INNER CIRCLE FUND
THE ADVISORS' INNER CIRCLE FUND II
THE MDL FUNDS
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned trustee and/or officer of the above referenced funds (each, a "Trust"), business trusts organized under the laws of The Commonwealth of Massachusetts, hereby constitutes and appoints James F. Volk and James Ndiaye, and each of them singly, his true and lawful attorney-in-fact and agent with full power of substitution and resubstitution, to sign for him and in his name, place and stead, and in the capacity indicated below, to sign any or all amendments (including post-effective amendments) to each Trust's registration statement on Form N-1A under the provisions of the Investment Company Act of 1940 and 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: JANUARY 27, 2005 ----------------------------- ------------------------ John T. Cooney Trustee |
THE ADVISORS' INNER CIRCLE FUND
THE ADVISORS' INNER CIRCLE FUND II
THE MDL FUNDS
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned trustee and/or officer of the above referenced funds (each, a "Trust"), business trusts organized under the laws of The Commonwealth of Massachusetts, hereby constitutes and appoints James F. Volk and James Ndiaye, and each of them singly, his true and lawful attorney-in-fact and agent with full power of substitution and resubstitution, to sign for him and in his name, place and stead, and in the capacity indicated below, to sign any or all amendments (including post-effective amendments) to each Trust's registration statement on Form N-1A under the provisions of the Investment Company Act of 1940 and 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: JANUARY 25, 2005 ------------------------------- ------------------------ William M. Doran Trustee |
THE ADVISORS' INNER CIRCLE FUND
THE ADVISORS' INNER CIRCLE FUND II
THE MDL FUNDS
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned trustee and/or officer of the above referenced funds (each, a "Trust"), business trusts organized under the laws of The Commonwealth of Massachusetts, hereby constitutes and appoints James F. Volk and James Ndiaye, and each of them singly, his true and lawful attorney-in-fact and agent with full power of substitution and resubstitution, to sign for him and in his name, place and stead, and in the capacity indicated below, to sign any or all amendments (including post-effective amendments) to each Trust's registration statement on Form N-1A under the provisions of the Investment Company Act of 1940 and Securities Act of 1933, each such Act as amended, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, acting alone, full power and authority to do and perform each and every act and thing requisite or necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal as of the date set forth below.
/S/ ROBERT A. PATTERSON Date: JANUARY 25, 2005 ------------------------------- ------------------------- Robert A. Patterson Trustee |
THE ADVISORS' INNER CIRCLE FUND
THE ADVISORS' INNER CIRCLE FUND II
THE MDL FUNDS
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned trustee and/or officer of the above referenced funds (each, a "Trust"), business trusts organized under the laws of The Commonwealth of Massachusetts, hereby constitutes and appoints James F. Volk and James Ndiaye, and each of them singly, his true and lawful attorney-in-fact and agent with full power of substitution and resubstitution, to sign for him and in his name, place and stead, and in the capacity indicated below, to sign any or all amendments (including post-effective amendments) to each Trust's registration statement on Form N-1A under the provisions of the Investment Company Act of 1940 and 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: FEBRUARY 2, 2005 ---------------------------------- --------------------- Eugene B. Peters Trustee |
THE ADVISORS' INNER CIRCLE FUND
THE ADVISORS' INNER CIRCLE FUND II
THE MDL FUNDS
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned trustee and/or officer of the above referenced funds (each, a "Trust"), business trusts organized under the laws of The Commonwealth of Massachusetts, hereby constitutes and appoints James F. Volk and James Ndiaye, and each of them singly, his true and lawful attorney-in-fact and agent with full power of substitution and resubstitution, to sign for him and in his name, place and stead, and in the capacity indicated below, to sign any or all amendments (including post-effective amendments) to each Trust's registration statement on Form N-1A under the provisions of the Investment Company Act of 1940 and 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: JANUARY 29, 2005 ------------------------------ ----------------------- James M. Storey Trustee |
THE ADVISORS' INNER CIRCLE FUND
THE ADVISORS' INNER CIRCLE FUND II
THE MDL FUNDS
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned trustee and/or officer of the above referenced funds (each, a "Trust"), business trusts organized under the laws of The Commonwealth of Massachusetts, hereby constitutes and appoints James F. Volk and James Ndiaye, and each of them singly, his true and lawful attorney-in-fact and agent with full power of substitution and resubstitution, to sign for him and in his name, place and stead, and in the capacity indicated below, to sign any or all amendments (including post-effective amendments) to each Trust's registration statement on Form N-1A under the provisions of the Investment Company Act of 1940 and 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: JANUARY 29, 2005 --------------------------------- ----------------------------- George J. Sullivan, Jr. Trustee |
THE ADVISORS' INNER CIRCLE FUND
THE ADVISORS' INNER CIRCLE FUND II
THE MDL FUNDS
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned trustee and/or officer of the above referenced funds (each, a "Trust"), business trusts organized under the laws of The Commonwealth of Massachusetts, hereby constitutes and appoints James F. Volk and James Ndiaye, and each of them singly, his true and lawful attorney-in-fact and agent with full power of substitution and resubstitution, to sign for him and in his name, place and stead, and in the capacity indicated below, to sign any or all amendments (including post-effective amendments) to each Trust's registration statement on Form N-1A under the provisions of the Investment Company Act of 1940 and 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/ MITCHELL A. JOHNSON Date: JANUARY 25, 2005 -------------------------------- ---------------------- Mitchell A. Johnson Trustee |
THE ADVISORS' INNER CIRCLE FUND
THE ADVISORS' INNER CIRCLE FUND II
THE MDL FUNDS
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned trustee and/or officer of the above referenced funds (each, a "Trust"), business trusts organized under the laws of The Commonwealth of Massachusetts, hereby constitutes and appoints James F. Volk and James Ndiaye, and each of them singly, his true and lawful attorney-in-fact and agent with full power of substitution and resubstitution, to sign for him and in his name, place and stead, and in the capacity indicated below, to sign any or all amendments (including post-effective amendments) to each Trust's registration statement on Form N-1A under the provisions of the Investment Company Act of 1940 and 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/ CHARLES E. CARLBOM Date: JANUARY 25, 2005 --------------------------------- ------------------ Charles E. Carlbom Trustee |
THE ADVISORS' INNER CIRCLE FUND
THE ADVISORS' INNER CIRCLE FUND II
THE MDL FUNDS
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned trustee and/or officer of the above referenced funds (each, a "Trust"), business trusts organized under the laws of The Commonwealth of Massachusetts, hereby constitutes and appoints James F. Volk and James Ndiaye, and each of them singly, her true and lawful attorney-in-fact and agent with full power of substitution and resubstitution, to sign for her and in her name, place and stead, and in the capacity indicated below, to sign any or all amendments (including post-effective amendments) to each Trust's registration statement on Form N-1A under the provisions of the Investment Company Act of 1940 and 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 she 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 her hand and seal as of the date set forth below.
/S/ BETTY L. KRIKORIAN Date: JANUARY 29, 2005 --------------------------------- ------------------- Betty L. Krikorian Trustee |
EXHIBIT INDEX
Exhibit No. Exhibit
EX-99.D30 Investment Advisory Agreement between the
Registrant and Haverford Investment
Management, Inc. is filed herewith.
EX-99.P25 Revised Acadian Asset Management, Inc.
Code of Ethics is filed herewith.
|
ADVISORY AGREEMENT
FORM OF ADVISORY AGREEMENT made as of this 28th day of May, 2004 by and between THE ADVISORS' INNER CIRCLE FUND (the "Trust"), a Massachusetts business trust registered as an investment company under the Investment Company Act of 1940, as amended (the "1940 Act"), and HAVERFORD INVESTMENT MANAGEMENT, a Pennsylvania corporation with its principal place of business at Three Radnor Corporate Center, Suite 450, Radnor PA 19087-4546 (the "Adviser").
W I T N E S S E T H
WHEREAS, the Board of Trustees (the "Board") of the Trust has selected the Adviser to act as investment adviser to the Trust on behalf of the series set forth on Schedule A to this Agreement (each a "Fund" and, collectively, the "Funds"), as such Schedule may be amended from time to time upon mutual agreement of the parties, and to provide certain related services, as more fully set forth below, and to perform such services under the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the mutual covenants and benefits set forth herein, the Trust and the Adviser do hereby agree as follows:
1. THE ADVISER'S SERVICES.
(a) DISCRETIONARY INVESTMENT MANAGEMENT SERVICES. The Adviser shall act as investment adviser with respect to the Funds. In such capacity, the Adviser shall, subject to the supervision of the Board, regularly provide the Funds with investment research, advice and supervision and shall furnish continuously an investment program for the Funds, consistent with the respective investment objectives and policies of each Fund. The Adviser shall determine, from time to time, what securities shall be purchased for the Funds, what securities shall be held or sold by the Funds and what portion of the Funds' assets shall be held uninvested in cash, subject always to the provisions of the Trust's Agreement and Declaration of Trust, By-Laws and its registration statement on Form N-1A (the "Registration Statement") under the 1940 Act, and under the Securities Act of 1933, as amended (the "1933 Act"), covering Fund shares, as filed with the Securities and Exchange Commission (the "Commission"), and to the investment objectives, policies and restrictions of the Funds, as each of the same shall be from time to time in effect. To carry out such obligations, the Adviser shall exercise full discretion and act for the Funds in the same manner and with the same force and effect as the Funds themselves might or could do with respect to purchases, sales or other transactions, as well as with respect to all other such things necessary or incidental to the furtherance or conduct of such purchases, sales or other transactions. No reference in this Agreement to the Adviser having full discretionary authority over each Fund's investments shall in any way limit the right of the Board, in its sole discretion, to establish or revise policies in connection with the management of a Fund's assets or to otherwise exercise its right to control the overall management of a Fund.
(b) COMPLIANCE. The Adviser agrees to comply with the requirements of the 1940 Act, the Investment Advisers Act of 1940 (the "Advisers Act"), the 1933 Act, the Securities Exchange Act of 1934, as amended (the "1934 Act"), the Commodity Exchange Act and the respective rules and regulations thereunder, as applicable, as well as with all other applicable federal and state laws, rules, regulations and case law that relate to the services and relationships described hereunder and to the conduct of its business as a registered investment adviser. The Adviser also agrees to comply with the objectives, policies and restrictions set forth in the Registration Statement, as amended or supplemented, of the Funds, and with any policies, guidelines, instructions and procedures approved by the Board and provided to the Adviser. In selecting each Fund's portfolio securities and performing the Adviser's obligations hereunder, the Adviser shall cause the Fund to comply with the diversification and source of income requirements of Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"), for qualification as a regulated investment company. The Adviser shall maintain compliance procedures that it reasonably believes are adequate to ensure the its compliance with the foregoing. No supervisory activity undertaken by the Board shall limit the Adviser's full responsibility for any of the foregoing.
(c) PROXY VOTING. The Board has the authority to determine how proxies with respect to securities that are held by the Funds shall be voted, and the Board has initially determined to delegate the authority and responsibility to vote proxies for the Fund's securities to the Adviser. So long as proxy voting authority for the Fund has been delegated to the Adviser, the Adviser shall exercise its proxy voting responsibilities Adviser shall carry out such responsibility in accordance with any instructions that the Board shall provide from time to time, and at all times in a manner consistent with Rule 206(4)-6 under the Advisers Act and its fiduciary responsibilities to the Trust. The Adviser shall provide periodic reports and keep records relating to proxy voting as the Board may reasonably request or as may be necessary for the Funds to comply with the 1940 Act and other applicable law. Any such delegation of proxy voting responsibility to the Adviser may be revoked or modified by the Board at any time.
(d) RECORDKEEPING. The Adviser shall not be responsible for the provision of administrative, bookkeeping or accounting services to the Fund, except as otherwise provided herein or as may be necessary for the Adviser to supply to the Trust or its Board the information required to be supplied under this Agreement.
The Adviser shall maintain separate books and detailed records of all matters pertaining to Fund assets advised by the Adviser required by Rule 31a-1 under the 1940 Act (other than those records being maintained by any administrator, custodian or transfer agent appointed by the Funds) relating to its responsibilities provided hereunder with respect to the Funds, and shall preserve such records for the periods and in a manner prescribed therefore by Rule 31a-2 under the 1940 Act (the "Fund Books and Records"). The Fund Books and Records shall be available to the Board at any time upon request, shall be delivered to the Trust upon the termination of this Agreement and shall be available without delay during any day the Trust is open for business.
(e) HOLDINGS INFORMATION AND PRICING. The Adviser shall provide regular reports regarding Fund holdings, and shall, on its own initiative, furnish the Trust and its Board from time to time with whatever information the Adviser believes is appropriate for this purpose. The Adviser agrees to immediately notify the Trust if the Adviser reasonably believes that the value of any security held by a Fund may not reflect fair value. The Adviser agrees to provide any pricing information of which the Adviser is aware to the Trust, its Board and/or any Fund pricing agent to assist in the determination of the fair value of any Fund holdings for which market quotations are not readily available or as otherwise required in accordance with the 1940 Act or the Trust's valuation procedures for the purpose of calculating the Fund net asset value in accordance with procedures and methods established by the Board.
(f) COOPERATION WITH AGENTS OF THE TRUST. The Adviser agrees to cooperate with and provide reasonable assistance to the Trust, any Trust custodian or foreign sub-custodians, any Trust pricing agents and all other agents and representatives of the Trust, such information with respect to the Funds as they may reasonably request from time to time in the performance of their obligations, provide prompt responses to reasonable requests made by such persons and establish appropriate interfaces with each so as to promote the efficient exchange of information and compliance with applicable laws and regulations.
2. CODE OF ETHICS. The Adviser has adopted a written code of ethics that it reasonably believes complies with the requirements of Rule 17j-1 under the 1940 Act, which it will provide to the Trust. The Adviser shall ensure that its Access Persons (as defined in the Adviser's Code of Ethics) comply in all material respects with the Adviser's Code of Ethics, as in effect from time to time. Upon request, the Adviser shall provide the Trust with a (i) a copy of the Adviser's current Code of Ethics, as in effect from time to time, and (ii) certification that it has adopted procedures reasonably necessary to prevent Access Persons from engaging in any conduct prohibited by the Adviser's Code of Ethics. Annually, the Adviser shall furnish a written report, which complies with the requirements of Rule 17j-1, concerning the Adviser's Code of Ethics to the Trust. The Adviser shall respond to requests for information from the Trust as to violations of the Code by Access Persons and the sanctions imposed by the Adviser. The Adviser shall immediately notify the Trust of any material violation of the Code, whether or not such violation relates to an security held by any Fund.
3. INFORMATION AND REPORTING. The Adviser shall provide the Trust and its respective officers with such periodic reports concerning the obligations the Adviser has assumed under this Agreement as the Trust may from time to time reasonably request.
(a) NOTIFICATION OF BREACH / COMPLIANCE REPORTS. The Adviser shall notify the Adviser immediately upon detection of (i) any material failure to manage any Fund in accordance with its investment objectives and policies or any applicable law; or (ii) any material breach of any of the Funds' or the Adviser's policies, guidelines or procedures. In addition, the Adviser shall provide a quarterly report regarding each Fund's compliance with its investment objectives and policies,
applicable law, including, but not limited to the 1940 Act and
Subchapter M of the Code, and the Fund's policies, guidelines or
procedures as applicable to the Adviser's obligations under this
Agreement. The Adviser agrees to correct any such failure promptly and
to take any action that the Board may reasonably request in connection
with any such breach. Upon request, the Adviser shall also provide the
officers of the Trust with supporting certifications in connection with
such certifications of Fund financial statements and disclosure
controls pursuant to the Sarbanes-Oxley Act. The Adviser will promptly
notify the Trust in the event (i) the Adviser is served or otherwise
receives notice of any action, suit, proceeding, inquiry or
investigation, at law or in equity, before or by any court, public
board, or body, involving the affairs of the Trust (excluding class
action suits in which a Fund is a member of the plaintiff class by
reason of the Fund's ownership of shares in the defendant) or the
compliance by the Adviser with the federal or state securities laws or
(ii) an actual change in control of the Adviser resulting in an
"assignment" (as defined in the 1940 Act) has occurred or is otherwise
proposed to occur.
(b) BOARD AND FILINGS INFORMATION. The Adviser will also provide the Trust with any information reasonably requested regarding its management of the Funds required for any meeting of the Board, or for any shareholder report, amended registration statement, proxy statement, or prospectus supplement to be filed by the Trust with the Commission. The Adviser will make its officers and employees available to meet with the Board from time to time on due notice to review its investment management services to the Funds in light of current and prospective economic and market conditions and shall furnish to the Board such information as may reasonably be necessary in order for the Board to evaluate this Agreement or any proposed amendments thereto.
(c) TRANSACTION INFORMATION. The Adviser shall furnish to the Trust such information concerning portfolio transactions as may be necessary to enable the Trust or its designated agent to perform such compliance testing on the Funds and the Adviser's services as the Trust may, in its sole discretion, determine to be appropriate. The provision of such information by the Adviser to the Trust or its designated agent in no way relieves the Adviser of its own responsibilities under this Agreement.
4. BROKERAGE.
(a) PRINCIPAL TRANSACTIONS. In connection with purchases or sales of securities for the account of a Fund, neither the Adviser nor any of its directors, officers or employees will act as a principal or agent or receive any commission except as permitted by the 1940 Act.
(b) PLACEMENT OF ORDERS. The Adviser shall arrange for the placing of all orders for the purchase and sale of securities for a Fund's account with brokers or dealers selected by the Adviser. In the selection of such brokers or dealers and the placing of such orders, the Adviser is directed at all times to seek for the Fund the most favorable execution and net price available under the circumstances. It is also understood that it is desirable for the Fund that the Adviser
have access to brokerage and research services provided by brokers who may execute brokerage transactions at a higher cost to the Fund than may result when allocating brokerage to other brokers, consistent with section 28(e) of the 1934 Act and any Commission staff interpretations thereof. Therefore, the Adviser is authorized to place orders for the purchase and sale of securities for a Fund with such brokers, subject to review by the Board from time to time with respect to the extent and continuation of this practice. It is understood that the services provided by such brokers may be useful to the Adviser in connection with its or its affiliates' services to other clients.
(c) AGGREGATED TRANSACTIONS. On occasions when the Adviser deems the purchase or sale of a security to be in the best interest of a Fund as well as other clients of the Adviser, the Adviser may, to the extent permitted by applicable law and regulations, aggregate the order for securities to be sold or purchased. In such event, the Adviser will allocate securities or futures contracts so purchased or sold, as well as the expenses incurred in the transaction, in the manner the Adviser reasonably considers to be equitable and consistent with its fiduciary obligations to the Fund and to such other clients under the circumstances.
(d) AFFILIATED BROKERS. The Adviser or any of its affiliates
may act as broker in connection with the purchase or sale of securities
or other investments for a Fund, subject to: (a) the requirement that
the Adviser seek to obtain best execution and price within the policy
guidelines determined by the Board and set forth in the Fund's current
prospectus and SAI; (b) the provisions of the 1940 Act; (c) the
provisions of the Advisers Act; (d) the provisions of the 1934 Act; and
(e) other provisions of applicable law. These brokerage services are
not within the scope of the duties of the Adviser under this Agreement.
Subject to the requirements of applicable law and any procedures
adopted by the Board, the Adviser or its affiliates may receive
brokerage commissions, fees or other remuneration from a Fund for these
services in addition to the Adviser's fees for services under this
Agreement.
5. CUSTODY. Nothing in this Agreement shall permit the Adviser to take or receive physical possession of cash, securities or other investments of a Fund.
6. ALLOCATION OF CHARGES AND EXPENSES. The Adviser will bear its own costs of providing services hereunder. Other than as herein specifically indicated, the Adviser shall not be responsible for a Fund's expenses, including brokerage and other expenses incurred in placing orders for the purchase and sale of securities and other investment instruments.
7. REPRESENTATIONS, WARRANTIES AND COVENANTS.
(a) PROPERLY REGISTERED. The Adviser is registered as an investment adviser under the Advisers Act, and will remain so registered for the duration of this Agreement. The Adviser is not prohibited by the Advisers Act or the 1940 Act from performing the services contemplated by this Agreement, and to the best knowledge of the Adviser, there is no proceeding or investigation that is reasonably likely to result in the Adviser being prohibited from performing the services contemplated by this Agreement. The Adviser agrees to promptly notify the Trust of the occurrence of any event that would disqualify the Adviser from serving as an investment adviser to an investment company. The Adviser is in compliance in all material respects with all
applicable federal and state law in connection with its investment management operations.
(b) ADV DISCLOSURE. The Adviser has provided the Trust with a copy of its Form ADV as most recently filed with the SEC and will, promptly after filing any amendment to its Form ADV with the SEC, furnish a copy of such amendments to the Trust. The information contained in the Adviser's Form ADV is accurate and complete in all material respects and does not omit to state any material fact necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading.
(c) FUND DISCLOSURE DOCUMENTS. The Adviser has reviewed and will in the future review, the Registration Statement, and any amendments or supplements thereto, the annual or semi-annual reports to shareholders, other reports filed with the Commission and any marketing material of a Fund (collectively the "Disclosure Documents") and represents and warrants that with respect to disclosure about the Adviser, the manner in which the Adviser manages the Fund or information relating directly or indirectly to the Adviser, such Disclosure Documents contain or will contain, as of the date thereof, no untrue statement of any material fact and does not omit any statement of material fact which was required to be stated therein or necessary to make the statements contained therein not misleading.
(d) USE OF THE NAME "HAVERFORD". The Adviser has the right to use the name "Haverford" in connection with its services to the Trust and that, subject to the terms set forth in Section 8 of this Agreement, the Trust shall have the right to use the name "Haverford" in connection with the management and operation of the Funds. The Adviser is not aware of any threatened or existing actions, claims, litigation or proceedings that would adversely effect or prejudice the rights of the Adviser or the Trust to use the name "Haverford".
(e) INSURANCE. The Adviser maintains errors and omissions insurance coverage in an appropriate amount and shall provide prior written notice to the Trust (i) of any material changes in its insurance policies or insurance coverage; or (ii) if any material claims will be made on its insurance policies. Furthermore, the Adviser shall upon reasonable request provide the Trust with any information it may reasonably require concerning the amount of or scope of such insurance.
(f) NO DETRIMENTAL AGREEMENT. The Adviser represents and warrants that it has no arrangement or understanding with any party, other than the Trust, that would influence the decision of the Adviser with respect to its selection of securities for a Fund, and that all selections shall be done in accordance with what is in the best interest of the Fund.
(g) CONFLICTS. The Adviser shall act honestly, in good faith and in the best interests of the Trust including requiring any of its personnel with knowledge of Fund activities to place the interest of
the Fund first, ahead of their own interests, in all personal trading scenarios that may involve a conflict of interest with the Funds, consistent with its fiduciary duties under applicable law.
(h) REPRESENTATIONS. The representations and warranties in this Section 7 shall be deemed to be made on the date this Agreement is executed and at the time of delivery of the quarterly compliance report required by Section 3(a), whether or not specifically referenced in such report.
8. THE NAME "HAVERFORD". The Adviser grants to the Trust a license to use the name "Haverford" (the "Name") as part of the name of any Fund. The foregoing authorization by the Adviser to the Trust to use the Name as part of the name of any Fund is not exclusive of the right of the Adviser itself to use, or to authorize others to use, the Name; the Trust acknowledges and agrees that, as between the Trust and the Adviser, the Adviser has the right to use, or authorize others to use, the Name. The Trust shall (1) only use the Name in a manner consistent with uses approved by the Adviser; (2) use its best efforts to maintain the quality of the services offered using the Name; (3) adhere to such other specific quality control standards as the Adviser may from time to time promulgate. At the request of the Adviser, the Trust will (a) submit to Adviser representative samples of any promotional materials using the Name; and (b) change the name of any Fund within three months of its receipt of the Adviser's request, or such other shorter time period as may be required under the terms of a settlement agreement or court order, so as to eliminate all reference to the Name and will not thereafter transact any business using the Name in the name of any Fund; provided, however, that the Trust may continue to use beyond such date any supplies of prospectuses, marketing materials and similar documents that the Trust had on the date of such name change in quantities not exceeding those historically produced and used in connection with such Fund.
9. ADVISER'S COMPENSATION. The Funds shall pay to the Adviser, as compensation for the Adviser's services hereunder, a fee, determined as described in Schedule A that is attached hereto and made a part hereof. Such fee shall be computed daily and paid not less than monthly in arrears by the Funds.
The method for determining net assets of a Fund for purposes hereof shall be the same as the method for determining net assets for purposes of establishing the offering and redemption prices of Fund shares as described in the Fund's prospectus. In the event of termination of this Agreement, the fee provided in this Section shall be computed on the basis of the period ending on the last business day on which this Agreement is in effect subject to a pro rata adjustment based on the number of days elapsed in the current month as a percentage of the total number of days in such month.
10. INDEPENDENT CONTRACTOR. In the performance of its duties hereunder, the Adviser is and shall be an independent contractor and, unless otherwise expressly provided herein or otherwise authorized in writing, shall have no authority to act for or represent the Trust or any Fund in any way or otherwise be deemed to be an agent of the Trust or any Fund. If any occasion should arise in which the Adviser gives any advice to its clients concerning the shares of a Fund, the Adviser will act solely as investment counsel for such clients and not in any way on behalf of the Fund.
11. ASSIGNMENT AND AMENDMENTS. This Agreement shall automatically terminate, without the payment of any penalty, in the event of its assignment (as defined in section 2(a)(4) of the 1940 Act); provided that such termination shall not relieve the Adviser of any liability incurred hereunder.
This Agreement may not be added to or changed orally and may not be modified or rescinded except by a writing signed by the parties hereto and in accordance with the 1940 Act, when applicable.
12. DURATION AND TERMINATION.
(i) This Agreement shall become effective as of the date executed and shall remain in full force and effect continually thereafter, subject to renewal as provided in Section 12(d) and unless terminated automatically as set forth in Section 10 hereof or until terminated as follows:
(j) The Trust may cause this Agreement to terminate either (i) by vote of its Board or (ii) with respect to any Fund, upon the affirmative vote of a majority of the outstanding voting securities of the Fund; or
(k) The Adviser may at any time terminate this Agreement by not more than sixty (60) days' nor less than thirty (30) days' written notice delivered or mailed by registered mail, postage prepaid, to the Trust; or
(l) This Agreement shall automatically terminate two years from the date of its execution unless its renewal is specifically approved at least annually thereafter by (i) a majority vote of the Trustees, including a majority vote of such Trustees who are not interested persons of the Trust or the Adviser, at a meeting called for the purpose of voting on such approval; or (ii) the vote of a majority of the outstanding voting securities of each Fund; provided, however, that if the continuance of this Agreement is submitted to the shareholders of the Funds for their approval and such shareholders fail to approve such continuance of this Agreement as provided herein, the Adviser may continue to serve hereunder as to the Funds in a manner consistent with the 1940 Act and the rules and regulations thereunder; and
Termination of this Agreement pursuant to this Section shall be without payment of any penalty.
In the event of termination of this Agreement for any reason, the Adviser shall, immediately upon notice of termination or on such later date as may be specified in such notice, cease all activity on behalf of the Fund and with respect to any of its assets, except as otherwise required by any fiduciary duties of the Adviser under applicable law. In addition, the Adviser shall deliver the Fund Books and Records to the Trust by such means and in accordance with such schedule as the Trust shall direct and shall otherwise cooperate, as reasonably directed by the Trust, in the transition of portfolio asset management to any successor of the Adviser.
13. CERTAIN DEFINITIONS. For the purposes of this Agreement:
(m) "Affirmative vote of a majority of the outstanding voting securities of the Fund" shall have the meaning as set forth in the 1940 Act, subject, however, to such exemptions as may be granted by the Commission under the 1940 Act or any interpretations of the Commission staff.
(n) "Interested persons" and "Assignment" shall have their respective meanings as set forth in the 1940 Act, subject, however, to such exemptions as may be granted by the Commission under the 1940 Act or any interpretations of the Commission staff.
14. LIABILITY OF THE ADVISER. The Adviser shall indemnify and hold
harmless the Trust and all affiliated persons thereof (within the meaning of
Section 2(a)(3) of the 1940 Act) and all controlling persons (as described in
Section 15 of the 1933 Act) (collectively, the "Adviser Indemnitees") against
any and all losses, claims, damages, liabilities or litigation (including
reasonable legal and other expenses) by reason of or arising out of: (a) the
Adviser being in material violation of any applicable federal or state law, rule
or regulation or any investment policy or restriction set forth in the Funds'
Registration Statement or any written guidelines or instruction provided in
writing by the Board, (b) a Fund's failure to satisfy the diversification or
source of income requirements of Subchapter M of the Code, or (c) the Adviser's
willful misfeasance, bad faith or gross negligence generally in the performance
of its duties hereunder or its reckless disregard of its obligations and duties
under this Agreement.
15. ENFORCEABILITY. Any term or provision of this Agreement which is invalid or unenforceable in any jurisdiction shall, as to such jurisdiction be ineffective to the extent of such invalidity or unenforceability without rendering invalid or unenforceable the remaining terms or provisions of this Agreement or affecting the validity or enforceability of any of the terms or provisions of this Agreement in any other jurisdiction.
16. LIMITATION OF LIABILITY. The parties to this Agreement acknowledge and agree that all litigation arising hereunder, whether direct or indirect, and of any and every nature whatsoever shall be satisfied solely out of the assets of the affected Fund and that no Trustee, officer or holder of shares of beneficial interest of the Fund shall be personally liable for any of the foregoing liabilities. The Trust's Certificate of Trust, as amended from time to time, is on file in the Office of the Secretary of State of the Commonwealth of Massachusetts. Such Certificate of Trust and the Trust's Agreement and Declaration of Trust describe in detail the respective responsibilities and limitations on liability of the Trustees, officers, and holders of shares of beneficial interest.
17. JURISDICTION. This Agreement shall be governed by and construed in accordance with the substantive laws of Commonwealth of Massachusetts and the Adviser consents to the jurisdiction of courts, both state or federal, in Massachusetts, with respect to any dispute under this Agreement.
18. PARAGRAPH HEADINGS. The headings of paragraphs contained in this Agreement are provided for convenience only, form no part of this Agreement and shall not affect its construction.
19. COUNTERPARTS. This Agreement may be executed simultaneously in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be signed on their behalf by their duly authorized officers as of the date first above written.
THE ADVISORS' INNER CIRCLE FUND, on behalf
of each Fund listed on Schedule A
By: /S/ JAMES F. VOLK
-----------------------------------
Name: James F. Volk
Title: President
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HAVERFORD INVESTMENT MANAGEMENT
By: /S/ JOSEPH J. MCLAUGHLIN, JR.
-----------------------------
Name: Joseph J. McLaughlin, Jr.
Title: President
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SCHEDULE A
TO THE
ADVISORY AGREEMENT
DATED MAY 28, 2004 BETWEEN
THE ADVISORS' INNER CIRCLE FUND
AND
HAVERFORD INVESTMENT MANAGEMENT
The Trust will pay to the Adviser as compensation for the Adviser's services rendered, a fee, computed daily at an annual rate based on the average daily net assets of the respective Fund in accordance the following fee schedule:
FUND RATE ---- ---- Haverford Quality Growth Stock Fund..............................0.60% |
[ACADIAN LOGO]
ACADIAN ASSET MANAGEMENT, INC.
CODE OF ETHICS
UPDATED AS OF FEBRUARY 1, 2005
TABLE OF CONTENTS
Introduction 7
Part 1. General Principles 7
Part 2. Scope of the Code 8
A. Persons Covered by the Code 8
B. Securities Covered by the Code 9
Part 3. Standards of Business Conduct 9
A. Compliance with Laws and Regulations 9
B. Conflicts of Interest 10
1. Conflicts Among Client Interests 10
2. Competing with Client Trades 10
3. Other Potential Conflicts Provisions 10
a. Disclosure of Personal Interest 10
b. Referrals/Brokerage 11
c. Vendors and Suppliers 11
d. Soft Dollars 11
e. Frontrunning 11
f. Churning 11
g. Unfair Treatment of Certain Clients vis-a-vis Others 11
h. Dealing with Clients as agent and principal 12
C. Insider Trading 12
1. Penalties 12
2. Material Nonpublic Information 12
D. Personal Securities Transactions 13
1. Initial Public Offerings 13
2. Limited or Private Offerings 14
3. Blackout Periods 14
4. Short-Term Trading 14
5. Personal securities trades that are exempt 15
E. Gifts and Entertainment 16
1. General Statement 16
2. Gifts 16
a. Receipt 16
b. Offer 16
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3. Cash 16
4. Entertainment 16
5. Conferences 17
6. Preclearance 17
7. Quarterly Reporting 17
F. Political and Charitable Contributions 17
G. Confidentiality 17
H. Service on a Board of Directors 18
I. Partnerships 18
J. Other Outside Activities 18
K. Marketing and Promotional Activities 18
L. Old Mutual Stock 19
Part 4. Compliance Procedures 19
A. Access Person Investment Accounts and Duplicate Confirms and Statements 19
B. Personal Securities Transactions Procedures and Reporting 19
1. Monthly Reporting 19
2. Quarterly Reporting 20
3. Annual Reporting 20
4. New Hire Reporting 20
C. Review and Enforcement 21
D. Certification of Compliance 21
1. Initial Certification 21
2. Acknowledgement of Amendments 21
3. Annual Certification 21
Part 5. Miscellaneous 22
A. Excessive Trading 22
B. Access Person Disclosure and Reporting 22
1. Access Person Background Information 22
2. Upon Occurrence 22
C. Responsibility to Know Rules 22
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Part 6. Recordkeeping 22 Part 7. Form ADV Disclosure 23 Part 8. Administration and Enforcement of the Code 23 A. Training and Education 23 B. Annual Review 23 C. Board Approval (Fund Advisers) 23 D. Report to Board (Fund Advisers) 24 E. Report to Senior Management (All Advisers) 24 F. Reporting Violations 24 1. Confidentiality 24 2. Advice of Counsel 24 3. Apparent Violations 24 4. Retaliation 24 G. Sanctions 24 H. Further Information about the Code 24 |
EXHIBITS
EXHIBIT A PERSONS RESPONSIBLE FOR CODE ENFORCEMENT
EXHIBIT B NEW INVESTMENT ACCOUNT APPROVAL FORM
EXHIBIT C ACKNOWLEDGMENT OF RECEIPT OF CODE OF ETHICS
EXHIBIT D ACKNOWLEDGMENT OF AMENDMENTS TO CODE OF ETHICS
EXHIBIT E INITIAL REPORT OF ACCESS PERSONS
EXHIBIT F ANNUAL CODE CERTIFICATION AND REPORT OF ACCESS PERSONS
EXHIBIT G ACCESS PERSON MONTHLY SECURITIES TRANSACTION REPORT
EXHIBIT H SECURITIES TRANSACTION REPORT FOR SHORT TERM TRADING
EXHIBIT I PERSONAL SECURITIES TRANSACTIONS PRE-CLEARANCE FORM
EXHIBIT J ACCESS PERSON RELATIONSHIP FORM
EXHIBIT K ACCESS PERSON PARTNERSHIP FORM
EXHIBIT L EMPLOYEE ENTERTAINMENT FORM >$250
EXHIBIT M QUARTERLY REPORT FORM FOR GIFTS AND ENTERTAINMENT
EXHIBIT N BOARD OF DIRECTORS APPROVAL
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APPENDICES
APPENDIX A DEFINITIONS OF TERMS USED IN THE CODE
APPENDIX B FREQUENTLY ASKED QUESTIONS AND ANSWERS
APPENDIX C SPECIAL PROCEDURES RELATING TO RULE 17J-1
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INTRODUCTION
Acadian Asset Management, Inc. ("Acadian") has adopted this Code of Ethics pursuant to Rule 204A-1 under the Investment Advisers Act of 1940 (the "Advisers Act") and rule amendments under Section 204 of the Advisers Act. The Code of Ethics sets forth standards of conduct expected of all of Acadian's employees and contractors and addresses conflicts that may arise from personal trading. Acadian has determined that all employees and some contractors (and their immediate family members) will be characterized as "Access Persons" for purposes of implementing and enforcing this Code. This is further defined in Part 2, A, below. The policies and procedures outlined in the Code of Ethics are intended to promote compliance with fiduciary standards by Acadian and its Access Persons. As a fiduciary, Acadian has the responsibility to render professional, continuous and unbiased investment advice, owes its clients a duty of honesty, good faith and fair dealing, must act at all times in the best interests of clients and must avoid or disclose conflicts of interests.
This Code of Ethics is designed to:
o Protect Acadian's clients by deterring misconduct;
o Educate Access Persons regarding Acadian's expectations and the laws governing their conduct;
o Remind Access Persons that they are in a position of trust and must act with complete propriety at all times;
o Protect the reputation of Acadian;
o Guard against violation of the securities laws; and
o Establish procedures for Access Persons to follow so that Acadian may determine whether Access Persons are complying with its ethical principles.
This Code of Ethics is based upon the principle that the directors, officers and other Access Persons of Acadian owe a fiduciary duty to, among others, the clients of Acadian to conduct their affairs, including their personal securities transactions, in such a manner as to avoid (i) serving their own personal interests ahead of clients; (ii) taking inappropriate advantage of their position with Acadian; and (iii) any actual or potential conflicts of interest or any abuse of their position of trust and responsibility. This fiduciary duty includes the duty of the Chief Compliance Officer of Acadian to report violations of this Code of Ethics to Acadian's Executive Committee, Board of Directors, and the Board of Directors of any U.S. registered management investment company for which Acadian acts as adviser or sub-adviser.
PART 1. GENERAL PRINCIPLES
Our principles and philosophy regarding ethics stress Acadian's overarching fiduciary duty to its clients and the obligation of its Access Persons to uphold that fundamental duty. In recognition of the trust and confidence placed in Acadian by its clients and to give effect to the belief that Acadian's operations should be directed to benefit its clients, Acadian has adopted the following general principles to guide the actions of its Access Persons:
1. The interests of clients are paramount. All Access Persons must conduct themselves and their operations to give maximum effect to this belief by at all times placing the interests of clients before their own.
2. All personal transactions in securities by Access Persons must be accomplished so as to avoid even the appearance of a conflict of interest on the part of such Access Persons with the interests of any client.
3. All Access Persons must avoid actions or activities that allow (or appear to allow) a person to profit or benefit from his or her position with respect to a client, or that otherwise bring into question the person's independence or judgment.
4. All information concerning the specific security holdings and financial circumstances of any client is strictly confidential. Access Persons are expected to maintain such confidentiality, secure such information and disclose it only to other Access Persons with a need to know that information.
5. All supervised persons will conduct themselves honestly, with integrity and in a professional manner to preserve and protect Acadian's reputation.
Federal law requires that this Code of Ethics not only be adopted but that it must also be enforced with reasonable diligence. The Chief Compliance Officer will keep records of any violation of the Code of Ethics and of the actions taken as a result of such violations. Failure to comply with the Code of Ethics may result in disciplinary action, including monetary penalties and the potential for the termination of employment with Acadian. In addition, noncompliance with the Code of Ethics has severe ramifications, including enforcement actions by regulatory authorities, criminal fines, civil injunctions and penalties, disgorgement of profits and sanctions on your ability to remain employed in any capacity in the investment advisory business or in a related capacity.
PART 2. SCOPE OF THE CODE OF ETHICS
A. PERSONS COVERED BY THE CODE OF ETHICS
Acadian's operational and investment management practices expose many if not all its employees and contractors to client information, including holdings. As a result, to ensure compliance with regulatory requirements, Acadian has determined that it will characterize all employees and some contractors (to be determined by the Chief Compliance Officer) as Access Persons under the Code of Ethics.
With respect to the reporting of personal securities accounts and pre-clearing transactions (requirements outlined below), the definition of an Access Persons is expanded to include the accounts and transactions of the Access Person's immediate family members. An immediate family member is defined to include any relative by blood or marriage living in an Access Person's household (spouse, minor children, a domestic partner etc.), or someone who is primarily supported financial by the Access Person. The Access Person must report accounts and personal securities transactions for any account in which he or she has a direct or indirect beneficial interest. This typically includes individual and joint accounts, accounts in the name of a spouse, accounts established for minors, trust accounts, estate accounts, accounts in which the Access Person has power of attorney or trading authority, and other accounts in which he or she has a present or future interest in the income, principal or right to obtain title to securities.
Each employee is responsible for any of his or her immediate family members' compliance with the requirements imposed by the Code of Ethics. Education and
oversight is a must. Noncompliance with the Code of Ethics by an immediate family member's will have the same ramifications on the related employee as if it were the employee who did not comply.
B. SECURITIES COVERED BY THE CODE OF ETHICS
For purposes of the Code of Ethics and its reporting requirements, the term "covered security" will include the following:
o any stock or bond;
o investment or futures contracts;
o limited partnerships meeting the definition of a "security" (including limited liability and other companies that are treated as partnerships for U.S. federal income tax purposes);
o foreign unit trusts and foreign mutual funds;
o closed-end investment companies;
o shares of open-end mutual funds that ARE advised or sub-advised by Acadian or one of Acadian's affiliates, including all companies under the Old Mutual umbrellas*; and
o private investment funds, hedge funds, and investment clubs;
but specifically does not include:
o direct obligations of the U.S. government;
o bankers' acceptances, bank certificates of deposit, commercial paper, and high quality short-term debt obligations, including repurchase agreements;
o shares issued by money market funds (domiciled inside or outside the United States);
o shares of open-end mutual funds that ARE NOT advised or sub-advised by Acadian or one of Acadian's affiliates, including all companies under the Old Mutual umbrellas; and
o shares issued by unit investment trusts that are invested exclusively in one or more open-end funds, none of which are funds advised or sub-advised by Acadian or one of Acadian's affiliates, including all companies under the Old Mutual umbrellas.
* The Chief Compliance Officer will attempt to maintain a current list of firm affiliates and open ended funds that will require pre-approval. If there is any doubt about any open ended fund you wish to purchase you should pre-clear.
PART 3. STANDARDS OF BUSINESS CONDUCT
The Code of Ethics sets forth standards of business conduct that Acadian requires of its Access Persons and that relate to Acadian's and Access Person's fiduciary obligations. Access Persons should maintain the highest ethical standards in carrying out Acadian's business activities. Acadian's reputation is one of its most important assets. Maintaining the trust and confidence of clients is a vital responsibility. This section sets forth Acadian's business conduct standards.
A. COMPLIANCE WITH LAWS AND REGULATIONS
Each Access Person must comply with applicable federal securities laws and all provisions of Acadian's Compliance Manual.
1. As part of this requirement, Access Persons are not permitted, in connection with the purchase or sale, directly or indirectly, of a security held or to be acquired by a client:
a. to defraud that client in any manner;
b. to mislead that client, including by making a statement that omits material facts;
c. to engage in any act, practice or course of conduct which operates or would operate as a fraud or deceit upon that client;
d. to engage in any manipulative practice with respect to that client; or
e. to engage in any manipulative practice with respect to securities, including price manipulation.
B. CONFLICTS OF INTEREST
As a fiduciary, Acadian has an affirmative duty of care, loyalty, honesty and good faith to act in the best interests of its clients. Compliance with this duty can be achieved by trying to avoid conflicts of interest and by fully disclosing all material facts concerning any conflict that does arise with respect to any client. In addition, Acadian imposes a higher standard by providing that Access Persons must try to avoid situations that have even the appearance of conflict or impropriety.
1. CONFLICTS AMONG CLIENT INTERESTS. Conflicts of interest may arise where Acadian or its Access Persons have reason to favor the interests of one client over another client (e.g., larger accounts over smaller accounts, accounts compensated by performance fees over accounts not so compensated, accounts in which Access Persons have made material personal investments, or accounts of close friends or relatives of Access Persons, etc.). Access Persons are prohibited from engaging in inappropriate favoritism of one client over another client that would constitute a breach of fiduciary duty.
2. COMPETING WITH CLIENT TRADES. Access Persons are prohibited from using knowledge about pending or currently considered securities transactions for clients to profit personally, directly or indirectly, as a result of such transactions, including by purchasing or selling such securities. Conflicts raised by personal securities transactions also are addressed more specifically in section D below.
3. OTHER POTENTIAL CONFLICTS PROVISIONS:
A. DISCLOSURE OF PERSONAL INTEREST. Access Persons are prohibited from recommending, implementing or considering any securities transaction for a client without having disclosed any material beneficial ownership, business or personal relationship or other material interest in the issuer, or its affiliates,
to the Chief Compliance Officer or, with respect to the Chief Compliance Officer's interests, another designated senior officer. If such designated person deems the disclosed interest to present a material conflict, the access person may not participate in any decision-making process regarding the securities of that issuer.
This provision applies in addition to Acadian's initial, monthly and annual personal securities reporting requirements for Access Persons.
B. REFERRALS/BROKERAGE. Access Persons are required to act in the best interests of Acadian's clients regarding execution and other costs paid by clients for brokerage services. As part of this principle, Access Persons will strictly adhere to Acadian's policies and procedures regarding brokerage allocation, best execution, soft dollars and other related policies.
C. VENDORS AND SUPPLIERS. Each Access Person is required to disclose any personal investments or other interests in vendors or suppliers with respect to which that person negotiates or makes decisions on behalf of Acadian. Access Persons with such interests are prohibited from negotiating or making decisions regarding Acadian's business with those companies.
D. SOFT-DOLLAR COMMISSIONS. All soft dollar trades must comply with the "safe harbor" provisions of Section 28(e) of the Securities Exchange Act of 1934 and any client specific restrictions.
E. FRONT-RUNNING. The Company forbids Access Persons, except Non-Resident Directors unless they have specific knowledge of the recommendation, from purchasing or selling stock before a buy or sell recommendation is made to the Client if such transaction will have a negative impact on the client.
F. CHURNING. Access Persons should not effect transactions to generate increased commissions and unnecessary expenses for a Client. The volume and frequency of all sales and purchases of securities must be measured against the need and purpose for the activities, a Client's investment objectives, and the expenses and benefits to the account. All trading for a Client's account must be undertaken solely in the Client's interest.
G. UNFAIR TREATMENT OF CERTAIN CLIENTS VIS-A-VIS OTHERS. An Access Person who handles one or more Clients may be faced with situations in which it is possible to give preference to certain Clients over others. Access Persons must be careful not to give preference to one Client over another even if the preferential treatment would benefit Acadian or the Access Person. Each situation should be examined closely to determine whether the Client has consented to the Access Person's actions favoring another Client and whether the resulting relationship with the Client that was not favored is fair and consistent with the securities laws. If both parts of this test have been satisfied, most likely there has been no breach of fiduciary duty.
H. DEALING WITH CLIENTS AS AGENT AND PRINCIPAL: Section 206(3) of the Act addresses cross trades. To avoid conflicts of interest and to ensure the requirements of Section 206(3) are met, the Chief Compliance Officer should be consulted before a cross trade is proposed and facilitated.
C. INSIDER TRADING
Access Persons are prohibited from trading, either personally or on behalf of others, while in possession of material nonpublic information and from communicating material nonpublic information to others in violation of the law. This specifically includes personally trading or informing others of the securities held in a client portfolio or securities transaction contemplated on behalf of any client.
1. PENALTIES. Trading securities while in possession of material nonpublic information or improperly communicating that information to others may expose you to severe penalties. Criminal sanctions may include a fine of up to $1,000,000 and/or ten years imprisonment. The Securities and Exchange Commission (the "SEC") can recover the profits gained or losses avoided through violative trading, impose a penalty of up to three times the illicit windfall and can permanently bar you from the securities industry. You may also be sued by those seeking to recover damages for insider trading violations. Regardless of whether a government inquiry occurs, Acadian views seriously any violation of its insider trading policies, and such violations constitute grounds for disciplinary sanctions, including immediate dismissal.
2. MATERIAL NONPUBLIC INFORMATION. The term "material nonpublic information" relates not only to issuers but also to Acadian's securities recommendations and client securities holdings and transactions.
Information is "material" when there is a substantial likelihood that a reasonable investor would consider it important in making his or her investment decisions. Generally, this is information the disclosure of which will have a substantial effect on the price of a company's securities. You should direct any questions about whether information is material to the Chief Compliance Officer.
Material information often relates to a company's results and operations, including, for example, dividend changes, earnings results, changes in previously released earnings estimates, significant merger or acquisition proposals or agreements, major litigation, liquidation problems and extraordinary management developments. Material information also may relate to the market for a company's securities. Information about a significant order to purchase or sell securities may, in some contexts, be deemed material. Similarly, prepublication information regarding reports in the financial press also may be deemed material.
Information is "public" when it has been disseminated broadly to investors in the marketplace. Tangible evidence of such dissemination is the best indication that the information is public. For example, information is public after it has become available to the general public through a public filing with the SEC or some other governmental agency, THE WALL STREET JOURNAL, other publications of general circulation, media broadcasts, or over public internet websites.
Access Persons shall not disclose any nonpublic information (whether or not it is material) relating to Acadian or its securities transactions to any person outside Acadian (unless such disclosure has been authorized by Acadian). Material nonpublic information may not be communicated to anyone, including persons within Acadian, with the exception of the Chief Compliance Officer or his designee, unless this is required for the performance of job responsibilities. Such information should be secured. For example, access to files containing material nonpublic information and computer files containing it should be restricted to Acadian employees, and conversations containing such information, if appropriate at all, should be conducted in private to avoid potential interception.
3. Before executing any trade for yourself or others, including clients, an Access Person must determine whether he or she has access to material nonpublic information. If you think that you might have access to material nonpublic information, you should take the following steps:
a. report the information and proposed trade immediately to the Chief Compliance Officer.
b. do not purchase or sell the securities on behalf of yourself or others, including clients.
c. do not communicate the information inside or outside Acadian, other than to the Chief Compliance Officer or his designee.
d. after the Chief Compliance Officer has reviewed the issue, Acadian will determine whether the information is material and nonpublic and, if so, what action Acadian should take, if any.
D. PERSONAL SECURITIES TRANSACTIONS
All Access Persons will strictly comply with Acadian's policies and procedures regarding personal securities transactions. Acadian's Pre-Clearance form is attached as Exhibit I and is discussed in greater detail in Section 4 (B) below.
1. INITIAL PUBLIC OFFERINGS - PRE-CLEARANCE. Access Persons, with the exception of non-resident directors who are exempt from this requirement and Access Persons who are also registered with the NASD who are prohibited from participating in IPOs, must pre-clear for their personal accounts purchases of any securities in an initial public offering (IPO). Acadian will maintain a written record of any decision, and the reasons supporting the decision, to approve the personal acquisition of an IPO for at least five years after the end of the fiscal year in which the approval was granted. Before granting such approval Acadian will evaluate such investment to determine that the investment creates no material conflict between the access person and Acadian. Acadian may consider approving the transaction if it can determine that: (i) the investment did not result from directing Firm brokerage business to the
underwriter of the issuer of the security, (ii) the access person is not misappropriating an opportunity that should have been offered to eligible clients, and (iii) the access person's investment decisions for clients will not be unduly influenced by his or her personal holdings, and investment decisions are based solely on the best interests of clients. Any access person authorized to purchase securities in an IPO shall disclose that investment when they play a part in the client's subsequent consideration of an investment in that issuer. In such circumstances, the client's decision to purchase securities of the issuer shall be subject to independent review by investment Access Persons with no personal interest in the issuer.
2. LIMITED OR PRIVATE OFFERINGS - PRE-CLEARANCE. Access Persons, with the exception of non-resident directors, must pre-clear for their personal accounts purchases of any securities in limited or private offerings (commonly referred to as private placements). Acadian will maintain a record of any decision, and the reasons supporting the decision, to approve the personal acquisition of a private placement for at least five years after the end of the fiscal year in which the approval was granted. Before granting such approval Acadian will evaluate such investment to determine that the investment creates no material conflict between the access person and Acadian. Acadian may consider approving the transaction if it can determine that: (i) the investment did not result from directing Firm brokerage business to the underwriter of the issuer of the security, (ii) the access person is not misappropriating an opportunity that should have been offered to eligible clients, and (iii) the access person's investment decisions for clients will not be unduly influenced by his or her personal holdings, and investment decisions are based solely on the best interests of clients. Any access person authorized to purchase securities in a private placement shall disclose that investment when they play a part in the client's subsequent consideration of an investment in that issuer. In such circumstances, the client's decision to purchase securities of the issuer shall be subject to independent review by investment Access Persons with no personal interest in the issuer.
3. BLACKOUT PERIODS. With the exception of non-resident directors for which this requirement does not apply, a "pre-trade" blackout period of trade date plus two days prior to trade date will apply to all access persons who become aware or reasonably should have been aware because of their job responsibilities that a security is being considered for purchase or sale for a client account. This "pre-trade" blackout period will not apply to access persons who did not know of and had no reason to know of the pending transaction. A "post-trade" blackout period of trade date plus two days after trade date will apply to all access persons regardless of job responsibilities.
Depending on the occurrence, trades made within the proscribed period shall generally be unwound, if possible. Otherwise, profits realized on trades within the proscribed period shall generally be disgorged to a charity designated by Acadian or to a client if appropriate at the discretion of the Chief Compliance Officer.
4. SHORT-TERM TRADING. Unless an exception is granted by the Chief Compliance Officer, no access person may profit in the purchase and sale, or sale and purchase, of the same (or equivalent) securities within sixty (60) calendar days. Trades made in violation of this prohibition should be unwound, if possible. Otherwise, any profits realized on such short-term trades shall be subject to disgorgement to a charity designated by Acadian or to a client if appropriate at the discretion of the Chief Compliance Officer.
Access Persons are reminded that they are specifically prohibited from engaging in short-term trading in mutual funds advised by Acadian or sub-advised by Acadian.
The ban on short-term trading profits is specifically designed to deter potential conflicts of interest and frontrunning transactions, which typically involve a quick trading pattern to capitalize on a short-lived market impact of a trade by a Client. Acadian shall consider the policy reasons for the ban on these short-term trades, as stated herein, in determining when an exception to this prohibition is permissible. An Access Person wishing to execute a short term trade must complete both the Pre-Clearance Form (Exhibit L) and the Short Term Trading Form (Exhibit H) and submit each to the Chief Compliance Officer for review and approval.
PERSONAL SECURITIES THAT ARE SUBJECT TO PRECLEARANCE REQUIREMENTS BUT ARE EXEMPT FROM THE BLACKOUT RESTRICTIONS NOTED ABOVE:
Acadian's Chief Compliance Officer may allow exceptions to policy on a case-by-case basis when the abusive practices that the policy is designed to prevent, such as frontrunning or conflicts of interest, are not present AND the equity of the situation strongly supports an exemption. Acadian has determined that the following categories of transactions will be subject to preclearance requirements but will be exempt from the blackout restrictions noted above as these transactions appear upon reasonable inquiry and investigation to present no reasonable likelihood of harm to the Client provided they are otherwise executed in accordance with this Code, Section 206 of the Advisers Act, and Rule 17j-1 of the Investment Company Act of 1940.
1. purchases or sales of any securities with > $2 billion market capitalization on transaction date;
2. purchases or sales of 500 shares of an equity security within any three-consecutive month period (all trades within a three-consecutive month period shall be aggregated to determine the availability of this exemption); or any amount if the actual or proposed acquisition or disposition by the Client is in the amount of 1,000 or fewer shares (or less than $25,000 market value) and the Security is listed on a national securities exchange or the NASDAQ system.
PERSONAL SECURITIES TRADES THAT ARE EXEMPT FROM BOTH THE PRECLEARANCE REQUIREMENTS AND THE PROHIBITIONS NOTED ABOVE:
1. purchases or sales affected in any account over which the Access Person has no direct or indirect influence or Control including accounts in which the Access Person has granted to a broker, dealer, trust officer or other third party non-access person full discretion to execute transactions on behalf of the Access Person without consultation or Access person input or direction.
2. purchases or sales which are involuntary on the part of the Access Person;
3. purchases which are part of an automatic dividend reinvestment plan;
4. purchases effected upon the exercise of rights issued by an issuer pro rata to all holders of a class of its securities, to the extent such rights were acquired from such issuer, and sales of such rights so acquired;
5. purchases or sales of currencies and interest rate instruments or futures or options on them.
E. GIFTS AND ENTERTAINMENT.
1. GENERAL STATEMENT
A conflict of interest occurs when the personal interests of Access Persons interfere or could potentially interfere with their responsibilities to Acadian and its clients. Access Persons may not accept inappropriate gifts, favors, entertainment, special accommodations or other things of material value that could influence their decision-making or make them feel beholden to a person or firm. Access Persons are expressly prohibited from considering gifts, gratuities or entertainment when choosing brokers or vendors. Similarly, Access Persons may not offer gifts, favors, entertainment or other things of value that could be viewed as overly generous or aimed at influencing decision-making or making a client feel beholden to Acadian or the Access Person.
2. GIFTS
A. RECEIPT - No Access Person may receive any gift, service or other thing totaling more than de minimis value ($250 per year) from any PERSON OR ENTITY that does business with or on behalf of Acadian. (Note - If the access person is also registered with the NASD, the permissible limit is only $100 per year). Access Persons are expressly prohibited from soliciting any gift.
B. OFFER - No Access Person may give or offer any gift of more than de minimis value ($250 per year) to existing clients, prospective clients or any entity that does business with or on behalf of Acadian without pre-approval by the Chief Compliance Officer. (Note - Regulations relating to the investment management of state or municipal pension funds often severely restrict or prohibit the offer of gifts or entertainment of any value to government officials (elected officials and employees of elected offices) who have involvement or influence over the selection of an investment manager. As a best practice, it is advisable to consult with such individuals prior to providing any type gift or entertainment.)
3. CASH - No Access Person may give or accept cash gifts or cash equivalents to or from a client, prospective client or any entity that does business with or on behalf of Acadian.
4. ENTERTAINMENT - No Access Person may provide or accept extravagant or excessive entertainment to or from a client, prospective client, or any person or entity that does or seeks to do business with or on behalf of Acadian. Access Persons may provide or accept an occasional business entertainment
event, such as dinner or a sporting event, of reasonable value, if the person or entity providing the entertainment is present. Access Persons are expressly prohibited from soliciting any entertainment. (Note - Regulations relating to the investment management of state or municipal pension funds often severely restrict or prohibit the offer of gifts or entertainment of any value to government officials (elected officials and employees of elected offices) who have involvement or influence over the selection of an investment manager. As a best practice, it is advisable to consult with such individuals prior to providing any type of gift or entertainment.)
5. CONFERENCES - Employee attendance at all industry conferences must be pre-approved by the employee's supervisor. If any part of the conference will be paid for by the host or a third party, conference attendance will require approval by the Chief Compliance Officer. The Chief Compliance Officer will review, among other factors, the purpose of the conference, the conference agenda, and the proposed costs that will be paid or reimbursement by the third party. It is against Acadian policy to pay to attend any conference where the payment to attend will directly or indirectly impact whether Acadian is awarded client business.
6. PRECLEARANCE - If the anticipated value of the entertainment or event exceeds $250 per person or includes travel expenses (airfare, hotel, etc.), the access person is required to preclear the event with their Department Supervisor and with the Chief Compliance Officer prior to accepting. A gift/entertainment preclearance form has been provided as Exhibit L.
7. QUARTERLY REPORTING - Acadian will require all Access Persons to report any gifts or entertainment received on a Quarterly basis using the form provided at Exhibit M.
F. POLITICAL AND CHARITABLE CONTRIBUTIONS
Acadian as a firm and all Access Persons are prohibited from making political contributions to any candidate or party for the purpose of obtaining or retaining advisory contracts with government entities. This includes contributing to any candidate involved with or having any influence over the investment manager selection process.
G. CONFIDENTIALITY. Access Persons have the highest fiduciary obligation not to reveal confidential company information to any party that does not have a clear and compelling need to know such information and to safeguard all client information. Access Persons must keep confidential at all times any nonpublic information they may obtain in the course of their employment at Acadian. This information includes but is not limited to:
a. any client's identity (unless the client consents), any information regarding a client's financial circumstances or advice furnished to a client by Acadian;
b. information on specific client accounts, including recent or impending securities transactions by clients and activities of the portfolio managers for client accounts;
c. specific information on Acadian's investments for clients (including former clients) and prospective clients and account transactions;
d. information on other Access Persons, including their compensation, benefits, position level and performance rating; and
e. information on Acadian's business activities, including new services, products, technologies and business initiatives, unless disclosure has been authorized by Acadian.
Access Persons should be sensitive to the problem of inadvertent or accidental disclosure, through careless conversation in a public place or the failure to safeguard papers and documents. Documents and papers should be kept in appropriately marked file folders and locked in file cabinets when appropriate.
H. SERVICE ON A BOARD OF DIRECTORS
Prior to accepting a position as an officer, director, trustee, partner, or Controlling person in any other company or business venture (other than a non-profit organization that is not a Client of the Company), or as a member of an investment organizations (e.g., an investment club), Access Persons, except Non-Resident Directors, must disclose the position to the Chief Compliance Officer using the form provided at Exhibit J. Any such position should also be disclosed to the Chief Compliance Officer at least annually using the same form. Notice of such positions may be given to the compliance officer of any Fund advised or subadvised by the Company.
I. PARTNERSHIPS
Any partnership or similar arrangement, either participated in or formulated by an Access Person, except Non-Resident Directors, should be disclosed to the Chief Compliance Officer prior to formation, or if already in existence, at the time of employment using the form provided at Exhibit K. Any such partnership interest should also be disclosed to the Chief Compliance Officer at least annually using the same form.
J. OTHER OUTSIDE ACTIVITIES
Access Persons may not engage in outside business interests or employment that could in any way conflict with the proper performance of their duties as Access Persons of Acadian. All Access Persons must obtain the approval of their Department Supervisor and Human Resources prior to accepting any employment outside of Acadian. Supervisors will keep a record of all approvals and involve the Chief Compliance Officer as needed.
K. MARKETING AND PROMOTIONAL ACTIVITIES
Acadian has instituted policies and procedures relating to its marketing, performance, advertising and promotional materials to comply with relevant securities laws. All oral and written statements by Access Persons, including those made to clients, their representatives, the public or the media, must be professional, accurate, balanced and not misleading in any way.
L. OLD MUTUAL STOCK
No Access Person shall advise a Client to purchase, hold or sell Old Mutual stock. No Access Person having discretionary authority over Client funds shall exercise such discretion to invest such funds in Old Mutual Stock.
PART 4. COMPLIANCE PROCEDURES
In general, any reports, statements or confirmations described herein and submitted pursuant to this Code of Ethics to the Chief Compliance Officer or his designee shall be treated as confidential. Access Persons are expected to respond truthfully and accurately to all requests for information. Access Person should be aware that copies of such reports, statements or confirmations, or summaries of each, may be provided to certain managers, officers or directors at Acadian, chief compliance officers of any registered investment company client Acadian advises or sub-advises, outside counsel, and/or regulatory authorities upon appropriate request.
A. ACCESS PERSON INVESTMENT ACCOUNTS AND DUPLICATE TRADE CONFIRMATIONS AND STATEMENTS
All Access Persons as defined in the Code of Ethics are required to notify in writing the Chief Compliance Officer of any investment account in which he or she has direct or indirect beneficial interest and to seek the approval of the Chief Compliance Officer prior to establishing any such accounts. A form has been provided at Exhibit B for this purpose. For all such accounts in which a "covered security" as defined in this Code of Ethics can be purchased, Acadian will request directly from the account custodian to be made an interested third party on the account for the purpose of receiving duplicate confirmations and account statements.
B. PERSONAL SECURITIES TRANSACTION PROCEDURES AND REPORTING
Utilizing the Personal Securities Transaction Pre-Clearance Form provided at Exhibit I, each Access Person, except Non-Resident Directors, must pre-clear any proposed transaction in "covered securities" with the Chief Compliance Officer or his designee prior to proceeding with the transaction. No transaction in a "covered security" shall be effected without the prior written approval of the Chief Compliance Officer or his designee. Once granted, each pre-clearance is only effective until the close of the next trading day from which it was granted unless granted on a Friday then it will expire at the close of the US markets on Friday.
In the absence of the Chief Compliance Officer, Mark Minichiello, Acadian's Chief Financial Officer, is authorized to pre-clear transactions. The CFO pre-clears any proposed transactions by the Chief Compliance Officer.
1. MONTHLY REPORTING
All Access Persons, except Non-Resident Directors, must make a monthly report to the Chief Compliance Officer of all transactions involving covered securities in which they have direct or indirect Beneficial Ownership and the account in which the security was purchased using the form provided at Exhibit G. The Compliance Officer will submit his or her own personal transactions report to a designated Alternate Review Officer. Every report should be signed and dated and made not later than 10 days after the end of the calendar month. If no trading occurred, the report should so note.
2. QUARTERLY REPORTING
All Non-Resident Directors must make a quarterly report to the Compliance Officer of all transactions involving Securities in which they have Beneficial Ownership. If the Non-Resident Director establishes a securities account during the period, the quarterly report must also disclose the name of broker, dealer, or bank with whom the account is established. This information will be kept confidential if requested by the Non-Resident Director subject to any obligations the Company may have to disclose information to regulatory authorities or under law or court order. Every report should be signed and dated and made not later than 10 days after the end of the calendar quarter. If no trading occurred, the report should so note.
3. ANNUAL REPORTING
By January 30 of each year, each Access Person must also complete an annual report confirming that they have read and understood the Code of Ethics, have complied with its requirements, and have reported all personal securities transactions required to be reported pursuant to the requirements of the Code of Ethics. This confirmation should take the form attached as Exhibit F and shall be delivered to the Compliance Officer.
a. Each Access Person must provide to the Chief Compliance Officer a complete listing of all securities in which he/she has Beneficial Ownership and securities accounts the Access Person maintains in a broker, dealer, or bank as of December 31 of the previous year. The report shall be made on the Exhibit F attached and shall be delivered to the Chief Compliance Officer.
b. Each Access Person, except Non-Resident Directors must annually disclose any relationship (such as a directorship, trusteeship, etc.). This disclosure should be made on the form attached as Exhibit J and shall be delivered to the Chief Compliance Officer.
c. Each Access Person, except Non-Resident Directors, must annually disclose any participation in a partnership. This disclosure should be made on the form attached as Exhibit K and shall be delivered to the Chief Compliance Officer.
4. NEW HIRE REPORTING
New Access Persons are required to file the following forms within ten days of their hire date:
a. Initial Certification of Receipt of Code. (Exhibit C)
b. Initial Report of Access Person. (Exhibit E)
c. Access Person Relationship Report (Exhibit J - Access Persons except Non-Resident Directors),
d. Access Person Partnership Report (Exhibit K - Access Persons except Non-Resident Directors)
Thereafter, the above referenced reports will be required on an annual basis.
C. REVIEW AND ENFORCEMENT
The Chief Compliance Officer (or other designated compliance associate) will review personal securities transactions and holdings reports periodically submitted by Access Persons under this Code. The review may include, but not limited to, the following:
a. An assessment of whether the access person followed the Code and any required internal procedures, such as pre-clearance, including the comparison of the "Pre-Clearance Reports" to the monthly account statements;
b. Comparison of personal trading to any restricted lists;
c. An assessment of whether the access person and Acadian are trading in the same securities and, if so, whether the clients are receiving terms as favorable as the access person;
d. Periodically analyzing the access person's trading for patterns that may indicate potential compliance issues including front running, excessive or short term trading or market timing.
Before making any determination that a violation has been committed by any Access Person, the Access Person will have the opportunity to supply additional explanatory material. If the Chief Compliance Officer initially determines that a violation has occurred, he will prepare a written summary of the occurrence, together will all supporting information/documentation including any explanatory material provided by the Access Person, and present the situation to the Compliance Committee for initial determination and recommendation for resolution. If deemed warranted by the Compliance Committee, the report of the incident and the recommendation for resolution will be forwarded to Acadian's Executive Committee and potentially outside counsel for evaluation and recommendation for resolution. No Access Person will participate in a determination of whether he/she has committed a violation or impose any sanction against him/her. All violations and resolutions will be documented.
D. CERTIFICATION OF COMPLIANCE
1. INITIAL CERTIFICATION. Acadian provides all Access Persons with a copy of this Code of Ethics. Acadian requires all Access Persons to certify in writing that they have: (a) received a copy of the Code; (b) read and understand all provisions of the Code; and (c) agreed to comply with the terms of the Code.
2. ACKNOWLEDGEMENT OF AMENDMENTS. Acadian will provide Access Persons with any amendments to its Code of Ethics and Access Persons will submit a written acknowledgement that they have received, read, and understood the amendments to the Code. Acadian and members of its compliance staff will make every attempt to bring important changes to the attention of Access Persons.
3. ANNUAL CERTIFICATION. All Access Persons are required annually to certify that they have read, understood, and complied with the Code of Ethics.
PART 5. MISCELLANEOUS
A. EXCESSIVE TRADING
The Company understands that it is appropriate for Access Persons to participate in the public securities markets as part of their overall personal investment programs. As in other areas, however, this should be done in a way that creates no potential conflicts with the interests of any Fund or Portfolio. Further, it is important to recognize that otherwise appropriate trading, if excessive (measured in terms of frequency, complexity of trading programs, numbers of trades, or other measure as deemed appropriate by the Chief Compliance Officer), may compromise the best interests of any Funds or Portfolios if such excessive trading is conducted during the workday or using Fund/Portfolio resources. Accordingly, if personal trading rises to such dimension as to create an environment that is not consistent with the Code of Ethics, such personal transactions may not be approved or may be limited by the Chief Compliance Officer.
B. ACCESS PERSON DISCLOSURES AND REPORTING
1. ACCESS PERSON BACKGROUND INFORMATION. The SEC registration form for investment advisors requires the reporting, under oath, of past disciplinary actions taken against all "advisory affiliates." The Investment Advisers Act requires similar disclosure to the Client. The term "advisory affiliate" includes directors and chief officers of an advisor; individuals who have the power to direct or cause the direction of the management or policies of a company; and all current Access Persons except those performing only clerical, administrative, support or similar functions. Many advisory affiliates must also provide biographical information that must be reported to the SEC. If any of the information becomes inaccurate or needs to be updated to make it accurate, it shall be your obligation to bring this to the attention of the Compliance Officer.
2. UPON OCCURRENCE. Any prior, current, or potential litigation in which the Access Person is, or has been, a party, or is aware of the possibility of being named as a party, which in ANY way relates to the Company business, must disclose this to the Chief Compliance Officer.
C. RESPONSIBILITY TO KNOW THE RULES
Access Persons are responsible for their actions under the law and are therefore required to be sufficiently familiar with the Advisers Act and other applicable federal and state securities laws and regulations to avoid violating them. Claimed ignorance of any rule or regulation or of any requirement under this Code or any other Acadian policy or procedure is not a defense for employee conduct.
PART 6. RECORDKEEPING
Acadian will maintain the following records in a readily accessible place pertaining to this Code of Ethics:
o A copy of each Code that has been in effect at any time during the past five years;
o A record of any violation of the Code and any action taken as a result of such violation for five years from the end of the fiscal year in which the violation occurred;
o A record of all written acknowledgements of receipt of the Code and amendments for each person who is currently, or within the past five years was, a Access Person (these records must be kept for five years after the individual ceases to be a Access Person of Acadian);
o Holdings and transactions reports made pursuant to the Code;
o A list of the names of persons who are currently, or within the past five years were, Access Persons;
o A record of any decision and supporting reasons for approving the acquisition of securities by Access Persons in IPOs and limited offerings for at least five years after the end of the fiscal year in which approval was granted;
o A record of persons responsible for reviewing Access Persons' reports currently or during the last five years; and
o A copy of reports provided to the board of directors of any U.S. registered management investment company for which Acadian acts as adviser or sub-adviser regarding the Code.
PART 7. FORM ADV DISCLOSURE
Acadian will include on Schedule F of Form ADV, Part II a description of Acadian's Code of Ethics, and Acadian will provide a copy of its Code of Ethics to any client or prospective client upon request.
PART 8. ADMINISTRATION AND ENFORCEMENT OF THE CODE
A. TRAINING AND EDUCATION
Acadian has designated the Chief Compliance Officer and head of Human Resources as the persons primarily responsible for training and educating Access Persons regarding the Code. In addition to training newly hire Access Persons, a training session for all Access Persons will occur at least yearly.
B. ANNUAL REVIEW
The Chief Compliance Officer will review the Code on an ongoing basis to ensure effective implementation and to make any revisions necessary to comply with regulatory requirements, industry best practices and/or Acadian's changing business requirements.
C. BOARD APPROVAL (FUND ADVISERS)
Acadian will submit any material amendments to its own Board of Directors, the Board of Directors of Old Mutual and any fund we advise or sub-advise.
D. REPORT TO THE BOARD(S) OF INVESTMENT COMPANY CLIENTS
Acadian will provide an annual written report to the board of the directors of each of its U.S. registered management investment company clients that describes any issues arising under Acadian's Code of Ethics since the last report, including information about material violations of the Code and sanctions imposed in response to such violations. The report will include discussion of whether any waivers that might be considered important by the board were granted during the period. The report must also certify that the adviser has adopted procedures reasonably necessary to prevent Access Persons from violating the code.
E. REPORT TO SENIOR MANAGEMENT
The Chief Compliance Officer will report to Acadian's Compliance and Executive Committees regarding the annual review of this Code and to bring all material violations to their attention.
F. REPORTING VIOLATIONS
All Access Persons must report violations of Acadian's Code of Ethics promptly to the Chief Compliance Officer or other appropriate Access Persons designated in this Code. This includes the CFO and the Head of Human Resources.
1. CONFIDENTIALITY. Any reports pursuant to Acadian's Code of Ethics will be treated confidentially to the extent permitted by law and investigated promptly and appropriately. Access Persons may submit any violation report referenced herein anonymously.
2. ADVICE OF COUNSEL. Access Persons are encouraged to seek advice from the Chief Compliance Officer with respect to any action or transaction which may violate Acadian's Code of Ethics and should also refrain from any action or transaction with might lead to the appearance of a violation of this Code.
3. APPARENT VIOLATIONS. Acadian encourages Access Persons to report "apparent" or "suspected" violations of the Code of Ethics in addition to actual or known violations of the Code.
4. RETALIATION. Retaliation against any Access Person who reports a violation with respect to Acadian's Code of Ethics is prohibited and constitutes a further violation of this Code.
G. SANCTIONS
Any violation of Acadian's Code of Ethics may result in disciplinary action that the Chief Compliance Officer or other Firm employee(s) responsible for its administration deem appropriate, including but not limited to a warning, fines, disgorgement, suspension, demotion, or termination of employment. In addition to sanctions, violations may result in referral to civil or criminal authorities where appropriate.
H. FURTHER INFORMATION ABOUT THE CODE
Access Persons are encouraged to contact the Chief Compliance Officer (Scott Dias) with any questions about permissible conduct under the Code.
EXHIBIT A
PERSONS RESPONSIBLE FOR CODE ENFORCEMENT
PRIMARY ------- CHIEF COMPLIANCE OFFICER: SCOTT DIAS ALTERNATE REVIEW OFFICER ------------------------ CHIEF FINANCIAL OFFICER: MARK MINICHIELLO MANAGING DIRECTOR, SINGAPORE OFFICE: RICK BARRY TRAINING -------- HEAD OF HUMAN RESOURCES: JOANN BILES |
ACADIAN'S COMPLIANCE AND EXECUTIVE COMMITTEE'S ARE ALSO RESPONSIBLE FOR CODE OF ETHICS IMPLEMENTATION AND ENFORCEMENT
EXHIBIT B
ACCESS PERSON NEW INVESTMENT ACCOUNT APPROVAL FORM
Access Persons, defined in the Code of Ethics to include all Access Persons and immediate family members (spouse, domestic partner, minor children or anyone living in your household subject to your support), are required to notify Acadian at the time they establish any investment account in which they have a direct or indirect beneficial interest including all accounts in which the access person has sole or shared voting or investment power by contract, arrangement, understanding or relationship.
For each new account disclosed below in which a "covered security" is eligible for purchase, Acadian will directly contact each account custodian to request that Acadian be made an interested third party and that the custodian provide duplicate copies of account statements and trade confirmations directly to Acadian. Duplicate statements will not be requested where the account is only eligible to purchase direct obligations of the U.S. Government, bankers' acceptances, bank certificate of deposits, commercial paper, high quality short term debt instruments and unaffiliated registered open-ended investment companies (mutual funds).
---------------------------------------------------------------------------------------------------------------------------
YES/NO
ABILITY TO
PURCHASE
MAILING ADDRESS FOR STOCK,
BROKER, DEALER OR BANK BENEFICIAL OWNERS BONDS OR
BROKER, DEALER OR BANK WHERE ACCOUNT IS HELD OWNER OF RELATIONSHIP AFFILIATED
WHERE ACCOUNT IS HELD (ON STATEMENT) THE ACCOUNT TO YOU ACCOUNT NUMBER MUTUAL FUNDS
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EXHIBIT C (NEW HIRES)
WRITTEN ACKNOWLEDGMENT OF RECEIPT OF THE ACADIAN'S CODE OF ETHICS
o I HAVE RECEIVED A COPY OF THE ACADIAN CODE OF ETHICS.
o I RECOGNIZE THAT I AND MY IMMEDIATE FAMILY MEMBERS AS DEFINED IN THE CODE OF ETHICS ARE SUBJECT TO THE PROVISIONS OF THE CODE.
o I HAVE READ AND UNDERSTAND ALL PROVISIONS OF THE CODE OF ETHICS.
o I HAVE HAD THE OPPORTUNITY TO ASK QUESTIONS ABOUT ANY PROVISIONS THAT ARE UNCLEAR TO ME.
o I AGREE TO COMPLY WITH THE TERMS OF THE CODE.
_____________________________ ___________________________ Access Person name Compliance Date _____________________________ Access Person Signature _____________________________ Date |
EXHIBIT D
WRITTEN ACKNOWLEDGMENT OF RECEIPT OF THE AMENDMENTS TO ACADIAN'S CODE OF ETHICS
o I HAVE RECEIVED A COPY OF AMENDMENTS TO THE ACADIAN CODE OF ETHICS.
o I RECOGNIZE THAT I AND MY IMMEDIATE FAMILY MEMBERS AS DEFINED IN THE CODE OF ETHICS ARE SUBJECT TO THESE AMENDMENTS AND ALL PROVISIONS OF THE CODE.
o I HAVE READ AND UNDERSTAND THESE AMENDMENTS TO THE CODE OF ETHICS.
o I HAVE HAD THE OPPORTUNITY TO ASK QUESTIONS ABOUT ANY AMENDMENT THAT IS UNCLEAR TO ME.
o I AGREE TO COMPLY WITH THESES AMENDMENTS AND ALL OTHER TERMS OF THE CODE.
_____________________________ ___________________________ Access Person name Compliance Date _____________________________ Access Person Signature _____________________________ Date |
EXHIBIT E (NEW HIRE)
INITIAL REPORT OF ACCESS PERSON PAGE 1
1. Access Persons, defined in the Code of Ethics to include all Access Persons and immediate family members (spouse, domestic partner, minor children or anyone living in your household subject to your support), are required to notify Acadian of any investment account in which they have a direct or indirect beneficial interest including all accounts in which the access person has sole or shared voting or investment power by contract, arrangement, understanding or relationship.
For each account disclosed below in which a "covered security" (ex..
stock, bond or affiliated mutual fund) is eligible for purchase,
Acadian will directly contact each account custodian to request that
Acadian be made an interested third party and that the custodian
provide duplicate copies of account statements and trade confirmations
directly to Acadian. Duplicate statements will not be requested where
the account is only eligible to purchase direct obligations of the U.S.
Government, bankers' acceptances, bank certificate of deposits,
commercial paper, high quality short term debt instruments and
unaffiliated registered open-ended investment companies (mutual funds).
(USE THE CHECK ________ IF ADDENDUM IS BEING USED NEEDED TO DISCLOSE
ADDITIONAL ACCOUNTS)
---------------------------------------------------------------------------------------------------------------------------
YES/NO
ABILITY TO
PURCHASE
MAILING ADDRESS FOR STOCK,
BROKER, DEALER OR BANK BENEFICIAL OWNERS BONDS OR
BROKER, DEALER OR BANK WHERE ACCOUNT IS HELD OWNER OF RELATIONSHIP AFFILIATED
WHERE ACCOUNT IS HELD (ON STATEMENT) THE ACCOUNT TO YOU ACCOUNT NUMBER MUTUAL FUNDS
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__________________________________ ___________________________ Access Person name Compliance Date __________________________________ Access Person Signature Date |
EXHIBIT E (NEW HIRE)
INITIAL REPORT OF ACCESS PERSON
2. Except as noted below, I hereby certify that I have no knowledge of the existence of any personal conflict of interest relationship which may involve the Company, such as any economic relationship between my transactions and securities held or to be acquired by the Company or any of its portfolios.
3. As of the date below I had a direct or indirect beneficial ownership in the following securities. YOU DO NOT NEED TO REPORT TRANSACTIONS IN DIRECT OBLIGATIONS OF THE U.S. GOVERNMENT, BANKERS' ACCEPTANCES, BANK CERTIFICATES OF DEPOSIT, COMMERCIAL PAPER, HIGH QUALITY SHORT-TERM DEBT INSTRUMENTS AND UNAFFILIATED REGISTERED OPEN-END INVESTMENT COMPANIES (MUTUAL FUNDS). PLEASE CHECK THIS BOX IF AN ADDENDUM IS ATTACHED LISTING ADDITIONAL SECURITIES [ ]
This report (i) excludes transactions with respect to which I had no direct or indirect influence or Control; and (ii) is not an admission that I have or had any direct or indirect beneficial ownership in the securities listed above.
------------------------------------------------------------------------------------------------------------------------
PRINCIPAL TYPE OF
PRICE PER AMOUNT AS OF OWNERSHIP
NAME OF BROKER, DEALER OR BANK AND # OF SHARE AS OF LAST (DIRECT OR
ACCOUNT NUMBER NAME OF SECURITY SHARES LAST STATEMENT STATEMENT INDIRECT)
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Directors who are not "interested persons" of the Company are required to complete this form but are not required to make a report of personal securities holdings.
__________________________________ ___________________________ Access Person name Compliance Date __________________________________ Access Person Signature Date |
EXHIBIT E (NEW HIRE)
INITIAL REPORT OF ACCESS PERSON
ADDENDUM (IF ADDITIONAL SPACE IS NEEDED) (PAGE 3)
INVESTMENT ACCOUNTS
------------------------------------------------------------------------------------------------------------------------
YES/NO
ABILITY TO
PURCHASE
MAILING ADDRESS FOR STOCK,
BROKER, DEALER OR BANK BENEFICIAL OWNERS BONDS OR
BROKER, DEALER OR BANK WHERE ACCOUNT IS HELD OWNER OF RELATIONSHIP AFFILIATED
WHERE ACCOUNT IS HELD (ON STATEMENT) THE ACCOUNT TO YOU ACCOUNT NUMBER MUTUAL FUNDS
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|
SECURITIES
------------------------------------------------------------------------------------------------------------------------
PRINCIPAL TYPE OF
NAME OF BROKER, PRICE PER AMOUNT AS OWNERSHIP
DEALER OR BANK AND # OF SHARE AS OF OF LAST (DIRECT OR
ACCOUNT NUMBER NAME OF SECURITY SHARES LAST STATEMENT STATEMENT INDIRECT)
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|
Directors who are not "interested persons" of the Company are required to complete this form but are not required to make a report of personal securities holdings.
__________________________________ ___________________________ Access Person name Compliance Date __________________________________ Access Person Signature Date |
EXHIBIT F
ANNUAL CERTIFICATION AND WRITTEN ACKNOWLEDGMENT OF
RECEIPT OF ACADIAN'S CODE OF ETHICS AND ANNUAL REPORT OF
ACCESS PERSONS (PAGE 1)
o I HAVE A COPY OF THE ACADIAN CODE OF ETHICS AND ACKNOWLEDGE RECEIPT OF ANY AMENDMENTS DURING THE PAST YEAR.
o I RECOGNIZE THAT I AND MY IMMEDIATE FAMILY MEMBERS AS DEFINED IN THE CODE OF ETHICS ARE SUBJECT TO THE PROVISIONS OF THE CODE.
o I HAVE READ AND UNDERSTAND ALL PROVISIONS OF THE CODE OF ETHICS.
o I HAVE HAD THE OPPORTUNITY TO ASK QUESTIONS ABOUT ANY PROVISIONS THAT ARE UNCLEAR TO ME.
o IT IS MY BELIEF THAT I HAVE COMPLIED WITH THE PROVISIONS OF THE CODE
OF ETHICS DURING THE PAST YEAR INCLUDING THE REPORTING OF ALL SECURITIES TRANSACTIONS. __________________________________ ___________________________ Access Person name Compliance Date __________________________________ Access Person Signature __________________________________ Date |
EXHIBIT F
ANNUAL CERTIFICATION AND WRITTEN ACKNOWLEDGMENT OF
RECEIPT OF ACADIAN'S CODE OF ETHICS AND ANNUAL REPORT OF
ACCESS PERSONS (PAGE 2)
1. Except as noted below, I hereby certify that I have no knowledge of the existence of any personal conflict of interest relationship which may involve the Company, such as any economic relationship between my transactions and securities held or to be acquired by the Company or any of its portfolios.
2. As of December 31, 200__, I had a direct or indirect beneficial ownership in the securities listed below. YOU DO NOT NEED TO REPORT TRANSACTIONS IN DIRECT OBLIGATIONS OF THE U.S. GOVERNMENT, BANKERS' ACCEPTANCES, BANK CERTIFICATES OF DEPOSIT, COMMERCIAL PAPER, HIGH QUALITY SHORT-TERM DEBT INSTRUMENTS AND UNAFFILIATED REGISTERED OPEN-END INVESTMENT COMPANIES (MUTUAL FUNDS). PLEASE CHECK THIS BOX IF AN ADDENDUM IS ATTACHED LISTING ADDITIONAL SECURITIES [ ]
This report (i) excludes transactions with respect to which I had no direct or indirect influence or Control; and (ii) is not an admission that I have or had any direct or indirect beneficial ownership in the securities listed above.
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PRINCIPAL TYPE OF
NAME OF BROKER, PRICE PER AMOUNT AS OWNERSHIP
DEALER OR BANK AND # OF SHARE AS OF OF LAST (DIRECT OR
ACCOUNT NUMBER NAME OF SECURITY SHARES LAST STATEMENT STATEMENT INDIRECT)
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__________________________________ ___________________________ Access Person name Compliance Date __________________________________ Access Person Signature Date |
EXHIBIT F
ANNUAL CERTIFICATION AND WRITTEN ACKNOWLEDGMENT OF
RECEIPT OF ACADIAN'S CODE OF ETHICS AND ANNUAL REPORT OF
ACCESS PERSONS (PAGE 3)
3. As of the date below I maintain accounts with the brokers, dealers or banks listed below to hold securities for my direct or indirect benefit. PLEASE CHECK THIS BOX IF AN ADDENDUM IS ATTACHED LISTING ADDITIONAL ACCOUNTS [ ]
------------------------------------------------------------------------------------------------------------------------
YES/NO
ABILITY TO
PURCHASE
MAILING ADDRESS FOR STOCK,
BROKER, DEALER OR BANK BENEFICIAL OWNERS BONDS OR
BROKER, DEALER OR BANK WHERE ACCOUNT IS HELD OWNER OF RELATIONSHIP AFFILIATED
WHERE ACCOUNT IS HELD (ON STATEMENT) THE ACCOUNT TO YOU ACCOUNT NUMBER MUTUAL FUNDS
------------------------------------------------------------------------------------------------------------------------
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|
Directors who are not "interested persons" of the Company are required to complete this form but are not required to make a report of personal securities holdings.
__________________________________ ___________________________ Access Person name Compliance Date __________________________________ Access Person Signature Date |
EXHIBIT F
ANNUAL CERTIFICATION AND WRITTEN ACKNOWLEDGMENT OF
RECEIPT OF ACADIAN'S CODE OF ETHICS AND ANNUAL REPORT OF
ACCESS PERSONS (ADDENDUM IF ADDITIONAL SPACE IS NEEDED - PAGE 4)
INVESTMENT ACCOUNTS
------------------------------------------------------------------------------------------------------------------------
YES/NO
ABILITY TO
PURCHASE
MAILING ADDRESS FOR STOCK,
BROKER, DEALER OR BANK BENEFICIAL OWNERS BONDS OR
BROKER, DEALER OR BANK WHERE ACCOUNT IS HELD OWNER OF RELATIONSHIP AFFILIATED
WHERE ACCOUNT IS HELD (ON STATEMENT) THE ACCOUNT TO YOU ACCOUNT NUMBER MUTUAL FUNDS
------------------------------------------------------------------------------------------------------------------------
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|
SECURITIES
------------------------------------------------------------------------------------------------------------------------
PRINCIPAL TYPE OF
NAME OF BROKER, PRICE PER AMOUNT AS OWNERSHIP
DEALER OR BANK AND # OF SHARE AS OF OF LAST (DIRECT OR
ACCOUNT NUMBER NAME OF SECURITY SHARES LAST STATEMENT STATEMENT INDIRECT)
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|
Directors who are not "interested persons" of the Company are required to complete this form but are not required to make a report of personal securities holdings.
__________________________________ ___________________________ Access Person name Compliance Date __________________________________ Access Person Signature Date |
EXHIBIT G
ACCESS PERSON SECURITIES TRANSACTIONS REPORT FOR THE CALENDAR
MONTH ENDED:_________________(PAGE 1)
(SUBMIT WITHIN 10 DAYS OF MONTH END)
1. During the month referred to above, the following transactions were effected in securities of which I had, or by reason of such transaction acquired, direct or indirect beneficial ownership, and which are required to be reported pursuant to the Code of Ethics adopted by the Company. (if none were transacted, write "none"). YOU DO NOT NEED TO REPORT TRANSACTIONS IN DIRECT OBLIGATIONS OF THE U.S. GOVERNMENT, BANKERS' ACCEPTANCES, BANK CERTIFICATES OF DEPOSIT, COMMERCIAL PAPER, HIGH QUALITY SHORT-TERM DEBT INSTRUMENTS AND UNAFFILIATED REGISTERED OPEN-END INVESTMENT COMPANIES (MUTUAL FUNDS). PLEASE CHECK THIS BOX IF AN ADDENDUM IS ATTACHED LISTING ADDITIONAL SECURITIES [ ]
------------------------------------------------------------------------------------------------------------------------
PRINCIPAL TYPE OF
NAME OF BROKER, PRICE PER AMOUNT AS OWNERSHIP
DEALER OR BANK AND # OF SHARE AS OF OF MONTH (DIRECT OR
ACCOUNT NUMBER NAME OF SECURITY SHARES MONTH END END INDIRECT)
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This report (i) excludes transactions with respect to which I had no direct or indirect influence or Control; and (ii) is not an admission that I have or had any direct or indirect beneficial ownership in the securities listed above.
__________________________________ ___________________________ Access Person name Compliance Date __________________________________ Access Person Signature Date |
EXHIBIT G
ACCESS PERSON SECURITIES TRANSACTIONS REPORT FOR THE CALENDAR
MONTH ENDED:_________________(PAGE 2)
2. During the month referred to above, I established the following accounts in which securities were held during the month for my direct or indirect benefit (if none were opened, write "none"). PLEASE CHECK THIS BOX IF AN ADDENDUM IS ATTACHED LISTING ADDITIONAL ACCOUNTS [ ]
------------------------------------------------------------------------------------------------------------------------
YES/NO
ABILITY TO
PURCHASE
MAILING ADDRESS FOR STOCK,
BROKER, DEALER OR BANK BENEFICIAL OWNERS BONDS OR
BROKER, DEALER OR BANK WHERE ACCOUNT IS HELD OWNER OF RELATIONSHIP AFFILIATED
WHERE ACCOUNT IS HELD (ON STATEMENT) THE ACCOUNT TO YOU ACCOUNT NUMBER MUTUAL FUNDS
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|
3. Except as noted on the reverse side of this report, I hereby certify that I have no knowledge of the existence of any personal conflict of interest relationship which may involve the Company, such as the existence of any economic relationship between my transactions and securities held or to be acquired by the Company or any of its portfolios.
__________________________________ ___________________________ Access Person name Compliance Date __________________________________ Access Person Signature Date |
EXHIBIT G
ACCESS PERSON SECURITIES TRANSACTIONS REPORT FOR THE CALENDAR
MONTH ENDED:_________________(ADDENDUM IF ADDITIONAL SPACE IS NEEDED - PAGE 3)
INVESTMENT ACCOUNTS
------------------------------------------------------------------------------------------------------------------------
YES/NO
ABILITY TO
PURCHASE
MAILING ADDRESS FOR STOCK,
BROKER, DEALER OR BANK BENEFICIAL OWNERS BONDS OR
BROKER, DEALER OR BANK WHERE ACCOUNT IS HELD OWNER OF RELATIONSHIP AFFILIATED
WHERE ACCOUNT IS HELD (ON STATEMENT) THE ACCOUNT TO YOU ACCOUNT NUMBER MUTUAL FUNDS
------------------------------------------------------------------------------------------------------------------------
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|
SECURITIES
------------------------------------------------------------------------------------------------------------------------
PRINCIPAL TYPE OF
NAME OF BROKER, PRICE PER AMOUNT AS OWNERSHIP
DEALER OR BANK AND # OF SHARE AS OF OF MONTH (DIRECT OR
ACCOUNT NUMBER NAME OF SECURITY SHARES MONTH END END INDIRECT)
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Directors who are not "interested persons" of the Company are required to complete this form but are not required to make a report of personal securities holdings.
__________________________________ ___________________________ Access Person name Compliance Date __________________________________ Access Person Signature Date |
EXHIBIT H
SECURITIES TRANSACTIONS REPORT RELATING TO SHORT-TERM TRADING FOR
THE SIXTY-DAY PERIOD FROM________TO ____________ (PAGE 1)
During the sixty (60) calendar day period referred to above, the following purchases and sales, or sales and purchases, of the same (or equivalent) securities were effected or are proposed to be effected in securities of which I have, or by reason of such transaction acquired, direct or indirect beneficial ownership. (Please provide information for the original and the proposed trade.) YOU DO NOT NEED TO REPORT TRANSACTIONS IN DIRECT OBLIGATIONS OF THE U.S. GOVERNMENT, BANKERS' ACCEPTANCES, BANK CERTIFICATES OF DEPOSIT, COMMERCIAL PAPER, HIGH QUALITY SHORT-TERM DEBT INSTRUMENTS AND UNAFFILIATED REGISTERED OPEN-END INVESTMENT COMPANIES (MUTUAL FUNDS).
------------------------------------------------------------------------------------------------------------------------
TRANSACTION 1: [ ] AUTHORIZED
[ ] NOT AUTHORIZED
------------------------------------------------------------------------------------------------------------------------
NAME OF BROKER, DEALER OR BANK AND NAME OF ORIGINAL BUY/SELL PRICE PER NUMBER OF PRINCIPAL
ACCOUNT NUMBER SECURITY TRANSACTION DATE OTHER SHARE SHARES AMOUNT
------------------------------------------------------------------------------------------------------------------------
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NAME OF BROKER, DEALER OR BANK AND NAME OF PROPOSED BUY/SELL PRICE PER NUMBER OF PRINCIPAL
ACCOUNT NUMBER SECURITY TRANSACTION DATE OTHER SHARE SHARES AMOUNT
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TRANSACTION 2: [ ] AUTHORIZED
[ ] NOT AUTHORIZED
------------------------------------------------------------------------------------------------------------------------
NAME OF BROKER, DEALER OR BANK AND NAME OF ORIGINAL BUY/SELL PRICE PER NUMBER OF PRINCIPAL
ACCOUNT NUMBER SECURITY TRANSACTION DATE OTHER SHARE SHARES AMOUNT
------------------------------------------------------------------------------------------------------------------------
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NAME OF BROKER, DEALER OR BANK AND NAME OF PROPOSED BUY/SELL PRICE PER NUMBER OF PRINCIPAL
ACCOUNT NUMBER SECURITY TRANSACTION DATE OTHER SHARE SHARES AMOUNT
------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------
TRANSACTION 3: [ ] AUTHORIZED
[ ] NOT AUTHORIZED
------------------------------------------------------------------------------------------------------------------------
NAME OF BROKER, DEALER OR BANK AND NAME OF ORIGINAL BUY/SELL PRICE PER NUMBER OF PRINCIPAL
ACCOUNT NUMBER SECURITY TRANSACTION DATE OTHER SHARE SHARES AMOUNT
------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------
NAME OF BROKER, DEALER OR BANK AND NAME OF PROPOSED BUY/SELL PRICE PER NUMBER OF PRINCIPAL
ACCOUNT NUMBER SECURITY TRANSACTION DATE OTHER SHARE SHARES AMOUNT
------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------
TRANSACTION 4: [ ] AUTHORIZED
[ ] NOT AUTHORIZED
------------------------------------------------------------------------------------------------------------------------
NAME OF BROKER, DEALER OR BANK AND NAME OF ORIGINAL BUY/SELL PRICE PER NUMBER OF PRINCIPAL
ACCOUNT NUMBER SECURITY TRANSACTION DATE OTHER SHARE SHARES AMOUNT
------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------
NAME OF BROKER, DEALER OR BANK AND NAME OF PROPOSED BUY/SELL PRICE PER NUMBER OF PRINCIPAL
ACCOUNT NUMBER SECURITY TRANSACTION DATE OTHER SHARE SHARES AMOUNT
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|
This report (i) excludes transactions with respect to which I had no direct or indirect influence or Control; and (ii) is not an admission that I have or had any direct or indirect beneficial ownership in the securities listed above.
__________________________________ ___________________________ Access Person name Compliance Date __________________________________ Access Person Signature Date |
With respect to my status as an Access Person of the Company, and transactions in the securities set forth in the table on page 1 of this report, I hereby certify that:
(a) I have no knowledge of the existence of any personal conflict of interest relationship which may involve any of the Portfolios managed by the Company, such as frontrunning transactions or the existence of any economic relationship between my transactions and securities held or to be acquired by any Portfolio;
(b) such securities, including securities that are economically related to such securities, involved in the transaction are not (i) Being Considered for Purchase or Sale by any Portfolio managed by the Company, or (ii) Being Purchased or Sold by any Portfolio; and
(c) such transactions are in compliance with the Code of Ethics of the
Company.
__________________________________ ___________________________
Access Person name Compliance Date
__________________________________
Access Person Signature Date
|
EXHIBIT I
PERSONAL SECURITIES TRANSACTIONS PRE-CLEARANCE FORM
I hereby request pre-clearance of the securities listed below. I am aware that
each pre-clearance is only effective until the close of the next trading day
from which it was granted unless granted on a Friday then it will expire at the
close of the US markets on Friday. The Access Person is required to obtain
additional preclearance if the trade is not completed before the authority
expires.
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TRANSACTION
NAME OF BROKER, TYPE (I.E. COMPLIANCE
DEALER OR BANK SYMBOL/NAME PRICE PER PRINCIPAL BUY, SELL, AUTHORIZED
AND ACCOUNT NUMBER OF SECURITY # OF SHARES SHARE AMOUNT ETC.) YES NO
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This report (i) excludes transactions with respect to which I had no direct or indirect influence or Control; and (ii) is not an admission that I have or had any direct or indirect beneficial ownership in the securities listed above.
Is any proposed transaction described above within sixty (60) days of a prior transaction in the same or equivalent Security? Yes: [ ] No: [ ]
If yes, the Access Person must submit a Securities Transactions Report Relating to Short Term Trading (Exhibit E) for pre-approval.
Is any proposed transaction described above considered an Initial Public Offering (IPO) or Private Placement? Yes: [ ] No: [ ] (If yes, the Compliance Officer should prepare a memorandum describing the reasons for preapproving the transaction pursuant to Section B(2)(b) of the Code.)
__________________________________ ___________________________ Access Person name Compliance Date __________________________________ Access Person Signature Date |
EXHIBIT J
ACCESS PERSON RELATIONSHIP REPORT
PLEASE COMPLETE A SEPARATE REPORT FOR EACH RELATIONSHIP
Please disclose your position as an officer, director, trustee, partner, or Controlling person in any other company or business venture, or as a member of an investment organization. For existing Access Persons, please remember to provide the requested information to the Chief Compliance Officer for review prior to accepting the position.
1. Name of Organization: _________________________
2. Type of Organization: ___________________________
3. Your position: _________________________________
4. Start Date of Affiliation: _________________________
5. Is this a client or publicly traded company? Yes No
6. Do you have an equity interest in the organization? Yes No
7. Do you have any investment responsibilities on behalf of the
organization?
Yes No
8. Provide a description of your role and responsibilities _______________
________________________________________________________________________________
________________________________________________________________________________
__________________________________ ___________________________
Access Person name Compliance Date
__________________________________
Access Person Signature Date
|
EXHIBIT K
ACCESS PERSON PARTNERSHIP REPORT
PLEASE COMPLETE A SEPARATE REPORT FOR EACH PARTNERSHIP
Any partnership or similar arrangement, either participated in or formulated by an Access Person, should be disclosed to the Chief Compliance Officer. For existing Access Persons, please remember to provide the requested information to the Chief Compliance Officer for review prior to accepting forming or joining the partnership.
1. Name of Partnership: _________________________
2. Type of Organization: ___________________________
3. Your position: _________________________________
4. Start Date of Affiliation: _________________________
5. Any clients involved? Yes No
6. Do you have an equity interest in the partnership? Yes No
7. Do you have any investment responsibilities on behalf of the
partnership?
Yes No
8. Provide a description of your role and responsibilities _______________
________________________________________________________________________________
________________________________________________________________________________
__________________________________ ___________________________
Access Person name Compliance Date
__________________________________
Access Person Signature Date
|
EXHIBIT L
EMPLOYEE ENTERTAIMENT FORM WHEN ANTICIPATED BENEFIT WILL EXCEED $250.
2. Date of event: _____________________________________________________________
3. Location: __________________________________________________________________
8. Have you received or accepted any other entertainment or gifts from this individual or company since January 1 of this year? Yes No
EXHIBIT M
ACCESS PERSON QUARTERLY REPORT OF GIFTS OR ENTERTAINMENT RECEIVED
-----------------------------------------------------------------------------------------------------------------------------
IF EVENT,
WAS
COMPANY ACTUAL OF
DATE OF NAME AND TITLE OF NAME OF COMPANY REP. APPROXIMATE
GIFT/EVENT INDIVIDUAL PROVIDING PROVIDING PRESENT DESCRIPTION OF GIFT/EVENT VALUE
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EXHIBIT N
BOARD OF DIRECTORS APPROVAL
The undersigned, being all of the Directors of Acadian Asset Management, Inc. hereby consent to the adoption of the following resolutions with the same effect as though they had been adopted at a meeting of the Directors of Acadian Asset Management:
RESOLVED, that the Board of Directors authorizes the adoption of the Acadian Code of Ethics, effective February 1, 2005, a copy of which is here attached.
______________________ ______________________ Gary L. Bergstrom Date ______________________ ______________________ Ronald D. Frashure Date ______________________ ______________________ Churchill G. Franklin Date ______________________ ______________________ John R. Chisholm Date ______________________ ______________________ Scott F. Powers Date |
APPENDIX A
"ACCESS PERSON" includes:
a. Any officer, director or employee of Acadian (or other person occupying a similar status or performing a similar function);
b. Any other person who provides advice on behalf of Acadian and is subject to Acadian's supervision and control; and
c. Any temporary worker, consultant, independent contractor, or any particular person designated by the Chief Compliance Officer.
d. "IMMEDIATE FAMILY" member is defined to include any relative by blood or marriage living in an Access Person's household (spouse, minor children, a domestic partner etc.), or someone who is primarily supported financial by the Access Person.
e. Any person who's account you have a direct or indirect beneficial interest in, including investment accounts where you act as trustee, power or attorney or have some sort of legal authority.
"Access person" is a person who:
a. has access to nonpublic information regarding any client's purchase or sale of securities, or nonpublic information regarding the portfolio holdings of any investment company Acadian or its control affiliates manage;
b. is involved in making securities recommendations to clients, or has access to such recommendations that are nonpublic; or
c. is a director or officer of Acadian (or other person occupying a similar status or performing a similar function).
"BENEFICIAL OWNERSHIP" is to be determined in the same manner as it is for purposes of Section 16 of the Securities Exchange Act of 1934 and the rules and regulations thereunder which, generally speaking, encompasses those situations where the Beneficial Owner has the right to enjoy some economic benefit from the investment account or ownership of the Security. "DIRECT" means that the account is in the name of the access person. "INDIRECT" means the account is in the name of another party but you have an interest i.e. spouse's account.
"CLIENTS" mean those persons or entities for whom the Company acts as investment manager or fiduciary, including any trusts or funds which fall under the Investment Company Act of 1940.
"SECURITY" is defined to include:
o options on securities, on indexes and on currencies;
o futures contracts;
o limited partnerships (including limited liability and other
companies that are treated as partnerships for U.S. federal
income tax purposes);
o foreign unit trusts and foreign mutual funds;
47
|
o closed-end investment companies;
o shares of open-end mutual funds that ARE advised or sub-advised
by Acadian or one of Acadian's affiliates, including all
companies under the Old Mutual umbrellas*; and
o private investment funds, hedge funds, and investment clubs;
|
but specifically does not include:
o direct obligations of the U.S. government;
o bankers' acceptances, bank certificates of deposit, commercial paper, and high quality short-term debt obligations, including repurchase agreements;
o shares issued by money market funds (domiciled inside or outside the United States);
o shares of open-end mutual funds that ARE NOT advised or sub-advised by Acadian or one of Acadian's affiliates, including all companies under the Old Mutual umbrellas; and
o shares issued by unit investment trusts that are invested exclusively in one or more open-end funds, none of which are funds advised or sub-advised by Acadian or one of Acadian's affiliates, including all companies under the Old Mutual umbrellas.
"NON-RESIDENT DIRECTOR" means any director of the Company who does not maintain a business address at the Company and who does not, in the ordinary cause of his or her business, receive current information regarding the purchase or sale of securities by the Company or information regarding recommendations concerning the purchase or sale of securities by the Company.
APPENDIX B
ANSWERS TO COMMONLY ASKED QUESTIONS
I. FIDUCIARY DUTY AND CONFLICTS OF INTEREST
Conflicts of interest can arise in any number of situations. No comprehensive list of all possible conflicts of interest can be provided in this memorandum. However, the following example may be helpful. Consider these two cases: an Access Person seeking to induce a bank to give the Access Person a loan in exchange for maintaining excessive cash balances of a Client with the bank, and an Access Person executing trades for a Client through a broker-dealer that provides research services for the Company but charges commissions higher than other broker-dealers. In the first case, such activity would be a violation of an Access Person's fiduciary duty and might subject the Access Person and the Company to liability under the Advisers Act and other applicable laws. In the latter case, if the Company determines in good faith that the higher commissions are reasonable in relation to the value of the brokerage and research services provided, the payment of higher commissions may be permitted under the safe harbor of Section 28(e) of the Securities Exchange Act of 1934 -- as long as appropriate disclosure is made to the Client and in the Company's Form ADV.
Another common conflict of interest occurs when the Company pays some consideration to a person for recommending the Company as an adviser. In those circumstances, an Access Person must make disclosure to any prospective Client of any consideration paid for recommending the Company's services to that prospective Client and the Company must comply with Rule 206(4)-3 of the Advisers Act. This Rule governs situations involving cash payments for Client solicitations and requires that specific disclosure documents containing information about the solicitor and the adviser be provided to a prospective Client at the time of the solicitation.
The Company and its Access Persons have a fiduciary duty to act for the benefit of the Clients and to take action on the Clients' behalf before taking action in the interest of any Access Person or the Company.
The manner in which any Access Person discharges this fiduciary duty depends on the circumstances. Sometimes general disclosure of common conflicts of interest may suffice. In other circumstances, explicit consent of the Client to the particular transaction giving rise to a conflict of interest may be required or an Access Person may be prohibited from engaging in the transaction regardless of whether the Client consents.
The Client's consent will not in all cases insulate the Access Person against a claim of breach of the Access Person's fiduciary duty. Full disclosure of all material facts must be given if consent is to be effective. As a result, consents concerning possible future breaches of laws will not usually work. However, waivers of known past violations may be effective. In addition, a Client under the Control and influence of the Access Person or who has come to rely on the Access Person's investment decisions cannot effectively consent to a conflict of interest or breach of fiduciary duty. Consent must be competent, informed and freely given.
The duty to disclose and obtain a Client's consent to a conflict of interest must always be undertaken in a manner consistent with the Access Person's duty to deal fairly with the Client. Therefore, even when taking action with a Client's consent, each Access Person must always seek to assure that the action taken is fair to the Client.
If any Access Person is faced with any conflict of interest, he or she should consult the Chief Compliance Officer or designee prior to taking any action.
II. MATERIAL INSIDE INFORMATION
ALL Company staff and all persons -- friends, relatives, business associates and others -- who receive nonpublic material inside information from Company staff concerning an issuer of securities (whether such issuer is a Client or not) are subject to these rules. It does not matter whether the issuer is public or private.
At the Company, the rules apply to officers, marketing, advisory, administrative, secretarial, or other staff. Furthermore, if any Access Person gives nonpublic material inside information concerning an issuer of securities to a person outside the Company and that person trades in securities of that issuer, the Access Person and that person may have both civil and criminal liability.
Generally speaking, material inside information is significant information about an issuer's business or operations (past, present or prospective) that becomes known to an Access Person and which is not otherwise available to the public. While the exact meaning of the word "material" is not entirely clear, it turns on whether the information about an issuer would influence an investor in any investment decision concerning that issuer's securities and whether the information has not already been disclosed to the public. Under current court decisions, it makes no difference whether the material inside information is good or bad. Needless to say, if the undisclosed information would influence an Access Person's own decision to buy or sell or to trade for a Client or the Company, the information probably is material and an Access Person should not trade or permit the Company to trade for a Client or itself until it has been publicly disclosed.
Here is an example that should clarify the difference between the two. Suppose the Company is engaged by the president of a publicly traded corporation to provide advice concerning her personal pension fund and while working on the matter an Access Person learns the amount of alimony she pays to her former spouse. That discovery should be kept confidential, but it almost certainly has no bearing on the value of her corporation's securities (i.e., it is not material) and, in fact, it probably is not "inside information" about the corporation itself. Accordingly, an Access Person of the Company could buy or sell securities of that issuer so long as the Access Person possesses no material nonpublic information about the corporation. But disclosure of the president's alimony payments would be entirely improper and in breach of fiduciary duty.
In other words, confidential information should never be disclosed, but it is not always material inside information. Knowing it is not necessarily an impediment to participating in the securities markets concerning a particular issuer.
Yes. While the following list is by no means complete, information about the following subjects is particularly sensitive:
a. Dividends, stock dividends and stock splits.
b. Sales and earnings and forecasts of sales and earnings.
c. Changes in previously disclosed financial information.
d. Corporate acquisitions, tender offers, major joint ventures or merger proposals.
e. Significant negotiations, new contracts or changes in significant business relationships.
f. Changes in Control or a significant change in management.
g. Adoption of stock option plans or other significant compensation plans.
h. Proposed public or private sales of additional or new securities.
i. Significant changes in operations.
j. Large sales or purchases of stock by principal stockholders.
k. Purchases or sales of substantial corporate assets, or decisions or agreements to make any such purchase or sale.
l. Significant increases or declines in backlogs of orders.
m. Significant new products to be introduced.
n. Write-offs.
o. Changes in accounting methods.
p. Unusual corporate developments such as major layoffs, personnel furloughs or unscheduled vacations for a significant number of workers.
q. Labor slowdowns, work stoppages, strikes, or the pending negotiation of a significant labor contract.
r. Significant reductions in the availability of goods from suppliers or shortages of these goods.
s. Extraordinary borrowings.
t. Major litigation.
u. Governmental investigations concerning the Company or any of its officers or directors.
v. Financial liquidity problems.
w. Bankruptcy proceedings.
x. Establishment of a program to repurchase outstanding securities.
Federal law, and the policy of the Company, prohibit any Access Person from using material inside information, whether obtained in the course of working at the Company or otherwise, for his or her private gain, for the Company's gain or for a Client's gain and prohibit any Access Person from furnishing such information to others for their private gain. This is true whether or not the information is considered "confidential". When in doubt, the information should be presumed to be material and not to have been disclosed to the public. No trades should be executed for any Access Person, any Client or for the Company,
if the person executing the trade or the Company has material inside information about the issuer.
Under the federal securities laws, it is illegal to disclose (or "tip") material inside information to another person who subsequently uses that information for his or her profit.
Questions regarding whether such information may constitute "inside" information should be referred to the Chief Compliance Officer.
To the public. Public disclosure of material events is usually made by means of an official press release or filing with the SEC. An Access Person's disclosure to a broker or other person will not be effective, and such Access Person may face civil or criminal liability if such Access Person (or the person to whom the Access Person makes disclosure) trades on the basis of the information. Company staff should be aware that in most cases they are not authorized to disclose material events about an issuer to the public and that right usually belongs to the issuer alone.
If an Access Person sees information in a newspaper or public magazine, that information will clearly have been disclosed. Information in a filing with the SEC or a press release will also have been disclosed. However, the courts have said that one should wait for a reasonable period of time after the publication, filing or release date to assure that the information has been widely disseminated and that the public has had sufficient time to evaluate the news. If any Access Person has any questions about whether information has been disclosed, such Access Person should not trade in the affected securities.
Company staff may not purchase or sell any securities about which they have inside information for their own, the Company's or for a Client's account or cause Clients to trade on such information until after such information becomes public. The foregoing prohibition applies whether or not the material inside information is the basis for the trade. Company staff should be alert for information they receive about issuers on their recommendation or approved lists that may be material inside information. Whenever Company staff come into possession of what they believe may be material nonpublic information about an issuer, they should notify the Chief Compliance Officer because the Company as a whole may have an obligation not to trade in the securities of the issuer.
The Chief Compliance Officer or his designee will oversee matters relating to inside information and prohibitions on insider trading. Currently, all questions should be addressed to Scott Dias or, in his absence, Mark Minichiello.
III. CONFIDENTIAL INFORMATION
An investment adviser has a fiduciary duty to its Clients not to divulge information obtained in connection with its services as an adviser. Therefore, all information, whether of a personal or business nature, that an Access Person obtains about a Client's affairs during employment with the Company should be treated as confidential both during the Access Persons employment and after employment terminates. Such information may sometimes include information about non-Clients, and that information should likewise be held in confidence. Even the fact that the Company advises a particular Client should ordinarily be treated as confidential.
All personnel -- officers and advisory, marketing, administrative and secretarial staff -- are subject to these policies. (For the sake of convenience, this group is sometimes referred to in this memorandum as "Company staff").
Since an investment adviser has a fiduciary duty to its Clients not to divulge information obtained from or about a Client in connection with its services as an adviser, Company staff must not repeat or disclose confidential information received from or about Clients outside the Company to anyone, including relatives, friends or strangers. Any misuse of confidential information about a Client is a disservice to the Client that may cause both the Client and the Company substantial injury. Failure to comply with this policy may have very serious consequences for Company staff and for the Company, including termination and criminal action.
There are a number of steps Company staff should take to help preserve Client and other confidences, including the following:
i. Company staff should be sensitive to the problem of inadvertent or accidental disclosure. Careless conversation, naming names or describing details of a current or proposed trade, investment or transaction in a lounge, hallway, elevator or restore, or in a train, taxi, airplane, restaurant or other public place, can result in the disclosure of confidential information and should be strictly avoided.
ii. Maintenance of confidentiality requires careful safeguarding of papers and documents, both inside and outside the Company. Documents and papers should be kept in appropriately marked file folders and locked in file cabinets when appropriate.
iii. If an Access Person uses a speakerphone, the Access Person should be careful to refrain from using it in any way that might increase the likelihood of accidental disclosure. Use
caution, for example, when participating in a speakerphone conversation dealing with confidential information if the office door is open, or if the speakerphone volume is set too high. The same applies if an Access Person knows or suspects that a speakerphone or a second extension phone is being used at the other end of a telephone conversation.
iv. In especially sensitive situations, it may be necessary to establish barriers to the exchange of information within the Company and to take other steps to prevent the leak of confidential information.
APPENDIX C
Acadian, an investment adviser and sub-adviser to certain Investment Company Act mutual funds, follows specific procedures mandated by Rule 17j-1 of the Investment Company Act and any other reporting requirements required by the Trust or investment adviser whose fund Acadian advises.
I. SEI INSTITUTIONAL INVESTMENTS TRUST
This section applies to the SEI Institutional Investments Trust (the "Trust").
In the instances where the Company serves as an investment advisor to the Trust, the Company will:
1. Submit to the Board of Trustees of the Trust a copy of its code of ethics adopted pursuant to Rule 17j-1, which code shall comply with the recommendations of the Investment Company Institute's Advisory Group on Personal Investing;
2. Promptly report to the Trust in writing any material amendments to such Code;
3. Promptly furnish to the Trust upon request copies of any reports made pursuant to such Code by any person who is an Access Person as to the Trust, and
4. Shall immediately furnish to the Trust, without request, all material information regarding any violation of such Code by any person who is an Access Person as to the Trust.
II. THE ADVISERS INNER CIRCLE FUND - ACADIAN EMERGING MARKETS PORTFOLIO
This section applies to the AIC Acadian Emerging Markets Portfolio (the "Fund").
A. REPORTING OF VIOLATIONS TO THE BOARD OF DIRECTORS OF THE FUND
1. The Compliance Officer of the Fund shall promptly report to the Board of Directors of the Fund ("the Board") all material violations of this Code of Ethics and the reporting requirements thereunder.
2. When the Compliance Officer of the Fund finds that a
transaction otherwise reportable to the Board under Paragraph
1.) of this Section could not reasonably be found to have
resulted in a fraud, deceit or manipulative practice in
violation of Rule 17j-1(a), he may, in his discretion, lodge a
written memorandum of such finding and the reasons therefore
with the reports made pursuant to this Code of Ethics, in lieu
of reporting the transaction to the Board.
3. The Board, or a Committee of Directors created by the Board for that purpose, shall consider reports made to the Board hereunder and shall determine whether or not this Code of Ethics has been violated and what sanctions, if any, should be imposed.
B. ANNUAL REPORTING TO THE BOARD OF DIRECTORS OF THE FUND
The Compliance Officer of the Fund shall prepare an annual report relating to this Code of Ethics to the Board. Such annual report shall:
1. summarize existing procedures concerning personal investing and any changes in the procedures made during the past year;
2. identify material violations requiring significant remedial actions during the past year; and
3. identify any recommended changes in the existing restrictions or procedures based upon the Fund's experience under its Code of Ethics, evolving industry practices or developments in applicable laws or regulations.
C. SANCTIONS
Upon discovering a violation of this Code, the Board of Directors may impose such sanctions as they deem appropriate, including, among other things, a letter of censure or suspension or termination of the employment of the violator.
D. MISCELLANEOUS
In the event of conflict between the Code of Ethics and the terms of the Code of Ethics of the Fund, the terms of the Fund's Code will govern.