AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 16, 2000
File No. 33-[ ]
File No. 811-[ ]
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933
AND
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940
THE MDL FUNDS
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
101 FEDERAL STREET
BOSTON, MASSACHUSETTS 02110
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES, ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (877) MDL-FUNDS
JAMES A. FOGGO
C/O SEI CORPORATION
OAKS, PENNSYLVANIA 19456
(NAME AND ADDRESS OF AGENT FOR SERVICE)
Copies to:
RICHARD W. GRANT, ESQUIRE
MORGAN, LEWIS & BOCKIUS LLP
1701 MARKET STREET
PHILADELPHIA, PENNSYLVANIA 19103
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/X/ Approximate date of Proposed Public Offering:
As soon as practicable after the effective date
of this Registration Statement
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Registrant hereby amends this Registration Statement on such date or dates as
may be necessary to delay its effective date until the Registrant shall file a
further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission acting pursuant to said Section 8(a)
may determine.
<PAGE>
THE MDL FUNDS
PROSPECTUS
----------, -----
MDL BROAD MARKET FIXED INCOME FUND
MDL LARGE CAP GROWTH EQUITY FUND
INVESTMENT ADVISER:
MDL ADVISORS, INC.
THE SECURITIES AND EXCHANGE COMMISSION
HAS NOT APPROVED OR DISAPPROVED THESE
SECURITIES OR PASSED UPON THE
ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
ABOUT THIS PROSPECTUS
The MDL Funds is a mutual fund family that offers shares of separate investment
portfolios (Funds). The Funds have individual investment goals and strategies.
This prospectus gives you important information about the MDL Broad Market Fixed
Income Fund and the MDL Large Cap Growth Equity Fund that you should know before
investing.Please read this prospectus and keep it for future reference.
This prospectus has been arranged into different sections so that you can easily
review this important information. On the next page, there is some general
information you should know about risk and return that is common to each of the
Funds. For more detailed information about the Funds, please see:
PAGE
MDL BROAD MARKET FIXED INCOME FUND..............................XXX
PERFORMANCE INFORMATION.........................................XXX
FUND FEES AND EXPENSES..........................................XXX
MDL LARGE CAP GROWTH EQUITY FUND................................XXX
PERFORMANCE INFORMATION.........................................XXX
FUND FEES AND EXPENSES..........................................XXX
MORE INFORMATION ABOUT RISK.....................................XXX
MORE INFORMATION ABOUT FUND INVESTMENTS.........................XXX
INVESTMENT ADVISER..............................................XXX
PORTFOLIO MANAGERS..............................................XXX
PURCHASING AND SELLING FUND SHARES..............................XXX
DIVIDENDS AND DISTRIBUTIONS.....................................XXX
TAXES...........................................................XXX
FINANCIAL HIGHLIGHTS............................................XXX
HOW TO OBTAIN MORE INFORMATION ABOUT THE
MDL FUNDS...................................................XXX
<PAGE>
RISK/RETURN INFORMATION COMMON TO THE FUNDS
Each Fund is a mutual fund. A mutual fund pools shareholders' money and, using
professional investment managers, invests it in securities.
Each Fund has its own investment goal and strategies for reaching that goal. The
investment managers invest Fund assets in a way that they believe will help each
Fund achieve its goal. Still, investing in each Fund involves risk and there is
no guarantee that a Fund will achieve its goal. The investment manager's
judgments about the markets, the economy, or companies may not anticipate actual
market movements, economic conditions or company performance, and these
judgments may affect the return on your investment. In fact, no matter how good
a job an investment manager does, you could lose money on your investment in the
Fund, just as you could with other investments.
The value of your investment in a Fund is based on the market prices of the
securities the Fund holds. These prices change daily due to economic and other
events that affect particular companies and other issuers. These price
movements, sometimes called volatility, may be greater or lesser depending on
the types of securities a Fund owns and the markets in which they trade. The
effect on a Fund of a change in the value of a single security will depend on
how widely the Fund diversifies its holdings.
<PAGE>
MDL BROAD MARKET FIXED INCOME FUND
FUND SUMMARY
INVESTMENT GOAL Total return consistent with preservation of
capital
INVESTMENT FOCUS Fixed income securities
SHARE PRICE VOLATILITY Medium
PRINCIPAL INVESTMENT STRATEGY Investing in fixed income securities of the
U.S. government and its agencies and U.S.
corporations
INVESTOR PROFILE Investors who seek current income and are
willing to have values fluctuate based on
interest rate changes
INVESTMENT STRATEGY OF THE MDL BROAD MARKET FIXED INCOME FUND
The Fund invests primarily (at least 80% of its assets) in a broad portfolio of
fixed income securities. These securities include U.S. Treasury bills, notes and
bonds and other fixed income securities issued or guaranteed by the U.S.
government and its agencies or instrumentalities, including mortgage-backed
securities. The Fund also invests in U.S. corporate fixed income securities
rated in one of the three highest ratings categories. The Adviser will increase
the Fund's average weighted maturity when it expects interest rates to decline
and lower the average weighted maturity when interest rates are expected to
rise. The duration of the Fund's investments will generally range from 4 to 7
years. The Adviser's investment selection process begins with a top-down
analysis of general economic conditions to determine how the Fund's investments
will be weighted among the U.S. Treasury, government agency and corporate
sectors. The Adviser conducts credit analysis of the corporate issues it buys
and diversifies the Fund's investments in corporate debt among the major
industry sectors. The Adviser continually monitors the sector weighting of the
Fund and may sell a security when there is a fundamental change in a company's
or sector's outlook or better opportunities become available. If a security's
credit rating is downgraded, the Adviser will immediately review that security
and take appropriate action, including the possible sale of that security. Due
to this investment strategy, the Fund may buy and sell securities frequently.
This may result in higher transaction costs and additional capital gains taxes.
PRINCIPAL RISKS OF INVESTING IN THE MDL BROAD MARKET FIXED INCOME FUND
The prices of the Fund's fixed income securities respond to economic
developments, particularly interest rate changes, as well as to perceptions
about the creditworthiness of individual issuers, including governments.
Generally, the Fund's fixed income securities will decrease in value if interest
rates rise and vice versa, and the volatility of lower-rated securities is even
greater than that of higher-rated securities. Also, longer-term securities are
generally more volatile, so the average maturity or duration of these securities
affects risk.
The mortgages underlying mortgage-backed securities may be paid off early, which
makes it difficult to determine their actual maturity and therefore calculate
<PAGE>
how they will respond to changes in interest rates. The Fund may have to
reinvest prepaid amounts at lower interest rates. This risk of prepayment is an
additional risk of mortgage-backed securities.
Although the Fund's U.S. government securities are considered to be among the
safest investments, they are not guaranteed against price movements due to
changing interest rates. Obligations issued by some U.S. government agencies are
backed by the U.S. Treasury, while others are backed solely by the ability of
the agency to borrow from the U.S. Treasury or by the agency's own resources.
The Fund is also subject to the risk that its investment approach, which focuses
on a broad range of fixed income instruments, may perform differently than other
mutual funds which target specific segments of the fixed income market or invest
in other asset classes.
PERFORMANCE INFORMATION
The bar chart and the performance table below illustrate the risks and
volatility of an investment in the Fund. The performance information shown
below is the performance for the Fund's predecessor, the Advisors' Inner Circle
Fund's MDL Broad Market Fixed Income Fund (the "AIC MDL Fixed Income Fund").
Of course, the Fund's past performance does not necessarily indicate how the
Fund will perform in the future.
This bar chart shows changes in the Fund's performance from year to year.*
1998 8.36%
1999 -2.97%
2000 X.XX%
BEST QUARTER WORST QUARTER
X.XX% X.XX%
(XX/XX/XX) (XX/XX/XX)
* The performanceinformation shown above is based on calender years.
This table compares the Fund's average annual total returns for the periods
ended December 31, 2000 to those of the Lehman Brothers Aggregate Bond Index.
1 YEAR SINCE INCEPTION
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MDL Broad Market Fixed Income Fund X.XX% X.XX%*
Lehman Brothers Aggregate Bond Index X.XX% X.XX%*
* Since 10/31/97
WHAT IS AN INDEX?
An index measures the market prices of a specific group of securities in a
particular market or securities in a market sector. You cannot invest directly
in an index. Unlike a mutual fund, an index does not have an investment adviser
and does not pay any commissions or expenses. If an index had expenses, its
performance would be lower. The Lehman Brothers Aggregate Bond Index is a widely
recognized, market value-weighted (higher market value bonds have more influence
than lower market value bonds) index of U.S. government obligations, corporate
<PAGE>
debt securities, and AAA rated mortgage-backed securities. All securities in the
index are rated investment grade (BBB) or higher, with maturities of at least 1
year.
FUND FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
Fund shares.
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
--------------------------------------------------------------------------------
Maximum Sales Charge (Load) Imposed on Purchases (as a percentage
of offering price) None
Maximum Deferred Sales Charge (Load) (as a percentage of net
asset value) None
Maximum Sales Charge (Load) Imposed on Reinvested Dividends
and other Distributions (as a percentage of offering price) None
Redemption Fee (as a percentage of amount redeemed, if applicable) None
Exchange Fee None
--------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS)*
Investment Advisory Fees 0.45%
Other Expenses [1.05%]
-------
Total Annual Fund Operating Expenses [1.50%]
--------------------------------------------------------------------------------
* Other expenses are based on the most recent fiscal year for the AIC MDL
Fixed Income Fund. The AIC MDL Fixed Income Fund's total actual annual fund
operating expenses for its most recent fiscal year were less than the amount
shown above because the Adviser waived a portion of the fees and reimbursed
certain expenses of the Fund in order to keep total operating expenses at a
specified level. These fee waivers remain in place as of the date of this
prospectus, but the Adviser may discontinue all or part of these fee waivers and
reimbursements at any time. With these fee waivers and reimbursements, the
Fund's actual total operating expenses are expected to be as follows:
MDL Broad Market Fixed Income Fund [0.90%]
For more information about these fees, see "Investment Adviser."
EXAMPLE
This Example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. The Example assumes that you
invest $10,000 in the Fund for the time periods indicated and that you sell your
shares at the end of the period.
The Example also assumes that each year your investment has a 5% return, Fund
operating expenses remain the same and you reinvest all dividends and
distributions. Although your actual costs and returns might be different, your
approximate costs of investing $10,000 in the Fund would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
[$153] [$474] [$818] [$1,791}
<PAGE>
MDL LARGE CAP GROWTH EQUITY FUND
FUND SUMMARY
INVESTMENT GOAL Long-term growth of capital, with a secondary
objective of income
INVESTMENT FOCUS U.S. common stocks
SHARE PRICE VOLATILITY Medium
PRINCIPAL INVESTMENT STRATEGY Investing in common stocks issued by large
U.S. companies
INVESTOR PROFILE Investors who seek long term growth of
capital and are willing to bear the risk of
investing in equity securities
INVESTMENT STRATEGY OF THE MDL LARGE CAP GROWTH EQUITY FUND
The Fund invests primarily (at least 80% of its assets) in common stocks of
large U.S. companies (companies with market capitalizations of $3 billion or
more). The Fund seeks to own companies that have consistently grown earnings
above the S&P 500 earnings growth rate but that offer "value" in terms of
current price relative to growth prospects. The Adviser's investment selection
process begins with a top-down analysis of general economic conditions to
determine how the investments will be weighted among industry sectors. The Fund
normally invests in all major industry sectors represented in the S&P 500. The
Adviser then conducts analysis of fundamental growth characteristics of the
companies within those sectors to identify stocks which are likely to perform
best over a six to twelve month horizon. Finally, the Adviser uses quantitative
techniques to screen these companies based on factors such as earnings momentum,
earnings consistency, and price/earnings ratios. These stocks are placed on the
Adviser's "buy list," which is updated frequently. The Adviser will generally
sell a security when it no longer appears on the "buy list." Due to this
investment strategy, the Fund may buy and sell securities frequently. This may
result in higher transaction costs and additional capital gains taxes.
PRINCIPAL RISKS OF INVESTING IN THE MDL LARGE CAP GROWTH EQUITY FUND
Since it purchases common stocks, the Fund is subject to the risk that stock
prices will fall over short or extended periods of time. Historically, the
equity markets have moved in cycles, and the value of the Fund's securities may
fluctuate drastically from day to day. Individual companies may report poor
results or be negatively affected by industry and/or economic trends and
developments. The prices of securities issued by such companies may suffer a
decline in response. These factors contribute to price volatility, which is the
principal risk of investing in the Fund.
The Fund is also subject to the risk that large cap growth stocks may
underperform other segments of the equity market or the equity markets as a
whole.
<PAGE>
PERFORMANCE INFORMATION
The bar chart and the performance table below illustrate the risks and
volatility of an investment in the Fund. The performance information shown
below is the performance for the Fund's predecessor, the Advisors' Inner Circle
Fund's MDL Large Cap Growth Equity Fund (the "AIC MDL Growth Fund"). Of course,
the Fund's past performance does not necessarily indicate how the Fund will
perform in the future.
1998 26.03%
1999 20.77%
2000 X.XX%
BEST QUARTER WORST QUARTER
X.XX% X.XX%
(XX/XX/XX) (XX/XX/XX)
* The performance information shown above is based on calender years.
This table compares the Fund's average annual total returns for the periods
ended December 31, 2000 to those of the S&P 500 Index.
1 YEAR SINCE INCEPTION
----------------------------------------------------------------------------
MDL Large Cap Growth Equity Fund X.XX% X.XX%*
S&P 500 Index X.XX% X.XX%*
* Since 10/31/97
WHAT IS AN INDEX?
An index measures the market prices of a specific group of securities in a
particular market or securities in a market sector. You cannot invest directly
in an index. Unlike a mutual fund, an index does not have an investment adviser
and does not pay any commissions or expenses. If an index had expenses, its
performance would be lower. The S&P 500 Index is a widely-recognized, market
value-weighted (higher market value stocks have more influence than lower market
value stocks) index of 500 stocks designed to mimic the overall equity market's
industry weightings.
FUND FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
Fund shares.
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
--------------------------------------------------------------------------------
Maximum Sales Charge (Load) Imposed on Purchases (as a percentage
of offering price) None
Maximum Deferred Sales Charge (Load) (as a percentage of net asset
value) None
Maximum Sales Charge (Load) Imposed on Reinvested Dividends
and other Distributions (as a percentage of offering price) None
Redemption Fee (as a percentage of amount redeemed, if applicable) None
Exchange Fee None
--------------------------------------------------------------------------------
<PAGE>
ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS)*
Investment Advisory Fees 0.74%
Other Expenses [0.83%]
Total Annual Fund Operating Expenses [1.57%]
--------------------------------------------------------------------------------
* Other expenses are based on the most recent fiscal year for the AIC MDL
Growth Fund. The AIC MDL Growth Fund's total actual annual fund operating
expenses for its most recent fiscal year were less than the amount shown above
because the Adviser waived a portion of the fees and reimbursed certain expenses
of the Fund in order to keep total operating expenses at a specified level.
These fee waivers remain in place as of the date of this prospectus, but the
Adviser may discontinue all or part of these fee waivers and reimbursements at
any time. With these fee waivers and reimbursements, the Fund's actual total
operating expenses are expected to be as follows:
--------------------------------------------------------------------------------
MDL Large Cap Growth Equity Fund [1.26%]
For more information about these fees, see "Investment Adviser."
EXAMPLE
This Example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. The Example assumes that you
invest $10,000 in the Fund for the time periods indicated and that you sell your
shares at the end of the period.
The Example also assumes that each year your investment has a 5% return, Fund
operating expenses remain the same and you reinvest all dividends and
distributions. Although your actual costs and returns might be different, your
approximate costs of investing $10,000 in the Fund would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
[$160] [$496] [$855] [$1,867]
<PAGE>
<TABLE>
<CAPTION>
MORE INFORMATION ABOUT RISK
<S> <C>
EQUITY RISK - Equity securities include public and privately issued equity MDL Large Cap Growth Equity Fund
securities, common and preferred stocks, warrants, rights to subscribe to common
stock and convertible securities, as well as instruments that attempt to track
the price movement of equity indices. Investments in equity securities and
equity derivatives in general are subject to market risks that may cause their
prices to fluctuate over time. The value of securities convertible into equity
securities, such as warrants or convertible debt, is also affected by prevailing
interest rates, the credit quality of the issuer and any call provision.
Fluctuations in the value of equity securities in which a mutual fund invests
will cause a fund's net asset value to fluctuate. An investment in a portfolio
of equity securities may be more suitable for long-term investors who can bear
the risk of these share price fluctuations.
FIXED INCOME RISK - The market value of fixed income investments change in MDL Broad Market Fixed Income Fund
response to interest rate changes and other factors. During periods of falling
interest rates, the values of outstanding fixed income securities generally
rise. Moreover, while securities with longer maturities tend to produce higher
yields, the prices of longer maturity securities are also subject to greater
market fluctuations as a result of changes in interest rates. During periods of
falling interest rates, certain debt obligations with high interest rates may be
prepaid (or "called") by the issuer prior to maturity. This may cause a Fund's
average weighted maturity to fluctuate, and may require a Fund to invest the
resulting proceeds at lower interest rates. In addition to these risks, fixed
income securities may be subject to credit risk, which is the possibility that
an issuer will be unable to make timely payments of either principal or
interest.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
MORTGAGE-BACKED SECURITIES - Mortgage-backed securities are fixed income MDL Broad Market Fixed Income Fund
securities representing an interest in a pool of underlying mortgage loans. They
are sensitive to changes in interest rates, but may respond to these changes
differently from other fixed income securities due to the possibility of
prepayment of the underlying mortgage loans. As a result, it may not be possible
to determine in advance the actual maturity date or average life of a
mortgage-backed security. Rising interest rates tend to discourage refinancings,
with the result that the average life and volatility of the security will
increase exacerbating its decrease in market price. When interest rates fall,
however, mortgage-backed securities may not gain as much in market value because
of the expectation of additional mortgage prepayments that must be reinvested at
lower interest rates. Prepayment risk may make it difficult to calculate the
average maturity of a portfolio of mortgage-backed securities and, therefore, to
assess the volatility risk of that portfolio.
</TABLE>
MORE INFORMATION ABOUT FUND INVESTMENTS
This prospectus describes the Funds' primary strategies, and each Fund will
normally invest in the types of securities described in this prospectus.
However, in addition to the investments and strategies described in this
prospectus, each Fund also may invest in other securities, use other strategies
and engage in other investment practices. These investments and strategies, as
well as those described in this prospectus, are described in detail in our
Statement of Additional Information. Of course, we cannot guarantee that any
Fund will achieve its investment goal.
The investments and strategies described in this prospectus are those that we
use under normal conditions. During unusual economic or market conditions, or
for temporary defensive or liquidity purposes, each Fund may invest up to 100%
of its assets in cash, money market instruments, repurchase agreements and
short-term obligations that would not ordinarily be consistent with a Fund's
objectives. A Fund will do so only if the Adviser believes that the risk of loss
outweighs the opportunity for capital gains or higher income.
INVESTMENT ADVISER
The Investment Adviser makes investment decisions for the Funds and continuously
reviews, supervises and administers each Fund's respective investment program.
The Board of Trustees of The MDL Funds supervises the Adviser and establishes
policies that the Adviser must follow in its management activities.
MDL Advisors, Inc. (MDL), serves as the Adviser to the Funds. MDL, formed in
2000 to advise the Funds, is a wholly-owned subsidiary of MDL Financial, Inc.
and the successor to MDL Capital Management, Inc., the adviser of the AIC MDL
Funds (the predecessor funds). MDL Financial, Inc. and its subsidiaries have
served as investment adviser for the assets of institutional clients such as
Taft-Hartley plans, hospitals, public sector funds, foundations and ERISA plans
<PAGE>
since it was founded in 1993. As of December 31, 2000, MDL Financial, Inc. and
its subsidiaries have approximately $___ billion in assets under management. For
its advisory services to the Funds, MDL is entitled to receive 0.45% for the MDL
Broad Market Fixed Income Fund and 0.74% for the MDL Large Cap Growth Equity
Fund, as a percentage of each Fund's average daily net assets. MDL has
voluntarily agreed to waive a portion of its fees and reimburse certain expenses
of the Fund so that total operating expenses do not exceed 0.90% for the MDL
Broad Market Fixed Income Fund and 1.26% for the MDL Large Cap Growth Equity
Fund, as a percentage of each Fund's average daily net assets. For the fiscal
period ended October 31, 2000, the Adviser waived [the entire amount] of its
advisory fees for the AIC MDL Broad Market Fixed Income Fund and received
[0.43]% of the AIC MDL Large Cap Growth Fund's average daily net assets.
PORTFOLIO MANAGERS
Mark D. Lay has served as Chairman and Chief Executive Officer of MDL Advisors,
Inc. since 1993. He has co-managed the Funds (and their predecessor funds) since
their inception. Prior to founding MDL, Mr. Lay served as an account executive
at Dean Witter Reynolds, Inc. and a Vice President in foreign exchange trading
at Citicorp Investment Bank. He has more than 17 years of investment experience.
Edward Adatepe has served as Chief Investment Officer of MDL Advisors, Inc.
since 1994. He has co-managed the Funds (and their predecessor funds) since
their inception. Prior to joining MDL, Mr. Adatepe served as a Managing Director
of RRZ Investment Management, Inc. He has more than 16 years of investment
experience.
Steve Sanders has served as President of MDL Advisors, Inc. since 1996. He has
co-managed the MDL Large Cap Growth Equity Fund (and its predecessor fund) since
its inception. Prior to joining MDL, Mr. Sanders served as Credit Analyst at
Mellon Financial Corp. and a Pension Employee Benefit Representative for AETNA
Financial Services Inc. He also served as President and CEO at Sanders
Financial, an investment advisory firm from 1986 to 1995. He has more than 15
years of investment experience.
PURCHASING AND SELLING FUND SHARES
This section tells you how to buy and sell your shares of the Funds.
The Funds are for individual and institutional investors.
HOW TO PURCHASE FUND SHARES
To purchase shares directly from us, complete and send in the enclosed
application. If you need an application or have questions, please call
1-877-MDL-FUNDS. Unless you arrange to pay by wire or through ACH, write your
check, payable in U.S. dollars, to "MDL Broad Market Fixed Income Fund" or "MDL
Large Cap Growth Equity Fund." A Fund cannot accept third-party checks, credit
cards, credit card checks or cash.
You may also buy shares through accounts with brokers and other institutions
that are authorized to place trades in Fund shares for their customers. If you
invest through an authorized institution, you will have to follow its procedures
which may be different from the procedures for investing directly. Your broker
or institution may charge a fee for its services, in addition to the fees
<PAGE>
charged by the Fund. You will also generally have to address your correspondence
or questions regarding a Fund to your institution.
GENERAL INFORMATION
You may purchase shares by mail or wire on any day that the New York Stock
Exchange is open for business (a Business Day). Shares cannot be purchased by
Federal Reserve wire on days when either the New York Stock Exchange or the
Federal Reserve is closed.
A Fund reserves the right to refuse any purchase requests, particularly those
that would not be in the best interests of a Fund or its shareholders and could
adversely affect the Fund or its operations. This includes those from any
individuals or group who, in the Fund's view, are likely to engage in excessive
trading (usually defined as more than four transactions out of the Fund within a
calendar year).
The price per share (the offering price) will be the net asset value per share
(NAV) next determined after a Fund receives your purchase order.
Each Fund calculates its NAV once each Business Day at the regularly-scheduled
close of normal trading on the New York Stock Exchange (normally, 4:00 p.m.
Eastern time). So, for you to receive the current Business Day's NAV, generally
a Fund must receive your purchase order in proper form before 4:00 p.m. Eastern
time. The Fund will not accept orders that request a particular day or price for
the transaction or any other special conditions.
HOW WE CALCULATE NAV
NAV for one Fund share is the value of that share's portion of all of the net
assets of the Fund.
In calculating NAV, a Fund generally values its investment portfolio at market
price. If market prices are unavailable or a Fund thinks that they are
unreliable, fair value prices may be determined in good faith using methods
approved by the Board of Trustees.
MINIMUM PURCHASES
To purchase shares for the first time, you must invest at least $500 in either
Fund. Your subsequent investments in any Fund must be made in amounts of at
least $100. A Fund may accept investments of smaller amounts at its discretion.
SYSTEMATIC INVESTMENT PLAN
If you have a checking or savings account with a bank, you may purchase shares
automatically through regular deductions by Automated Clearing House (ACH) from
your account in amounts of at least $50 per month.
HOW TO SELL YOUR FUND SHARES
If you own your shares directly, you may sell your shares on any Business Day by
contacting a Fund directly by mail or telephone at 1-877-MDL-FUNDS.
<PAGE>
If you own your shares through an account with a broker or other institution,
contact that broker or institution to sell your shares. Your broker or
institution may charge a fee for its services, in addition to the fees charged
by the Fund.
If you would like to close your account, or have your sale proceeds sent to a
third party or an address other than your own, please notify the Fund in writing
and include a signature guarantee by a bank or other financial institution (a
notarized signature is not sufficient).
The sale price of each share will be the next NAV determined after the Fund
receives your request.
SYSTEMATIC WITHDRAWAL PLAN
If you have at least $500 in your account, you may use the systematic withdrawal
plan. Under the plan you may arrange monthly, quarterly, semi-annual or annual
automatic withdrawals of at least $50 from any Fund. The proceeds of each
withdrawal will be mailed to you by check or, if you have a checking or savings
account with a bank, electronically transferred to your account.
RECEIVING YOUR MONEY
Normally, we will send your sale proceeds within seven days after we receive
your request. Your proceeds can be wired to your bank account (subject to a
$10.00 fee) or sent to you by check. IF YOU RECENTLY PURCHASED YOUR SHARES BY
CHECK OR ACH, REDEMPTION PROCEEDS MAY NOT BE AVAILABLE UNTIL YOUR CHECK HAS
CLEARED (WHICH MAY TAKE UP TO 15 DAYS FROM YOUR DATE OF PURCHASE).
REDEMPTIONS IN KIND
We generally pay sale (redemption) proceeds in cash. However, under unusual
conditions that make the payment of cash unwise (and for the protection of the
Fund's remaining shareholders) we might pay all or part of your redemption
proceeds in liquid securities with a market value equal to the redemption price
(redemption in kind). It is highly unlikely that your shares would ever be
redeemed in kind, but if they were you would probably have to pay transaction
costs to sell the securities distributed to you, as well as taxes on any capital
gains from the sale as with any redemption.
INVOLUNTARY REDEMPTIONS OF YOUR SHARES
If your account balance drops below $500 because of redemptions, the Fund may
redeem your shares. But, the Fund will always give you at least 60 days' written
notice to give you time to add to your account and avoid the sale of your
shares.
SUSPENSION OF YOUR RIGHT TO SELL YOUR SHARES
A Fund may suspend your right to sell your shares during times when trading on
the NYSE is restricted or halted, or otherwise as permitted by the SEC. More
information about this is in our Statement of Additional Information.
<PAGE>
TELEPHONE TRANSACTIONS
Purchasing and selling Fund shares over the telephone is extremely convenient,
but not without risk. Although the Fund has certain safeguards and procedures to
confirm the identity of callers and the authenticity of instructions, the Fund
is not responsible for any losses or costs incurred by following telephone
instructions we reasonably believe to be genuine. If you or your financial
institution transact with the Fund over the telephone, you will generally bear
the risk of any loss.
DIVIDENDS AND DISTRIBUTIONS
The Fixed Income Fund distributes its income on a monthly basis and makes
distributions of capital gains, if any, at least annually. In addition, the
Equity Fund distributes its income on a quarterly basis and makes distributions
of capital gains, if any, at least annually. If you own Fund shares on a Fund's
record date, you will be entitled to receive the distribution.
You will receive dividends and distributions in the form of additional Fund
shares unless you elect to receive payment in cash. To elect cash payment, you
must notify the Fund in writing prior to the date of the distribution. Your
election will be effective for dividends and distributions paid after the Fund
receives your written notice. To cancel your election, simply send the Fund
written notice.
TAXES
PLEASE CONSULT YOUR TAX ADVISER REGARDING YOUR SPECIFIC QUESTIONS ABOUT FEDERAL,
STATE AND LOCAL INCOME TAXES. Below we have summarized some important tax issues
that affect the Funds and its shareholders. This summary is based on current tax
laws, which may change.
Each Fund will distribute substantially all of its income and capital gains, if
any. The dividends and distributions you receive may be subject to federal,
state and local taxation, depending upon your tax situation. Distributions you
receive from a Fund may be taxable whether or not you reinvest them. Income
distributions are generally taxable at ordinary income tax rates. Capital gains
distributions are generally taxable at the rates applicable to long-term capital
gains. EACH SALE OF FUND SHARES IS A TAXABLE EVENT.
MORE INFORMATION ABOUT TAXES IS IN THE STATEMENT OF ADDITIONAL INFORMATION.
<PAGE>
FINANCIAL HIGHLIGHTS
The tables that follow present performance information about each Fund. This
information is intended to help you understand each Fund's financial performance
for the past five years, or, if shorter, the period of the Fund's operations.
Some of this information reflects financial information for a single Fund share.
The total returns in the tables represent the rates that you would have earned
(or lost) on an investment in the Fund, assuming you reinvested all of your
dividends and distributions. On [Date], the MDL Broad Market Fixed Income Fund
acquired all of the assets and liabilities of the MDL Broad Market Fixed Income
Fund of the Advisors' Inner Circle Fund (the "AIC MDL Fixed Income Fund") and
the MDL Large Cap Growth Fund acquired all of the assets and liabilities of the
MDL Large Cap Growth Fund of The Advisors' Inner Circle Fund (the "AIC MDL
Growth Fund" and together with the AIC MDL Fixed Income Fund, the "AIC MDL
Funds"). The information prior to that date relates to the AIC MDL Funds. The
AIC MDL Funds information has been audited by [ ], independent
public accountants. Their report, along with The Advisors' Inner Circle Fund's
financial statements, appears in the annual report that accompanies The MDL
Funds Statement of Additional Information. You can obtain the annual report,
which contains more performance information, at no charge by calling
1-877-MDL-FUNDS. References to the MDL Broad Market Fixed Income Fund and the
MDL Large Cap Growth Fund include the AIC MDL Fixed Income Fund and AIC MDL
Growth Fund, respectively.
<PAGE>
THE MDL FUNDS
INVESTMENT ADVISER
MDL Advisors, Inc.
225 Ross Street
3rd Floor
Pittsburgh, Pennsylvania 15219
DISTRIBUTOR
SEI Investments Distribution Co.
One Freedom Valley Drive
Oaks, Pennsylvania 19456
LEGAL COUNSEL
Morgan, Lewis & Bockius LLP
More information about the Funds is available without charge through the
following:
STATEMENT OF ADDITIONAL INFORMATION (SAI)
The SAI dated March 1, 2001, includes detailed information about The MDL Funds.
The SAI is on file with the SEC and is incorporated by reference into this
prospectus. This means that the SAI, for legal purposes, is a part of this
prospectus.
ANNUAL AND SEMI-ANNUAL REPORTS
These reports list each Fund's holdings and contain information from the Fund's
managers about strategies, and recent market conditions and trends and their
impact on Fund performance. The reports also contain detailed financial
information about the Funds.
TO OBTAIN AN SAI, ANNUAL OR SEMI-ANNUAL REPORT, OR MORE INFORMATION:
BY TELEPHONE: CALL 1-877-MDL-FUNDS
BY MAIL: Write to us
MDL Funds
P.O. Box 219009
Kansas City, Missouri 64121-9009
<PAGE>
FROM THE SEC: You can also obtain the SAI or the Annual and Semi-Annual reports,
as well as other information about The MDL Funds, from the EDGAR Database on the
SEC's website ("HTTP://WWW.SEC.GOV"). You may review and copy documents at the
SEC Public Reference Room in Washington, DC (for information on the operation of
the Public Reference Room, call 202-942-8090). You may request documents by mail
from the SEC, upon payment of a duplicating fee, by writing to: Securities and
Exchange Commission, Public Reference Section, Washington, DC 20549-6009. You
may also obtain this information, upon payment of a duplicating fee, by
e-mailing the SEC at the following address: [email protected]. The Funds'
Investment Company Act registration number is 811-XXXX.
<PAGE>
TRUST:
THE MDL FUNDS
FUNDS:
MDL BROAD MARKET FIXED INCOME FUND
MDL LARGE CAP GROWTH EQUITY FUND
INVESTMENT ADVISER:
MDL ADVISORS, INC.
This STATEMENT OF ADDITIONAL INFORMATION is not a prospectus and relates only to
the MDL Broad Market Fixed Income Fund (the "Fixed Income Fund") and MDL Large
Cap Growth Equity Fund (the "Growth Fund" and together with the Fixed Income
Fund, the "Funds"). It is intended to provide additional information regarding
the activities and operations of The MDL Funds (the "Trust") and the Funds and
should be read in conjunction with the Funds' Prospectus dated [ ]. The
Prospectus for the Funds may be obtained by calling 1-877-MDL-Funds.
TABLE OF CONTENTS
THE TRUST....................................................................S-3
INVESTMENT OBJECTIVES AND POLICIES...........................................S-3
DESCRIPTION OF PERMITTED INVESTMENTS.........................................S-5
INVESTMENT LIMITATIONS......................................................S-16
THE ADVISER.................................................................S-17
THE ADMINISTRATOR...........................................................S-19
THE DISTRIBUTOR.............................................................S-21
THE TRANSFER AGENT..........................................................S-21
THE CUSTODIAN...............................................................S-21
CODES OF ETHICS.............................................................S-21
INDEPENDENT PUBLIC ACCOUNTANTS..............................................S-21
LEGAL COUNSEL...............................................................S-22
TRUSTEES AND OFFICERS OF THE FUND...........................................S-22
PERFORMANCE INFORMATION.....................................................S-25
COMPUTATION OF YIELD........................................................S-25
CALCULATION OF TOTAL RETURN.................................................S-26
PURCHASING SHARES...........................................................S-26
REDEEMING SHARES............................................................S-26
DETERMINATION OF NET ASSET VALUE............................................S-27
TAXES ......................................................................S-27
FUND TRANSACTIONS...........................................................S-30
TRADING PRACTICES AND BROKERAGE.............................................S-30
DESCRIPTION OF SHARES.......................................................S-33
SHAREHOLDER LIABILITY.......................................................S-33
LIMITATION OF TRUSTEES LIABILITY...........................................S-33
<PAGE>
5% AND 25% SHAREHOLDERS.....................................................S-34
EXPERTS.....................................................................S-34
FINANCIAL STATEMENTS........................................................S-34
[ ]
[fulfillment code]
<PAGE>
THE TRUST
This Statement of Additional Information relates only to the MDL Broad Market
Fixed Income Fund (the "Fixed Income Fund") and MDL Large Cap Growth Equity Fund
(the "Growth Fund" and together with the Fixed Income Fund, the "Funds"), each a
diversified portfolio. The Funds have assumed all of the assets and liabilities
of their predecessor funds, the Advisors' Inner Circle MDL Broad Market Fixed
Income Fund (the "AIC MDL Fixed Income Fund") and the Advisors' Inner Circle MDL
Large Cap Growth Equity Fund (the "AIC MDL Growth Fund", and together with the
AIC MDL Fixed Income Fund, the "AIC MDL Funds"). Each Fund is a separate series
of The MDL Funds (the "Trust"), an open-end investment management company
established under Massachusetts law as a Massachusetts business trust under a
Declaration of Trust dated October 27, 2000. The Declaration of Trust permits
the Trust to offer separate series ("portfolios") of shares of beneficial
interest ("shares"). Each portfolio is a separate mutual fund, and each share of
each portfolio represents an equal proportionate interest in that portfolio. See
"Description of Shares." No investment in shares of a portfolio should be made
without first reading that portfolio's prospectus. Capitalized terms not defined
herein are defined in the Prospectus offering shares of the Funds.
Each Fund pays its (i) operating expenses, including fees of its service
providers, expenses of preparing prospectuses, proxy solicitation material and
reports to shareholders, costs of custodial services, and registering its shares
under federal and state securities laws, pricing and insurance expenses and pays
additional expenses, brokerage costs, interest charges, taxes and organization
expenses and (ii) pro rata share of the Trust's other expenses, including audit
and legal expenses. The Funds' expense ratios are disclosed under "Fund Fees and
Expenses" in the Prospectus.
INVESTMENT OBJECTIVES AND POLICIES
The investment objective of the Fixed Income Fund is to seek total return
consistent with preservation of capital. The investment objective of the Growth
Fund is to seek long-term growth of capital with a secondary objective of
income. The Funds' investment objectives are fundamental and cannot be changed
without the consent of shareholders. There can be no assurance that a Fund will
be able to achieve its investment objective. In addition to the investments and
strategies described below, the Funds may invest in certain securities and
obligations as set forth in "Description of Permitted Investments" herein.
MDL BROAD MARKET FIXED INCOME FUND
Under normal conditions the Fixed Income Fund will principally invest (at least
80% of its net assets) in U.S. Treasury bills, notes and bonds and other fixed
income securities issued or guaranteed by the United States Government, its
agencies or instrumentalities ("U.S. Government Securities"), and corporate
fixed income securities rated A- or higher by Standard & Poor's Corporation
("S&P"), A or higher by Moody's Investors Services, Inc. ("Moody's") or of
comparable quality as determined by the Adviser. The U.S. Government Securities
<PAGE>
in which the Fund may invest include mortgage-backed securities ("MBSs"), and
mortgage-related securities such as pass-through securities and collateralized
mortgage obligations. The Fund intends to invest less than 25% of its total
assets in corporate fixed income securities and less than 30% of its total
assets in MBSs. The Fund's duration ordinarily will range between 4 and 7 years.
In addition to its principal investments, the Fund may also invest in the
following securities which are not part of its principal investment strategy:
(i) short-term U.S. bank obligations; (ii) shares of other investment companies;
and (iii) repurchase agreements.
The Fixed Income Fund may purchase or sell securities on a when-issued or
forward commitment basis and sell securities short "against the box." The Fund
may engage in reverse repurchase agreements with banks and dealers in amounts up
to 33% of the Fund's total assets at the time the Fund enters into the
agreements. In order to remain fully invested and to reduce transaction costs,
up to 15% of the Fund's total assets may be invested in futures contracts and
options on futures contracts, including securities index futures contracts and
options on securities index futures contracts.
For temporary defensive purposes when the Adviser determines that market
conditions warrant, the Fixed Income Fund may also invest up to 100% of its
assets in money market securities or hold cash. Securities rated A- by S&P or A
by Moody's possess many favorable investment attributes and are to be considered
as upper-medium grade obligations. They have a strong capacity to pay interest
and repay principal although they are somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than debt in higher
rated categories.
The portfolio turnover rate for the Fixed Income Fund for the fiscal years ended
October 31, 1999 and 2000, was 198.83% and XX.XX%, respectively.
MDL LARGE CAP GROWTH EQUITY FUND
The Growth Fund intends to be as fully invested as practicable in common stocks
and other equity securities. Under normal circumstances the Fund will
principally invest (at least 80% of its net assets) in the securities described
in the Prospectus.
The Growth Fund will invest primarily in the common stocks of large cap
companies, that is, those established companies with equity-market
capitalizations in excess of $3 billion. The Fund may also invest in common
stocks of smaller companies with equity market capitalizations in excess of $500
million.
In addition to its principal investments, the Fund may also invest in other
equity securities of large cap companies, which may include warrants, rights to
purchase common stocks, debt securities convertible into common stocks, and
preferred stocks. The Fund may invest in equity securities of foreign issuers
traded in the United States in the form of American Depositary Receipts.
<PAGE>
The Growth Fund may also engage in repurchase agreements. The Fund may engage in
reverse repurchase agreements with banks and dealers in amounts up to 33% of
the Fund's total assets at the time the Fund enters into the agreements. Up to
15% of the Fund's total assets may be invested in futures contracts and options
on futures contracts, including securities index futures contracts and options
on securities index futures contracts.
For temporary defensive purposes when the Adviser determines that market
conditions warrant, the Growth Fund may also invest up to 100% of its assets in
money market securities or hold cash.
The portfolio turnover rate for the Growth Fund for the fiscal years ended
October 31, 1999 and 2000, was 75.29% and XX.XX%, respectively.
DESCRIPTION OF PERMITTED INVESTMENTS
AMERICAN DEPOSITARY RECEIPTS
The Growth Fund may invest in American Depositary Receipts ("ADRs"). ADRs are
securities, typically issued by a U.S. financial institution (a "depositary"),
that evidence ownership interests in a security or a pool of securities issued
by a foreign issuer and deposited with the depositary. ADRs may be available
through "sponsored" or "unsponsored" facilities. A sponsored facility is
established jointly by the issuer of the security underlying the receipt and a
depositary, whereas, an unsponsored facility may be established by a depositary
without participation by the issuer of the underlying security. Holders of
unsponsored depositary receipts generally bear all the costs of the unsponsored
facility. The depositary of an unsponsored facility frequently is under no
obligation to distribute shareholder communications received from the issuer of
the deposited security or to pass through, to the holders of the receipts,
voting rights with respect to the deposited securities.
CONVERTIBLE SECURITIES
Convertible securities are securities issued by corporations that are
exchangeable for a set number of another security at a prestated price. The
market value of a convertible security tends to move with the market value of
the underlying stock. The value of a convertible security is also affected by
prevailing interest rates, the credit quality of the issuer, and any call option
provisions.
DURATION
Duration is a measure of the expected change in value of a fixed income security
for a given change in interest rates. For example, if interest rates changed by
one percent, the value of a security having an effective duration of two years
generally would vary by two percent. Duration takes the length of the time
intervals between the present time and time that the interest and principal
payments are scheduled, or in the case of a callable bond, expected to be
received, and weighs them by the present values of the cash to be received at
each future point in time.
<PAGE>
EQUITY SECURITIES
Investments in equity securities in general are subject to market risks that may
cause their prices to fluctuate over time. The value of securities, such as
warrants or convertible debt, exercisable for or convertible into equity
securities is also affected by prevailing interest rates, the credit quality of
the issuer and any call provision. Fluctuations in the value of equity
securities in which the Growth Fund invests will cause the net asset value of
the Fund to fluctuate. An investment in the Growth Fund may therefore be more
suitable for long-term investors.
EURO-DENOMINATED SECURITIES
Effective January 1, 1999, 11 of the 15 member states of the European Union
introduced the "euro" as a common currency. During a three-year transitional
period, the euro will coexist with each member state's currency. By July 1,
2002, the euro will have replaced the national currencies of the following
member countries: Austria, Belgium, Finland, France, Germany, Ireland, Italy,
Luxembourg, the Netherlands, Portugal and Spain. During the transition period,
each Fund will treat the euro as a separate currency from that of any member
state.
Currently, the exchange rate of the currencies of each of these countries is
fixed to the euro. The euro trades on currency exchanges and is available for
non-cash transactions. The participating countries currently issue sovereign
debt exclusively in euro. By July 1, 2002, euro-denominated bills and coins will
replace the bills and coins of the participating countries.
The new European Central Bank has control over each country's monetary policies.
Therefore, the participating countries no longer control their own monetary
policies by directing independent interest rates for their currencies. The
national governments of the participating countries, however, have retained the
authority to set tax and spending policies and public debt levels.
The conversion may impact the trading in securities of issuers located in, or
denominated in the currencies of, the member states, as well as foreign
exchanges, payments, the settlement process, custody of assets and accounting.
The introduction of the euro is also expected to affect derivative and other
financial contracts in which the Funds may invest insofar as price sources based
upon current currencies of the member states will be replaced, and market
conventions, such as day-count fractions or settlement dates applicable to
underlying instruments may be changed to conform to the conventions applicable
to euro currency.
The overall impact of the transition of the member states' currencies to the
euro cannot be determined with certainty at this time. In addition to the
effects described above, it is likely that more general short- and long-term
consequences can be expected, such as changes in economic environment and change
in behavior of investors, all of which will impact the Fund's euro-denominated
investments.
<PAGE>
FIXED INCOME SECURITIES
The market value of the fixed income investments in which the Funds invest will
change in response to interest rate changes and other factors. During periods of
falling interest rates, the values of outstanding fixed income securities
generally rise. Conversely, during periods of rising interest rates, the values
of such securities generally decline. Moreover, while securities with longer
maturities tend to produce higher yields, the prices of longer maturity
securities are also subject to greater market fluctuations as a result of
changes in interest rates. Changes by recognized agencies in the rating of any
fixed income security and in the ability of an issuer to make payments of
interest and principal also affect the value of these investments. Changes in
the value of these securities will not necessarily affect cash income derived
from these securities but will affect a Fund=s net asset value.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
Futures contracts provide for the future sale by one party and purchase by
another party of a specified amount of a specific security at a specified future
time and at a specified price. An option on a futures contract gives the
purchaser the right, in exchange for a premium, to assume a position in a
futures contract at a specified exercise price during the term of the option.
A Fund may use futures contracts, and related options for bona fide hedging
purposes, to offset changes in the value of securities held or expected to be
acquired. They may also be used to minimize fluctuations in foreign currencies
or to gain exposure to a particular market or instrument. A Fund will minimize
the risk that it will be unable to close out a futures contract by only entering
into futures contracts which are traded on national futures exchanges and for
which there appears to be a liquid secondary market.
Index futures are futures contracts for various indices that are traded on
registered securities exchanges. An index futures contract obligates the seller
to deliver (and the purchaser to take) an amount of cash equal to a specific
dollar amount times the difference between the value of a specific index at the
close of the last trading day of the contract and the price at which the
agreement is made.
Although futures contracts by their terms call for actual delivery or acceptance
of the underlying securities, in most cases the contracts are closed out before
the settlement date without the making or taking of delivery. Closing out an
open futures position is done by taking an opposite position ("buying" a
contract which has previously been "sold" or "selling" a contract which has
previously been "purchased") in an identical contract to terminate the position.
Brokerage commissions are incurred when a futures contract is bought or sold.
Futures traders are required to make a good faith margin deposit in cash or
government securities with or for the account of a broker or custodian to
initiate and maintain open positions in futures contracts until a contract is
closed out. However, there is no certainty that a liquid secondary market will
<PAGE>
exist for any particular futures contract at any specific time. Thus, it may not
be possible to close a futures position. In the event of adverse price
movements, a Fund would continue to be required to make daily cash payments to
maintain its required margin. In such situations, if a Fund has insufficient
cash, it may have to sell portfolio securities to meet daily margin requirements
at a time when it may be disadvantageous to do so. In addition, the Funds may be
required to make delivery of the instruments underlying the futures contracts
they hold. The inability to close options and futures positions also could have
an adverse impact on the ability to effectively hedge the underlying securities.
The risk of loss in trading futures contracts can be substantial, due both to
the low margin deposits required and the extremely high degree of leverage
involved in futures pricing. As a result, a relatively small price movement in a
futures contract may result in immediate and substantial loss (or gain) to a
Fund. For example, if at the time of purchase, 10% of the value of the futures
contract is deposited as margin, a subsequent 10% decrease in the value of the
futures contract would result in a total loss of the margin deposit, before any
deduction for the transaction costs, if the account were then closed out. A 15%
decrease would result in a loss equal to 150% of the original margin deposit if
the contract were closed out. Thus, a purchase or sale of a futures contract may
result in losses in excess of the amount invested in the contract. However,
because the Funds will be engaged in futures transactions only for hedging
purposes, the Adviser does not believe that the Funds will generally be subject
to the risks of loss frequently associated with futures transactions. The Funds
presumably would have sustained comparable losses if, instead of the futures
contract, they had invested in the underlying financial instrument and sold it
after the decline. The risk of loss from the purchase of options is less as
compared with the purchase or sale of futures contracts because the maximum
amount at risk is the premium paid for the option.
Utilization of futures transactions by the Funds does involve the risk of
imperfect or no correlation where the securities underlying futures contracts
have different maturities than the fund securities being hedged. It is also
possible that the Funds could both lose money on futures contracts and
experience a decline in value of its fund securities. There is also the risk of
loss by the Funds of margin deposits in the event of the bankruptcy of a broker
with whom the Funds have an open position in a futures contract or related
option.
Most futures exchanges limit the amount of fluctuation permitted in futures
contract prices during a single trading day. The daily limit establishes the
maximum amount that the price of a futures contract may vary either up or down
from the previous day's settlement price at the end of a trading session. Once
the daily limit has been reached in a particular type of contract, no trades may
be made on that day at a price beyond that limit. The daily limit governs only
price movement during a particular trading day and therefore does not limit
potential losses because the limit may prevent the liquidation of unfavorable
positions. Futures contract prices have occasionally moved to the daily limit
for several consecutive trading days with little or no trading, thereby
preventing prompt liquidation of future positions and subjecting some futures
traders to substantial losses.
ILLIQUID SECURITIES
<PAGE>
Illiquid securities are securities that cannot be disposed of within seven days
at approximately the price at which they are being carried on a Fund's books. An
illiquid security includes a demand instrument with a demand notice period
exceeding seven days, where there is no secondary market for such security, and
repurchase agreements with a remaining term to maturity in excess of seven days.
INVESTMENT COMPANY SHARES
Each Fund may invest up to 10% of its total assets in shares of other investment
companies that invest exclusively in those securities in which the appropriate
Fund may invest directly. Investing in shares of other investment companies is
not a principal investment strategy of either Fund. These investment companies
typically incur fees that are separate from those fees incurred directly by the
Fund. A Fund's purchase of such investment company securities results in the
layering of expenses, such that shareholders would indirectly bear a
proportionate share of the operating expenses of such investment companies,
including advisory fees, in addition to paying Fund expenses. Under applicable
regulations, a Fund is prohibited from acquiring the securities of another
investment company if, as a result of such acquisition: (1) the Fund owns more
than 3% of the total voting stock of the other company; (2) securities issued by
any one investment company represent more than 5% of the Fund=s total assets; or
(3) securities (other than treasury stock) issued by all investment companies
represent more than 10% of the total assets of the Fund.
MONEY MARKET INSTRUMENTS -- Money market instruments include short-term U.S.
Government Securities; custodial receipts evidencing separately traded interest
and principal components of securities issued by the U.S. Treasury; commercial
paper rated in the highest short-term rating category by a nationally recognized
statistical rating organization or determined by the Adviser to be of comparable
quality at the time of purchase; short-term bank obligations (certificates of
deposit, time deposits and bankers' acceptances) of U.S. commercial banks with
assets of at least $1 billion as of the end of their most recent fiscal year;
and repurchase agreements involving such securities.
BANKERS' ACCEPTANCES
Bankers' acceptances are bills of exchange or time drafts drawn on and
accepted by a commercial bank. Bankers' acceptances are used by
corporations to finance the shipment and storage of goods. Maturities
are generally six months or less.
CERTIFICATES OF DEPOSIT
Certificates of deposit are interest bearing instruments with a
specific maturity. They are issued by banks and savings and loan
institutions in exchange for the deposit of funds and normally can be
traded in the secondary market prior to maturity. Certificates of
deposit with penalties for early withdrawal will be considered
illiquid.
COMMERCIAL PAPER
<PAGE>
Commercial paper is a term used to describe unsecured short-term
promissory notes issued by banks, municipalities, corporations and
other entities. Maturities on these issues vary from a few to 270 days.
TIME DEPOSITS
Time deposits are non-negotiable receipts issued by a bank in exchange
for the deposit of funds. Like a certificate of deposit, it earns a
specified rate of interest over a definite period of time; however, it
cannot be traded in the secondary market. Time deposits with a
withdrawal penalty or that mature in more than seven days are
considered to be illiquid securities.
MORTGAGE-BACKED SECURITIES
Mortgage-backed securities are instruments that entitle the holder to a share of
all interest and principal payments from mortgages underlying the security. The
mortgages backing these securities include conventional thirty-year fixed rate
mortgages, graduated payment mortgages, adjustable rate mortgages, and floating
mortgages.
GOVERNMENT PASS-THROUGH SECURITIES
These are securities that are issued or guaranteed by a U.S. Government
agency representing an interest in a pool of mortgage loans. The
primary issuers or guarantors of these mortgage-backed securities are
the Government National Mortgage Association ("GNMA"), Fannie Mae, and
the Federal Home Loan Mortgage Corporation ("FHLMC"). Fannie Mae and
FHLMC obligations are not backed by the full faith and credit of the
U.S. Government as GNMA certificates are, but Fannie Mae and FHLMC
securities are supported by the instrumentalities' right to borrow from
the U.S. Treasury. GNMA, Fannie Mae, and FHLMC each guarantees timely
distributions of interest to certificate holders. GNMA and Fannie Mae
also guarantee timely distributions of scheduled principal. In the
past, FHLMC has only guaranteed the ultimate collection of principal of
the underlying mortgage loan; however, FHLMC now issues mortgage-backed
securities (FHLMC Gold PCS) which also guarantee timely payment of
monthly principal reductions. Government and private guarantees do not
extend to the securities= value, which is likely to vary inversely with
fluctuations in interest rates.
Obligations of GNMA are backed by the full faith and credit of the
United States Government. Obligations of Fannie Mae and FHLMC are not
backed by the full faith and credit of the United States Government but
are considered to be of high quality since they are considered to be
instrumentalities of the United States. The market value and interest
<PAGE>
yield of these mortgage-backed securities can vary due to market
interest rate fluctuations and early prepayments of underlying
mortgages. These securities represent ownership in a pool of federally
insured mortgage loans with a maximum maturity of 30 years. However,
due to scheduled and unscheduled principal payments on the underlying
loans, these securities have a shorter average maturity and, therefore,
less principal volatility than a comparable 30-year bond. Since
prepayment rates vary widely, it is not possible to accurately predict
the average maturity of a particular mortgage-backed security. The
scheduled monthly interest and principal payments relating to mortgages
in the pool will be "passed through" to investors. Government
mortgage-backed securities differ from conventional bonds in that
principal is paid back to the certificate holders over the life of the
loan rather than at maturity. As a result, there will be monthly
scheduled payments of principal and interest. In addition, there may be
unscheduled principal payments representing prepayments on the
underlying mortgages. Although these securities may offer yields higher
than those available from other types of U.S. Government securities,
mortgage-backed securities may be less effective than other types of
securities as a means of "locking in" attractive long-term rates
because of the prepayment feature. For instance, when interest rates
decline, the value of these securities likely will not rise as much as
comparable debt securities due to the prepayment feature. In addition,
these prepayments can cause the price of a mortgage-backed security
originally purchased at a premium to decline in price to its par value,
which may result in a loss.
PRIVATE PASS-THROUGH SECURITIES
Private pass-through securities are mortgage-backed securities issued
by a non-governmental agency, such as a trust. While they are generally
structured with one or more types of credit enhancement, private
pass-through securities generally lack a guarantee by an entity having
the credit status of a governmental agency or instrumentality. The two
principal types of private mortgage-backed securities are
collateralized mortgage obligations ("CMOs") and real estate mortgage
investment conduits ("REMICs").
CMOS
CMOs are securities collateralized by mortgages, mortgage
pass-throughs, mortgage pay-through bonds (bonds representing an
interest in a pool of mortgages where the cash flow generated from the
mortgage collateral pool is dedicated to bond repayment), and
mortgage-backed bonds (general obligations of the issuers payable out
of the issuers' general funds and additionally secured by a first lien
on a pool of single family detached properties). CMOs are rated in one
of the two highest categories by S&P or Moody's. Many CMOs are issued
with a number of classes or series which have different expected
maturities. Investors purchasing such CMOs are credited with their
portion of the scheduled payments of interest and principal on the
underlying mortgages plus all unscheduled prepayments of principal
based on a predetermined priority schedule. Accordingly, the CMOs in
the longer maturity series are less likely than other mortgage
pass-throughs to be prepaid prior to their stated maturity. Although
some of the mortgages underlying CMOs may be supported by various types
of insurance, and some CMOs may be backed by GNMA certificates or other
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mortgage pass-throughs issued or guaranteed by U.S. Government agencies
or instrumentalities, the CMOs themselves are not generally guaranteed.
REMICS
REMICs are private entities formed for the purpose of holding a fixed
pool of mortgages secured by an interest in real property. REMICs are
similar to CMOs in that they issue multiple classes of securities and
are rated in one of the two highest categories by S&P or Moody's.
Investors may purchase beneficial interests in REMICs, which are known
as "regular" interests, or "residual" interests. Guaranteed REMIC
pass-through certificates ("REMIC Certificates") issued by Fannie Mae
or FHLMC represent beneficial ownership interests in a REMIC trust
consisting principally of mortgage loans or Fannie Mae, FHLMC or
GNMA-guaranteed mortgage pass-through certificates. For FHLMC REMIC
Certificates, FHLMC guarantees the timely payment of interest. GNMA
REMIC Certificates are backed by the full faith and credit of the U.S.
Government.
ADJUSTABLE RATE MORTGAGE SECURITIES ("ARMS")
ARMS are a form of pass-through security representing interests in
pools of mortgage loans whose interest rates are adjusted from time to
time. The adjustments usually are determined in accordance with a
predetermined interest rate index and may be subject to certain limits.
While the value of ARMS, like other debt securities, generally varies
inversely with changes in market interest rates (increasing in value
during periods of declining interest rates and decreasing in value
during periods of increasing interest rates), the value of ARMS should
generally be more resistant to price swings than other debt securities
because the interest rates of ARMS move with market interest rates. The
adjustable rate feature of ARMS will not, however, eliminate
fluctuations in the prices of ARMS, particularly during periods of
extreme fluctuations in interest rates. Also, since many adjustable
rate mortgages only reset on an annual basis, it can be expected that
the prices of ARMS will fluctuate to the extent that changes in
prevailing interests rates are not immediately reflected in the
interest rates payable on the underlying adjustable rate mortgages.
STRIPPED MORTGAGE-BACKED SECURITIES
Stripped mortgage-backed securities are securities that are created
when a U.S. Government agency or a financial institution separates the
interest and principal components of a mortgage-backed security and
sells them as individual securities. The holder of the "principal-only"
security (PO) receives the principal payments made by the underlying
mortgage-backed security, while the holder of the "interest-only"
security (IO) receives interest payments from the same underlying
security.
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The prices of stripped mortgage-backed securities may be particularly
affected by changes in interest rates. As interest rates fall,
prepayment rates tend to increase, which tends to reduce prices of IOs
and increase prices of POs. Rising interest rates can have the opposite
effect.
ESTIMATED AVERAGE LIFE
Due to the possibility of prepayments of the underlying mortgage
instruments, mortgage-backed securities generally do not have a known
maturity. In the absence of a known maturity, market participants
generally refer to an estimated average life. An average life estimate
is a function of an assumption regarding anticipated prepayment
patterns, based upon current interest rates, current conditions in the
relevant housing markets and other factors. The assumption is
necessarily subjective, and thus different market participants can
produce different average life estimates with regard to the same
security. There can be no assurance that estimated average life will be
a security's actual average life.
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OPTIONS
A Fund may write call options on a covered basis only, and will not engage in
option writing strategies for speculative purposes. A call option gives the
purchaser of such option the right to buy, and the writer, in this case the
Fund, the obligation to sell the underlying security at the exercise price
during the option period. The advantage to the Funds of writing covered calls is
that the Funds receive a premium, which is additional income. However, if the
security rises in value, the Funds may not fully participate in the market
appreciation.
During the option period, a covered call option writer may be assigned an
exercise notice by the broker-dealer through whom such call option was sold
requiring the writer to deliver the underlying security against payment of the
exercise price. This obligation is terminated upon the expiration of the option
period or at such earlier time in which the writer effects a closing purchase
transaction. A closing purchase transaction is one in which the Fund, when
obligated as a writer of an option, terminates its obligation by purchasing an
option of the same series as the option previously written.
A closing purchase transaction cannot be effected with respect to an option once
the option writer has received an exercise notice for such option.
Closing purchase transactions will ordinarily be effected to realize a profit on
an outstanding call option, to prevent an underlying security from being called,
to permit the sale of the underlying security or to enable a Fund to write
another call option on the underlying security with either a different exercise
price or expiration date or both. A Fund may realize a net gain or loss from a
closing purchase transaction depending upon whether the net amount of the
original premium received on the call option is more or less than the cost of
effecting the closing purchase transaction. Any loss incurred in a closing
purchase transaction may be partially or entirely offset by the premium received
from a sale of a different call option on the same underlying security. Such a
loss may also be wholly or partially offset by unrealized appreciation in the
market value of the underlying security.
If a call option expires unexercised, a Fund will realize a short-term capital
gain in the amount of the premium on the option, less the commission paid. Such
a gain, however, may be offset by depreciation in the market value of the
underlying security during the option period. If a call option is exercised, a
Fund will realize a gain or loss from the sale of the underlying security equal
to the difference between the cost of the underlying security, and the proceeds
of the sale of the security plus the amount of the premium on the option, less
the commission paid.
The market value of a call option generally reflects the market price of an
underlying security. Other principal factors affecting market value include
supply and demand, interest rates, the price volatility of the underlying
security, and the time remaining until the expiration date.
The Funds will write call options only on a covered basis, which means that a
Fund will own the underlying security subject to a call option at all times
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during the option period. Unless a closing purchase transaction is effected, a
Fund would be required to continue to hold a security, which it might otherwise
wish to sell, or deliver a security it would want to hold. Options written by
the Funds will normally have expiration dates between one and nine months from
the date written. The exercise price of a call option may be below, equal to, or
above the current market value of the underlying security at the time the option
is written.
REPURCHASE AGREEMENTS
Repurchase agreements are agreements by which a person (E.G., a Fund) obtains a
security and simultaneously commits to return the security to the seller (a
primary securities dealer as recognized by the Federal Reserve Bank of New York
or a national member bank as defined in Section 3(d)(1) of the Federal Deposit
Insurance Act, as amended) at an agreed upon price (including principal and
interest) on an agreed upon date within a number of days (usually not more than
seven) from the date of purchase. The resale price reflects the purchase price
plus an agreed upon market rate of interest which is unrelated to the coupon
rate or maturity of the underlying security. A repurchase agreement involves the
obligation of the seller to pay the agreed upon price, which obligation is, in
effect, secured by the value of the underlying security.
Repurchase agreements are considered to be loans by a Fund for purposes of its
investment limitations. The repurchase agreements entered into by a Fund will
provide that the underlying security at all times shall have a value at least
equal to 102% of the resale price stated in the agreement (the Adviser monitors
compliance with this requirement). Under all repurchase agreements entered into
by a Fund, the appropriate Custodian or its agent must take possession of the
underlying collateral. However, if the seller defaults, a Fund could realize a
loss on the sale of the underlying security to the extent that the proceeds of
the sale including accrued interest are less than the resale price provided in
the agreement including interest. In addition, even though the Bankruptcy Code
provides protection for most repurchase agreements, if the seller should be
involved in bankruptcy or insolvency proceedings, a Fund may incur delay and
costs in selling the underlying security or may suffer a loss of principal and
interest if the Fund is treated as an unsecured creditor and required to return
the underlying security to the seller's estate.
REVERSE REPURCHASE AGREEMENTS
Reverse repurchase agreements are agreements by which a Fund sells securities to
financial institutions and simultaneously agrees to repurchase those securities
at a mutually agreed-upon date and price. At the time a Fund enters into a
reverse repurchase agreement, the Fund will place liquid assets having a value
equal to the repurchase price in a segregated custodial account and monitor this
account to ensure equivalent value is maintained. Reverse repurchase agreements
involve the risk that the market value of securities sold by the Fund may
decline below the price at which the Fund is obligated to repurchase the
securities. Reverse repurchase agreements may be considered to be borrowings by
the Funds under the Investment Company Act of 1940, as amended (the "1940 Act").
SHORT SALES AGAINST-THE-BOX
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The Funds may make short sales "against-the-box" for the purpose of deferring
realization of gain or loss for federal income tax purposes and for the purpose
of hedging against an anticipated decline in the value of the underlying
securities. "short sale Aagainst-the-box" is a short sale in which a Fund owns,
or has the right to obtain without payment of additional consideration, an equal
amount of the same type of securities sold short.
U.S. GOVERNMENT AGENCY OBLIGATIONS
U.S. Government agency obligations are obligations issued or guaranteed by
agencies or instrumentalities of the U.S. Government. Agencies of the United
States Government which issue obligations consist of, among others, the Export
Import Bank of the United States, Farmers Home Administration, Federal Farm
Credit Bank, Federal Housing Administration, GNMA, Maritime Administration,
Small Business Administration and The Tennessee Valley Authority. Obligations of
instrumentalities of the United States Government include securities issued by,
among others, Federal Home Loan Banks, FHLMC, Federal Intermediate Credit Banks,
Federal Land Banks, Fannie Mae and the United States Postal Service as well as
government trust certificates. Some of these securities are supported by the
full faith and credit of the United States Treasury, others are supported by the
right of the issuer to borrow from the Treasury and still others are supported
only by the credit of the instrumentality. Guarantees of principal by agencies
or instrumentalities of the U.S. Government may be a guarantee of payment at the
maturity of the obligation so that in the event of a default prior to maturity
there might not be a market and thus no means of realizing the value of the
obligation prior to maturity.
VARIABLE AND FLOATING RATE SECURITIES
Variable and floating rate instruments involve certain obligations that may
carry variable or floating rates of interest, and may involve a conditional or
unconditional demand feature. Such instruments bear interest at rates which are
not fixed, but which vary with changes in specified market rates or indices. The
interest rates on these securities may be reset daily, weekly, quarterly, or
some other reset period, and may have a set floor or ceiling on interest rate
changes. There is a risk that the current interest rate on such obligations may
not accurately reflect existing market interest rates. A demand instrument with
a demand notice exceeding seven days may be considered illiquid if there is no
secondary market for such security.
WHEN-ISSUED SECURITIES
Each Fund may purchase debt obligations on a when-issued basis, in which case
delivery and payment normally take place on a future date. The Funds will make
commitments to purchase obligations on a when-issued basis only with the
intention of actually acquiring the securities, but may sell them before the
settlement date. During the period prior to the settlement date, the securities
are subject to market fluctuation, and no interest accrues on the securities to
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the purchaser. The payment obligation and the interest rate that will be
received on the securities at settlement are each fixed at the time the
purchaser enters into the commitment. Purchasing obligations on a when-issued
basis may be used as a form of leveraging because the purchaser may accept the
market risk prior to payment for the securities. The Funds, however, will not
use such purchases for leveraging; instead, as disclosed in the Prospectus, a
Fund will set aside assets to cover its commitments. If the value of these
assets declines, the Fund will place additional liquid assets aside on a daily
basis so that the value of the assets set aside is equal to the amount of the
commitment.
INVESTMENT LIMITATIONS
FUNDAMENTAL POLICIES
The following investment limitations are fundamental policies of each Fund that
cannot be changed without the consent of the holders of a majority of that
Fund's outstanding shares. The phrase Amajority of the outstanding shares@ means
the vote of (i) 67% or more of a Fund's shares present at a meeting, if more
than 50% of the outstanding shares of a Fund are present or represented by
proxy; or (ii) more than 50% of a Fund's outstanding shares, whichever is less.
Each Fund may not:
1. Purchase securities of any issuer (except securities issued or
guaranteed by the United States, its agencies or instrumentalities and
repurchase agreements involving such securities) if as a result more
than 5% of the total assets of the Fund would be invested in the
securities of such issuer. This restriction applies to 75% of each
Fund's total assets.
2. Purchase any securities which would cause 25% or more of the total
assets of a Fund to be invested in the securities of one or more
issuers conducting their principal business activities in the same
industry, provided that this limitation does not apply to investments
in obligations issued or guaranteed by the U.S. Government, its
agencies or instrumentalities and repurchase agreements involving such
securities. For purposes of this limitation, (i) utility companies will
be divided according to their services, for example, gas distribution,
gas transmission, electric and telephone will each be considered a
separate industry; and (ii) financial service companies will be
classified according to the end users of their services, for example,
automobile finance, bank finance and diversified finance will each be
considered a separate industry.
3. Acquire more than 10% of the voting securities of any one issuer.
4. Invest in companies for the purpose of exercising control.
5. Issue any class of senior security or sell any senior security of which
it is the issuer, except that the Fund may borrow from any bank,
provided that immediately after any such borrowing there is asset
coverage of at least 300% for all borrowings of the Fund, and further
provided that, to the extent that such borrowings exceed 5% of the
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Fund's total assets, all borrowings shall be repaid before the Fund
makes additional investments. The term "senior security" shall not
include any temporary borrowings that do not exceed 5% of the value of
the Fund's total assets at the time the Fund makes such temporary
borrowing. In addition, investment strategies that either obligate the
Fund to purchase securities or require the Fund to segregate assets
will not be considered borrowings or senior securities. This investment
limitation shall not preclude the Fund from issuing multiple classes of
shares in reliance on SEC rules or orders.
6. Make loans if, as a result, more than 33% of its total assets would be
lent to other parties, except that the Fund may (i) purchase or hold
debt instruments in accordance with its investment objective and
policies; (ii) enter into repurchase agreements; and (iii) lend its
securities.
7. Purchase or sell real estate, real estate limited partnership
interests, physical commodities or commodities contracts except that
the Fund may purchase commodities contracts relating to financial
instruments, such as financial futures contracts and options on such
contracts.
8. Make short sales of securities, maintain a short position or purchase
securities on margin, except that a Fund may obtain short-term credits
as necessary for the clearance of security transactions and sell
securities short "against the box."
9. Act as an underwriter of securities of other issuers except as it may
be deemed an underwriter in selling the Fund security.
10. Purchase securities of other investment companies except as permitted
by the 1940 Act and the rules and regulations thereunder.
The foregoing percentages will apply at the time of the purchase of a security.
NON-FUNDAMENTAL POLICIES
The following investment limitation of each Fund is non-fundamental and may be
changed by the Trust's Board of Trustees without shareholder approval:
1. A Fund may not invest in illiquid securities in an amount exceeding, in
the aggregate, 15% of the Fund=s net assets.
Except with respect to each Fund's policy concerning borrowing and illiquid
securities, if a percentage restriction is adhered to at the time of an
investment, a later increase or decrease in percentage resulting from changes in
values or assets will not constitute a violation of such restriction.
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Additionally, it is a non-fundamental policy of each Fund to limit borrowings to
no more than 5% of its net assets. Fully collateralized reverse repurchase
agreements are not considered borrowings for purposes of the foregoing
limitation.
THE ADVISER
MDL Advisors, Inc. (the "Adviser"), a subsidiary of MDL Financial, Inc. and MDL
Capital Management, Inc., the adviser to the AIC MDL Funds (the predecessor
funds), and the Trust 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. Under the Advisory Agreement, the Adviser makes the
investment decisions for the assets of each Fund and continuously reviews,
supervises and administers each Fund's investment program, subject to the
supervision of, and policies established by, the Trustees of the Trust.
The Adviser's principal business address is 225 Ross Street, Pittsburgh,
Pennsylvania 15219. As of December 31, 2000, MDL Financial, Inc. and its
subsidiaries had approximately $[1.6 billion] of assets under management for
institutional clients such as Taft-Hartley plans, hospitals, public sector
funds, foundations and ERISA plans.
Messrs. Mark D. Lay and Edward Adatepe have served as co-portfolio managers of
the Fixed Income Fund since its commencement of operations. With Mr. Steve
Sanders, they have served as co-portfolio managers of the Growth Fund since its
commencement of operations. Mr. Lay has served as the Chairman and Chief
Executive Officer of MDL Financial, Inc. since 1993. Prior thereto, Mr. Lay was
an account executive at Dean Witter Reynolds, Inc. and a Vice President at
Citicorp Investment Bank. Mr. Lay received a B.A. degree in Economics from
Columbia University. Mr. Sanders has been the President of MDL Financial, Inc.
since 1994. Mr. Sanders served as a credit analyst at Mellon Financial Corp and
AETNA Financial Services before serving as President and Chief Executive Officer
of Sanders Financial for 9 years. Mr. Sanders received a B.A. in Business
Administration from Howard University. Mr. Adatepe has been the Chief Investment
Officer of MDL Financial, Inc. since 1994. Prior thereto, Mr. Adatepe was the
Managing Director of RRZ Investment Management, Inc., where he was responsible
for managing both fixed income and equity portfolios for various public and
private pension funds. Mr. Adatepe received a B.S. degree in Physics from
Allegheny College and a M.S. degree in Industrial Administration from
Carnegie-Mellon University.
Under the Advisory Agreement, the Adviser receives a monthly management fee
computed separately for each Fund. Such fees are payable at an annual rate of
.45% and .74% of the average daily net assets of the Fixed Income and Growth
Funds, respectively. The Adviser has voluntarily agreed to waive all or a
portion of its fee for each Fund and to reimburse expenses of each Fund in order
to limit total operating expenses for the Fixed Income and Growth Funds to an
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annual rate of not more than .90% and 1.26% of average daily net assets,
respectively. The Adviser reserves the right, in its sole discretion, to
terminate its voluntary fee waivers and reimbursements at any time, however, the
advisory fee waivers are expected to be in effect for the current fiscal year.
The Adviser may, from its own resources, compensate broker-dealers whose clients
purchase shares of the Funds.
The Adviser's fixed income decision making process begins with a "top down"
analysis of the factors that drive interest rates: economic growth, inflation,
the level of the dollar, monetary policy and fiscal policy. Based on this
process, the Adviser develops several interest rate projections and determines
an appropriate duration target and maturity structure.
The Adviser then apportions the Fixed Income Fund=s portfolio among the
following sectors: (i) U.S. Government Securities; (ii) corporate fixed income
securities; and (iii) MBSs. This allocation is based on an analysis of the
relative attractiveness of these sectors, on a total return basis, given the
Adviser=s interest rate projections. The Adviser then selects approximately
15-20 individual securities that in the aggregate produce the desired portfolio
duration, maturity structure and sector allocation.
In the case of U.S. Government Securities, individual securities are selected
for purchase that offer better total return potential than other U.S. Government
Securities with similar durations. In the case of corporate fixed income
securities, the Adviser's selection process seeks to identify issues where
credit quality has recently been improving as evidenced by rating increases by
S&P or Moody=s. In addition, the Adviser seeks corporate fixed income securities
that generally are non-callable and have an issue size of $250 million or
greater. In the case of MBSs, the Adviser seeks to purchase individual
securities that offer the best total return potential, given the Adviser=s
interest rate projections, as compared to similar securities.
With respect to the Growth Fund, the Adviser evaluates these companies through a
multi-step screening process, which begins with a universe of approximately 700
stocks, including those in the S&P 500 index. The Adviser seeks to purchase the
securities of companies with (i) high absolute and relative earnings momentum;
(ii) positive earnings surprise; (iii) positive price momentum; and (iv) low
absolute and relative valuations. The Adviser then performs a fundamental
analysis of those companies that meet the foregoing criteria and selects from
those companies approximately 100 securities across 12 identified economic
sectors.
For the fiscal period ended October 31, 1998 and fiscal years ended October 31,
1999 and 2000, the AIC MDL Fixed Income Fund paid the Adviser $0, $0 and $XX,
respectively, and for the fiscal period ended October 31, 1998 and fiscal years
ended October 31, 1999 and 2000, the Adviser waived fees of $7,119, $79,540 and
$XX,XXX, respectively. For the fiscal period ended October 31, 1998, and fiscal
years ended October 31, 1999 and 2000, the AIC MDL Growth Fund paid the Adviser
$0, $93,934 and $XX,XXX, respectively, and the Adviser waived fees of $9,636,
$67,085 and $XX,XXX, respectively. For the fiscal period ended October 31, 1998
and the fiscal years ended October 31, 1999 and 2000, the Adviser reimbursed
fees of $156,459, $26,175 and $XX,XXX, respectively, to the AIC MDL Fixed Income
Fund and for the fiscal period ended October 31, 1998, and the fiscal years
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ended October 31, 1999 and 2000, the Adviser reimbursed $141,746, $0 and $XX,
respectively, to the AIC MDL Growth Fund.
THE ADMINISTRATOR
SEI Investments Mutual Funds Services (the "Administrator"), provides the Trust
with administrative services, including regulatory reporting and all necessary
office space, equipment, personnel and facilities.
For these administrative services, the Administrator is entitled to a fee from
each Fund, which is calculated daily and paid monthly based on the respective
Fund's asset level, at an annual rate of: .15% on the first $50 million of
average daily net assets; .125% on the next $50 million of average daily net
assets; and .10% on average daily net assets over $100 million. However, each
Fund pays a minimum annual administration fee of $80,000, which would be
increased by $15,000 per additional class. Due to the minimum annual
administration fee, the administration fee that a Fund pays will decline
according to the administration fee schedule described above, only after a
Fund's net asset level reaches $54 million.
For the fiscal period ended October 31, 1998, and the fiscal years ended October
31, 1999 and 2000, the AIC MDL Funds each paid administration fees of $80,000,
$80,000 and $XX,XXX, respectively.
The Administration Agreement provides that the Administrator shall not be liable
for any error of judgment or mistake of law or for any loss suffered by the
Funds in connection with the matters to which the Administration Agreement
relates, except a loss resulting from willful misfeasance, bad faith or gross
negligence on the part of the Administrator in the performance of its duties or
from reckless disregard of its duties and obligations thereunder.
The Administration Agreement shall remain effective for the initial term of the
Agreement and each renewal term thereof unless earlier terminated (a) by the
mutual written agreement of the parties; (b) by either party of the
Administration Agreement on 90 days'[ written notice, as of the end of
the initial term or the end of any renewal term; (c) by either party
of the
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Administration Agreement on such date as is specified in written notice given by
the terminating party, in the event of a material breach of the Administration
Agreement by the other party, provided the terminating party has notified the
other party of such breach at least 45 days' prior to the specified date of
termination and the breaching party has not remedied such breach by the
specified date; (d) effective upon the liquidation of the Administrator; or (e)
as to a Fund or the Trust, effective upon the liquidation of the Fund or the
Trust, as the case may be.
The Administrator, a Delaware business trust, has its principal business offices
at Oaks, Pennsylvania 19456. SEI Investments Management Corporation ("SIMC"), a
wholly owned subsidiary of SEI Investments Company ("SEI Investments"), is the
owner of all beneficial interest in the Administrator. SEI Investments and its
subsidiaries and affiliates, including the Administrator, are leading providers
of funds evaluation services, trust accounting systems, and brokerage and
information services to financial institutions, institutional investors, and
money managers. The Administrator and its affiliates also serve as administrator
or sub-administrator to the following other mutual funds including, but without
limitation: The Achievement Funds Trust, The Advisors' Inner Circle Fund, Alpha
Select Funds, Amerindo Funds Inc., The Arbor Fund, ARK Funds, Armada Funds, The
Armada Advantage Fund, Bishop Street Funds, CNI Charter Funds, CUFUND, The
Expedition Funds, First American Funds, Inc., First American Investment Funds,
Inc., First American Strategy Funds, Inc., First Omaha Funds, Inc., Friends
Ivory Funds, HighMark Funds, Huntington Funds, Huntington VA Funds, iShares
Inc., iShares Trust, Johnson Family Funds, Inc., The Nevis Fund, Inc., Oak
Associates Funds, The PBHG Funds, Inc., PBHG Insurance Series Fund, Inc., The
Pillar Funds, SEI Asset Allocation Trust, Pitcairn Funds, SEI Daily Income
Trust, SEI Index Funds, SEI Institutional International Trust, SEI Institutional
Investments Trust, SEI Institutional Managed Trust, SEI Insurance Products
Trust, SEI Liquid Asset Trust, SEI Tax Exempt Trust, STI Classic Funds, STI
Classic Variable Trust, TIP Funds, UAM Funds Trust, UAM Funds, Inc. and UAM
Funds, Inc. II.
The Administrator will not be required to bear expenses of any Fund to an extent
which would result in the Fund's inability to qualify as "a regulated investment
company" ("RIC") under provisions of the Internal Revenue Code of 1986, as
amended (the "Code"). The term "expenses" is defined in such laws or
regulations, and generally excludes brokerage commissions, distribution
expenses, taxes, interest and extraordinary expenses.
THE DISTRIBUTOR
SEI Investments Distribution Co. (the "Distributor"), a wholly-owned subsidiary
of SEI Investments, and the Trust are parties to a distribution agreement (the
"Distribution Agreement"). The Distributor will not receive compensation for
distribution of shares of the Fund.
The Distribution Agreement shall remain in effect for a period of two years
after the effective date of the agreement and is renewable annually. The
Distribution Agreement may be terminated by the Distributor, by a majority vote
of the Trustees who are not interested persons and have no financial interest in
the Distribution Agreement or by a majority vote of the outstanding securities
of the Trust upon not more than 60 days' written notice by either party or upon
assignment by the Distributor.
No compensation is paid to the Distributor for distribution services for the
shares of the Fund.
THE TRANSFER AGENT
DST Systems, Inc., 330 W 9th Street, Kansas City, MO 64105 serves as the Trust's
transfer agent.
THE CUSTODIAN
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First Union National Bank, 125 Broad Street, Philadelphia, Pennsylvania 19109
acts as custodian (the "Custodian") of the Trust. The Custodian holds cash,
securities and other assets of the Trust as required by the 1940 Act.
CODES OF ETHICS
The Board of Trustees of the Trust has adopted a Code of Ethics pursuant to Rule
17j-1 under the Investment Company Act of 1940. In addition, the Advisor and
Distributor have adopted Codes of Ethics pursuant to Rule 17j-1. These Codes of
Ethics (each a "Code" and together the "Codes") apply to the personal investing
activities of trustees, officers and certain employees ("access persons"). Rule
17j-1 and the Codes are designed to prevent unlawful practices in connection
with the purchase or sale of securities by access persons. Under each Code,
access persons are permitted to engage in personal securities transactions, but
are required to report their personal securities transactions for monitoring
purposes. The Codes further require certain access persons to obtain approval
before investing in initial public offerings and limited offerings. Copies of
these Codes of Ethics are on file with the Securities and Exchange Commission,
and are available to the public.
INDEPENDENT PUBLIC ACCOUNTANTS
[ ] serves as independent public accountants for the Trust.
LEGAL COUNSEL
Morgan, Lewis & Bockius, LLP serves as legal counsel to the Trust.
TRUSTEES AND OFFICERS OF THE FUND
The management and affairs of the Fund are supervised by the Trustees under the
laws of the Commonwealth of Massachusetts. The Trustees have approved contracts
under which, as described above, certain companies provide essential management
services to the Fund. The Fund pays the fees for unaffiliated Trustees.
The Trustees and Executive Officers of the 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 to one or more mutual funds for
which SEI Investments Company or its affiliates act as investment manager,
administrator or distributor.
ROBERT A. NESHER (DOB 08/17/46) -- Chairman of the Board of Trustees* --
Currently performs various services on behalf of SEI Investments for which Mr.
Nesher is compensated. Executive Vice President of SEI Investments, 1986-1994.
Director and Executive Vice President of the Administrator and the Distributor,
<PAGE>
1981-1994. Trustee of The Advisors' Inner Circle Fund, The Arbor Fund, Bishop
Street Funds, Boston 1784 Funds(R), The Expedition Funds, Oak Associates Funds,
Pillar Funds, SEI Asset Allocation Trust, SEI Daily Income Trust, SEI Index
Funds, SEI Institutional International Trust, SEI Institutional Investments
Trust, SEI Institutional Managed Trust, SEI Insurance Products Trust, SEI Liquid
Asset Trust and SEI Tax Exempt Trust.
JOHN T. COONEY (DOB 01/20/27) -- Trustee** -- Vice Chairman of Ameritrust Texas
N.A., 1989-1992, and MTrust Corp., 1985-1989. Trustee of The Advisors' Inner
Circle Fund, The Arbor Fund, The Expedition Funds and Oak Associates Funds.
WILLIAM M. DORAN (DOB 05/26/40) -- Trustee* -- 1701 Market Street, Philadelphia,
PA 19103. Partner, Morgan, Lewis & Bockius LLP (law firm), counsel to the Trust,
SEI Investments, the Administrator and the Distributor. Director of SEI
Investments since 1974; Secretary of SEI Investments since 1978. Trustee of The
Advisors' Inner Circle Fund, The Arbor Fund, The Expedition Funds, Oak
Associates Funds, SEI Asset Allocation Trust, SEI Daily Income Trust, SEI Index
Funds, SEI Institutional International Trust, SEI Institutional Investments
Trust, SEI Institutional Managed Trust, SEI Insurance Products Trust, SEI Liquid
Asset Trust and SEI Tax Exempt Trust.
ROBERT A. PATTERSON (DOB 11/05/27) -- Trustee** -- Pennsylvania State
University, Senior Vice President, Treasurer (Emeritus); Financial and
Investment Consultant, Professor of Transportation since 1984; Vice
President-Investments, Treasurer, Senior Vice President (Emeritus), 1982-1984.
Director, Pennsylvania Research Corp.; Member and Treasurer, Board of Trustees
of Grove City College. Trustee of The Advisors' Inner Circle Fund, The Arbor
Fund, The Expedition Funds and Oak Associates Funds.
EUGENE B. PETERS (DOB 06/03/29) -- Trustee** -- Private investor from 1987 to
present. Vice President and Chief Financial Officer, Western Company of North
America (petroleum service company), 1980-1986. President of Gene Peters and
Associates (import company), 1978-1980. President and Chief Executive Officer of
Jos. Schlitz Brewing Company before 1978. Trustee of The Advisors' Inner Circle
Fund, The Arbor Fund, The Expedition Funds and Oak Associates Funds.
JAMES M. STOREY (DOB 04/12/31) -- Trustee** -- Partner, Dechert Price & Rhoads,
September 1987 - December 1993; Trustee of The Advisors' Inner Circle Fund, The
Arbor Fund, The Expedition Funds, Oak Associates Funds, SEI Asset Allocation
Trust, SEI Daily Income Trust, SEI Index Funds, SEI Institutional International
Trust, SEI Institutional Investments Trust, SEI Institutional Managed Trust, SEI
Insurance Products Trust, SEI Liquid Asset Trust and SEI Tax Exempt Trust.
GEORGE J. SULLIVAN, JR. (DOB 11/13/42) -- Trustee**-- Chief Executive Officer,
Newfound Consultants Inc. since April 1997. General Partner, Teton Partners,
L.P., June 1991- December 1996; Chief Financial Officer, Noble Partners, L.P.,
March 1991-December 1996; Treasurer and Clerk, Peak Asset Management, Inc.,
<PAGE>
since 1991; Trustee, Navigator Securities Lending Trust, since 1995. Trustee of
The Advisors' Inner Circle Fund, The Arbor Fund, The Expedition Funds, Oak
Associates Funds, SEI Asset Allocation Trust, SEI Daily Income Trust, SEI Index
Funds, SEI Institutional International Trust, SEI Institutional Investments
Trust, SEI Institutional Managed Trust, SEI Insurance Products Trust, SEI Liquid
Asset Trust and SEI Tax Exempt Trust.
JAMES R. FOGGO (DOB 06/30/64) -- President -- Vice President and Assistant
Secretary of the Administrator and the Distributor since May 1999. Associate,
Paul Weiss, Rifkind, Wharton & Garrison (law firm), 1998. Associate, Baker &
McKenzie (law firm), 1995-1998. Associate, Battle Fowler L.L.P. (law firm),
1993-1995. Operations Manager, The Shareholder Services Group, Inc., 1986-1990.
TIMOTHY D. BARTO (DOB 03/28/68) -- Vice President and Assistant Secretary
--Employed by SEI Investments since October 1999. Vice President and Assistant
Secretary of the Administrator and Distributor since December 1999. Associate at
Dechert Price & Rhoads, 1997-1999. Associate, at Richter, Miller & Finn,
1994-1997.
TODD B. CIPPERMAN (DOB 02/14/66) -- Vice President and Assistant Secretary --
Senior Vice President and General Counsel of SEI Investments; Senior Vice
President, General Counsel and Secretary of the Administrator and the
Distributor since 2000. Vice President and Assistant Secretary of SEI
Investments, the Administrator and the Distributor, 1995-2000. Associate, Dewey
Ballantine (law firm), 1994-1995. Associate, Winston & Strawn (law firm),
1991-1994.
LYDIA A. GAVALIS (DOB 06/05/64) -- Vice President and Assistant Secretary --
Vice President and Assistant Secretary of SEI Investments, the Administrator and
the Distributor since 1998. Assistant General Counsel and Director of
Arbitration, Philadelphia Stock Exchange, 1989-1998.
MARK D. LAY (DOB 09/15/63) -- Vice President and Assistant Secretary --
Co-Manager of the Funds since their inception. Account Executive, Dean Witter
Reynolds, Inc., 1989 - 1992. Vice President in foreign exchange trading,
Citicorp Investment Bank, 1983 - 1988.
CHRISTINE M. MCCULLOUGH (DOB 12/02/60) -- Vice President and Assistant Secretary
-- Employed by SEI Investments since November 1, 1999. Vice President and
Assistant Secretary of the Administrator and the Distributor since December
1999. Associate at White and Williams LLP, 1991-1999. Associate at Montgomery,
McCracken, Walker & Rhoads, 1990-1991.
STEVE SANDERS (DOB 10/26/59) -- Vice President and Assistant Secretary --
Co-Manager, MDL Large Cap Growth Equity Fund since its inception. Pension
Employee Benefit Representative, AETNA Financial Services Inc. from 1982-1985.
Credit Analyst, Mellon Financial Corp. from 1985-1986. President and CEO,
Sanders Financial, an investment advisory firm from 1986-1995.
WILLIAM E. ZITELLI, JR. (DOB 6/14/68) - Vice President and Secretary - Vice
President and Assistant Secretary of the Administrator and Distributor since
<PAGE>
August 2000. Vice President, Merrill Lynch & Co. Asset Management Group (1998 -
2000). Associate at Pepper Hamilton LLP (1997-1998). Associate at Reboul,
MacMurray, Hewitt, Maynard & Kristol (1994 - 1997).
ROBERT J. DELLACROCE (DOB 12/17/63) -- Controller and Chief Financial Officer --
Director, Funds Administration and Accounting of the Administrator since 1994.
Senior Audit Manager, Arthur Andersen LLP, 1986 - 1994.
JOHN H. GRADY, JR. (DOB 06/01/61) -- Secretary -- 1701 Market Street,
Philadelphia, PA 19103, Partner since 1995, Morgan, Lewis & Bockius LLP (law
firm), counsel to the Trust, SEI Investments, the Administrator and the
Distributor.
RICHARD W. GRANT (DOB 10/25/45) -- Assistant Secretary -- 1701 Market Street,
Philadelphia, PA 19103-2921. Partner, Morgan, Lewis & Bockius LLP (law firm),
counsel to the Trust, the Administrator and the Distributor.
*Messrs. Nesher and Doran are Trustees who may be deemed to be "interested"
persons of the Portfolio as that term is defined in the 1940 Act.
**Messrs. Cooney, Patterson, Peters, Storey and Sullivan serve as members of the
Audit Committee of the Portfolio.
The Trustees and officers of the Fund own less than 1% of the outstanding shares
of the Fund. The Fund pays the fees for unaffiliated Trustees.
The following table exhibits expected Trustee compensation for The Advisors'
Inner Circle Fund's ("AIC" or the "predecessor Trust") fiscal period ended
October 31, 2000.
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------------------
Aggregate
Compensation Total Compensation From AIC
From AIC for the Pension or Retirement Estimated and Fund Complex Paid to
Fiscal Year Ended Benefits Accrued as Annual Benefits Trustees for the Fiscal Year
Name of Person 10/31/00 Part of Fund Expenses Upon Retirement Ended 10/31/00*
-------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
John T. Cooney [$9,571.48] N/A N/A [$9,571.48] for service on one board
-------------------------------------------------------------------------------------------------------------------------------
Robert Patterson [$9,571.48] N/A N/A [$9,571.48] for service on one board
-------------------------------------------------------------------------------------------------------------------------------
Eugene B. Peters [$9,571.48] N/A N/A [$9,571.48] for service on one board
-------------------------------------------------------------------------------------------------------------------------------
James M. Storey [$9,571.48] N/A N/A [$9,571.48] for service on one board
-------------------------------------------------------------------------------------------------------------------------------
George J. Sullivan [$9,571.48] N/A N/A [$9,571.48] for service on one board
-------------------------------------------------------------------------------------------------------------------------------
<PAGE>
-------------------------------------------------------------------------------------------------------------------------------
William M. Doran $0 N/A N/A $0 for service on one board
-------------------------------------------------------------------------------------------------------------------------------
Robert A. Nesher $0 N/A N/A $0 for service on one board
-------------------------------------------------------------------------------------------------------------------------------
<FN>
* For the purposes of this table, AIC is the only investment company in the Fund Complex.
</FN>
</TABLE>
PERFORMANCE INFORMATION
From time to time, the Trust may advertise yield and total return of the Fixed
Income Fund and the total return of the Growth Fund. These figures will be based
on historical earnings and are not intended to indicate future performance. No
representation can be made concerning actual future yields or returns.
PERFORMANCE COMPARISONS
The Funds may periodically compare its performance to other mutual funds tracked
by mutual fund rating services, to broad groups of comparable mutual funds, or
to unmanaged indices. These comparisons may assume reinvestment of dividends but
generally do not reflect deductions for administrative and management costs.
COMPUTATION OF YIELD
The yield of the Fixed Income Fund refers to the annualized income generated by
an investment in that Fund over a specified 30-day period. The yield is
calculated by assuming that the income generated by the investment during that
30-day period is generated in each period over one year and is shown as a
percentage of the investment. In particular, yield will be calculated according
to the following formula:
Yield = 2[((a-b)/cd+1)6-1], where a = dividends and interest earned during the
period; b = expenses accrued for the period (net of reimbursement); c = the
average daily number of shares outstanding during the period that were entitled
to receive dividends; and d = the maximum offering price per share on the last
day of the period.
For the 30-day period ended October 31, 2000, the AIC MDL Fixed Income Fund's
yield was X.XX%.
CALCULATION OF TOTAL RETURN
<PAGE>
The total return of a Fund refers to the average compounded rate of return to a
hypothetical investment for designated time periods (including, but not limited
to, the period from which that Fund commenced operations through the specified
date), assuming that the entire investment is redeemed at the end of each
period. In particular, total return will be calculated according to the
following formula: P (1 + T)n = ERV, where P = a hypothetical initial payment of
$1,000; T = average annual total return; n = number of years; and ERV = ending
redeemable value, as of the end of the designated time period, of a hypothetical
$1,000 payment made at the beginning of the designated time period. For the
fiscal year ended October 31, 2000 and the period from November 1, 1997
(commencement of operations) through October 31, 2000, the AIC MDL Fixed Income
Fund's average annual total return was X.XX% and X.XX%, respectively, and the
AIC MDL Growth Fund's average annual total return was XX.XX% and XX.XX%,
respectively.
PURCHASING SHARES
Purchases and redemptions may be made through the Distributor on a day on which
the New York Stock Exchange is open for business. Shares of the Funds are
offered on a continuous basis. Currently, the holidays observed by the Trust and
the New York Stock Exchange are as follows: New Year's Day, Presidents' Day,
Martin Luther King Jr. Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving and Christmas.
REDEEMING SHARES
It is currently the Trust's policy to pay all redemptions in cash. The Trust
retains the right, however, to alter this policy to provide for redemptions in
whole or in part by a distribution in-kind of securities held by a Fund in lieu
of cash. Shareholders may incur brokerage charges on the sale of any such
securities so received in payment of redemptions. The Trust has received
exemptive relief from the Securities and Exchange Commission (the "SEC"), which
permits the Trust to make in-kind redemptions to those shareholders that are
affiliated with the Funds solely by their ownership of a certain percentage of
the Funds.
A Shareholder will at all times be entitled to aggregate cash redemptions from
all portfolios of the Trust during any 90-day period of up to the lesser of
$250,000 or 1% of the Trust=s net assets.
The Trust reserves the right to suspend the right of redemption and/or to
postpone the date of payment upon redemption for any period on which trading on
the New York Stock Exchange is restricted, or during the existence of an
emergency (as determined by the SEC by rule or regulation) as a result of which
the disposal or valuation of the Fund's securities is not reasonably
practicable, or for such other periods as the SEC has by order permitted. The
Trust also reserves the right to suspend sales of shares of any Fund for any
period during which the New York Stock Exchange, the Adviser, the Administrator,
the Transfer Agent and/or the Custodian are not open for business.
DETERMINATION OF NET ASSET VALUE
<PAGE>
The securities of the Funds are valued by the Administrator. The Administrator
will use an independent pricing service to obtain valuations of securities. The
pricing service relies primarily on prices of actual market transactions as well
as trader quotations. However, the service may also use a matrix system to
determine valuations of fixed income securities, which system considers such
factors as security prices, yields, maturities, call features, ratings and
developments relating to specific securities in arriving at valuations. The
procedures of the pricing service and its valuations are reviewed by the
officers of the Trust under the general supervision of the Trustees.
TAXES
The following is only a summary of certain additional federal income tax
considerations generally affecting the Funds and their shareholders that are not
described in the Funds' prospectus. No attempt is made to present a detailed
explanation of the tax treatment of the Funds or their shareholders, and the
discussion here and in the Funds' prospectus is not intended as a substitute for
careful tax planning. Shareholders are urged to consult with their tax advisors
with specific reference to their own tax situation, including their state and
local tax liabilities.
FEDERAL INCOME TAX TREATMENT OF DIVIDENDS AND DISTRIBUTIONS
The following general discussion of certain federal income tax consequences is
based on the Internal Revenue Code of 1986, as amended (the "Code") and the
regulations issued thereunder as in effect on the date of this Statement of
Additional Information. New legislation, as well as administrative changes or
court decisions, may significantly change the conclusions expressed herein, and
may have a retroactive effect with respect to the transactions contemplated
herein.
QUALIFICATION AS REGULATED INVESTMENT COMPANY
Each Fund intends to qualify and elect to be treated as a RIC as defined under
Subchapter M of the Code. By following such a policy, the Funds expect to
eliminate or reduce to a nominal amount the federal taxes to which they may be
subject.
In order to qualify as a RIC, a Fund must distribute at least 90% of its net
investment income (that generally includes dividends, taxable interest, and the
excess of net short-term capital gains over net long-term capital losses less
operating expenses) and at least 90% of its net tax exempt interest income, for
each tax year, if any, to its shareholders and also must meet several additional
requirements. Shareholders are urged to consult their tax advisors with specific
reference to their own tax situations, including their state and local tax
liabilities. Among these requirements are the following: (i) at least 90% of the
Fund's gross income each taxable year must be derived from dividends, interest,
payments with respect to securities loans, and gains from the sale or other
disposition of stock or securities, or certain other income; (ii) at the close
<PAGE>
of each quarter of the Fund=s taxable year, at least 50% of the value of its
total assets must be represented by cash and cash items, U.S. Government
securities, securities of other RICs and other securities, with such other
securities limited, in respect to any one issuer, to an amount that does not
exceed 5% of the value of the Fund's assets and that does not represent more
than 10% of the outstanding voting securities of such issuer; and (iii) at the
close of each quarter of the Fund=s taxable year, not more than 25% of the value
of its assets may be invested in securities (other than U.S. Government
securities or the securities of other RICs) of any one issuer or of two or more
issuers which the Fund controls and which are engaged in the same, similar or
related trades or businesses.
The Funds may make investments in securities (such as STRIPS) that bear
"original issue discount" or "acquisition discount" (collectively, "OID
Securities"). The holder of such securities is deemed to have received interest
income even though no cash payments have been received. Accordingly, OID
Securities may not produce sufficient current cash receipts to match the amount
of distributable net investment income the Funds must distribute to satisfy the
Distribution Requirement. In some cases, the Funds may have to borrow money or
dispose of other investments in order to make sufficient cash distributions to
satisfy the Distribution Requirement.
Although each Fund intends to distribute substantially all of its net investment
income and may distribute its capital gains for any taxable year, each Fund will
be subject to federal income taxation to the extent any such income or gains are
not distributed.
If the Funds fails to qualify for any taxable year as a RIC, all of their
taxable income will be subject to tax at regular corporate income tax rates
without any deduction for distributions to shareholders and such distributions
generally will be taxable to shareholders as ordinary dividends to the extent of
a Fund's current and accumulated earnings and profits. In this event,
distributions generally will be eligible for the dividends-received deduction
for corporate shareholders.
FUND DISTRIBUTIONS
Distributions of investment company taxable income will be taxable to
shareholders as ordinary income, regardless of whether such distributions are
paid in cash or are reinvested in additional shares, to the extent of a Fund's
earnings and profits. Each Fund anticipates that it will distribute
substantially all of its investment company taxable income for each taxable
year.
Each Fund may either retain or distribute to shareholders its excess of net
long-term capital gains over net short-term capital losses ("net capital
gains"). If such gains are distributed as a capital gains distribution, they are
taxable to shareholders who are individuals at a maximum rate of 20%, regardless
of the length of time the shareholder has held shares. If any such gains are
retained, a Fund will pay federal income tax thereon.
In the case of corporate shareholders, distributions (other than capital gains
distributions) from a RIC generally qualify for the dividends-received deduction
to the extent of the gross amount of qualifying dividends received by a Fund for
the year. Generally, and subject to certain limitations, a dividend will be
treated as a qualifying dividend if it has been received from a domestic
<PAGE>
corporation. Accordingly, it is not expected that any Fixed Income Fund
distribution will qualify for the corporate dividends-received deduction.
Conversely, distributions from the Growth Fund generally will qualify for the
corporate dividends-received deduction.
Ordinarily, investors should include all dividends as income in the year of
payment. However, dividends declared payable to shareholders of record in
October, November or December of one year, but paid in January of the following
year, will be deemed for tax purposes to have been received by the shareholder
and paid by the Fund in the year in which the dividends were declared.
Each Fund will provide a statement annually to shareholders as to the federal
tax status of distributions paid (or deemed to be paid) by the Fund during the
year, including the amount of dividends eligible for the corporate
dividends-received deduction.
SALE OR EXCHANGE OF FUND SHARES
Generally, gain or loss on the sale or exchange of a share will be capital gain
or loss that will be long-term if the share has been held for more than twelve
months and otherwise will be short-term. For individuals, long-term capital
gains are currently taxed at a maximum rate of 20% and short-term capital gains
are currently taxed at ordinary income tax rates. However, if a shareholder
realizes a loss on the sale, exchange or redemption of a share held for six
months or less and has previously received a capital gains distribution with
respect to the share (or any undistributed net capital gains of a Fund with
respect to such share are included in determining the shareholder=s long-term
capital gains), the shareholder must treat the loss as a long-term capital loss
to the extent of the amount of the prior capital gains distribution (or any
undistributed net capital gains of a Fund that have been included in determining
such shareholder=s long-term capital gains). In addition, any loss realized on a
sale or other disposition of shares will be disallowed to the extent an investor
repurchases (or enters into a contract or option to repurchase) shares within a
period of 61 days (beginning 30 days before and ending 30 days after the
disposition of the shares). This loss disallowance rule will apply to shares
received through the reinvestment of dividends during the 61-day period.
In certain cases, the Funds will be required to withhold, and remit to the
United States Treasury, 31% of any distributions paid to a shareholder who (1)
has failed to provide a correct taxpayer identification number; (2) is subject
to backup withholding by the Internal Revenue Service; or (3) has failed to
certify the Funds that such shareholder is not subject to backup withholding.
FEDERAL EXCISE TAX
If a Fund fails to distribute in a calendar year at least 98% of its ordinary
income for the year and 98% of its capital gain net income (the excess of short
and long term capital gains over short and long term capital losses) for the
one-year period ending October 31 of that year (and any retained amount from the
prior calendar year), a Fund will be subject to a nondeductible 4% Federal
excise tax on the undistributed amounts. Each Fund intends to make sufficient
<PAGE>
distributions to avoid imposition of this tax, or to retain, at most its net
capital gains and pay tax thereon.
STATE AND LOCAL TAXES
Each Fund is not liable for any income or franchise tax in Massachusetts if it
qualifies as a RIC for federal income tax purposes. Fund shareholders should
consult with their tax advisers regarding the state and local tax consequences
of investments in the Funds.
FUND TRANSACTIONS
The Funds have no obligation to deal with any broker-dealer or group of
broker-dealers in the execution of transactions in portfolio securities. Subject
to policies established by the Trustees of the Trust, the Adviser is responsible
for placing the orders to execute transactions for the Funds. In placing orders,
it is the policy of the Trust to seek to obtain the best net results taking into
account such factors as price (including the applicable dealer spread), the
size, type and difficulty of the transaction involved, the firm's general
execution and operational facilities and the firm's risk in positioning the
securities involved. While the Adviser generally seeks reasonably competitive
spreads or commissions, the Funds will not necessarily be paying the lowest
spread or commission available.
The money market instruments in which the Fund invests are traded primarily in
the over-the-counter market. Bonds and debentures are usually traded
over-the-counter, but may be traded on an exchange. Where possible, the Adviser
will deal directly with the dealers who make a market in the securities involved
except in those circumstances where better prices and execution are available
elsewhere. Such dealers usually are acting as principal for their own account.
On occasion, securities may be purchased directly from the issuer. Money market
instruments are generally traded on a net basis and do not normally involve
either brokerage commissions or transfer taxes. The cost of executing portfolio
securities transactions of the Funds will primarily consist of dealer spreads
and underwriting commissions.
<PAGE>
TRADING PRACTICES AND BROKERAGE
The Trust selects brokers or dealers to execute transactions for the purchase or
sale of portfolio securities on the basis of its judgment of their professional
capability to provide the service. The primary consideration is to have brokers
or dealers provide transactions at best price and execution for the Trust. Best
price and execution includes many factors, including the price paid or received
for a security, the commission charged, the promptness and reliability of
execution, the confidentiality and placement accorded the order and other
factors affecting the overall benefit obtained by the account on the
transaction. The Trust's determination of what are reasonably competitive rates
is based upon the professional knowledge of its trading department as to rates
paid and charged for similar transactions throughout the securities industry. In
some instances, the Trust pays a minimal share transaction cost when the
transaction presents no difficulty. Some trades are made on a net basis where
the Trust either buys securities directly from the dealer or sells them to the
dealer. In these instances, there is no direct commission charged but there is a
spread (the difference between the buy and sell price) which is the equivalent
of a commission.
The Trust may allocate out of all commission business generated by the fund and
accounts under management by the Adviser, brokerage business to brokers or
dealers who provide brokerage and research services. These research services
include advice, either directly or through publications or writings, as to the
value of securities, the advisability of investing in, purchasing or selling
securities, and the availability of securities or purchasers or sellers of
securities; furnishing of analyses and reports concerning issuers, securities or
industries; providing information on economic factors and trends, assisting in
determining portfolio strategy, providing computer software used in security
analyses, and providing portfolio performance evaluation and technical market
analyses. Such services are used by the Adviser in connection with its
investment decision-making process with respect to one or more funds and
accounts managed by it, and may not be used exclusively with respect to the fund
or account generating the brokerage.
As provided in the Securities Exchange Act of 1934 (the "1934 Act") higher
commissions may be paid to broker-dealers who provide brokerage and research
services than to broker-dealers who do not provide such services if such higher
commissions are deemed reasonable in relation to the value of the brokerage and
research services provided. Although transactions are directed to broker-dealers
who provide such brokerage and research services, the Trust believes that the
commissions paid to such broker-dealers are not, in general, higher than
commissions that would be paid to broker-dealers not providing such services and
that such commissions are reasonable in relation to the value of the brokerage
and research services provided. In addition, portfolio transactions which
generate commissions or their equivalent are directed to broker-dealers who
provide daily portfolio pricing services to the Trust. Subject to best price and
execution, commissions used for pricing may or may not be generated by the funds
receiving the pricing service.
The Adviser may place a combined order for two or more accounts or funds engaged
in the purchase or sale of the same security if, in its judgment, joint
execution is in the best interest of each participant and will result in best
price and execution. Transactions involving commingled orders are allocated in a
manner deemed equitable to each account or fund. It is believed that the ability
of the accounts to participate in volume transactions will generally be
beneficial to the accounts and funds. Although it is recognized that, in some
cases, the joint execution of orders could adversely affect the price or volume
of the security that a particular account or the Funds may obtain, it is the
opinion of the Adviser and the Trust's Board of Trustees that the advantages of
combined orders outweigh the possible disadvantages of separate transactions.
Consistent with the Conduct Rules of the National Association of Securities
Dealers, Inc., and subject to seeking best price and execution, the Funds, at
the request of the Distributor, give consideration to sales of shares of the
Trust as a factor in the selection of brokers and dealers to execute Trust
portfolio transactions.
It is expected that the Funds may execute brokerage or other agency transactions
through the Distributor, which is a registered broker-dealer, for a commission
in conformity with the 1940 Act, the 1934 Act and rules promulgated by the SEC.
<PAGE>
Under these provisions, the is permitted to receive and retain compensation for
effecting portfolio transactions for the Funds on an exchange if a written
contract is in effect between the Distributor and the Trust expressly permitting
the Distributor to receive and retain such compensation. These rules further
require that commissions paid to the Distributor by the Funds for exchange
transactions not exceed "usual and customary" brokerage commissions. The rules
define "usual and customary" commissions to include amounts which are
Areasonable and fair compared to the commission, fee or other remuneration
received or to be received by other brokers in connection with comparable
transactions involving similar securities being purchased or sold on a
securities exchange during a comparable period of time. The Trustees, including
those who are not "interested persons" of the Trust, have adopted procedures for
evaluating the reasonableness of commissions paid to the Distributor and will
review these procedures periodically.
For the fiscal year ended October 31, 2000, the following commissions were paid
on brokerage transactions, pursuant to an agreement or understanding, to brokers
because of research services provided by the brokers:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------
Total Dollar Amount of Total Dollar Amount of Transactions
Brokerage Commissions Involving Directed Brokerage
Fund or Research Services Commissions for Research Services
-------------------------------------------------------------------------------------------------
<S> <C> <C>
AIC MDL Fixed Income Fund $X $X
-------------------------------------------------------------------------------------------------
AIC MDL Growth Fund $XX,XXX $XX,XXX,XXX
-------------------------------------------------------------------------------------------------
</TABLE>
For the fiscal years ended October 31, 1998, 1999 and 2000, the AIC MDL Funds
paid the following brokerage commissions:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
% of Total Brokerage
Total $ Amount of Total $ Amount of % of Total Brokerage Transactions Effected
Brokerage Commissions Brokerage Commissions Commissions Paid to Through Affiliated
Fund Paid Paid to Affiliated Brokers the Affiliated Brokers Broker
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1998 1999 2000 1998 1999 2000 1998 1999 2000 1998 1999 2000
------------------------------------------------------------------------------------------------------------------------------------
AIC MDL
Fixed Income
Fund $0 $353 $XXX $0 $353 $XXX 0% 100% XX% 0% 0% X%
------------------------------------------------------------------------------------------------------------------------------------
AIC MDL
Growth Fund $4,841 $20,970 $XXXX $0 $20,147 $XXXX 0% 96% XX% 0% 0% X%
X X
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Since the Trust does not market its shares through intermediary brokers or
dealers, it is not the Trust's practice to allocate brokerage or principal
business on the basis of sales of its shares, which may be made through such
firms. However, the Adviser may place portfolio orders with qualified
broker-dealers who recommend the Funds' shares to clients, and may, when a
number of brokers and dealers can provide best net results on a particular
transaction, consider such recommendations by a broker or dealer in selecting
among broker-dealers.
<PAGE>
The Funds are required to identify any securities of its "regular brokers or
dealers" (as such term is defined in the 1940 Act, which the Funds have acquired
during its most recent fiscal year). For the fiscal year ended October 31, 2000,
the AIC MDL Fixed Income Fund held $XX,XXX of Morgan Stanley's repurchase
agreements and the AIC MDL Growth Fund held $XX,XXX of Morgan Stanley's
repurchase agreements.
DESCRIPTION OF SHARES
The Declaration of Trust authorizes the issuance of an unlimited number of
portfolios and shares of each portfolio, each of which represents an equal
proportionate interest in the portfolio with each other share. Shares are
entitled upon liquidation to a pro rata share in the net assets of the
portfolio. Shareholders have no preemptive rights. The Declaration of Trust
provides that the Trustees of the Trust may create additional series of shares.
All consideration received by the Trust for shares of any additional series and
all assets in which such consideration is invested would belong to that series
and would be subject to the liabilities related thereto. Share certificates
representing shares will not be issued.
SHAREHOLDER LIABILITY
The Trust is an entity of the type commonly known as a Massachusetts business
trust. Under Massachusetts law, shareholders of such a trust could, under
certain circumstances, be held personally liable as partners for the obligations
of the trust. Even if, however, the Trust were held to be a partnership, the
possibility of the shareholders incurring financial loss for that reason appears
remote because the Trust's Declaration of Trust contains an express disclaimer
of shareholder liability for obligations of the Trust and requires that notice
of such disclaimer be given in each agreement, obligation or instrument entered
into or executed by or on behalf of the Trust or the Trustees, and because the
Declaration of Trust provides for indemnification out of the Trust property for
any shareholder held personally liable for the obligations of the Trust.
LIMITATION OF TRUSTEES' LIABILITY
The Declaration of Trust provides that a Trustee shall be liable only for his or
her own willful defaults and, if reasonable care has been exercised in the
selection of officers, agents, employees or investment advisers, shall not be
liable for any neglect or wrongdoing of any such person. The Declaration of
Trust also provides that the Trust will indemnify its Trustees and officers
against liabilities and expenses incurred in connection with actual or
threatened litigation in which they may be involved because of their offices
with the Trust unless it is determined in the manner provided in the Declaration
of Trust that they have not acted in good faith in the reasonable belief that
their actions were in the best interests of the Trust. However, nothing in the
Declaration of Trust shall protect or indemnify a Trustee against any liability
for his or her willful misfeasance, bad faith, gross negligence or reckless
disregard of his or her duties.
<PAGE>
5% AND 25% SHAREHOLDERS
As January 1, 2001, the following persons were the only persons who were record
owners (or to the knowledge of the Fund, beneficial owners) of 5% and 25% or
more of the AIC MDL Funds' shares. Persons who owned of record or beneficially
more than 25% of a AIC MDL Fund's outstanding shares may be deemed to control
that AIC MDL Fund within the meaning of the Act.
THE AIC MDL FIXED INCOME FUND
SHAREHOLDER NUMBER OF SHARES %
----------- ---------------- -
[ ] XXX,XXX XX.XX%
[ ] XXX,XXX XX.XX%
THE AIC MDL GROWTH FUND
SHAREHOLDER NUMBER OF SHARES %
----------- ---------------- -
[ ] XXX,XXX XX.XX%
[ ] X,XXX,XXX XX.XX%
The Trust believes that most of the shares referred to above were held by the
above persons in accounts for their fiduciary, agency or custodial customers.
EXPERTS
The financial statements incorporated by reference have been audited by
[ ], independent public accountants, as indicated in their report with
respect thereto, in reliance upon the authority of said firm as experts in
giving said reports.
<PAGE>
FINANCIAL STATEMENTS
The financial statements for the AIC MDL Funds' fiscal year ended October 31,
2000, including notes thereto and the report of [ ] thereon,
are herein incorporated by reference in reliance upon the authority of said firm
as experts in giving said report. A copy of the 2000 Annual Report to
Shareholders must accompany the delivery of this Statement of Additional
Information.
<PAGE>
PART C: OTHER INFORMATION
Item 23. Exhibits:
(a) Registrant's Agreement and Declaration of Trust dated October 27, 2000 is
filed herewith.
(b) Registrant's By-Laws are filed herewith.
(c) Not Applicable.
(d) Investment Advisory Agreement between Registrant and MDL Advisors, Inc.
will be filed by later amendment.
(e) Distribution Agreement between Registrant and SEI Investments
Distribution Company will be filed by later amendment.
(f) Not Applicable.
(g) Custodian Agreement between Registrant and First Union National Bank will
be filed by later amendment.
(h)(1) Administration Agreement between Registrant and SEI Investments Mutual
Funds Services will be filed by later amendment.
(h)(2) Transfer Agency Agreement with [ ] will be filed by later amendment.
(i) Not Applicable.
(j) Not Applicable.
(k) Not Applicable.
(l) Not Applicable.
(m) Not Applicable.
(n) Not Applicable.
(o) Not Applicable.
(p)(1) SEI Investments Company Code of Ethics and Insider Trading Policy is
incorporated herein by reference to exhibit (P)(11) of The Arbor Fund's
<PAGE>
Post-Effective Amendment No. 28 on Form N-1A (File No. 33-50718) filed
with the Securities and Exchange Commission on May 30, 2000.
(p)(2) The MDL Funds Code of Ethics will be filed by later amendment.
(p)(3) MDL Advisors, Inc. Code of Ethics will be filed by later amendment.
(q) Powers of Attorney for Robert A. Nesher, William M. Doran, James A.
Storey, John T. Cooney, Robert A. Patterson, Eugene B. Peters and George
J. Sullivan are filed herewith.
Item 24. Persons Controlled by or under Common Control with Registrant
See Statement of Additional Information regarding the control
relationships of The MDL Funds (the "Trust"). SEI Investments Management
Corporation, a wholly-owned subsidiary of SEI Investments Company ("SEI"), is
the owner of all beneficial interest in SEI Investments Mutual Funds Services
("the Administrator"). SEI and its subsidiaries and affiliates, including the
Administrator, are leading providers of funds evaluation services, trust
accounting systems, and brokerage and information services to financial
institutions, institutional investors, and money managers.
Item 25. Indemnification:
Article VIII of the Agreement and Declaration of Trust filed as Exhibit
(a) to the Registration Statement is filed herewith. Insofar as indemnification
for liabilities arising under the Securities Act of 1933 may be permitted to
trustees, directors, officers and controlling persons of the Registrant by the
Registrant pursuant to the Declaration of Trust or otherwise, the Registrant is
aware that in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Act and, therefore,
is unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by trustees, directors, officers or controlling persons of the Registrant
in connection with the successful defense of any act, suit or proceeding) is
asserted by such trustees, directors, officers or controlling persons in
connection with the shares being registered, the Registrant will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issues.
Item 26. Business and Other Connections of Investment Adviser:
Other business, profession, vocation, or employment of a substantial
nature in which each director or principal officer of the Adviser is or has
been, at any time during the last two fiscal years, engaged for his own account
or in the capacity of director, officer, employee, partner or trustee are as
follows:
<PAGE>
MDL ADVISORS, INC.
MDL Advisors, Inc. is the investment adviser for the Trust. The principal
address of MDL Advisors, Inc. is 225 Ross Street, Pittsburgh, PA 15222. MDL
Advisors, Inc. is an investment adviser registered under the Advisers Act.
<TABLE>
<CAPTION>
Name and Position with Name of Other Company Connection with
Investment Adviser Other Company
<S> <C> <C>
Mark D. Lay, Chief Executive Officer -- --
Steven P. Sanders, President Sanders Financial Chief Executive Officer (12/98)
Joseph L. Watkins, Executive Officer Kinslor Inc. President
Charles A. Gomulka, Director RRZ Investment Management, Inc. President, Accountant
Russel, Rea & Zappala, Inc. Secretary, Treasurer
Generation Development Vice President
Russel, Rea, Zappala & Gomulka President, Chief
RR&Z Public Markets, Inc. Executive Officer
Edward A. Adatepe, Portfolio Manager -- --
Charles R. Zappala, Shareholder RRZ Investment Management, Inc. Vice President, Director
Russel, Rea & Zappala, Inc. President, Director
RR&Z Realty Investments Vice President, Director
Russel, Rea, Zappala & Gomulka Treasurer, Shareholder
RR&Z Public Markets, Inc. Vice Chairman
RR&Z Capital Group Secretary, Director
Tracey M. Gist, Vice President -- --
of Operations
</TABLE>
Item 27. Principal Underwriters:
(a) Furnish the name of each investment company (other than the Registrant)
for which each principal underwriter currently distributing the
securities of the Registrant also acts as a principal underwriter,
distributor or investment adviser.
Registrant's distributor, SEI Investments Distribution Co. (the "Distributor"),
acts as distributor for:
SEI Daily Income Trust July 15, 1982
SEI Liquid Asset Trust November 29, 1982
<PAGE>
SEI Tax Exempt Trust December 3, 1982
SEI Index Funds July 10, 1985
SEI Institutional Managed Trust January 22, 1987
SEI Institutional International Trust August 30, 1988
The Advisors' Inner Circle Fund November 14, 1991
The Pillar Funds February 28, 1992
CUFUND May 1, 1992
STI Classic Funds May 29, 1992
First American Funds, Inc. November 1, 1992
First American Investment Funds, Inc. November 1, 1992
The Arbor Fund January 28, 1993
The PBHG Funds, Inc. July 16, 1993
The Achievement Funds Trust December 27, 1994
Bishop Street Funds January 27, 1995
STI Classic Variable Trust August 18, 1995
ARK Funds November 1, 1995
Huntington Funds January 11, 1996
SEI Asset Allocation Trust April 1, 1996
TIP Funds April 28, 1996
SEI Institutional Investments Trust June 14, 1996
First American Strategy Funds, Inc. October 1, 1996
HighMark Funds February 15, 1997
Armada Funds March 8, 1997
PBHG Insurance Series Fund, Inc. April 1, 1997
The Expedition Funds June 9, 1997
Alpha Select Funds January 1, 1998
Oak Associates Funds February 27, 1998
The Nevis Fund, Inc. June 29, 1998
CNI Charter Funds April 1, 1999
The Armada Advantage Fund May 1, 1999
Amerindo Funds Inc. July 13, 1999
Huntington VA Funds October 15, 1999
Friends Ivory Funds December 16, 1999
iShares Inc. January 28, 2000
SEI Insurance Products Trust March 29, 2000
iShares Trust April 25, 2000
Pitcairn Funds August 1, 2000
First Omaha Funds, Inc. October 1, 2000
JohnsonFamily Funds, Inc. November 1, 2000
The Distributor provides numerous financial services to investment
managers, pension plan sponsors, and bank trust departments. Thes
services include portfolio evaluation, performance measurement and
consulting services ("Funds Evaluation") and automated execution,
clearing and settlement of securities transactions ("MarketLink").
<PAGE>
(b) Furnish the Information required by the following table with respect to
each director, officer or partner of each principal underwriter named in the
answer to Item 21 of Part B. Unless otherwise noted, the business
address of each director or officer is Oaks, PA 19456.
<TABLE>
<CAPTION>
Position and Office Positions and Offices
Name With Underwriter With Registrant
---- ------------------- ---------------------
<S> <C> <C>
Alfred P. West, Jr. Director, Chairman of the Board of Directors --
Richard B. Lieb Director, Executive Vice President --
Carmen V. Romeo Director --
Mark J. Held President & Chief Operating Officer --
Dennis J. McGonigle Executive Vice President --
Robert M. Silvestri Chief Financial Officer & Treasurer --
Todd Cipperman Senior Vice President & General Counsel --
Leo J. Dolan, Jr. Senior Vice President --
Carl A. Guarino Senior Vice President --
Jack May Senior Vice President --
Hartland J. McKeown Senior Vice President --
Kevin P. Robins Senior Vice President --
Patrick K. Walsh Senior Vice President --
Wayne M. Withrow Senior Vice President --
Robert Aller Vice President --
John D. Anderson Vice President & Managing Director --
Timothy D. Barto Vice President & Assistant Secretary Vice President &
Assistant Secretary
Robert Crudup Vice President & Managing Director --
Richard A. Deak Vice President & Assistant Secretary --
Scott W. Dellorfano Vice President & Managing Director --
Barbara Doyne Vice President --
Jeff Drennen Vice President --
Scott C. Fanatico Vice President & Managing Director --
Vic Galef Vice President & Managing Director --
Steven A. Gardner Vice President & Managing Director --
Lydia A. Gavalis Vice President & Assistant Secretary --
Greg Gettinger Vice President & Assistant Secretary Vice President &
Assistant Secretary
Kathy Heilig Vice President --
Jeff Jacobs Vice President --
Samuel King Vice President --
John Kirk Vice President & Managing Director --
Kim Kirk Vice President & Managing Director --
John Krzeminski Vice President & Managing Director --
Alan H. Lauder Vice President --
Paul Lonergan Vice President & Managing Director Vice President &
Assistant Secretary
Ellen Marquis Vice President --
Christine M. McCullough Vice President & Assistant Secretary --
Carolyn McLaurin Vice President & Managing Director --
Mark Nagle Vice President --
Joanne Nelson Vice President --
Cynthia M. Parrish Vice President & Secretary --
Rob Redican Vice President --
Maria Rinehart Vice President --
<PAGE>
Steve Smith Vice President --
Daniel Spaventa Vice President --
Kathryn L. Stanton Vice President --
Lori L. White Vice President & Assistant Secretary --
William E. Zitelli, Jr. Vice President & Assistant Secretary Vice President & Assistant Secretary
</TABLE>
Item 28. Location of Accounts and Records:
Books or other documents required to be maintained by Section 31(a) of
the Investment Company Act of 1940, and the rules promulgated
thereunder, are maintained as follows:
(a) With respect to Rules 31a-1(a); 31a-1(b)(1); (2)(a) and (b); (3);
(6); (8); (12); and 31a-I(d), the required books and records are
maintained at the offices of Registrant's Custodian:
First Union National Bank
125 Broad Street
Philadelphia, PA 19109
(b)/(c) With respect to Rules 31a-1(a); 31a-1(b)(1), (4); (2)(C) and
(D); (4); (5); (6); (8); (9); (10); (11); and 31a-1(f), the required
books and records are maintained at the offices of Registrant's
Administrator:
SEI Investments Mutual Funds Services
Oaks, PA 19456
(c) With respect to Rules 31a-1 (b)(5), (6), (9) and (10) and 31a-1(f),
the required books and records are maintained at the offices of the
Registrant's Advisers:
MDL Advisors Inc.
225 Ross Street
Pittsburgh, PA 15222
Item 29. Management Services:
None.
Item 30. Undertakings:
None.
<PAGE>
NOTICE
A copy of the Agreement and Declaration of Trust for The MDL Funds is
on file with the Secretary of State of The Commonwealth of Massachusetts and
notice is hereby given that this Registration Statement has been executed on
behalf of the Fund by an officer of the Fund as an officer and by its Trustee as
trustee and not individually and the obligations of or arising out of this
Registration Statement are not binding upon any of the Trustees, officers, or
shareholders individually but are binding only upon the assets and property of
the Fund.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, and the
Investment Company Act of 1940, as amended, the Registrant has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized in the City of Oaks, and Commonwealth of Pennsylvania on this
13th day of November, 2000.
THE MDL FUNDS
By: /S/ JAMES R. FOGGO
------------------------------
James R. Foggo, President
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed below by the following persons in the capacity and on
the dates indicated.
* Trustee November 13, 2000
--------------------------------
John T. Cooney
* Trustee November 13, 2000
--------------------------------
William M. Doran
* Trustee November 13, 2000
--------------------------------
Robert A. Nesher
* Trustee November 13, 2000
--------------------------------
Robert A. Patterson
* Trustee November 13, 2000
--------------------------------
Eugene B. Peters
* Trustee November 13, 2000
--------------------------------
James M. Storey
* Trustee November 13, 2000
--------------------------------
George J. Sullivan
/S/ JAMES R. FOGGO President November 13, 2000
--------------------------------
James R. Foggo
/S/ ROBERT J. DELLACROCE Controller & November 13, 2000
-------------------------------- Chief Financial Officer
Robert J. DellaCroce
*By /s/ James R. Foggo
--------------------
James R. Foggo
Attorney -in- Fact
<PAGE>
EXHIBIT INDEX
Exhibit No. and Description
EX-99.A Registrant's Agreement and Declaration of Trust dated October 27,
2000 is filed herewith.
EX-99.B Registrant's By-Laws are filed herewith.
EX-99.C Not Applicable.
EX-99.D Investment Advisory Agreement between Registrant and MDL Advisors,
Inc. will be filed by later amendment.
EX-99.E Distribution Agreement between Registrant and SEI Investments
Distribution Company will be filed by later amendment.
EX-99.F Not Applicable.
EX-99.G Custodian Agreement between Registrant and First Union National Bank
will be filed by later amendment.
EX-99.H1 Administration Agreement between Registrant and SEI Investments
Mutual Funds Services will be filed by later amendment.
EX-99.H2 Transfer Agency Agreement with [ ] will be filed by later amendment.
EX-99.I Not Applicable.
EX-99.J Not Applicable.
EX-99.K Not Applicable.
EX-99.L Not Applicable.
EX-99.M Not Applicable.
EX-99.N Not Applicable.
EX-99.O Not Applicable.
EX-99.P1 SEI Investments Company Code of Ethics and Insider Trading Policy is
incorporated herein by reference to exhibit (P)(11) of The Arbor
Fund's Post-Effective Amendment No. 28 on Form N-1A (File No.
33-50718) filed with the Securities and Exchange Commission on May
30, 2000.
<PAGE>
EX-99.P2 The MDL Funds Code of Ethics will be filed by later amendment.
EX-99.P3 MDL Advisors, Inc. Code of Ethics will be filed by later amendment.
EX-99.Q Powers of Attorney for Robert A. Nesher, William M. Doran, James A.
Storey, John T. Cooney, Robert A. Patterson, Eugene B. Peters and
George J. Sullivan are filed herewith.