OAK ASSOCIATES FUNDS
Red Oak Technology Select Portfolio
Supplement dated December 8, 1998 to
Prospectus dated December 8, 1998
This supplement provides new and additional information beyond that contained in
the Prospectus and should be retained and read in conjunction with the
Prospectus.
Oak Associates Funds (the "Trust") has not yet commenced the continuous offering
of shares of the Red Oak Technology Select Portfolio (the "Red Oak Portfolio").
The Trust will commence offering shares of the Red Oak Portfolio on December 31,
1998.
PLEASE RETAIN THIS SUPPLEMENT FOR FUTURE REFERENCE
OAK-F-022-01000
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OAK ASSOCIATES FUNDS
Investment Adviser:
OAK ASSOCIATES, Ltd.
Oak Associates Funds (the "Trust") provides a convenient and economical means of
investing in professionally managed portfolios of securities. This Prospectus
offers shares of the following mutual fund (the "Portfolio"), which is a
separate series of the Trust.
RED OAK TECHNOLOGY SELECT PORTFOLIO
This Prospectus sets forth concisely the information about the Trust and
the Portfolio that a prospective investor should know before investing.
Investors are advised to read this Prospectus and retain it for future
reference. A Statement of Additional Information dated December 8, 1998 has
been filed with the Securities and Exchange Commission and is available without
charge by calling 1-888-462-5386. The Statement of Additional Information is
incorporated into this Prospectus by reference. The Statement of Additional
Information, material incorporated by reference into this document, and other
information regarding the Trust is maintained electronically with the Securities
and Exchange Commission at its internet web site (http://www.sec.gov).
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
December 8, 1998
OAK-F-022-01
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SUMMARY
The following summary provides basic information about the Red Oak Technology
Select Portfolio (the "Portfolio"). The Portfolio is one of the mutual funds
comprising Oak Associates Funds (the "Trust"). This summary is qualified in its
entirety by reference to the more detailed information provided elsewhere in
this Prospectus and in the Statement of Additional Information.
WHAT ARE THE INVESTMENT OBJECTIVES AND POLICIES? The Portfolio seeks long-term
capital growth by investing primarily in common stocks of companies which rely
extensively on technology in their product development or operations, or which
are expected to benefit from technological advances and improvements, and that
may be experiencing growth in sales and earnings driven by technology related
products and services. There is no assurance that the Portfolio will achieve its
investment objective. The Portfolio will concentrate its investments (i.e.,
invest at least 25% of its total assets) in companies operating directly in the
"technology industry," which generally consists of companies which develop,
produce or distribute products or services related to computers, semi-conductors
and electronics.
WHAT ARE THE RISKS INVOLVED WITH AN INVESTMENT IN THE PORTFOLIO? An investment
in the Portfolio entails certain risks and considerations of which an investor
should be aware. The Portfolio invests in securities that fluctuate in value,
and investors should expect the Portfolio's net asset value per share to
fluctuate in value. Technology companies face special risks due to the rapidly
changing nature of the technology sector. Because the Portfolio concentrates its
investments in the technology industry, it will likely be more volatile in price
than one that includes investments in more economic sectors. Since the
Portfolio is non-diversified, the Portfolio invests in a relatively small number
of issuers and may be more susceptible to a single adverse economic or
regulatory occurrence. For more information about the Portfolio, see "Investment
Objectives and Policies," "Risk Factors" and "Description of Permitted
Investments and Risk Factors."
WHO IS THE ADVISER? Oak Associates, Ltd. (the "Adviser") serves as the
investment adviser of the Portfolio as well as the White Oak Growth Stock
Portfolio and the Pin Oak Aggressive Stock Portfolio, each of which is a
separate series of the Trust. In addition, the Adviser provides advisory
services to pension plans, religious and educational endowments, corporations,
401(k) plans, profit sharing plans, individual investors and trusts and estates.
See "Expense Summary" and "The Adviser."
WHO IS THE ADMINISTRATOR? SEI Investments Mutual Funds Services (the
"Administrator") serves as the administrator and shareholder servicing agent of
the Portfolio. See "The Administrator."
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WHO IS THE TRANSFER AGENT? DST Systems, Inc. (the "Transfer Agent") serves as
the transfer agent and dividend disbursing agent for the Portfolio. See "The
Transfer Agent."
WHO IS THE DISTRIBUTOR? SEI Investments Distribution Co. (the "Distributor")
acts as the distributor of the Portfolio's shares. See "The Distributor."
IS THERE A SALES LOAD? No, shares of the Portfolio are offered on a no-load
basis.
IS THERE A MINIMUM INVESTMENT? The Portfolio has a minimum initial investment of
$2,000, and requires subsequent purchases to be at least $50. The Distributor
may waive these minimums at its discretion.
HOW DO I PURCHASE AND REDEEM SHARES? Purchases and redemptions may be made
through the Transfer Agent on any day when the New York Stock Exchange is open
for business (a "Business Day"). A purchase order will be effective as of the
Business Day received by the Transfer Agent if the Transfer Agent receives an
order and payment by check or with readily available funds prior to the time the
Portfolio calculates its net asset value (normally 4:00 p.m., Eastern time).
Redemption orders placed with the Transfer Agent prior to the time the Portfolio
calculates its net asset value (normally 4:00 p.m., Eastern time) on any
Business Day will be effective that day. The Trust has also authorized certain
broker-dealers to accept purchase orders and redemption requests up to the times
mentioned above on behalf of the Portfolio. The Portfolio also offers both a
Systematic Investment Plan and a Systematic Withdrawal Plan. The purchase and
redemption price for shares is the net asset value per share determined as of
the end of the day the order is effective. See "Purchase and Redemption of
Shares."
HOW ARE DISTRIBUTIONS PAID? Substantially all of the net investment income and
any capital gain of the Portfolio is distributed at least annually.
Distributions are paid in additional shares unless the shareholder elects to
take the payment in cash. See "Dividends and Distributions."
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EXPENSE SUMMARY
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES
RED OAK TECHNOLOGY SELECT PORTFOLIO
- -------------------------------------------------------------------------------------------------------------------
<S> <C>
Sales Load Imposed on Purchases None
Sales Load Imposed on Reinvested Dividends None
Deferred Sales Load None
Redemption Fees (1) None
Exchange Fees None
- -------------------------------------------------------------------------------------------------------------------
(1) A wire redemption charge of $10.00 is deducted from the amount of a
Federal Reserve wire redemption payment made at the request of a
shareholder.
ANNUAL OPERATING EXPENSES
(as a percentage of average net assets) RED OAK TECHNOLOGY SELECT PORTFOLIO
- -------------------------------------------------------------------------------------------------------------------
Advisory Fees (after fee waivers) (2) 0.00%
12b-1 Fees None
Other Expenses (after fee reimbursements) (2) 1.00%
- -------------------------------------------------------------------------------------------------------------------
Total Operating Expenses (after fee waivers and reimbursements)(2) 1.00%
- -------------------------------------------------------------------------------------------------------------------
(2) The Adviser has voluntarily agreed to waive all or a portion of its fee
for the Portfolio and to reimburse expenses of the Portfolio in order
to limit total operating expenses of the Portfolio to an annual rate of
not more than 1.00% of average daily net assets. The advisory fee
waivers and expense reimbursements are expected to be in effect at
least through the current fiscal year. However, the Adviser reserves
the right, in its sole discretion, to terminate its voluntary fee
waivers and reimbursements at any time. Absent such waiver, the annual
advisory fees for the Portfolio would be .74% of average daily net
assets. Absent such reimbursements, Other Expenses and Total Operating
Expenses for the Portfolio are estimated to be 4.22% and 4.96%,
respectively, of average daily net assets for the current fiscal year.
See "The Adviser."
EXAMPLE RED OAK TECHNOLOGY SELECT PORTFOLIO
- -------------------------------------------------------------------------------------------------------------------
1 year 3 years
- -------------------------------------------------------------------------------------------------------------------
An investor in the Portfolio would pay the following expenses on a $1,000
investment assuming (1) 5% annual return and (2) redemption
at the end of each time period. $10 $32
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
THE EXAMPLE IS BASED UPON ESTIMATED TOTAL OPERATING EXPENSES OF THE PORTFOLIO
AFTER FEE WAIVERS AND EXPENSE REIMBURSEMENTS. THE EXAMPLE SHOULD NOT BE
CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES AND ACTUAL EXPENSES MAY
BE GREATER OR LESS THAN THOSE SHOWN. The purpose of this table is to assist the
investor in understanding the various costs and expenses that may be directly or
indirectly borne by investors in the Portfolio. Additional information may be
found under "The Adviser" and "The Administrator."
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THE TRUST AND THE PORTFOLIO
Oak Associates Funds (the "Trust") offers shares of three separately-managed
mutual funds, each of which is a separate series ("portfolio") of the Trust.
Each share of each mutual fund represents an undivided, proportionate interest
in that mutual fund. This Prospectus offers shares of the Trust's Red Oak
Technology Select Portfolio (the "Portfolio").
INVESTMENT OBJECTIVES AND POLICIES
The Red Oak Technology Select Portfolio, a non-diversified portfolio, seeks
long-term capital growth. Current income is incidental to the Portfolio's
objective.
Under normal market conditions, the Portfolio will invest primarily in companies
which rely extensively on technology in their product development or operations,
or which are expected to benefit from technological advances and improvements,
and that may be experiencing growth in sales and earnings driven by technology
related products and services. As a result of this focus, the Portfolio offers
investors the significant growth potential of companies that may be responsible
for breakthrough products or technologies or that are positioned to take
advantage of cutting-edge developments.
The Portfolio will concentrate its investments (i.e., invest at least 25% of its
total assets) in companies operating directly in the "technology industry,"
which generally consists of companies which develop, produce or distribute
products or services related to computers, semi-conductors and electronics
("Technology Companies"). The Portfolio intends to invest the remainder of its
assets in companies that may operate in or be a part of many different
industries or fields which the Adviser believes may benefit either directly or
indirectly from technological advances. These industries may include network and
cable broadcasting, communication and telecommunication equipment and services,
satellite communications, defense and aerospace transportation systems, data
storage and retrieval, biotechnology and medical, environmental, and any other
industries which the Adviser believes may benefit from technology.
The Portfolio will normally be as fully invested as practicable in common stocks
of the companies described above, but may also invest in warrants and rights to
purchase common stocks, debt securities and preferred stocks convertible into
common stocks, and American Depositary Receipts ("ADRs").
Stock selections will not be based on company size, but rather on an assessment
of a company's fundamental prospects. As a result, the Portfolio's stock
holdings can range from small companies developing new technologies or pursuing
technological breakthroughs to large, established firms with track records in
developing and marketing
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technology advances. The Portfolio will purchase securities that the Adviser
believes have strong earnings potential and reasonable market valuations
relative to the market as a whole and common stocks of companies in the same
respective industry classifications. The Portfolio will purchase only those
securities that are traded in the United States on registered exchanges or the
over-the-counter market.
The Portfolio may invest in debt securities and convertibles rated AAA by
Standard & Poor's Corporation ("S&P"). Debt rated AAA has the highest rating S&P
assigns to a debt obligation. Such a rating indicates an extremely strong
capacity to pay principal and interest.
Under normal conditions, the Portfolio may hold up to 15% of its total assets in
cash and investments in the money market instruments described below in order to
maintain liquidity or if the Adviser determines that securities meeting the
Portfolio's investment objective and policies are not otherwise readily
available for purchase.
The Adviser will enter into repurchase agreements on behalf of the Portfolio
only with financial institutions deemed to present minimal risk of bankruptcy
during the term of the agreement based on guidelines established and
periodically reviewed by the Trustees.
The Portfolio will not invest more than 15% of its net assets in illiquid
securities.
For temporary defensive purposes during periods when the Adviser determines that
conditions warrant, the Portfolio may invest up to 100% of its assets in money
market instruments (including securities issued or guaranteed by the U.S.
Government, its agencies or instrumentalities; certificates of deposit, time
deposits and bankers' acceptances issued by banks or savings & loan associations
having net assets of at least $500 million as of the end of their most recent
fiscal year; commercial paper rated at least A-1 by S&P or Prime-1 by Moody's
Investors Service, Inc.; repurchase agreements involving the foregoing
securities; and, to the extent permitted by applicable law, shares of other
investment companies investing solely in money market instruments) and in cash.
It is not expected that the portfolio turnover rate will exceed 100%.
For a description of certain permitted investments, see "Description of
Permitted Investments and Risk Factors" and "Description of Permitted
Investments" in the Statement of Additional Information. For a description of
ratings, see the Appendix in the Statement of Additional Information.
RISK FACTORS
Investments in common stocks and other equity securities are subject to market
risks that may cause their prices to fluctuate over time. The value of
securities convertible into equity securities, such as warrants or convertible
debt, is also affected by prevailing interest rates,
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the credit quality of the issuer and any call provision. Fluctuations in the
value of equity securities in which the Portfolio invests will cause the net
asset value of the Portfolio to fluctuate. An investment in the Portfolio may
therefore be more suitable for long-term investors who can bear the risk of
short-term principal fluctuations.
NON-DIVERSIFICATION - Since the Portfolio is non-diversified, it may invest in
the securities of a relatively small number of issuers. To the extent that the
Portfolio invests a significant percentage of its assets in a limited number of
issuers, the Portfolio is subject to the risks of investing in those few
issuers, and may be more susceptible to a single adverse economic or regulatory
occurrence. The Portfolio intends, however, to comply with the applicable
diversification requirements of the Internal Revenue Code.
CONCENTRATION - Since the Portfolio will concentrate its investments in the
securities of Technology Companies, it is subject to the risk that those
securities (or the technology industry) will perform poorly, and the Portfolio
will be negatively impacted by that poor performance. As a result, the Portfolio
may be more susceptible to the particular risks associated with the technology
industry than an investment company that does not concentrate its investments in
this manner.
SECURITIES OF TECHNOLOGY COMPANIES - Technology Companies face special risks due
to the rapidly changing nature of the technology sector. For example, the prices
of the securities of Technology Companies may fluctuate widely due to
competitive pressures, increased sensitivity to short product cycles and
aggressive pricing, or products or services which may not prove commercially
successful. Therefore, the Portfolio will likely be more volatile in price than
one with broader diversification that includes investments in more economic
sectors.
SECURITIES OF SMALL CAPITALIZATION ISSUERS - The Portfolio may invest in
securities of issuers with small market capitalizations (i.e., companies with
equity market capitalizations less than $1 billion). Small capitalization
companies may be more vulnerable than larger more established organizations to
adverse business or economic developments. In particular, small capitalization
companies may have limited product lines, markets and financial resources and
may be dependent on a relatively small management group. The securities of
smaller companies are often traded in the over-the-counter market and even if
listed on a national securities exchange may not be traded in volumes typical
for that exchange.
SECURITIES OF FOREIGN ISSUERS - Investments in the securities of foreign issuers
may subject the Portfolio to investment risks that differ in some respects from
those related to investments in securities of U.S. issuers. Such risks include
future adverse political and economic developments, possible imposition of
withholding taxes on income, possible seizure, nationalization or expropriation
of foreign deposits, possible establishment of exchange controls or taxation at
the source or greater fluctuation in value due to changes
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in exchange rates. Foreign issuers of securities often engage in business
practices different from those of domestic issuers of similar securities, and
there may be less information publicly available about foreign issuers. In
addition, foreign issuers are, generally speaking, subject to less government
supervision and regulation and different accounting treatment than are those in
the United States.
YEAR 2000 - The Portfolio could be adversely affected by the year 2000 problem
(i.e.- if computer systems do not properly process dates on and after January 1,
2000 and fail to distinguish between the year 2000 and the year 1900). The
Technology Companies in which the Portfolio focuses its investments may be
especially dependent on the smooth functioning of computer systems in various
aspects of their respective businesses and/or may have revenues which are
directly impacted by their ability to provide year 2000-related services to
their clients. In addition, some Technology Companies may experience negative
financial results if they are held liable for any year 2000-related problems.
INVESTMENT LIMITATIONS
The investment objective of the Portfolio and the investment limitations set
forth here and in the Statement of Additional Information are fundamental
policies of the Portfolio. Fundamental policies cannot be changed with respect
to the Portfolio without the consent of the holders of a majority of the
Portfolio's outstanding shares.
The Portfolio may not:
1. Purchase any securities which would cause 25% or more of the total assets of
the Portfolio to be invested in the securities of one or more issuers conducting
their principal business activities in the same industry, provided that this
limitation does not apply to investments in companies which develop, produce or
distribute products or services related to computers, semi-conductors and
electronics, obligations issued or guaranteed by the U.S. Government, its
agencies or instrumentalities and repurchase agreements involving such
securities. For purposes of this limitation, (i) utility companies will be
divided according to their services, for example, gas distribution, gas
transmission, electric and telephone will each be considered a separate
industry, and (ii) financial service companies will be classified according to
the end users of their services, for example, automobile finance, bank finance
and diversified finance will each be considered a separate industry.
2. Issue any class of senior security or sell any senior security of which it is
the issuer, except that the Portfolio may borrow from any bank, provided that
there is asset coverage of at least 300% for all borrowings of the
Portfolio, and further provided that, to the extent that such borrowings exceed
5% of the Portfolio's total assets, all borrowings shall be repaid before the
Portfolio makes additional investments. The term "senior security" shall not
include any temporary borrowings that do not exceed 5% of the value of the
Portfolio's total assets at the time the Portfolio makes
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such temporary borrowing. In addition, investment strategies that either
obligate the Portfolio to purchase securities or require the Portfolio to
segregate assets will not be considered borrowings or senior securities. This
investment limitation shall not preclude the Portfolio from issuing multiple
classes of shares in reliance on SEC rules or orders.
The foregoing percentages stated in both of these limitations will apply at
the time of the purchase of a security.
THE ADVISER
Oak Associates, Ltd. (the "Adviser") is a professional investment management
firm and registered investment adviser formed in December 1995 by James D.
Oelschlager to continue the business of Oak Associates, a sole proprietorship
founded in 1985. As of September 1, 1998, the Adviser had discretionary
management authority with respect to approximately $9 billion of assets under
management. The principal business address of the Adviser is 3875 Embassy
Parkway, Suite 250, Akron, Ohio 44333.
The Adviser serves as the investment adviser for the Portfolio under an
investment advisory agreement (the "Advisory Agreement"). Under the Advisory
Agreement, the Adviser makes the investment decisions for the assets of the
Portfolio and continuously reviews, supervises and administers the investment
program of the Portfolio, subject to the supervision of, and policies
established by, the Trustees of the Trust. In addition to advising the
Portfolio, the Adviser provides advisory services to pension plans, religious
and educational endowments, corporations, 401(k) plans, profit sharing plans,
individual investors and trusts and estates as well as the White Oak Growth
Stock Portfolio and the Pin Oak Aggressive Stock Portfolio, two other series of
the Trust.
For its services, the Adviser is entitled to a fee, which is calculated daily
and paid monthly, at an annual rate of .74% of the average daily net assets of
the Portfolio. The Adviser has voluntarily agreed to waive all or a portion of
its fee for the Portfolio and to reimburse expenses of the Portfolio in order to
limit total operating expenses of the Portfolio to an annual rate of not more
than 1.00% of average daily net assets. The Adviser reserves the right, in its
sole discretion, to terminate its voluntary fee waivers and reimbursements at
any time. For the fiscal year ended October 31, 1998, the Portfolio had not yet
commenced operations. The Adviser may, from its own resources, compensate
broker-dealers whose clients purchase shares of the Portfolio.
The Portfolio is co-managed by James D. Oelschlager and Douglas S. MacKay.
Mr. Oelschlager is the Portfolio Manager of the White Oak Growth Stock Portfolio
and the Pin Oak Aggressive Stock Portfolio. He founded Oak Associates, Ltd. in
1985 and serves as its managing member and Chief Investment Officer/Chief
Executive Officer. He also served as the director of Pension
Investments/Assistant Treasurer for the Firestone Tire & Rubber Company
(1969-1985). In 1964, Mr. Oelschlager received a B.A. in Economics
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from Denison University. He earned his Juris Doctor in 1967 from Northwestern
University and from 1968-1969 he attended graduate studies at the University of
Chicago. He has 29 years of investment experience.
Mr. MacKay is Assistant Portfolio Manager/Research Analyst for the White Oak
Growth Stock Portfolio and the Pin Oak Aggressive Stock Portfolio and has been
with Oak Associates, Ltd. since 1991. Previously, he was a credit analyst with
the Pittsburgh National Bank. In 1990, he received a B.S. in Finance from Miami
University in Oxford, Ohio. In 1994, Mr. MacKay earned his MBA from Case Western
Reserve University in Cleveland, Ohio, In 1998, he earned the designation of
Chartered Financial Analyst and has 8 years of investment experience.
THE ADMINISTRATOR
SEI Investments Mutual Funds Services (the "Administrator") serves as the
Administrator of the Trust. The Administrator provides the Trust with
administrative services, including regulatory reporting and all necessary office
space, equipment, personnel and facilities. For these administrative services,
the Administrator is entitled to a fee from the Portfolio, which fee is
calculated daily and paid monthly, at an annual rate of .15% on the first $250
million of average daily net assets; .12% on the next $200 million; .10% on the
next $200 million; and .08% on average daily net assets over $650 million.
However, the Portfolio pays the Administrator a minimum annual fee of $75,000.
The Administrator also serves as the shareholder servicing agent for the
Portfolio under a shareholder servicing agreement with the Trust.
THE TRANSFER AGENT
DST Systems, Inc., 330 W. 9th St., Kansas City, Missouri 64105 (the "Transfer
Agent") serves as the transfer agent and dividend disbursing agent for the Trust
under a transfer agency agreement with the Trust.
THE DISTRIBUTOR
SEI Investments Distribution Co. (the "Distributor"), Oaks, Pennsylvania 19456,
a wholly-owned subsidiary of SEI Investments Company, serves as the Trust's
distributor pursuant to a distribution agreement (the "Distribution Agreement").
No compensation is paid to the Distributor for distribution services for the
shares of the Portfolio.
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PORTFOLIO TRANSACTIONS
The Advisory Agreement authorizes the Adviser to select broker-dealers that will
execute the purchase or sale of investment securities for the Portfolio. The
Advisory Agreement also directs the Adviser to seek to obtain the best net
results, i.e., the selection that the Adviser determines is most beneficial to
the Portfolio after taking into account various factors, including price,
commission, if any, size of the transactions and difficulty of execution, the
firm's general execution and operational facilities and the firm's risk in
positioning the securities involved.
The Portfolio may execute brokerage or other agency transactions through the
Distributor for which the Distributor may receive usual and customary
compensation.
Because shares of the Portfolio are not marketed through intermediary
broker-dealers, it is not the Portfolio's practice to allocate brokerage or
effect principal transactions with broker-dealers on the basis of sales of
shares that may be made through such firms. However, the Adviser may place
orders for the Portfolio with qualified broker-dealers who refer clients to the
Portfolio.
PURCHASE AND REDEMPTION OF SHARES
Purchases and redemptions may be made through the Transfer Agent on each day
that the New York Stock Exchange is open for business (a "Business Day").
Investors may purchase and redeem shares of the Portfolio directly through the
Transfer Agent at: Oak Associates Funds, P.O. Box 419441, Kansas City, Missouri
64141-6441 by mail or wire transfer. All shareholders are automatically entitled
to place wire transfer orders, and exchange and redemption orders, by telephone;
when market conditions are extremely busy, it is possible that investors may
experience difficulties placing orders by telephone and may wish to place orders
by mail. Purchases and redemptions of shares of the Portfolio may be made on any
Business Day. Shares of the Portfolio are offered only to residents of states in
which such shares are eligible for purchase. Certain broker-dealers assist their
clients in the purchase or redemptions of shares from the Distributor and charge
a fee for this service in addition to the Portfolio's public offering price. In
addition, the Trust has authorized certain broker-dealers and other financial
intermediaries (collectively, "Authorized Broker-Dealers") to act as the
Portfolio's agent for the purposes of accepting purchase orders and redemption
requests. The Portfolio will be deemed to have received a purchase order or
redemption request upon receipt of the order or request by an Authorized
Broker-Dealer.
The minimum initial investment in the Portfolio is $2,000, and subsequent
purchases must be at least $50. The Distributor may waive these minimums at its
discretion. No minimum applies to subsequent purchases effected by dividend
reinvestment. As described below,
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subsequent purchases through the Portfolio's Systematic Investment Plan must be
at least $25.
PURCHASES BY MAIL
An account may be opened by mailing a check or other negotiable bank draft
(payable to the Red Oak Technology Select Portfolio) for $2,000 or more,
together with a completed Account Application to the Transfer Agent at: Oak
Associates Funds, P.O. Box 419441, Kansas City, Missouri 64141-6441. Third-party
checks, credit cards, credit card checks and cash will not be accepted.
Subsequent investments may also be mailed directly to the Transfer Agent.
PURCHASES BY WIRE TRANSFER
Shareholders having an account with a commercial bank that is a member of the
Federal Reserve System may purchase shares of the Portfolio by requesting their
bank to transmit funds by wire to: United Missouri Bank of Kansas, N.A.; ABA
#10-10-00695; for Account Number 98-7091-244-9; Further Credit: the Red Oak
Technology Select Portfolio. The shareholder's name and account number must be
specified in the wire.
Initial Purchases: Before making an initial investment by wire, an investor must
first telephone 1-888-462-5386 to be assigned an account number. The investor's
name, account number, taxpayer identification number or Social Security number,
and address must be specified in the wire. In addition, an Account Application
should be promptly forwarded to the Transfer Agent at: Oak Associates Funds,
P.O. Box 419441, Kansas City, Missouri 64141-6441.
Subsequent Purchases: Additional investments may be made at any time through the
wire procedures described above, which must include a shareholder's name and
account number. The investor's bank may impose a fee for investments by wire.
GENERAL INFORMATION REGARDING PURCHASES
A purchase order will be effective as of the day received by the Transfer Agent
(or an Authorized Broker-Dealer) if the Transfer Agent (or an Authorized
Broker-Dealer) receives the order and payment before the Portfolio calculates
its net asset value (normally 4:00 p.m., Eastern time) in order for shares to be
purchased at that day's price. Payment may be made by check or readily available
funds. The purchase price of shares of the Portfolio is the net asset value per
share next determined after a purchase order is effective. Purchases will be
made in full and fractional shares of the Portfolio calculated to three decimal
places. The Trust will not issue certificates representing shares of the
Portfolio.
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If a check received for the purchase of shares does not clear, the purchase will
be canceled, and the investor could be liable for any losses or fees incurred.
The Trust reserves the right to reject a purchase order when the Trust
determines that it is not in the best interest of the Trust or its shareholders
to accept such order.
SYSTEMATIC INVESTMENT PLAN - A shareholder may also arrange for periodic
additional investments in the Portfolio through automatic deductions by
Automated Clearing House ("ACH") transfers from a checking or savings account by
completing the appropriate section of the Account Application form. This
Systematic Investment Plan is subject to account minimum initial purchase
amounts and a minimum pre-authorized investment amount of $25 per month. An
Account Application form may be obtained by calling 1-888-462-5386.
EXCHANGES
Shareholders of the Portfolio may exchange their shares for shares of either the
White Oak Growth Stock Portfolio or the Pin Oak Aggressive Stock Portfolio.
Exchanges are made at net asset value. An exchange is considered a sale of
shares and will result in a capital gain or loss for federal income tax
purposes. The shareholder must have received a current prospectus for the new
portfolio before any exchange will be effected, and the exchange privilege may
be exercised only in those states where shares of the new portfolio may legally
be sold. If the Transfer Agent receives exchange instructions in writing or by
telephone (an "Exchange Request") in good order by 4:00 p.m., Eastern time on
any Business Day, the exchange will be effected that day. The liability of the
Trust or the Transfer Agent for fraudulent or unauthorized telephone
instructions may be limited as described below. The Trust reserves the right to
modify or terminate this exchange offer on 60 days' notice.
REDEMPTIONS
Redemption orders received by the Transfer Agent (or an Authorized
Broker-Dealer) prior to the time the Portfolio calculates its net asset value
(normally 4:00 p.m., Eastern time) on any Business Day will be effective that
day. The redemption price of shares is the net asset value per share of the
Portfolio next determined after the redemption order is effective. Payment on
redemption will be made as promptly as possible and, generally, within seven
days after the redemption order is received. However, in order to protect the
Trust and its shareholders from fraud, redemption proceeds for shares
purchased by check (inlcuding certified or cashiers checks) will be forwarded
only upon collection of payment for such shares; collection of payment may
take up to 15 days. Shareholders may not close their accounts by telephone.
Shareholders may receive redemption payments in the form of a check or by
Federal Reserve wire transfer or ACH wire transfer. There is no charge for
having a check for redemption proceeds mailed. The custodian will deduct a wire
charge, currently $10.00,
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from the amount of a Federal Reserve wire redemption payment made at the request
of a shareholder. Shareholders cannot redeem shares of the Portfolio by Federal
Reserve wire on federal holidays restricting wire transfers. The Trust does not
charge for ACH wire transfers; however, such transactions will not be posted to
a shareholder's bank account until the second Business Day following the
transaction.
SYSTEMATIC WITHDRAWAL PLAN - The Portfolio offers a Systematic Withdrawal Plan
("SWP") for shareholders who wish to receive regular distributions from their
account. Upon commencement of the SWP, the account must have a current value of
$25,000 or more. Shareholders may elect to receive automatic payments via ACH
wire transfers of $100 or more on a monthly, quarterly, semi-annual or annual
basis. An application form for SWP may be obtained by calling 1-888-462-5386.
Shareholders should realize that if withdrawals exceed income dividends, their
invested principal in the account will be depleted. Thus, depending on the
frequency and amounts of the withdrawal payments and/or any fluctuations in the
net asset value per share, their original investment could be exhausted
entirely. To participate in the SWP, shareholders must have their dividends
automatically reinvested. Shareholders may change or cancel the SWP at any time,
upon written notice to the Transfer Agent.
ADDITIONAL REDEMPTION AND EXCHANGE INFORMATION
Neither the Trust nor the Transfer Agent will be responsible for the
authenticity of exchange, wire transfer, or redemption instructions received by
telephone if it reasonably believes those instructions to be genuine. The Trust
and the Transfer Agent will each employ reasonable procedures to confirm that
telephone instructions are genuine, and may be liable for losses resulting from
unauthorized or fraudulent telephone transactions if it does not employ those
procedures. Such procedures may include taping of telephone conversations.
The proceeds of non-telephone redemptions will be sent directly to a
shareholder's address (as listed in the Trust's records). If a shareholder
requests payment of redemption proceeds to a third party or to a location other
than the address on the shareholder's bank account (as listed in the Trust's
records), this request must be in writing and must include a signature
guarantee.
The right of redemption may be suspended or the date of payment of redemption
proceeds postponed during certain periods as set forth more fully in the
Statement of Additional Information.
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CALCULATION OF NET ASSET VALUE
The net asset value per share of the Portfolio is determined by dividing the
total market value of the Portfolio's investments and other assets, less any
liabilities, by the total outstanding shares of the Portfolio. Net asset value
per share is determined daily at the close of regular trading on the New York
Stock Exchange (normally 4:00 p.m., Eastern time) on any Business Day. Purchase
or redemption orders received by the Portfolio after its net asset value has
been calculated will be priced at the next Business Day's net asset value.
PERFORMANCE
From time to time, the Portfolio may advertise its total return. These figures
will be based on historical earnings and are not intended to indicate future
performance. No representation can be made regarding actual future returns.
The total return of the Portfolio refers to the average compounded rate of
return on a hypothetical investment, for designated time periods (including but
not limited to the period from which the Portfolio commenced operations through
the specified date), assuming that the entire investment is redeemed at the end
of each period and assuming the reinvestment of all dividend and capital gain
distributions.
The Portfolio may periodically compare its performance to that of other mutual
funds tracked by mutual fund rating services (such as Lipper Analytical
Services, Inc.), or by financial and business publications and periodicals, of
broad groups of comparable mutual funds and unmanaged indices. The performance
of unmanaged indices may assume investment of dividends but generally do not
reflect deductions for administrative and management costs, or other investment
alternatives. The Portfolio may quote Morningstar, Inc., a service that ranks
mutual funds on the basis of risk-adjusted performance. The Portfolio may quote
Ibbotson Associates of Chicago, Illinois, which provides historical returns of
the capital markets in the U.S. The Portfolio may use long term performance of
these capital markets to demonstrate general long-term risk versus reward
scenarios and could include the value of a hypothetical investment in any of the
capital markets. The Portfolio may also quote financial and business
publications and periodicals as they relate to fund management, investment
philosophy, and investment techniques.
The Portfolio may quote various measures of volatility and benchmark correlation
in advertising and may compare these measures to those of other funds. Measures
of volatility attempt to compare historical share price fluctuations or total
returns to a benchmark while measures of benchmark correlation indicate how
valid a comparative benchmark might be. Measures of volatility and correlation
are calculated using averages of historical data and cannot be calculated
precisely.
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TAXES
The following summary of certain federal income tax consequences is based on
current tax laws and regulations, which may be changed by legislative, judicial
or administrative action.
No attempt has been made to present a detailed explanation of the federal,
state, or local income tax treatment of the Portfolio or its shareholders.
Accordingly, shareholders are urged to consult their tax advisors regarding
specific questions as to federal, state and local income taxes.
TAX STATUS OF THE PORTFOLIO:
The Portfolio is treated as a separate entity for federal income tax purposes
and is not combined with the Trust's other portfolios. The Portfolio intends to
qualify or to continue to qualify for the special tax treatment afforded
regulated investment companies as defined under Subchapter M of the Internal
Revenue Code of 1986, as amended. So long as the Portfolio qualifies for this
special tax treatment, it will be relieved of federal income tax on that part of
its net investment income and net capital gain (the excess of net long-term
capital gain over net short-term capital loss) which it distributes to
shareholders.
TAX STATUS OF DISTRIBUTIONS:
The Portfolio will distribute all of its net investment income (including, for
this purpose, net short-term capital gain) to shareholders. Dividends from net
investment income will be taxable to shareholders as ordinary income whether
received in cash or in additional shares. Distributions from net investment
income will qualify for the dividends-received deduction for corporate
shareholders only to the extent such distributions are derived from dividends
paid by domestic corporations. It can be expected that only certain dividends of
the Portfolio will qualify for that deduction. Any net capital gains will be
distributed annually and will be taxed to shareholders as gain from the sale of
a capital asset held for more than one year, regardless of how long the
shareholder has held shares. The Portfolio will make annual reports to
shareholders of the federal income tax status of all distributions, including
the amount of dividends eligible for the dividends-received deduction.
Certain securities that may be purchased by the Portfolio are sold with
original issue discount and thus generally do not make periodic cash interest
payments. For a further description of such securities, see "Description of
Permitted Investments and Risk Factors" below. The Portfolio will be required to
include as part of its current income the accrued discount on such obligations
even though the Portfolio has not received any interest payments on such
obligations during that period. Because the Portfolio distributes all of its net
investment income to its shareholders, the Portfolio may have to sell portfolio
securities to distribute such accrued income, which may occur at a time when the
Adviser
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would not have chosen to sell such securities and which may result in a taxable
gain or loss.
Income received on direct U.S. obligations is exempt from income tax at the
state level when received directly and may be exempt, depending on the state,
when received by a shareholder from the Portfolio provided certain
state-specific conditions are satisfied. The Portfolio will inform shareholders
annually of the percentage of income and distributions derived from direct U.S.
obligations. Shareholders should consult their tax advisers to determine whether
any portion of the income dividends received from the Portfolio is considered
tax exempt in their particular state.
Dividends declared by the Portfolio in October, November or December of any year
and payable to shareholders of record on a date in one of those months will be
deemed to have been paid by the Portfolio and received by the shareholders on
December 31 of that year, if paid by the Portfolio at any time during the
following January.
The Portfolio intends to make sufficient distributions prior to the end of each
calendar year to avoid liability for federal excise tax.
A sale, exchange or redemption of the Portfolio's shares is a taxable event to
the shareholder.
Income derived by the Portfolio from securities of foreign issuers may be
subject to foreign withholding taxes. The Portfolio will not be able to elect to
treat shareholders as having paid their proportionate share of such foreign
taxes.
GENERAL INFORMATION
THE TRUST
The Trust, an open-end investment management company, was organized under
Massachusetts law as a business trust under a Declaration of Trust dated
November 6, 1997. The Declaration of Trust permits the Trust to offer separate
series ("portfolios") of shares. All consideration received by the Trust for
shares of any portfolio and all assets of such portfolio belong to that
portfolio and would be subject to liabilities related thereto. The Trust
reserves the right to create and issue shares of additional portfolios.
The Trust 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
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expenses. Expenses not attributable to a specific portfolio are allocated across
all of the portfolios on the basis of relative net assets.
TRUSTEES OF THE TRUST
The management and affairs of the Trust are supervised by the Trustees under the
laws of the Commonwealth of Massachusetts. The Trustees have approved contracts
under which, as described above, certain companies provide essential management
services to the Trust.
VOTING RIGHTS
Each share held entitles the shareholder of record to one vote for each dollar
invested. In other words, 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 Portfolio 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.
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.
REPORTING
The Trust issues unaudited financial information semi-annually and audited
financial statements annually for the Portfolio. The Trust also furnishes
periodic reports and, as necessary, proxy statements to shareholders of record.
SHAREHOLDER INQUIRIES
Shareholder inquiries should be directed to Oak Associates Funds, P.O. Box
419441, Kansas City, Missouri 64141-6441 or by calling 1-888-462-5386.
Purchases, redemptions and exchanges of shares should be made through the
Transfer Agent by calling the above telephone number.
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DIVIDENDS AND DISTRIBUTIONS
Substantially all of the net investment income of and any capital gain realized
by the Portfolio will be distributed at least annually. Shareholders of record
on the next to last Business Day of each quarter will be entitled to receive the
quarterly dividend distribution, which is generally paid within 10 Business Days
after the end of the quarter.
Shareholders automatically receive all income dividends and capital gain
distributions in additional shares, unless the shareholder has elected to take
such payment in cash. Shareholders may change their election by providing
written notice to the Transfer Agent at least 15 days prior to the distribution.
Shareholders may receive payments for cash distributions in the form of a check
or by Federal Reserve wire transfer or ACH wire transfers.
Dividends and other distributions of the Portfolio are paid on a per share
basis. The value of each share will be reduced by the amount of the payment. If
shares are purchased shortly before the record date for a distribution of
ordinary income or capital gains, a shareholder will pay the full price for the
shares and receive some portion of the price back as a taxable dividend or
distribution.
COUNSEL AND INDEPENDENT PUBLIC ACCOUNTANTS
Morgan, Lewis & Bockius LLP serves as counsel to the Trust. Arthur Andersen LLP
serves as the independent public accountants of the Trust.
CUSTODIAN
First Union National Bank, Broad and Chestnut Streets, P.O. Box 7618,
Philadelphia, Pennsylvania 19101 acts as the custodian (the "Custodian") of the
Trust. The Custodian holds cash, securities and other assets of the Trust as
required by the Investment Company Act of 1940, as amended (the "1940 Act").
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DESCRIPTION OF PERMITTED INVESTMENTS AND RISK FACTORS
The following is a description of certain of the permitted investments for the
Portfolio:
AMERICAN DEPOSITARY RECEIPTS ("ADRs") - ADRs are securities, typically issued by
a U.S. financial institution (a "depositary"), that evidence ownership interests
in a security or a pool of securities issued by a foreign issuer and deposited
with the depositary. ADRs may be available through "sponsored" or "unsponsored"
facilities. A sponsored facility is established jointly by the issuer of the
security underlying the receipt and a depositary, whereas an unsponsored
facility may be established by a depositary without participation by the issuer
of the underlying security. Holders of unsponsored depositary receipts generally
bear all the costs of the unsponsored facility. The depositary of an unsponsored
facility frequently is under no obligation to distribute shareholder
communications received from the issuer of the deposited security or to pass
through, to the holders of the receipts, voting rights with respect to the
deposited securities.
BANKERS' ACCEPTANCES - Bankers' acceptances are bills of exchange or time drafts
drawn on and accepted by a commercial bank. Bankers' acceptances are used by
corporations to finance the shipment and storage of goods. Maturities are
generally six months or less.
CERTIFICATES OF DEPOSIT - Certificates of deposit are interest bearing
instruments with a specific maturity. They are issued by banks and savings and
loan institutions in exchange for the deposit of funds and normally can be
traded in the secondary market prior to maturity. Certificates of deposit with
penalties for early withdrawal will be considered illiquid.
COMMERCIAL PAPER - Commercial paper is a term used to describe unsecured
short-term promissory notes issued by banks, municipalities, corporations and
other entities. Maturities on these issues vary from a few to 270 days.
CONVERTIBLE SECURITIES - Convertible securities are corporate securities that
are exchangeable for a set number of another security at a prestated price.
Convertible securities typically have characteristics of both fixed income and
equity securities. Because of the conversion feature, the market value of a
convertible security tends to move with the market value of the underlying
stock. The value of a convertible security is also affected by prevailing
interest rates, the credit quality of the issuer and any call provisions.
ILLIQUID SECURITIES - Illiquid securities are securities that cannot be disposed
of within seven business days at approximately the price at which they are being
carried on the Portfolio's books. An illiquid security includes a demand
instrument with a demand notice
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period exceeding seven days, where there is no secondary market for such
security, and repurchase agreements with a remaining term to maturity in excess
of seven days.
REPURCHASE AGREEMENTS - Repurchase agreements are agreements by which the
Portfolio obtains a security and simultaneously commits to return the security
to the seller at an agreed upon price on an agreed upon date within a number of
days from the date of purchase. The Custodian will hold the security as
collateral for the repurchase agreement. The Portfolio bears a risk of loss in
the event the other party defaults on its obligations and the Portfolio is
delayed or prevented from exercising its right to dispose of the collateral or
if the Portfolio realizes a loss on the sale of the collateral. The Portfolio
will enter into repurchase agreements only with financial institutions deemed to
present minimal risk of bankruptcy during the term of the agreement based on
established guidelines. Repurchase agreements are considered loans under the
1940 Act.
TIME DEPOSITS - Time deposits are non-negotiable receipts issued by a bank in
exchange for the deposit of funds. Like a certificate of deposit, it earns a
specified rate of interest over a definite period of time; however, it cannot be
traded in the secondary market. Time deposits with a withdrawal penalty or that
mature in more than seven days are considered to be illiquid securities.
U.S. GOVERNMENT AGENCIES - Obligations issued or guaranteed by agencies of the
U.S. Government, including, among others, the Federal Farm Credit Bank, the
Federal Housing Administration and the Small Business Administration, and
obligations issued or guaranteed by instrumentalities of the U.S. Government,
including, among others, the Federal Home Loan Mortgage Corporation, the Federal
Land Banks and the U.S. Postal Service. Some of these securities are supported
by the full faith and credit of the U.S. Treasury, others are supported by the
right of the issuer to borrow from the Treasury, while still others are
supported only by the credit of the instrumentality. Guarantees of principal by
agencies or instrumentalities of the U.S. Government may be a guarantee of
payment at the maturity of the obligation so that in the event of a default
prior to maturity there might not be a market and thus no means of realizing on
the obligation prior to maturity. Guarantees as to the timely payment of
principal and interest do not extend to the value or yield of these securities
nor to the value of the Portfolio's shares.
U.S. GOVERNMENT DIRECT OBLIGATIONS - U.S. Treasury obligations consist of bills,
notes and bonds issued by the U.S. Treasury and separately traded interest and
principal component parts of such obligations that are transferable through the
federal book-entry system known as Separately Traded Registered Interest and
Principal Securities ("STRIPS").
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TABLE OF CONTENTS
SUMMARY..................................................................... 2
EXPENSE SUMMARY............................................................. 4
THE TRUST AND THE PORTFOLIO................................................. 5
INVESTMENT OBJECTIVES AND POLICIES.......................................... 5
RISK FACTORS................................................................ 6
INVESTMENT LIMITATIONS...................................................... 8
THE ADVISER................................................................. 9
THE ADMINISTRATOR...........................................................10
THE TRANSFER AGENT..........................................................10
THE DISTRIBUTOR.............................................................10
PORTFOLIO TRANSACTIONS......................................................11
PURCHASE AND REDEMPTION OF SHARES...........................................11
PERFORMANCE.................................................................15
TAXES.......................................................................16
GENERAL INFORMATION.........................................................17
DESCRIPTION OF PERMITTED INVESTMENTS AND RISK FACTORS.......................20
<PAGE>
TRUST:
OAK ASSOCIATES FUNDS
FUND:
RED OAK TECHNOLOGY SELECT PORTFOLIO
ADVISER:
OAK ASSOCIATES, LTD.
DISTRIBUTOR:
SEI INVESTMENTS DISTRIBUTION CO.
ADMINISTRATOR:
SEI INVESTMENTS MUTUAL FUNDS SERVICES
LEGAL COUNSEL:
MORGAN, LEWIS & BOCKIUS LLP
INDEPENDENT PUBLIC ACCOUNTANTS:
ARTHUR ANDERSEN, LLP
December 8, 1998
<PAGE>
TRUST:
OAK ASSOCIATES FUNDS
FUNDS:
RED OAK TECHNOLOGY SELECT PORTFOLIO
INVESTMENT ADVISER:
OAK ASSOCIATES LTD.
This STATEMENT OF ADDITIONAL INFORMATION is not a prospectus and relates only to
the Red Oak Technology Select Portfolio (the "Portfolio"). It is intended to
provide additional information regarding the activities and operations of Oak
Associates Funds (the "Trust") and the Portfolio and should be read in
conjunction with the Portfolio's Prospectus dated December 8, 1998. The
Prospectus for the Portfolio may be obtained by calling 1-888-462-5386.
TABLE OF CONTENTS
THE TRUST.............................................................. S - 2
DESCRIPTION OF PERMITTED INVESTMENTS................................... S - 2
INVESTMENT LIMITATIONS................................................. S - 4
THE ADVISER............................................................ S - 5
THE ADMINISTRATOR...................................................... S - 6
THE DISTRIBUTOR........................................................ S - 7
TRUSTEES AND OFFICERS OF THE TRUST..................................... S - 7
COMPUTATION OF TOTAL RETURN............................................ S - 11
PURCHASE AND REDEMPTION OF SHARES...................................... S - 12
DETERMINATION OF NET ASSET VALUE....................................... S - 12
TAXES .............................................................. S - 12
PORTFOLIO TRANSACTIONS................................................. S - 14
DESCRIPTION OF SHARES.................................................. S - 17
SHAREHOLDER LIABILITY.................................................. S - 17
LIMITATION OF TRUSTEES' LIABILITY...................................... S - 17
COUNSEL................................................................ S - 19
APPENDIX .............................................................. A - 1
[OAK-F-012-07]
December 8, 1998
S - 1
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THE TRUST
This Statement of Additional Information relates to the Red Oak Technology
Select Portfolio (the "Portfolio") The Portfolio is a separate series of Oak
Associates Funds (the "Trust"), an open-end investment management company
established under Massachusetts law as a Massachusetts business trust under a
Declaration of Trust dated November 6, 1997. The Declaration of Trust permits
the Trust to offer separate series ("portfolios") of shares of beneficial
interest ("shares"). Each portfolio is a separate mutual fund, and each share of
each portfolio represents an equal proportionate interest in that portfolio. No
investment in shares of a portfolio should be made without first reading that
portfolio's prospectus. Capitalized terms not defined herein are defined in the
Prospectus offering shares of the Portfolio. As of December 8, 1998, the
Portfolio had not commenced operations.
YEAR 2000
The Trust depends on the smooth functioning of computer systems in almost every
aspect of its business. Like other mutual funds, businesses and individuals
around the world, the Trust could be adversely affected if the computer systems
used by its service providers do not properly process dates on and after January
1, 2000 and distinguish between the year 2000 and the year 1900. The Trust has
asked its service providers whether they expect to have their computer systems
adjusted for the year 2000 transition, and received assurances from each that
its system is expected to accommodate the year 2000 without material adverse
consequences to the Trust. The Trust and its shareholders may experience losses
if these assurances prove to be incorrect or as a result of year 2000 computer
difficulties experienced by issuers of portfolio securities or third parties,
such as custodians, banks, broker-dealers or others with which the Trust does
business.
DESCRIPTION OF PERMITTED INVESTMENTS
REPURCHASE AGREEMENTS are agreements by which a person (e.g., the Portfolio)
obtains a security and simultaneously commits to return the security to the
seller (a member bank of the Federal Reserve System or primary securities dealer
as recognized by the Federal Reserve Bank of New York) at an agreed upon price
(including principal and interest) on an agreed upon date within a number of
days (usually not more than seven) from the date of purchase. The resale price
reflects the purchase price plus an agreed upon market rate of interest which is
unrelated to the coupon rate or maturity of the underlying security. A
repurchase agreement involves the obligation of the seller to pay the agreed
upon price, which obligation is in effect secured by the value of the underlying
security.
Repurchase agreements are considered to be loans by the Portfolio for purposes
of its investment limitations. The repurchase agreements entered into by the
Portfolio will provide that the underlying security at all times shall have a
value at least equal to 102% of the resale price stated in the agreement (the
Adviser monitors compliance with this requirement). Under all repurchase
agreements entered into by the Portfolio, the custodian or its agent must take
possession of the underlying collateral. However, if the seller defaults, the
Portfolio could realize a loss on the sale of the underlying security to the
extent that the proceeds of the sale, including accrued interest, are less than
the resale price provided in the agreement including interest. In addition, even
though the Bankruptcy Code provides protection for most repurchase agreements,
if
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the seller should be involved in bankruptcy or insolvency proceedings, the
Portfolio may incur delay and costs in selling the underlying security or may
suffer a loss of principal and interest if the Portfolio is treated as an
unsecured creditor and is required to return the underlying security to the
seller's estate.
INVESTMENT COMPANY SHARES
The Portfolio may invest in shares of other investment companies, to the extent
permitted by applicable law and subject to certain restrictions. These
investment companies typically incur fees that are separate from those fees
incurred directly by the Portfolio. The Portfolio's purchase of such investment
company securities results in the layering of expenses, such that shareholders
would indirectly bear a proportionate share of the operating expenses of such
investment companies, including advisory fees, in addition to paying Portfolio
expenses. Under applicable regulations, the Portfolio is prohibited from
acquiring the securities of another investment company if, as a result of such
acquisition: (1) the Portfolio owns more than 3% of the total voting stock of
the other company; (2) securities issued by any one investment company represent
more than 5% of the Portfolio's total assets; or (3) securities (other than
treasury stock) issued by all investment companies represent more than 10% of
the total assets of the Portfolio. See also "Investment Limitations."
It is the position of the staff of the Securities and Exchange Commission
("SEC") that certain non-governmental issuers of collateralized mortgage
obligations ("CMOs") constitute investment companies pursuant to the Investment
Company Act of 1940, as amended (the "1940 Act"), and either (a) investments in
such instruments are subject to the limitations set forth above or (b) the
issuers of such instruments have received orders from the SEC exempting such
instruments from the definition of investment company.
OPTIONS
It is an operating policy of the Portfolio not to write or purchase PUTS,
CALLS, OPTIONS or combinations thereof.
WARRANTS
The Portfolio may invest in WARRANTS in accordance with the Prospectus.
S - 3
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INVESTMENT LIMITATIONS
FUNDAMENTAL POLICIES
The following investment limitations are fundamental policies of the Portfolio
that cannot be changed with respect to the Portfolio without the consent of the
holders of a majority of the Portfolio's outstanding shares. The phrase
"majority of the outstanding shares" means the vote of (i) 67% or more of the
Portfolio's shares present at a meeting, if more than 50% of the outstanding
shares of the Portfolio are present or represented by proxy, or (ii) more than
50% of the Portfolio's outstanding shares, whichever is less.
The Portfolio may not:
1. Acquire more than 10% of the voting securities of any one issuer.
2. Invest in companies for the purpose of exercising control.
3. Make loans if, as a result, more than 33 1/3% of its total assets
would be lent to other parties, except that the Portfolio may (i)
purchase or hold debt instruments in accordance with its investment
objective and policies; (ii) enter into repurchase agreements; and
(iii) lend its securities.
4. Purchase or sell real estate, real estate limited partnership
interests, physical commodities or commodities contracts except that
the Portfolio may purchase commodities contracts relating to financial
instruments, such as financial futures contracts and options on such
contracts.
S - 4
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5. Make short sales of securities, maintain a short position or purchase
securities on margin, except that the Portfolio may obtain short-term
credits as necessary for the clearance of security transactions and
sell securities short "against the box."
6. Act as an underwriter of securities of other issuers except as it may
be deemed an underwriter in selling the Portfolio security.
7. Purchase securities of other investment companies except as permitted
by the Investment Company Act of 1940, as amended (the "1940 Act"),
the rules and regulations thereunder or pursuant to an exemption
therefrom.
NON-FUNDAMENTAL POLICIES
The following investment limitation of the Portfolio is non-fundamental and may
be changed by the Trust's Board of Trustees without shareholder approval:
1. The Portfolio may not invest in illiquid securities in an amount
exceeding, in the aggregate, 15% of the Portfolio's net assets.
THE ADVISER
The Trust and Oak Associates Ltd. (the "Adviser") have entered into an advisory
agreement (the "Advisory Agreement"). The Advisory Agreement provides that the
Adviser shall not be protected against any liability to the Trust or its
shareholders by reason of willful misfeasance, bad faith or gross negligence on
its part in the performance of its duties or from reckless disregard of its
obligations or duties thereunder.
For the fiscal year ended October 31, 1998, the Portfolio had not commenced
operations and therefore did not pay advisory fees.
The continuance of the Advisory Agreement as to the Portfolio must be
specifically approved at least annually (i) by the vote of the Trustees or by a
vote of the shareholders of the Portfolio and (ii) by the vote of a majority of
the Trustees who are not parties to the
S - 5
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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 Portfolio, by a majority of the outstanding shares of the
Portfolio, on not less than 30 days' nor more than 60 days' written notice to
the Adviser, or by the Adviser on 90 days' written notice to the Trust.
THE ADMINISTRATOR
The Trust and SEI Investments Mutual Funds Services (the "Administrator") have
entered into an administration agreement (the "Administration Agreement"). The
Administration Agreement provides that the Administrator shall not be liable for
any error of judgment or mistake of law or for any loss suffered by the Trust in
connection with the matters to which the Administration Agreement relates,
except a loss resulting from willful misfeasance, bad faith or gross negligence
on the part of the Administrator in the performance of its duties or from
reckless disregard by it of its duties and obligations thereunder. The
Administration Agreement shall remain in effect for a period of five years after
the effective date of the agreement and shall continue in effect for successive
periods of two years unless terminated by either party on not less than 90 days'
prior written notice to the other party.
For the fiscal year ended October 31, 1998, the Portfolio had not commenced
operations and therefore did not pay fees to the Administrator.
The Trust and the Administrator have also entered into a shareholder servicing
agreement pursuant to which the Administrator provides certain shareholder
services in addition to those set forth in the Administration Agreement.
The Administrator, a Delaware business trust, has its principal business offices
at Oaks, Pennsylvania 19456. SEI Investments Management Corporation ("SIMC"), a
wholly-owned subsidiary of SEI Investments Company ("SEI Investments"), is the
S - 6
<PAGE>
owner of all beneficial interest in the Administrator. SEI Investments and
its subsidiaries and affiliates, including the Administrator, are leading
providers of funds evaluation services, trust accounting systems, and brokerage
and information services to financial institutions, institutional investors, and
money managers. The Administrator and its affiliates also serve as administrator
or sub-administrator to the following other mutual funds: The Achievement Funds
Trust, The Advisors' Inner Circle Fund, Alpha Select Funds, The Arbor Fund, ARK
Funds, Armada Funds, Bishop Street Funds, Boston 1784 Funds(R), CrestFunds,
Inc., CUFUND, The Expedition Funds, First American Funds, Inc., First American
Investment Funds, Inc., First American Strategy Funds, Inc., HighMark Funds,
Monitor Funds, Morgan Grenfell Investment Trust, The Nevis Fund, Inc., The PBHG
Funds, Inc., PBHG Advisor Funds, Inc., PBHG Insurance Series Fund, Inc., The
Pillar Funds, SEI Asset Allocation Trust, SEI Daily Income Trust, SEI Index
Funds, SEI Institutional International Trust, SEI Institutional Investments
Trust, SEI Institutional Managed Trust, SEI Liquid Asset Trust, SEI Tax Exempt
Trust, STI Classic Funds, STI Classic Variable Trust and TIP Funds.
THE DISTRIBUTOR
SEI Investments Distribution Co. (the "Distributor"), a wholly owned subsidiary
of SEI Investments, and the Trust are parties to a distribution agreement (the
"Distribution Agreement"). The Distributor will not receive compensation for
distribution of shares of the Portfolio.
The Distribution Agreement is renewable annually. The Distribution Agreement may
be terminated by the Distributor, by a majority vote of the Trustees who are not
interested persons and have no financial interest in the Distribution Agreement
or by a majority vote of the outstanding securities of the Trust upon not more
than 60 days' written notice by either party or upon assignment by the
Distributor.
TRUSTEES AND OFFICERS OF THE TRUST
The management and affairs of the Trust are supervised by the Trustees under the
laws of the Commonwealth of Massachusetts. The Trust pays the fees for
unaffiliated Trustees.
The Trustees and Executive Officers of the Trust, their respective dates of
birth, and their principal occupations for the last five years are set forth
below. Each may have held other positions with the named companies during that
period. Unless otherwise noted, the business address of each Trustee and each
Executive Officer is SEI Investments Company, Oaks, Pennsylvania 19456. Certain
officers of the Trust also serve as officers of some or all of the following:
The Achievement Funds Trust, The Advisors' Inner Circle Fund, The Arbor Fund,
ARK Funds, Armada Funds, Bishop Street Funds, Boston 1784 Funds(R), CrestFunds,
Inc., CUFUND, The Expedition
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Funds, First American Funds, Inc., First American Investment Funds, Inc.,
First American Strategy Funds, Inc., HighMark Funds, Monitor Funds, The Nevis
Fund, Inc., The PBHG Funds, Inc., PBHG Advisor Funds, Inc., PBHG Insurance
Series Fund, Inc., The Parkstone Funds, The Pillar Funds, SEI Asset Allocation
Trust, SEI Daily Income Trust, SEI Index Funds, SEI Institutional International
Trust, SEI Institutional Investments Trust, SEI Institutional Managed Trust, SEI
Liquid Asset Trust, SEI Tax Exempt Trust, STI Classic Funds, STI Classic
Variable Trust, TIP Funds and Alpha Select Funds, each of which is an open-end
management investment company managed by SEI Investments Mutual Funds Services
or its affiliates and, except for PBHG Advisor Funds, Inc., distributed by SEI
Investments Distribution Co.
ROBERT A. NESHER (DOB 08/17/46) -- Chairman of the Board of Trustees* --
Currently performs various services on behalf of SEI Investments for which Mr.
Nesher is compensated. Executive Vice President of SEI Investments, 1986-1994.
Director and Executive Vice President of the Administrator and the Distributor,
1981-1994. Trustee of The Advisors' Inner Circle Fund, The Arbor Fund, Boston
1784 Funds(R), The Expedition Funds, Pillar Funds, SEI Asset Allocation Trust,
SEI Daily Income Trust, SEI Index Funds, SEI Institutional Investments Trust,
SEI Institutional Managed Trust, SEI Institutional International Trust, SEI
Liquid Asset Trust and SEI Tax Exempt Trust.
JOHN T. COONEY (DOB 01/20/27) -- Trustee** -- Vice Chairman of Ameritrust Texas
N.A., 1989-1992, and MTrust Corp., 1985-1989. Trustee of The Advisors' Inner
Circle Fund, The Arbor Fund and The Expedition Funds.
WILLIAM M. DORAN (DOB 05/26/40) -- Trustee* -- 2000 One Logan Square,
Philadelphia, PA 19103. Partner, Morgan, Lewis & Bockius LLP (law firm), counsel
to the Trust, SEI Investments, the Administrator and the Distributor. Director
and Secretary of SEI Investments and Secretary of the Administrator and the
Distributor. Trustee of The Advisors' Inner Circle Fund, The Arbor Fund, The
Expedition Funds, SEI Asset Allocation Trust, SEI Daily Income Trust, SEI Index
Funds, SEI Institutional Investments Trust, SEI Institutional Managed Trust, SEI
Institutional International Trust, SEI Liquid Asset Trust and SEI Tax Exempt
Trust.
FRANK E. MORRIS (DOB 12/30/23) -- Trustee** -- Peter Drucker Professor of
Management, Boston College, 1989-1990. President, Federal Reserve Bank of
Boston, 1968-1988. Trustee of The Advisors' Inner Circle Fund, The Arbor Fund,
The Expedition Funds, SEI Asset Allocation Trust, SEI Daily Income Trust, SEI
Index Funds, SEI Institutional Investments Trust, SEI Institutional Managed
Trust, SEI Institutional International Trust, SEI Liquid Asset Trust and SEI Tax
Exempt Trust.
ROBERT A. PATTERSON (DOB 11/05/27) -- Trustee** -- Pennsylvania State
University, Senior Vice President, Treasurer (Emeritus). Financial and
Investment Consultant, Professor of Transportation (1984-present). Vice
President-Investments, Treasurer, Senior Vice President (Emeritus) (1982-1984).
Director, Pennsylvania Research Corp.; Member and
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Treasurer, Board of Trustees of Grove City College. Trustee of The Advisors'
Inner Circle Fund, The Arbor Fund and The Expedition Funds.
EUGENE B. PETERS (DOB 06/03/29) -- Trustee** -- Private investor from 1987 to
present. Vice President and Chief Financial Officer, Western Company of North
America (petroleum service company) (1980-1986). President of Gene Peters and
Associates (import company) (1978-1980). President and Chief Executive Officer
of Jos. Schlitz Brewing Company before 1978. Trustee of The Advisors' Inner
Circle Fund, The Arbor Fund and The Expedition Funds.
JAMES M. STOREY (DOB 04/12/31) -- Trustee** -- Partner, Dechert Price & Rhoads,
from September 1987 - December 1993; Trustee of The Advisors' Inner Circle Fund,
The Arbor Fund, The Expedition Funds, SEI Asset Allocation Trust, SEI Daily
Income Trust, SEI Index Funds, SEI Institutional Investments Trust, SEI
Institutional Managed Trust, SEI Institutional International Trust, SEI Liquid
Asset Trust and SEI Tax Exempt Trust.
MARK E. NAGLE (DOB 10/20/59) -- President and Chief Executive Officer --Vice
President of Fund Accounting and Administration for SEI Investments Mutual Funds
Services and Vice President of the Administrator since 1996. Vice President of
the Distributor since December 1997. Vice President, Fund Accounting, BISYS Fund
Services, September 1995 to November 1996. Senior Vice President and Site
Manager, Fidelity Investments 1981 to September 1995.
TODD B. CIPPERMAN (DOB 02/14/66) -- Vice President and Assistant Secretary --
Vice President and Assistant Secretary of SEI Investments, the Administrator and
the Distributor since 1995. Associate, Dewey Ballantine (law firm), 1994-1995.
Associate, Winston & Strawn (law firm) 1991-1994.
LYDIA A. GAVALIS (DOB 06/05/64) -- Vice President and Assistant Secretary --
Vice President and Assistant Secretary of the Administrator and the Distributor
since 1998. Assistant General Counsel and Director of Arbitration, Philadelphia
Stock Exchange, 1989-1998.
KATHY HEILIG (DOB 12/21/58) -- Vice President and Assistant Secretary --
Treasurer of SEI Investments since 1997; Assistant Controller of SEI Investments
since 1995; Vice President of SEI Investments since 1991; Director of Taxes of
SEI Investments, 1987 to 1991. Tax Manager, Arthur Anderson LLP prior to 1987.
JOSEPH M. O'DONNELL (DOB 11/13/54) -- Vice President and Assistant Secretary --
Vice President and Assistant Secretary of the Administrator and the Distributor
since 1998. Vice President and General Counsel, FPS Services, Inc., 1993-1997.
Staff Counsel and Secretary, Provident Mutual Family of Funds, 1990-1993.
SANDRA K. ORLOW (DOB 10/18/53) -- Vice President and Assistant Secretary --
Secretary of the Distributor since 1998; Vice President of the Distributor since
1988. Vice President and
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Assistant Secretary of the Manager since 1988. Assistant Secretary of the
Distributor from 1988 to 1998.
KEVIN P. ROBINS (DOB 04/15/61) -- Vice President and Assistant Secretary --
Senior Vice President and General Counsel of SEI Investments, the Administrator
and the Distributor since 1994. Assistant Secretary of SEI Investments since
1992; Secretary of the Administrator since 1994. Vice President, General Counsel
and Assistant Secretary of the Administrator and the Distributor, 1992-1994.
Associate, Morgan, Lewis & Bockius LLP (law firm), 1988-1992.
LYNDA J. STRIEGEL (DOB 10/30/48) -- Vice President and Assistant Secretary --
Vice President and Assistant Secretary of the Administrator and the Distributor
since 1998. Senior Asset Management Counsel, Barnett Banks, Inc., 1997-1998.
Partner, Groom and Nordberg, Chartered, 1996-1997. Associate General Counsel,
Riggs Bank, N.A., 1991-1995.
WILLIAM E. WHITE (DOB 03/09/65) -- Assistant Secretary -- Mutual Fund Product
Manager of Oak Associates, Ltd., the Adviser, since 1997. Accountant Director,
SEI Investments, 1994- 1997. Lieutenant, United States Navy, 1987-1994.
ROBERT DELLACROCE (DOB 12/17/63) -- Controller and Chief Financial Officer --
Director, Funds Administration and Accounting of SEI Investments since 1994.
Senior Audit Manager, Arthur Andersen LLP, 1986-1994.
JOHN H. GRADY, JR. (DOB 06/01/61) -- Secretary -- 2000 One Logan Square,
Philadelphia, PA 19103-6993, Partner since 1995, Morgan, Lewis & Bockius LLP
(law firm), counsel to the Trust, SEI Investments, the Administrator and the
Distributor.
- ----------
*Messrs. Nesher and Doran are Trustees who may be deemed to be "interested"
persons of the Trust as that term is defined in the 1940 Act.
**Messrs. Cooney, Morris, Patterson, Peters and Storey serve as members of the
Audit Committee of the Trust.
The Trustees and officers of the Trust own less than 1% of the outstanding
shares of the Trust. The Trust pays the fees for unaffiliated Trustees.
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The following table exhibits Trustee compensation for the fiscal year ended
October 31, 1998.
===============================================================================
Aggregate Compensation From
Name of Person, Position Registrant for the Fiscal Year Ended
October 31, 1998
- -------------------------------------------------------------------------------
John T. Cooney, Trustee $8,154
Frank E. Morris, Trustee $8,154
Robert Patterson, Trustee $8,154
Eugene B. Peters, Trustee $8,154
James M. Storey, Esq., Trustee $8,154
William M. Doran, Esq., Trustee $ 0
Robert A. Nesher, Chairman of the $ 0
Board
===============================================================================
* SEI Investments compensates Mr. Nesher for services he provides to SEI
Investments.
The Portfolio had not commenced operations as of the fiscal year ended October
31, 1998.
COMPUTATION OF TOTAL RETURN
From time to time the Trust may advertise total return of the Portfolio. These
figures will be based on historical earnings and are not intended to indicate
future performance.
The total return of the Portfolio refers to the average annual compounded rate
of return to a hypothetical investment for designated time periods (including
but not limited to, the period from which the Portfolio commenced operations
through the specified date), assuming that the entire investment is redeemed at
the end of each period. In particular, total return will be calculated according
to the following formula: P (1 + T)n = ERV, where P = a hypothetical initial
payment of $1,000; T = average annual total return; n = number of years; and ERV
= ending redeemable value, as of the end of the designated time period, of a
hypothetical $1,000 payment made at the beginning of the designated time period.
The Portfolio had not commenced operations as of the fiscal year ended October
31, 1998.
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<PAGE>
PURCHASE AND REDEMPTION OF SHARES
Purchases and redemptions may be made through the Transfer Agent on any day the
New York Stock Exchange is open for business. Shares of the Portfolio are
offered 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,
President's Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving and Christmas.
It is currently the Trust's policy to pay all redemptions in cash. The Trust
retains the right, however, to alter this policy to provide for redemptions in
whole or in part by a distribution in-kind of securities held by the Portfolio
in lieu of cash. Shareholders may incur brokerage charges on the sale of any
such securities so received in payment of redemptions.
The Trust reserves the right to suspend the right of redemption and/or to
postpone the date of payment upon redemption for any period on which trading on
the New York Stock Exchange is restricted, or during the existence of an
emergency (as determined by the SEC by rule or regulation) as a result of which
disposal or valuation of the Portfolio's securities is not reasonably
practicable, or for such other periods as the SEC has by order permitted. The
Trust also reserves the right to suspend sales of shares of the Portfolio for
any period during which the New York Stock Exchange, the Adviser, the
Administrator, the Transfer Agent and/or the custodian are not open for
business.
DETERMINATION OF NET ASSET VALUE
The securities of the Portfolio are valued by the Administrator. The
Administrator will use an independent pricing service to obtain valuations of
securities. The pricing service relies primarily on prices of actual market
transactions as well as trade quotations. However, the service may also use a
matrix system to determine valuations of certain securities, which system
considers such factors as security prices, yields, maturities, call features,
ratings and developments relating to specific securities. The procedures of the
pricing service and its valuations are reviewed by the officers of the Trust
under the general supervision of the Trustees.
TAXES
The following is only a summary of certain federal income tax considerations
generally affecting the Portfolio and its shareholders, and is not intended as a
substitute for careful tax planning. Shareholders are urged to consult their tax
advisors with specific reference to their own tax situations, including their
state and local tax liabilities.
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<PAGE>
FEDERAL INCOME TAX
The following discussion of federal income tax consequences is based on the
Internal Revenue Code of 1986 (the "Code") and the regulations issued thereunder
as in effect on the date of this Statement of Additional Information. New
legislation, as well as administrative changes or court decisions, may
significantly change the conclusions expressed herein, and may have a
retroactive effect with respect to the transactions contemplated herein.
The Portfolio intends to qualify as a "regulated investment company" ("RIC") as
defined under Subchapter M of the Code. By following such a policy, the
Portfolio expects to eliminate or reduce to a nominal amount the federal taxes
to which it may be subject.
In order to qualify for treatment as a RIC under the Code, each Portfolio must
distribute annually to its shareholders at least the sum of 90% of its net
interest income excludable from gross income plus 90% of its investment company
taxable income (generally, net investment income plus net short-term capital
gain) ("Distribution Requirement") and also must meet several additional
requirements. Among these requirements are the following: (i) at least 90% of
the Portfolio's gross income each taxable year must be derived from dividends,
interest, payments with respect to securities loans and gains from the sale or
other disposition of stock or securities, or certain other income; (ii) at the
close of each quarter of the Portfolio's taxable year, at least 50% of the value
of its total assets must be represented by cash and cash items, U.S. Government
securities, securities of other RICs and other securities, with such other
securities limited, in respect to any one issuer, to an amount that does not
exceed 5% of the value of the Portfolio's assets and that does not represent
more than 10% of the outstanding voting securities of such issuer; and (iii) at
the close of each quarter of the Portfolio's taxable year, not more than 25% of
the value of its assets may be invested in securities (other than U.S.
Government securities or the securities of other RICs) of any one issuer or of
two or more issuers which the Portfolio controls or which are engaged in the
same, similar or related trades or business.
Notwithstanding the Distribution Requirement described above, which requires
only that the Portfolio distribute at least 90% of its annual investment company
taxable income and does not require any minimum distribution of net capital gain
(the excess of net long-term capital gain over net short-term capital loss), the
Portfolio will be subject to a nondeductible 4% federal excise tax to the extent
it fails to distribute by the end of any calendar year 98% of its ordinary
income for that year and 98% of its capital gain net income (the excess of
short- and long-term capital gains over short- and long-term capital losses) for
the one-year period ending on October 31 of that year, plus certain other
amounts.
Any gain or loss recognized on a sale or redemption of shares of the Portfolio
by a non-exempt shareholder who is not a dealer in securities generally will be
treated as a long-term capital gain or loss if the shares have been held for
more than eighteen months, will be treated as a
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mid-term capital gain if the shares have been held for more than twelve, but not
more than eighteen, months and otherwise generally will be treated as a
short-term capital gain or loss. If shares of the Portfolio on which a net
capital gain distribution has been received are subsequently sold or redeemed
and such shares have been held for six months or less, any loss recognized will
be treated as a long-term capital loss to the extent of the long-term capital
gain distribution.
In certain cases, the Portfolio will be required to withhold, and remit to the
United States Treasury, 31% of any distributions paid to a shareholder who (1)
has failed to provide a correct taxpayer identification number, (2) is subject
to backup withholding by the Internal Revenue Service, or (3) has not certified
to the Portfolio that such shareholder is not subject to backup withholding.
If the Portfolio fails to qualify as a RIC for any taxable year, it will be
taxable at regular corporate rates. In such an event, all distributions
(including capital gains distributions) will be taxable as ordinary dividends to
the extent of the Portfolio's current and accumulated earnings and profits and
such distributions will generally be eligible for the corporate
dividends-received deduction.
STATE TAXES
The Portfolio is not liable for any income or franchise tax in Massachusetts if
it qualifies as a RIC for federal income tax purposes. Distributions by the
Portfolio to shareholders and the ownership of shares may be subject to state
and local taxes.
PORTFOLIO TRANSACTIONS
The Adviser is authorized to select brokers and dealers to effect securities
transactions for the Portfolio. The Portfolio will seek to obtain the most
favorable net results by taking into account various factors, including price,
commission, if any, size of the transactions and difficulty of executions, the
firm's general execution and operational facilities and the firm's risk in
positioning the securities involved. While the Adviser generally seeks
reasonably competitive spreads or commissions, the Portfolio will not
necessarily be paying the lowest spread or commission available. The Adviser
seeks to select brokers or dealers that offer the Portfolio best price and
execution or other services which are of benefit to the Portfolio.
The Adviser may, consistent with the interests of the Portfolio, select brokers
on the basis of the research services they provide to the Adviser. Such services
may include analyses of the business or prospects of a company, industry or
economic sector, or statistical and pricing services. Information so received by
the Adviser will be in addition to and not in lieu of the services required to
be performed by the Adviser under the Advisory Agreement. If, in the judgment of
the Adviser, the Portfolio or other accounts managed by the Adviser will be
benefitted by supplemental research services, the Adviser is authorized to pay
brokerage
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<PAGE>
commissions to a broker furnishing such services which are in excess of
commissions which another broker may have charged for effecting the same
transaction. These research services include advice, either directly or through
publications or writings, as to the value of securities, the advisability of
investing in, purchasing or selling securities, and the availability of
securities or purchasers or sellers of securities; furnishing of analyses and
reports concerning issuers, securities or industries; providing information on
economic factors and trends; assisting in determining portfolio strategy;
providing computer software used in security analyses; and providing portfolio
performance evaluation and technical market analyses. The expenses of the
Adviser will not necessarily be reduced as a result of the receipt of such
supplemental information, such services may not be used exclusively with respect
to the Portfolio or account generating the brokerage, and there can be no
guarantee that the Adviser will find all of such services of value in advising
the Portfolio.
It is expected that the Portfolio may execute brokerage or other agency
transactions through the Distributor, which is a registered broker-dealer, for a
commission in conformity with the 1940 Act, the Securities Exchange Act of 1934,
as amended, and rules promulgated by the SEC. Under these provisions, the
Distributor is permitted to receive and retain compensation for effecting
portfolio transactions for the Portfolio on an exchange if a written contract is
in effect between the Distributor and the Portfolio expressly permitting the
Distributor to receive and retain such compensation. These rules further require
that commissions paid to the Distributor by the Portfolio for exchange
transactions not exceed "usual and customary" brokerage commissions. The rules
define "usual and customary" commissions to include amounts which are
"reasonable and fair compared to the commission, fee or other remuneration
received or to be received by other brokers in connection with comparable
transactions involving similar securities being purchased or sold on a
securities exchange during a comparable period of time." The Trustees, including
those who are not "interested persons" of the Portfolio, have adopted procedures
for evaluating the reasonableness of commissions paid to the Distributor and
will review these procedures periodically.
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<PAGE>
The Portfolio had not commenced operations as of the fiscal year ended October
31, 1998, and therefor had no brokerage transactions and paid no commissions.
Because the Portfolio does not market its shares through intermediary brokers
or dealers, it is not the Portfolio's practice to allocate brokerage or
principal business on the basis of sales of its shares which may be made through
such firms. However, the Adviser may place portfolio orders with qualified
broker-dealers who recommend the Portfolio's shares to clients, and may, when a
number of brokers and dealers can provide best net results on a particular
transaction, consider such recommendations by a broker or dealer in selecting
among broker-dealers.
The Portfolio is required to identify any securities of its "regular brokers and
dealers" (as such term is defined in the 1940 Act) which the Portfolio has
acquired during its most
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<PAGE>
recent fiscal year. The Portfolio had not commenced operations as of October 31,
1998.
DESCRIPTION OF SHARES
The Declaration of Trust authorizes the issuance of an unlimited number of
portfolios and shares of the 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 Portfolio for shares of any portfolio and all assets in which such
consideration is invested would belong to that portfolio and would be subject to
the liabilities related thereto. Share certificates representing shares will not
be issued.
SHAREHOLDER LIABILITY
The Trust is an entity of the type commonly known as a "Massachusetts business
trust." Under Massachusetts law, shareholders of such a trust could, under
certain circumstances, be held personally liable as partners for the obligations
of the trust. Even if, however, the Trust were held to be a partnership, the
possibility of the shareholders incurring financial loss for that reason appears
remote because the Trust's Declaration of Trust contains an express disclaimer
of shareholder liability for obligations of the Trust and requires that notice
of such disclaimer be given in each agreement, obligation or instrument entered
into or executed by or on behalf of the Trust or the Trustees, and because the
Declaration of Trust provides for indemnification out of the Trust property for
any shareholder held personally liable for the obligations of the Trust.
LIMITATION OF TRUSTEES' LIABILITY
The Declaration of Trust provides that a Trustee shall be liable only for his or
her own willful defaults and, if reasonable care has been exercised in the
selection of officers, agents,
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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.
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<PAGE>
COUNSEL
Morgan, Lewis & Bockius LLP serves as counsel to the Trust.
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<PAGE>
APPENDIX
DESCRIPTION OF CORPORATE BOND RATINGS
The following descriptions of corporate bond ratings have been published by
Standard & Poor's Corporation ("S&P") and Moody's Investors Service, Inc.
("Moody's"), respectively.
Debt rated AAA has the highest rating S&P assigns to a debt obligation. Such a
rating indicates an extremely strong capacity to pay principal and interest.
Debt rated AA also qualities as high-quality debt. Capacity to pay principal and
interest is very strong, and differs from AAA issues only in small degree. Debt
rated A has a strong capacity to pay interest and repay principal although it is
somewhat more susceptible to the adverse effects of changes in circumstances and
economic conditions than debt in higher rated categories.
Debt rated BBB is regarded as having an adequate capacity to pay interest and
repay principal. Whereas it normally exhibits adequate protection parameters,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity to pay interest and repay principal for debt in this
category than in higher rated categories.
Debt rated BB, B, CCC, CC and C is regarded as having predominately speculative
characteristics with respect to capacity to pay interest and repay principal in
accordance with the terms of the obligation. BB indicates the least degree of
speculation and C the highest degree of speculation. While such debt will likely
have some quality and protective characteristics, these are outweighed by large
uncertainties of major risk exposures to adverse conditions.
The rating CI is reserved for income bonds on which no interest is being paid.
Debt rated D is in default, and payment of interest and/or repayment of
principal is in arrears.
Bonds which are rated Aaa by Moody's are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edged." Interest payments are protected by a large, or an exceptionally
stable, margin and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues. Bonds rated Aa by
Moody's are judged by Moody's to be of high quality by all standards. Together
with bonds rated Aaa, they comprise what are generally known as high-grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long-term risk appear somewhat larger than in Aaa securities.
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<PAGE>
Bonds which are rated A possess many favorable investment attributes and are to
be considered as upper-medium grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future.
Bonds rated Baa are considered as medium grade obligations (i.e., they are
neither highly protected nor poorly secured). Interest payments and principal
security appear adequate for the present but certain protective elements may be
lacking or may be characteristically unreliable over any great length of time.
Such bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.
Bonds which are rated Ba are judged to have speculative elements; their future
cannot be considered as well-assured. Often the protection of interest and
principal payments may be very moderate and thereby not well safeguarded during
both good and bad times over the future. Uncertainty of position characterizes
bonds in this class.
Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Bonds which are rated Caa are of poor standing. Such issues may be in default or
there may be present elements of danger with respect to principal or interest.
Bonds which are rated Ca represent obligations which are speculative in a high
degree. Such issues are often in default or have other marked shortcomings.
Bonds which are rated C are the lowest rated class of bonds and issues so rated
can be regarded as having extremely poor prospects of ever attaining any real
investment standing.
DESCRIPTION OF COMMERCIAL PAPER RATINGS
The following descriptions of commercial paper ratings have been published by
S&P and Moody's, respectively.
A-1 - This is S&P's highest category and indicates that the degree of safety
regarding timely payment is strong. Those issues determined to possess extremely
strong safety characteristics are denoted with a plus sign (+) designation.
PRIME-1 - Issues rated Prime-1 (or supporting institutions) by Moody's have a
superior ability for repayment of senior short-term debt obligations. Prime-1
repayment ability will often be evidenced by many of the following
characteristics:
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<PAGE>
- Leading market positions in well-established industries.
- High rates of return on funds employed.
- Conservative capitalization structure with moderate reliance on debt
and ample asset protection.
- Broad margins in earnings coverage of fixed financial charges and high
internal cash generation.
- Well-established access to a range of financial markets and assured
sources of alternate liquidity.
PRIME-2 - Issuers rated Prime-2 (or supporting institutions) by Moody's have a
strong ability for repayment of senior short-term debt obligations. This will
normally be evidenced by many of the characteristics cited above but to a lesser
degree. Earnings trends and coverage ratios, while sound, may be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
A - 3
