<PAGE>
THE ADVISORS' INNER CIRCLE FUND
PROSPECTUS
February 11, 1999
LSV VALUE EQUITY FUND
INVESTMENT ADVISER: LSV ASSET MANAGEMENT
The information in this prospectus is not complete and may be changed.
We may not sell these securities until the registration statement
filed with the Securities and Exchange Commission is effective. This
prospectus is not an offer to sell these securities and is not
soliciting an offer to buy these securities in any state where the
offer or sale is not permitted.
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED ANY FUND SHARES OR
DETERMINED WHETHER THIS PROSPECTUS IS ACCURATE OR COMPLETE.
IT IS A CRIME FOR ANYONE TO TELL YOU OTHERWISE.
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HOW TO READ THIS PROSPECTUS
This prospectus gives you important information about the LSV Value Equity Fund
(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 the Fund.
FOR MORE DETAILED INFORMATION ABOUT THE FUND, PLEASE SEE:
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<S> <C>
PRINCIPAL INVESTMENT STRATEGIES AND RISKS,
PERFORMANCE INFORMATION AND EXPENSES XXX
MORE INFORMATION ABOUT RISK XXX
THE FUND'S OTHER INVESTMENTS XXX
THE INVESTMENT ADVISER AND FUND MANAGER XXX
PURCHASING AND SELLING FUND SHARES XXX
DIVIDENDS, DISTRIBUTIONS AND TAXES XXX
HOW FUND SHARES ARE DISTRIBUTED XXX
HOW TO OBTAIN MORE INFORMATION ABOUT THE
LSV VALUE EQUITY FUND XXX
</TABLE>
<PAGE>
Introduction
The Fund is a mutual fund. A mutual fund pools shareholders' money and, using
professional investment managers, invests it in securities.
The Fund has an investment goal and strategies for reaching that goal. The
Adviser invests Fund assets in a way that the Adviser believes will help the
Fund achieve its goal. Still, investing in the Fund involves risk and there is
no guarantee that the Fund will achieve its goal. The Adviser'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 the
Adviser does, you could lose money on your investment in the Fund, just as you
could with other investments.
The value of your investment in the Fund is based on the market value of the
securities the Fund holds. These prices change daily due to economic and other
events that affect particular companies and other issuers. These price
movements, sometimes called volatility, may be greater or lesser depending on
the types of securities the Fund owns and the markets in which they trade. The
effect on the Fund of a change in the value of a single security will depend on
how widely the Fund diversifies its holdings.
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LSV Value Equity Fund
Fund Summary Investment Goal Long-term growth of capital
Investment Focus U.S. large-cap and mid-cap
common stocks
Share Price Volatility High
Principal Investment Strategy Attempts to identify
undervalued stocks which are
out-of-favor in the market
Investor Profile Investors who seek long-term
growth of capital and income
and are willing to bear the
risk of investing in equity
securities
INVESTMENT STRATEGY OF THE LSV VALUE EQUITY FUND
The Fund invests primarily in common stocks of large and medium sized companies
(i.e., those with market capitalizations of $1 billion or more) which, in the
Adviser's opinion, are out-of-favor (undervalued) in the marketplace at the time
of purchase and have potential for appreciation in the short-term. The Fund may
also invest to a lesser extent in common stocks of such undervalued companies
with market capitalizations between $500 million and $1 billion. In selecting
investments for the Fund, the Adviser's decision making process is strictly
quantitative and driven by a proprietary model which ranks securities based on
fundamental measures of value and indicators of near-term appreciation
potential. The Adviser's quantitative analysis attempts to limit risk while
seeking to maximize the expected return of the portfolio. The Adviser believes
that these out-of-favor securities will produce superior future returns if their
future growth exceeds the market's low expectations.
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PRINCIPAL RISKS OF INVESTING IN THE LSV VALUE EQUITY FUND
Since it purchases equity securities, the Fund is subject to the risk that stock
prices will fall over short or extended periods of time. Historically, the
equity markets have moved in cycles, and the value of the Fund's equity
securities may fluctuate drastically from day-to-day. Individual companies may
report poor results or be negatively affected by industry and/or economic trends
and developments. The prices of securities issued by such companies may suffer
a decline in response. These factors contribute to price volatility which is
the principal risk of investing in the Fund.
The Fund is also subject to the risk that its market segment, mid to large cap
equity value securities, may underperform other equity market segments or the
equity markets as a whole.
Performance Information
The bar chart and the performance table below illustrate the risks and
volatility of an investment in the Fund. Of course, the Fund's past performance
does not necessarily indicate how the Fund will perform in the future.
The periods prior to March 15, 1999, when the Fund began operating, represent
the performance of the Adviser's similarly managed accounts. This past
performance has been adjusted to reflect current expenses of the Fund. The
Adviser's similarly managed accounts were not a registered mutual fund so they
were not subject to the same investment and tax restrictions as the Fund. If it
had been, the collective investment's performance may have been lower.
This bar chart shows changes in the Fund's performance.
THIS TABLE COMPARES THE FUND'S AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS
ENDING DECEMBER 31, 1998 TO THOSE OF THE RUSSELL 1000 VALUE INDEX.
<TABLE>
<CAPTION>
SINCE
SHARES 1 YEAR 3 YEARS INCEPTION
-----------------------------------------------------
<S> <C> <C> <C>
LSV Value X.XX% X.XX% X.XX%*
Equity Fund
Russell 1000
Value Index X.XX% X.XX% X.XX%**
</TABLE>
* Since [inception date]
**Since [calc. date for index]
<PAGE>
WHAT IS AN INDEX?
An index measures the market prices of a specific group of securities in a
particular market or securities in a market sector. You cannot invest directly
in an index. Unlike a mutual fund, an index does not have an investment adviser
and does not pay any commissions or expenses. If an index had expenses, its
performance would be lower.
The Frank Russell 1000 Value Index is a widely-recognized,
capitalization-weighted (companies with larger market capitalizations have more
influence than those with smaller market capitalization) index of the 1000
largest U.S. companies with lower growth rates and price-to-book ratios.
FUND FEES AND EXPENSES
THIS TABLE DESCRIBES THE SHAREHOLDER FEES THAT YOU MAY PAY IF YOU PURCHASE OR
SELL FUND SHARES. YOU WOULD PAY THESE FEES DIRECTLY FROM YOUR INVESTMENT IN THE
FUND.
- -----------------------------------------------------
Maximum Sales Charge (Load) None
Imposed on Purchases (as a
percentage of offering price)
- -----------------------------------------------------
Maximum Deferred Sales Charge None
(Load) (as a percentage of net
asset value)
- -----------------------------------------------------
Maximum Sales Charge (Load) None
Imposed or Reinvested Dividends
and other Distributions
(as a percentage of offering price)
EVERY MUTUAL FUND HAS OPERATING EXPENSES TO PAY FOR SERVICES SUCH AS
PROFESSIONAL ADVISORY, SHAREHOLDER, DISTRIBUTION, ADMINISTRATION AND CUSTODY
SERVICES AND OTHER COSTS OF DOING BUSINESS. THIS TABLE DESCRIBES THE HIGHEST
FEES AND EXPENSES THAT YOU MAY PAY INDIRECTLY IF YOU HOLD SHARES OF THE FUND.
ANNUAL FUND OPERATING EXPENSES
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<TABLE>
<S> <C>
- -------------------------------------------------------------------
Investment Advisory Fees X.XX%
- -------------------------------------------------------------------
Other Expenses X.XX%
- -------------------------------------------------------------------
Total Annual Fund Operating Expenses X.XX%
</TABLE>
The table shows the highest expenses that could be currently charged to the
Fund. Actual expenses are lower because the Adviser is voluntarily waiving a
portion of its fees to 0.90%. Actual Investment Advisory Fees and Total
Operating Expenses are [ %] and [ %], respectively. The Adviser could
discontinue this voluntary waivers at any time. 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 and Fund
expenses remain the same. Although your actual costs and returns might be
different, your approximate costs of investing $10,000 in the Fund would be:
<TABLE>
<CAPTION>
----------------------------------------
1 YEAR 3 YEARS
<S> <C>
----------------------------------------
$XXX $XXX
</TABLE>
<PAGE>
More Information About Risk
YEAR 2000 RISK - The Fund depends on the smooth functioning
of computer systems in almost every aspect of their
business. Like other mutual funds, businesses and
individuals around the world, the Fund could be adversely
affected if the computer systems used by its service
providers do not properly process dates on and after January
1, 2000, and distinguish between the year 2000 and the year
1900. The Fund has asked its service providers whether they
expect to have its computer systems adjusted for the year
2000 transition, and is seeking assurances from each service
provider that they are devoting significant resources to
prevent material adverse consequences to the Fund. While it
is likely that such assurances will be obtained, the Fund
and its shareholders may experience losses if these
assurances prove to be incorrect or as a result of year 2000
computer difficulties experienced by issuers of portfolio
securities or third parties, such as custodians, banks,
broker-dealers or others with which the Fund does business.
THE FUND'S OTHER INVESTMENTS
In addition to the investments and strategies described in this prospectus, the
Fund also may invest in other securities, use other strategies and engage in
other investment practices, which are described in detail in our Statement of
Additional Information. For liquidity purposes, the Fund may invest a portion
of its assets in cash, money market instruments or equity index futures
contracts. But, the Fund intends to remain as fully invested as practicable
regardless of market conditions. Of course, we cannot guarantee that the Fund
will achieve its investment goal.
<PAGE>
INVESTMENT ADVISER
The Investment Adviser makes investment decisions for the Fund and continuously
reviews, supervises and administers the Fund's investment program. The Board
of Trustees supervises the Adviser and establishes policies that the Adviser
must follow in its management activities.
LSV Asset Management serves as the Adviser to the LSV Value Equity Fund. As of
December 31, 1998, LSV Asset Management had approximately $___ billion in
assets under management.
FUND MANAGERS
Josef Lakonishok has served as CEO, Partner and Portfolio Manager of LSV Asset
Management since its founding in 1994. He has helped manage the LSV Value
Equity Fund since its inception. He has more than 20 years of investment and
research experience. In addition to his duties at LSV Asset Management, Mr.
Lakonishok serves as the William G. Karnes Professor of Finance at the
University of Illinois at Urbana-Champaign.
Robert Vishny has served as a Partner and Portfolio Manager of LSV Asset
Management since its founding in 1994. He has helped manage the LSV Value
Equity Fund since its inception. He has more than 13 years of investment and
research experience. In addition to his duties at LSV Asset Management, Mr.
Vishny serves as the Eric J. Gleacher Professor of Finance at the University of
Chicago.
Menno Vermuelen has served as a Portfolio Manager and Senior Quantitative
Analyst of LSV Asset Management since 1995 and a Partner since 1998. He has
helped manage the LSV Value Equity Fund since its inception. He has more than
8 years of investment experience. Prior to joining LSV Asset Management, Mr.
Vermuelen served as a portfolio manager for ABP Investments.
<PAGE>
PURCHASING FUND SHARES
HOW TO PURCHASE FUND SHARES
You may purchase shares by mail or wire on any day that the New York Stock
Exchange is open for business (a Business Day).
To purchase shares directly from us, please write your check, payable in U.S.
dollars, to "LSV Value Equity Fund." We cannot accept third-party checks,
credit cards, credit card checks or cash. You may also purchase shares through
financial intermediaries, or other financial institutions that have executed
dealer agreements. We may reject any purchase order if we determine that
accepting the order would not be in the best interests of the Fund or its
shareholders.
Shares of the Fund may also be purchased "in-kind", subject to the Adviser's
determination that the securities are acceptable investments for the Fund. In
an in-kind purchase, investors transfer securities to the Fund in exchange for
Fund shares. Securities accepted by the Fund in an in-kind purchase will be
valued at market value. More information about in-kind purchases is discussed
in our Statement of Additional Information.
The price per share (the offering price) will be the net asset value per share
(NAV) next determined after we receive your purchase order.
We calculate the Fund's 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 we must receive your purchase order before 4:00 p.m. Eastern time.
Certain investors who deal with a financial institution or financial
intermediary will have to follow the institution's or intermediary's procedures
for transacting with the Fund. If you purchase or sell Fund shares through a
financial institution (rather than directly from us), you may have to transmit
your purchase and sale requests to your financial institution at an earlier
time for your transaction to become effective that day. This allows the
financial institution time to process your request and transmit it to us. For
more information about how to purchase or sell Fund shares through your
financial institution, you should contact your financial institution directly.
<PAGE>
How We Calculate NAV
NAV for one Fund share is the value of that share's portion of the net assets
in the Fund.
In calculating NAV, we generally value the Fund's investment portfolio at
market price. If market prices are unavailable or we think 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 in the Fund at least
$500,000.
We may accept investments of smaller amounts at our discretion.
<PAGE>
SELLING FUND SHARES
HOW TO SELL YOUR FUND SHARES
You may sell (sometimes called "redeem") your shares on any Business Day by
contacting us directly by mail or telephone. To sell your shares by telephone,
call us at 1-800-FUND-LSV.
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 us in writing and
include a signature guarantee (a notarized signature is not sufficient).
The sale price of each share will be the next NAV determined after we receive
your request
Receiving Your Money
Normally, we will send your sale proceeds to you within seven Business 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, REDEMPTION PROCEEDS MAY NOT BE AVAILABLE UNTIL YOUR CHECK
HAS CLEARED (WHICH MAY TAKE UP TO 15 BUSINESS DAYS).
Redemptions in Kind
We generally pay sale (redemption) proceeds in cash. However, under unusual
conditions that make the payment of cash unwise (or for the protection of the
Fund's remaining shareholders) we might pay all or part of your redemption
proceeds in securities with a market value equal to the redemption price
(redemption in kind). If your shares are redeemed in kind, you would probably
<PAGE>
have to pay transaction costs to sell the securities distributed to you, as
well as taxes on any capital gains from the sale as with any redemption. The
Fund may redeem in kind to discourage short-term trading of shares.
INVOLUNTARY SALES OF YOUR SHARES
If your account balance drops below $500,000 because of redemptions you may be
required to sell your shares. But, we will 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
We may suspend your right to sell your shares if the NYSE restricts trading,
the SEC declares an emergency or for other reasons. More information about
this is in our Statement of Additional Information.
TELEPHONE TRANSACTIONS
Purchasing and selling Fund shares over the telephone is extremely convenient,
but not without risk. Although we have certain safeguards and procedures to
confirm the identity of callers and the authenticity of instructions, we are
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 us over the telephone, you will generally bear the
risk of any loss.
<PAGE>
OTHER INFORMATION
Dividends and Distributions
The Fund distributes its income annually 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 us in writing prior to the date of the distribution. Your election
will be effective for dividends and distributions paid after we receive your
written notice. To cancel your election, simply send us written notice.
Taxes
PLEASE CONSULT YOUR TAX ADVISER REGARDING YOUR SPECIFIC QUESTIONS ABOUT
FEDERAL, STATE AND LOCAL INCOME TAXES. Below we have summarized some important
tax issues that affect the Fund and its shareholders. This summary is
based on current tax laws, which may change.
The Fund will distribute substantially all of its income and capital gains, if
any. The dividends and distributions you receive may be subject to federal,
state and local taxation, depending upon your tax situation. Distributions you
receive from the Fund may be taxable whether or not you reinvest them. Capital
gains distributions may be taxable at different rates depending on the length
of time the Fund holds its portfolio securities. YOU MAY BE TAXED ON EACH SALE
OF FUND SHARES.
MORE INFORMATION ABOUT TAXES IS IN OUR STATEMENT OF ADDITIONAL INFORMATION.
<PAGE>
THE ADVISORS' INNER CIRCLE FUND
LSV VALUE EQUITY FUND
INVESTMENT ADVISER
LSV Asset Management
200 W. Madison Street, 27th Floor
Chicago, Illinois 60606
DISTRIBUTOR
SEI Investments Distribution Co.
One Freedom Valley Drive
Oaks, Pennsylvania 19456
LEGAL COUNSEL
Morgan, Lewis & Bockius LLP
1800 M Street, N.W.
Washington, D.C. 20036
More information about the Fund is available without charge through the
following:
STATEMENT OF ADDITIONAL INFORMATION (SAI)
---------------------------------------
Our SAI dated March 15, 1999, includes detailed information about The Advisors'
Inner Circle Fund and the LSV Value Equity Fund. The SAI is on file with the
SEC and is incorporated by reference into this prospectus. This means that the
SAI, for legal purposes, is a part of this prospectus.
ANNUAL AND SEMI-ANNUAL REPORTS
---------------------------------------
These reports list the Fund's holdings and contain information from the Fund's
managers about strategies, and recent market conditions and trends. The
reports also contain detailed financial information about the Fund.
TO OBTAIN MORE INFORMATION:
<PAGE>
BY TELEPHONE: Call 1-800-FUND-LSV
BY MAIL: Write to us
LSV Value Equity Fund
c/o The Advisors' Inner Circle Fund
P.O. Box 419009
Kansas City, Missouri 64141-6009
FROM THE SEC: You can also obtain the SAI or the Annual and Semi-annual
reports, as well as other information about The Advisors' Inner Circle Fund,
from the SEC's website ("HTTP://WWW.SEC.GOV"). You may review and copy
documents at the SEC Public Reference Room in Washington, DC (for information
call 1-800-SEC-0330). 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. The Fund's
Investment Company Act registration number is 811-6400.
<PAGE>
TRUST:
THE ADVISORS' INNER CIRCLE FUND
Fund:
LSV Value Equity Fund
Investment Adviser:
LSV Asset Management
This STATEMENT OF ADDITIONAL INFORMATION is not a prospectus and relates
only to the LSV Value Equity Fund (the "Fund"). It is intended to provide
additional information regarding the activities and operations of The Advisors'
Inner Circle Fund (the "Trust") and the Fund and should be read in conjunction
with the Fund's Prospectus dated February 11, 1999. The Prospectus for the Fund
may be obtained by calling .
TABLE OF CONTENTS
<TABLE>
<S> <C>
The Trust................................................................. S-2
Investment Objective and Policies......................................... S-2
Description of Additional Investments..................................... S-2
Investment Limitations.................................................... S-5
The Adviser............................................................... S-6
The Administrator......................................................... S-7
The Distributor........................................................... S-8
The Transfer Agent........................................................ S-8
The Custodian............................................................. S-8
Independent Public Accountants............................................ S-8
Legal Counsel............................................................. S-9
Trustees and Officers of the Trust........................................ S-9
Performance Information................................................... S-11
Calculation of Total Return............................................... S-11
Purchasing Shares......................................................... S-12
Redeeming Shares.......................................................... S-12
Determination of Net Asset Value.......................................... S-12
Taxes..................................................................... S-12
Fund Transactions......................................................... S-15
Trading Practices and Brokerage........................................... S-15
Description of Shares..................................................... S-16
Shareholder Liability..................................................... S-16
Limitation of Trustees' Liability......................................... S-16
Year 2000................................................................. S-17
</TABLE>
The information in this Statement of Additional Information is not complete and
may be changed. We may not sell these securities until the registration
statement filed with the Securities and Exchange Commission is effective. This
Statement of Additional Information is not an offer to sell these securities and
is not soliciting an offer to buy these securities in any state where the offer
or sale is not permitted.
February 11, 1999
[ ]
S-1
<PAGE>
THE TRUST
This Statement of Additional Information relates only to the LSV Value
Equity Fund (the "Fund"). The Fund is a separate series of The Advisors' Inner
Circle Fund (the "Trust"), an open-end investment management company established
under Massachusetts law as a Massachusetts business trust under a Declaration of
Trust dated July 18, 1991. The Declaration of Trust permits the Trust to offer
separate series ("portfolios") of shares of beneficial interest ("shares"). Each
portfolio is a separate mutual fund, and each share of each portfolio represents
an equal proportionate interest in that portfolio. See "Description of Shares."
No investment in shares of a portfolio should be made without first reading that
portfolio's prospectus. Capitalized terms not defined herein are defined in the
Prospectus offering shares of the Fund.
The Fund pays its (i) operating expenses, including fees of its service
providers, expenses of preparing prospectuses, proxy solicitation material and
reports to shareholders, costs of custodial services and registering its shares
under federal and state securities laws, pricing and insurance expenses and pays
additional expenses, brokerage costs, interest charges, taxes and organization
expenses and (ii) pro rata share of the Trust's other expenses, including audit
and legal expenses. The Fund's expense ratios are disclosed under "Fund Fees and
Expenses" in the Prospectus.
INVESTMENT OBJECTIVE AND POLICIES
The Fund seeks long term growth of capital. The Fund will be as fully
invested as practicable (at least 65% of its total assets under normal
conditions) in common stocks. The Fund may invest in warrants, rights to
purchase common stocks, debt securities convertible into common stocks and
preferred stocks. A portion of the Fund may also be invested in investment grade
fixed income securities, cash and money market securities. Investment grade
fixed income securities are debt securities rated in one of the four highest
rating categories ("investment grade") by a nationally recognized statistical
rating organization (an "NRSRO") or that the Adviser determines are of
comparable quality. The Fund may also make limited use of equity index futures
contracts for liquidity purposes.
In order to generate additional income, the Fund may lend securities which
it owns. The Fund may also invest in repurchase agreements.
The phrase "principally invests" as used in the prospectus means that the
Fund invests at least 65% of its assets in the securities as described in the
sentence.
DESCRIPTION OF ADDITIONAL INVESTMENTS
The Fund may invest in any of the following instruments for temporary cash
management purposes:
BANKERS' ACCEPTANCES--A bankers' acceptance is a bill of exchange or time
draft drawn on and accepted by a commercial bank. It is used by corporations to
finance the shipment and storage of goods and to furnish dollar exchange.
Maturities are generally six months or less.
CERTIFICATES OF DEPOSIT--A certificate of deposit is a negotiable,
interest-bearing instrument with a specific maturity. Certificates of deposit
are issued by banks and savings and loan institutions in exchange for the
deposit of funds, and normally can be traded in the secondary market prior to
maturity. Certificates of deposit have penalties for early withdrawal.
COMMERCIAL PAPER--Commercial paper is the term used to designate unsecured,
short-term promissory notes issued by corporations and other entities.
Maturities on these issues vary from a day to nine months.
FUTURES CONTRACTS--Futures contracts provide for the future sale by one
party and purchase by another party of a specified amount of a specific security
at a specified future time and at a specified price.
The Fund may use futures contracts for bona fide hedging purposes or to gain
exposure to a particular portion of the equity market or instrument. The Fund
will minimize the risk that it will be unable to close
S-2
<PAGE>
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 secondary market will exist for any particular
futures contract at any specific time. Thus, it may not be possible to close a
futures position. In the event of adverse price movements, the Fund would
continue to be required to make daily cash payments to maintain its required
margin. In such situations, if the Fund has insufficient cash, it may have to
sell portfolio securities to meet daily margin requirements at a time when it
may be disadvantageous to do so. In addition, the Fund may be required to make
delivery of the instruments underlying the futures contracts they hold. The
inability to close futures positions also could have an adverse impact on the
ability to effectively gain exposure to the portion of the equity market
represented by the underlying index.
The risk of loss in trading futures contracts can be substantial, due both
to the low margin deposits required and the extremely high degree of leverage
involved in futures pricing. As a result, a relatively small price movement in a
futures contract may result in immediate and substantial loss (or gain) to the
Fund. For example, if at the time of purchase, 10% of the value of the futures
contract is deposited as margin, a subsequent 10% decrease in the value of the
futures contract would result in a total loss of the margin deposit, before any
deduction for the transaction costs, if the account were then closed out. A 15%
decrease would result in a loss equal to 150% of the original margin deposit if
the contract were closed out. Thus, a purchase or sale of a futures contract may
result in losses in excess of the amount invested in the contract. However, the
Adviser will not use futures contracts for leverage purposes and, does not
believe that the Fund will generally be subject to the risks of loss frequently
associated with futures transactions. The Fund presumably would have sustained
comparable losses if, instead of the futures contract, they had invested in the
underlying financial instrument and sold it after the decline.
Most futures exchanges limit the amount of fluctuation permitted in futures
contract prices during a single trading day. The daily limit establishes the
maximum amount that the price of a futures contract may vary either up or down
from the previous day's settlement price at the end of a trading session. Once
the daily limit has been reached in a particular type of contract, no trades may
be made on that day at a price beyond that limit. The daily limit governs only
price movement during a particular trading day and therefore does not limit
potential losses because the limit may prevent the liquidation of unfavorable
positions. Futures contract prices have occasionally moved to the daily limit
for several consecutive trading days with little or no trading, thereby
preventing prompt liquidation of future positions and subjecting some futures
traders to substantial losses.
ILLIQUID SECURITIES--Illiquid securities are securities that cannot be
disposed of within seven business days at approximately the price at which they
are being carried on the Fund's books. Illiquid securities include demand
instruments with a demand notice period exceeding seven days, when there is no
secondary market for such security and repurchase agreements with durations over
seven days in length.
S-3
<PAGE>
INVESTMENT COMPANY SHARES--The Fund may invest up to 10% of its total assets
in shares of other investment companies that invest exclusively in those
securities in which the Fund may invest directly. These investment companies
typically incur fees that are separate from those fees incurred directly by the
Fund. The Fund's purchase of such investment company securities results in the
layering of expenses, such that shareholders would indirectly bear a
proportionate share of the operating expenses of such investment companies,
including advisory fees, in addition to paying Fund expenses. Under applicable
regulations, the Fund is prohibited from acquiring the securities of another
investment company if, as a result of such acquisition: (1) the Fund owns more
than 3% of the total voting stock of the other company; (2) securities issued by
any one investment company represent more than 5% of the Fund's total assets; or
(3) securities (other than treasury stock) issued by all investment companies
represent more than 10% of the total assets of the Fund.
MONEY MARKET INSTRUMENTS--Money market securities are high-quality,
dollar-denominated, short-term debt instruments. They consist of: (i) bankers'
acceptances, certificates of deposits, notes and time deposits of U.S. banks and
U.S. branches of foreign banks; (ii) U.S. Treasury obligations and obligations
of agencies and instrumentalities of the U.S. Government; (iii) commercial paper
issued by U.S. and foreign corporations rated in one of the two highest ratings
categories by a nationally recognized statistical ratings organization (an
"NRSRO"); (iv) debt obligations with a maturity of one year or less issued by
corporations that issue commercial paper rated in one of the two highest ratings
categories by an NRSRO; and (v) repurchase agreements involving any of the
foregoing obligations entered into with highly-rated banks and broker-dealers.
REPURCHASE AGREEMENTS--Repurchase agreements are agreements by which a
person (E.G., the Fund) obtains a security and simultaneously commits to return
the security to the seller (a primary securities dealer as recognized by the
Federal Reserve Bank of New York or a national member bank as defined in Section
3(d)(1) of the Federal Deposit Insurance Act, as amended) at an agreed upon
price (including principal and interest) on an agreed upon date within a number
of days (usually not more than seven) from the date of purchase. The resale
price reflects the purchase price plus an agreed upon market rate of interest
which is unrelated to the coupon rate or maturity of the underlying security. A
repurchase agreement involves the obligation of the seller to pay the agreed
upon price, which obligation is, in effect, secured by the value of the
underlying security.
Repurchase agreements are considered to be loans by the Fund for purposes of
its investment limitations. The repurchase agreements entered into by the Fund
will provide that the underlying security at all times shall have a value at
least equal to 102% of the resale price stated in the agreement (the Adviser
monitors compliance with this requirement). Under all repurchase agreements
entered into by the Fund, the appropriate custodian or its agent must take
possession of the underlying collateral. However, if the seller defaults, the
Fund could realize a loss on the sale of the underlying security to the extent
that the proceeds of the sale including accrued interest are less than the
resale price provided in the agreement including interest. In addition, even
though the Bankruptcy Code provides protection for most repurchase agreements,
if the seller should be involved in bankruptcy or insolvency proceedings, the
Fund may incur delay and costs in selling the underlying security or may suffer
a loss of principal and interest if the Fund is treated as an unsecured creditor
and required to return the underlying security to the seller's estate.
SECURITIES LENDING--The Fund may lend securities pursuant to agreements
which require that the loans be continuously secured by collateral at all times
equal to 100% of the market value of the loaned securities which consists of:
cash, securities of the U.S. Government or its agencies, or any combination of
cash and such securities. Such loans will not be made if, as a result, the
aggregate amount of all outstanding securities loans for the Fund exceed
one-third of the value of the Fund's total assets taken at fair market value.
The Fund will continue to receive interest on the securities lent while
simultaneously earning interest on the investment of the cash collateral in U.S.
Government securities. However, the Fund will normally pay lending fees to such
broker-dealers and related expenses from the interest earned on invested
collateral. There may be risks of delay in receiving additional collateral or
risks of delay in recovery of the
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<PAGE>
securities or even loss of rights in the collateral should the borrower of the
securities fail financially. However, loans are made only to borrowers deemed by
the appropriate Adviser to be of good standing and when, in the judgment of that
Adviser, the consideration which can be earned currently from such securities
loans justifies the attendant risk. Any loan may be terminated by either party
upon reasonable notice to the other party. The Fund may use the Distributor or a
broker-dealer affiliate of an Adviser as a broker in these transactions.
U.S. GOVERNMENT AGENCY OBLIGATIONS--U.S. Government agency obligations are
obligations issued or guaranteed by agencies or instrumentalities of the U.S.
Government. Agencies of the United States Government which issue obligations
consist of, among others, the Export Import Bank of the United States, Farmers
Home Administration, Federal Farm Credit Bank, Federal Housing Administration,
Government National Mortgage Association ("GNMA"), Maritime Administration,
Small Business Administration and The Tennessee Valley Authority. Obligations of
instrumentalities of the United States Government include securities issued by,
among others, Federal Home Loan Banks, Federal Home Loan Mortgage Corporation
("FHLMC"), Federal Intermediate Credit Banks, Federal Land Banks, Fannie Mae and
the United States Postal Service as well as government trust certificates. Some
of these securities are supported by the full faith and credit of the United
States Treasury, others are supported by the right of the issuer to borrow from
the Treasury and still others are supported only by the credit of the
instrumentality. Guarantees of principal by agencies or instrumentalities of the
U.S. Government may be a guarantee of payment at the maturity of the obligation
so that in the event of a default prior to maturity there might not be a market
and thus no means of realizing the value of the obligation prior to maturity.
INVESTMENT LIMITATIONS
FUNDAMENTAL POLICIES
The following investment limitations are fundamental policies of the Fund
that cannot be changed without the consent of the holders of a majority of the
Fund's outstanding shares. The phrase "majority of the outstanding shares" means
the vote of (i) 67% or more of the Fund's shares present at a meeting, if more
than 50% of the outstanding shares of the Fund are present or represented by
proxy, or (ii) more than 50% of the Fund's outstanding shares, whichever is
less.
The Fund may not:
1. Purchase securities of any issuer (except securities issued or guaranteed by
the U.S. Government, its agencies or instrumentalities and repurchase
agreements involving such securities) if as a result more than 5% of the
total assets of the Fund would be invested in the securities of such issuer.
This restriction applies to 75% of the Fund's total assets.
2. Purchase any securities which would cause 25% or more of the total assets of
the Fund to be invested in the securities of one or more issuers conducting
their principal business activities in the same industry, provided that this
limitation does not apply to investments in obligations issued or guaranteed
by the U.S. Government, its agencies or instrumentalities and repurchase
agreements involving such securities. For purposes of this limitation, (i)
utility companies will be classified according to their services, for
example, gas distribution, gas transmission, electric and telephone will
each be considered a separate industry; and (ii) financial service companies
will be classified according to the end users of their services, for
example, automobile finance, bank finance and diversified finance will each
be considered a separate industry.
3. Acquire more than 10% of the voting securities of any one issuer.
4. Invest in companies for the purpose of exercising control.
5. Issue any class of senior security or sell any senior security of which it
is the issuer, except that the Fund may borrow from any bank, provided that
immediately after any such borrowing there is asset coverage of at least
300% for all borrowings of the Fund, and further provided that, to the
extent that
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<PAGE>
such borrowings exceed 5% of the Fund's total assets, all borrowings shall
be repaid before the Fund makes additional investments. The term "senior
security" shall not include any temporary borrowings that do not exceed 5%
of the value of the Fund's total assets at the time the Fund makes such
temporary borrowing. In addition, investment strategies that either obligate
the Fund to purchase securities or require the Fund to segregate assets will
not be considered borrowings or senior securities. This investment
limitation shall not preclude the Fund from issuing multiple classes of
shares in reliance on SEC rules or orders.
6. Make loans if, as a result, more than 33 1/3% of its total assets would be
lent to other parties, except that the Fund may (i) purchase or hold debt
instruments in accordance with its investment objective and policies; (ii)
enter into repurchase agreements; and (iii) lend its securities.
7. Purchase or sell real estate, real estate limited partnership interests,
physical commodities or commodities contracts except that the Fund may
purchase commodities contracts relating to financial instruments, such as
financial futures contracts and options on such contracts.
8. Make short sales of securities, maintain a short position or purchase
securities on margin, except that the Fund may obtain short-term credits as
necessary for the clearance of security transactions and sell securities
short "against the box."
9. Act as an underwriter of securities of other issuers except as it may be
deemed an underwriter in selling the Fund security.
10. Purchase securities of other investment companies except as permitted by the
Investment Company Act of 1940, as amended (the "1940 Act") and the rules
and regulations thereunder.
The foregoing percentages apply at the time of the purchase of a security.
NON-FUNDAMENTAL POLICIES
The following investment limitation of the Fund is non-fundamental and may
be changed by the Trust's Board of Trustees without shareholder approval:
1. The Fund may not invest in illiquid securities in an amount exceeding, in
the aggregate, 15% of the Fund's net assets.
Except with respect to the Fund's policy concerning borrowing and illiquid
securities, if a percentage restriction is adhered to at the time of an
investment, a later increase or decrease in percentage resulting from changes in
values or assets will not constitute a violation of such restriction.
THE ADVISER
LSV Asset Management (the "Adviser") and the Trust have entered into an
advisory agreement dated , 1998 (the "Advisory Agreement"). The Advisory
Agreement provides that the Adviser shall not be protected against any liability
to the Trust or its shareholders by reason of willful misfeasance, bad faith or
gross negligence on its part in the performance of its duties or from reckless
disregard of its obligations or duties thereunder.
Formed in 1994, the Adviser is a quantitative value equity manager providing
active management through the application of proprietary models. The principals
of this Delaware general partnership are Josef Lakonishok, Andrei Shleifer,
Robert Vishny, Menno Vermuelen and Christopher LaCroix. The general partners of
the partnership are Lakonishok Corporation, Shleifer Corporation, Vishny
Corporation, Menno LLC, LaCroix LLC, and SEI Funds, Inc. SEI Investment Company
is the parent of SEI Funds, Inc. As of , LSV had approximately $ billion
in assets under management. The principal business address of the Adviser is 200
W. Madison Street, 27th Floor, Chicago, Illinois 60606.
S-6
<PAGE>
Under the Advisory Agreement, the Adviser makes the investment decisions for
the assets of the Fund and continuously reviews, supervises and administers the
Fund's investment program, subject to the supervision of, and policies
established by, the Trustees of the Trust. In addition to advising the Funds,
the Adviser provides advisory services to institutional investors and serves as
a sub-adviser to registered investment companies.
The continuance of the Advisory Agreement, after the first two years, must
be specifically approved at least annually (i) by the vote of the Trustees or by
a vote of the shareholders of the Fund, and (ii) by the vote of a majority of
the Trustees who are not parties to the Agreement or "interested persons" of any
party thereto, cast in person at a meeting called for the purpose of voting on
such approval. The Advisory Agreement will terminate automatically in the event
of its assignment, and is terminable at any time without penalty by the Trustees
of the Trust or, with respect to the Fund, by a majority of the outstanding
shares of that Fund, on not less than 30 days' nor more than 60 days' written
notice to the Adviser, or by the Adviser on 90 days' written notice to the
Trust.
For its services, the Adviser is entitled to a fee, which is calculated
daily and paid monthly, at an annual rate of .55% of the average daily net
assets of the Fund. The Adviser has voluntarily agreed to waive a portion of its
advisory fees in order to limit total operating expenses of the Fund to not more
than .90% of average daily net assets. The Adviser reserves the right, in its
sole discretion, to terminate its fee waiver at any time.
Prior to the effective date of the Prospectus, the Fund had not commenced
operations and therefore did not pay advisory fees.
PORTFOLIO MANAGEMENT
Messrs. Lakonishok, Shleifer and Vishny have developed proprietary computer
models based on their research of investor behavior and the performance of
contrarian investment strategies. The portfolio decision making process is
strictly quantitative and driven by (i) a proprietary computer model which ranks
securities based on fundamental measures of value and indicators of near-term
appreciation potential and, (ii) a risk control process that controls for
residual benchmark risk while attempting to maximize the expected return of the
portfolios. Refinements to the model are made as suggested by advances in the
Adviser's research and these refinements are generally incremental in nature.
The Adviser may modify the investment model used to manage the Fund at any time
without notice.
THE ADMINISTRATOR
SEI Investments Mutual Funds Services (the "Administrator"), serves as the
administrator of the Trust. The Administrator provides the Trust with
administrative services, including regulatory reporting and all necessary office
space, equipment, personnel and facilities. For these administrative services,
the Administrator is entitled to a fee from the Fund, which is calculated daily
and paid monthly, at an annual rate of 0.10% of the Fund's first $100 million of
average daily net assets; 0.08% of the next $100 million of average daily net
assets; and 0.07% of the Fund's average daily net assets over $200 million.
However, the Fund pays the Administrator a minimum annual fee of $75,000.
The Administration Agreement provides that the Administrator shall not be
liable for any error of judgment or mistake of law or for any loss suffered by
the Fund in connection with the matters to which the Administration Agreement
relates, except a loss resulting from willful misfeasance, bad faith or gross
negligence on the part of the Administrator in the performance of its duties or
from reckless disregard of its duties and obligations thereunder.
The Administration Agreement shall remain effective for the initial term of
the Agreement and each renewal term thereof unless earlier terminated (a) by the
mutual written agreement of the parties; (b) by either party of the
Administration Agreement on 90 days' written notice, as of the end of the
initial term or the end of any renewal term; (c) by either party of the
Administration Agreement on such date as is
S-7
<PAGE>
specified in written notice given by the terminating party, in the event of a
material breach of the Administration Agreement by the other party, provided the
terminating party has notified the other party of such breach at least 45 days'
prior to the specified date of termination and the breaching party has not
remedied such breach by the specified date; (d) effective upon the liquidation
of the Administrator; or (e) as to the Fund or the Trust, effective upon the
liquidation of the Fund or the Trust, as the case may be.
The Administrator, a Delaware business trust, has its principal business
offices at Oaks, Pennsylvania 19456. SEI Investments Management Corporation
("SIMC"), a wholly-owned subsidiary of SEI Investments Company ("SEI
Investments"), is the owner of all beneficial interest in the Administrator. SEI
Investments and its subsidiaries and affiliates, including the Administrator,
are leading providers of funds evaluation services, trust accounting systems,
and brokerage and information services to financial institutions, institutional
investors, and money managers. The Administrator and its affiliates also serve
as administrator or sub-administrator to the following other mutual funds: The
Achievement Funds Trust, The Arbor Fund, ARK Funds, Armada Funds, Bishop Street
Funds, Boston 1784 Funds-Registered Trademark-, CrestFunds, Inc., CUFUND, The
Expedition Funds, First American Funds, Inc., First American Investment Funds,
Inc., First American Strategy Funds, Inc., HighMark Funds, Monitor Funds, The
Nevis Funds, Oak Associates Funds, The PBHG Funds, Inc., PBHG Advisor Funds,
Inc., PBHG Insurance Series Fund, Inc., The Pillar Funds, SEI Asset Allocation
Trust, SEI Daily Income Trust, SEI Index Funds, SEI Institutional International
Trust, SEI Institutional Investments Trust, SEI Institutional Managed Trust, SEI
Liquid Asset Trust, SEI Tax Exempt Trust, STI Classic Funds, STI Classic
Variable Trust, TIP Funds and Alpha Select Funds.
The Administrator will not be required to bear expenses of the Fund to an
extent which would result in the Fund's inability to qualify as a regulated
investment company under provisions of the Code. The term "expenses" is defined
in such laws or regulations, and generally excludes brokerage commissions,
distribution expenses, taxes, interest and extraordinary expenses.
THE DISTRIBUTOR
SEI Investments Distribution Co. (the "Distributor"), a wholly-owned
subsidiary of SEI Investments, and the Trust are parties to a distribution
agreement (the "Distribution Agreement"). The Distributor will not receive
compensation for distribution of shares of the Fund.
The Distribution Agreement shall remain in effect for a period of two years
after the effective date of the agreement and is renewable annually. The
Distribution Agreement may be terminated by the Distributor, by a majority vote
of the Trustees who are not interested persons and have no financial interest in
the Distribution Agreement or by a majority vote of the outstanding securities
of the Trust upon not more than 60 days' written notice by either party or upon
assignment by the Distributor.
THE TRANSFER AGENT
DST Systems, Inc., 330 W. 9th Street, Kansas City, MO 64105 serves as the
Trust's transfer agent.
THE CUSTODIAN
First Union National Bank, Broad and Chestnut Streets, P.O. Box 7618,
Philadelphia, Pennsylvania 19101 acts as custodian (the "Custodian") of the
Fund. The Custodian holds cash, securities and other assets of the Fund as
required by the 1940 Act.
INDEPENDENT PUBLIC ACCOUNTANTS
Arthur Andersen LLP serves as independent public accountants for the Trust.
S-8
<PAGE>
LEGAL COUNSEL
Morgan, Lewis & Bockius LLP 1800 M Street, N.W., Washington, D.C. serves as
legal counsel to the Trust.
TRUSTEES AND OFFICERS OF THE TRUST
The management and affairs of the Trust are supervised by the Trustees under
the laws of the Commonwealth of Massachusetts. The Trustees have approved
contracts under which, as described above, certain companies provide essential
management services to the Trust. The Trust pays the fees for unaffiliated
Trustees.
The Trustees and Executive Officers of the Trust, their respective dates of
birth, and their principal occupations for the last five years are set forth
below. Each may have held other positions with the named companies during that
period. Unless otherwise noted, the business address of each Trustee and each
Executive Officer is SEI Investments Company, Oaks, Pennsylvania 19456. Certain
officers of the Trust also serve as officers of some or all of the following:
The Achievement Funds Trust, The Arbor Fund, ARK Funds, Armada Funds, Bishop
Street Funds, Boston 1784 Funds-Registered Trademark-, CrestFunds, Inc., CUFUND,
The Expedition Funds, First American Funds, Inc., First American Investment
Funds, Inc., First American Strategy Funds, Inc., HighMark Funds, Monitor Funds,
Oak Associates Funds, The PBHG Funds, Inc., PBHG Advisor Funds, Inc., PBHG
Insurance Series Fund, Inc., The Pillar Funds, SEI Asset Allocation Trust, SEI
Daily Income Trust, SEI Index Funds, SEI Institutional International Trust, SEI
Institutional Investments Trust, SEI Institutional Managed Trust, SEI Liquid
Asset Trust, SEI Tax Exempt Trust, STI Classic Funds, STI Classic Variable
Trust, TIP Funds and Alpha Select Funds, each of which is an open-end management
investment company managed by SEI Investments Mutual Funds Services or its
affiliates and, except for PBHG Advisor Funds, Inc., distributed by SEI
Investments Distribution Co.
ROBERT A. NESHER (DOB 08/17/46)--Chairman of the Board of
Trustees*--Currently performs various services on behalf of SEI Investments for
which Mr. Nesher is compensated. Executive Vice President of SEI Investments,
1986-1994. Director and Executive Vice President of the Administrator and the
Distributor, 1981-1994. Trustee of The Arbor Fund, Boston 1784
Funds-Registered Trademark-, The Expedition Funds, Oak Associates Funds, Pillar
Funds, SEI Asset Allocation Trust, SEI Daily Income Trust, SEI Index Funds, SEI
Institutional Investments Trust, SEI Institutional Managed Trust, SEI
Institutional International Trust, SEI Liquid Asset Trust and SEI Tax Exempt
Trust.
JOHN T. COONEY (DOB 01/20/27)--Trustee**--Vice Chairman of Ameritrust Texas
N.A., 1989-1992, and MTrust Corp., 1985-1989. Trustee of The Arbor Fund, The
Expedition Funds, and Oak Associates Funds.
WILLIAM M. DORAN (DOB 05/26/40)--Trustee*--1701 Market Street, Philadelphia,
PA 19103-2921. Partner, Morgan, Lewis & Bockius LLP (law firm), counsel to the
Trust, SEI Investments, the Administrator and the Distributor. Director and
Secretary of SEI Investments and Secretary of the Administrator and the
Distributor. Trustee of The Arbor Fund, The Expedition Funds, Oak Associates
Funds, SEI Asset Allocation Trust, SEI Daily Income Trust, SEI Index Funds, SEI
Institutional Investments Trust, SEI Institutional Managed Trust, SEI
Institutional International Trust, SEI Liquid Asset Trust and SEI Tax Exempt
Trust.
ROBERT A. PATTERSON (DOB 11/05/27)--Trustee**--Pennsylvania State
University, Senior Vice President, Treasurer (Emeritus). Financial and
Investment Consultant, Professor of Transportation (1984-present). Vice
President-Investments, Treasurer, Senior Vice President (Emeritus) (1982-1984).
Director, Pennsylvania Research Corp.; Member and Treasurer, Board of Trustees
of Grove City College. Trustee of The Arbor Fund, The Expedition Funds and Oak
Associates Funds.
EUGENE B. PETERS (DOB 06/03/29)--Trustee**--Private investor from 1987 to
present. Vice President and Chief Financial Officer, Western Company of North
America (petroleum service company)
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<PAGE>
(1980-1986). President of Gene Peters and Associates (import company)
(1978-1980). President and Chief Executive Officer of Jos. Schlitz Brewing
Company before 1978. Trustee of The Arbor Fund, The Expedition Funds and Oak
Associates Funds.
JAMES M. STOREY (DOB 04/12/31)--Trustee**--Partner, Dechert Price & Rhoads,
from September 1987 - December 1993; Trustee of The Arbor Fund, The Expedition
Funds, Oak Associates Funds, SEI Asset Allocation Trust, SEI Daily Income Trust,
SEI Index Funds, SEI Institutional Investments Trust, SEI Institutional Managed
Trust, SEI Institutional International Trust, SEI Liquid Asset Trust and SEI Tax
Exempt Trust.
TODD B. CIPPERMAN (DOB 02/14/66)--Vice President and Assistant
Secretary--Vice President and Assistant Secretary of SEI Investments, the
Administrator and the Distributor since 1995. Associate, Dewey Ballantine (law
firm), 1994-1995. Associate, Winston & Strawn (law firm) 1991-1994.
JAMES R. FOGGO (DOB 06/30/64)--Vice President and Assistant Secretary--Vice
President and Assistant Secretary of the Administrator and the Distributor since
1998. Associate, Paul Weiss, Rifkind, Wharton & Garrison (law firm), 1998.
Associate, Baker & McKenzie (law firm), 1995-1998. Associate, Battle Fowler
L.L.P. (law firm), 1993-1995. Operations Manager, The Shareholder Services
Group, Inc., 1986-1990.
LYDIA A. GAVALIS (DOB 06/05/64)--Vice President and Assistant
Secretary--Vice President and Assistant Secretary of the Administrator and the
Distributor since 1998. Assistant General Counsel and Director of Arbitration,
Philadelphia Stock Exchange, 1989-1998.
KATHY HEILIG (DOB 12/21/58)--Vice President and Assistant
Secretary--Treasurer of SEI Investments since 1997; Assistant Controller of SEI
Investments since 1995; Vice President of SEI Investments since 1991; Director
of Taxes of SEI Investments, 1987 to 1991. Tax Manager, Arthur Anderson LLP
prior to 1987.
JOSEPH M. O' DONNELL (DOB 11/13/54)--Vice President and Assistant
Secretary--Vice President and Assistant Secretary of the Administrator and the
Distributor since 1998. Vice President and General Counsel, FPS Services, Inc.,
1993-1997. Staff Counsel and Secretary, Provident Mutual Family of Funds,
1990-1993.
SANDRA K. ORLOW (DOB 10/18/53)--Vice President and Assistant
Secretary--Secretary of the Distributor since 1998; Vice President of the
Distributor since 1988. Vice President and Assistant Secretary of SEI
Investments since 1988. Assistant Secretary of the Distributor from 1988 to
1998.
KEVIN P. ROBINS (DOB 04/15/61)--Vice President and Assistant
Secretary--Senior Vice President and General Counsel of SEI Investments, the
Administrator and the Distributor since 1994. Assistant Secretary of SEI
Investments since 1992; Secretary of the Administrator since 1994. Vice
President, General Counsel and Assistant Secretary of the Administrator and the
Distributor, 1992-1994. Associate, Morgan, Lewis & Bockius LLP (law firm),
1988-1992.
LYNDA J. STRIEGEL (DOB 10/30/48)--Vice President and Assistant
Secretary--Vice President and Assistant Secretary of the Administrator and the
Distributor since 1998. Senior Asset Management Counsel, Barnett Banks, Inc.,
1997-1998. Partner, Groom and Nordberg, Chartered, 1996-1997. Associate General
Counsel, Riggs Bank, N.A., 1991-1995.
MARK E. NAGLE (DOB 10/20/59)--Controller and Chief Financial Officer--Vice
President of Fund Accounting and Administration for SEI Fund Resources and Vice
President of the Administrator since 1996. Vice President of the Distributor
since December 1997. Vice President, Fund Accounting, BISYS Fund Services,
September 1995 to November 1996. Senior Vice President and Site Manager,
Fidelity Investments 1981 to September 1995.
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<PAGE>
JOHN H. GRADY, JR. (DOB 06/01/61)--Secretary--1701 Market Street,
Philadelphia, PA 19103-2921, Partner since 1995, Morgan, Lewis & Bockius LLP
(law firm), counsel to the Trust, SEI Investments, the Administrator and the
Distributor.
- ------------------------
* Messrs. Nesher and Doran are Trustees who may be deemed to be "interested"
persons of the Fund as that term is defined in the 1940 Act.
** Messrs. Cooney, Patterson, Peters and Storey serve as members of the Audit
Committee of the Fund.
The Trustees and officers of the Trust own less than 1% of the outstanding
shares of the Trust. The Trust pays the fees for unaffiliated Trustees.
The following table exhibits Trustee compensation for the fiscal year ended
October 31, 1998.
<TABLE>
<CAPTION>
TOTAL
AGGREGATE COMPENSATION FROM
COMPENSATION PENSION OR REGISTRANT AND FUND
FROM REGISTRANT RETIREMENT ESTIMATED COMPLEX* PAID TO TRUSTEES
FOR THE FISCAL YEAR BENEFITS ACCRUED ANNUAL FOR
ENDED OCTOBER 31, AS PART OF BENEFITS UPON THE FISCAL PERIOD ENDED
NAME OF PERSON, POSITION 1998 TRUST EXPENSES RETIREMENT OCTOBER 31, 1998
- ------------------------------ --------------------- ------------------- --------------------- ---------------------------
<S> <C> <C> <C> <C>
John T. Cooney, Trustee....... $ N/A N/A $ for services on 1
board
Frank E. Morris, Trustee...... $ N/A N/A $ for services on 1
board
Robert Patterson, Trustee $ N/A N/A $ for services on 1
board
Eugene B. Peters, Trustee..... $ N/A N/A $ for services on 1
board
James M. Storey, Esq.,
Trustee..................... $ N/A N/A $ for services on 1
board
William M. Doran, Esq.,
Trustee..................... $ 0 N/A N/A $0 for service on 1 board
Robert A. Nesher, Chairman of
the Board................... $ 0 N/A N/A $0 for service on 1 board
</TABLE>
- ------------------------------
* For purposes of this table, the Fund is the only investment company in the
"Fund Complex."
PERFORMANCE INFORMATION
From time to time, the Trust may advertise total return of the Fund. These
figures will be based on the Fund's historical earnings and are not intended to
indicate future performance. No representation can be made concerning actual
future returns.
PERFORMANCE COMPARISONS
The Fund may periodically compare its performance to other mutual funds
tracked by mutual fund rating services, to broad groups of comparable mutual
funds, or to unmanaged indices. These comparisons to unmanaged indices may
assume reinvestment of dividends but generally do not reflect deductions for
administrative and management costs.
CALCULATION OF TOTAL RETURN
The total return of the Fund refers to the average compounded rate of return
to a hypothetical investment for designated time periods (including, but not
limited to, the period from which that Fund commenced operations through the
specified date), assuming that the entire investment is redeemed at the end of
each period. In particular, total return will be calculated according to the
following formula: P(1 + T) TO THE POWER OF (n) = ERV, where P = a hypothetical
initial payment of $1,000; T = average annual total return; n = number of years;
and ERV = ending redeemable value, as of the end of the designated time period,
of a hypothetical $1,000 payment made at the beginning of the designated time
period.
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PURCHASING SHARES
Purchases and redemptions may be made through the Distributor on a day on
which the New York Stock Exchange is open for business, except Good Friday.
Shares of the Fund are offered on a continuous basis. Currently, the holidays
observed by the New York Stock Exchange are as follows: New Year's Day,
Presidents' Day, Martin Luther King Jr. Day, Memorial Day, Independence Day,
Labor Day, Columbus Day, Veterans' Day, Thanksgiving and Christmas.
REDEEMING SHARES
It is currently the Trust's policy to pay all redemptions in cash. The Trust
retains the right, however, to alter this policy to provide for redemptions in
whole or in part by a distribution in-kind of securities held by the Fund in
lieu of cash. Shareholders may incur brokerage charges on the sale of any such
securities so received in payment of redemptions. The Trust has received
exemptive relief from the Securities and Exchange Commission (the "SEC"), which
permits the Trust to make in-kind redemptions to those shareholders that are
affiliated with the Fund solely by their ownership of a certain percentage of
the Fund.
A Shareholder will at all times be entitled to aggregate cash redemptions
from all portfolios of the Trust during any 90-day period of up to the lesser of
$250,000 or 1% of the Trust's net assets.
The Trust reserves the right to suspend the right of redemption and/or to
postpone the date of payment upon redemption for any period on which trading on
the New York Stock Exchange is restricted, or during the existence of an
emergency (as determined by the SEC by rule or regulation) as a result of which
the disposal or valuation of the Fund's securities is not reasonably
practicable, or for such other periods as the SEC has by order permitted. The
Trust also reserves the right to suspend sales of shares of any Fund for any
period during which the New York Stock Exchange, the Federal Reserve Banks, the
Adviser, the Administrator, the Transfer Agent and/or the Custodian are not open
for business.
DETERMINATION OF NET ASSET VALUE
The securities of the Fund are valued by the Administrator. The
Administrator will use an independent pricing service to obtain valuations of
securities. The pricing service relies primarily on prices of actual market
transactions as well as trader quotations. However, the service may also use a
matrix system to determine valuations of fixed income securities, which system
considers such factors as security prices, yields, maturities, call features,
ratings and developments relating to specific securities in arriving at
valuations. The procedures of the pricing service and its valuations are
reviewed by the officers of the Trust under the general supervision of the
Trustees.
TAXES
The following is only a summary of certain additional federal income tax
considerations generally affecting the Fund and its shareholders that are not
described in the Fund's prospectus. No attempt is made to present a detailed
explanation of the tax treatment of the Fund or its shareholders, and the
discussion here and in the Fund's prospectus is not intended as a substitute for
careful tax planning. Shareholders are urged to consult their tax advisors with
specific reference to their own tax situations, including their state and local
tax liabilities.
FEDERAL INCOME TAX TREATMENT OF DIVIDENDS AND DISTRIBUTIONS
The following general discussion of certain federal income tax consequences
is based on the Internal Revenue Code of 1986, as amended (the "Code") and the
regulations issued thereunder as in effect on the date of this 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.
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QUALIFICATION AS REGULATED INVESTMENT COMPANY
The Fund intends to qualify and elect to be treated as a "regulated
investment company" ("RIC") as defined under Subchapter M of the Code. By
following such a policy, the Fund expects to eliminate or reduce to a nominal
amount the federal taxes to which it may be subject.
In order to qualify as a RIC, the Fund must distribute at least 90% of its
net investment income (generally, includes dividends, taxable interest, and the
excess of net short-term capital gains over net long-term capital losses less
operating expenses) and at least 90% of its net tax exempt interest income, for
each tax year, if any, to its shareholders and also must meet several additional
requirements. Among these requirements are the following: (i) at least 90% of
the Fund's gross income each taxable year must be derived from dividends,
interest, payments with respect to securities loans and gains from the sale or
other disposition of stock or securities, or certain other income; (ii) at the
close of each quarter of the Fund's taxable year, at least 50% of the value of
its total assets must be represented by cash and cash items, U.S. Government
securities, securities of other RICs and other securities, with such other
securities limited, in respect to any one issuer, to an amount that does not
exceed 5% of the value of the Fund's assets and that does not represent more
than 10% of the outstanding voting securities of such issuer; and (iii) at the
close of each quarter of the Fund's taxable year, not more than 25% of the value
of its assets may be invested in securities (other than U.S. Government
securities or the securities of other RICs) of any one issuer or of two or more
issuers that the Fund controls or that are engaged in the same, similar or
related trades or business.
Although the Fund intends to distribute substantially all of its net
investment income and may distribute its capital gains for any taxable year, the
Fund will be subject to federal income taxation to the extent any such income or
gains are not distributed.
If the Fund fails to qualify for any taxable year as a RIC, all of its
taxable income will be subject to tax at regular corporate income tax rates
without any deduction for distributions to shareholders and such distributions
generally will be taxable to shareholders as ordinary dividends to the extent of
the Fund's current and accumulated earnings and profits. In this event,
distributions generally will be eligible for the dividends-received deduction
for corporate shareholders.
FUND DISTRIBUTIONS
Distributions of investment company taxable income will be taxable to
shareholders as ordinary income, regardless of whether such distributions are
paid in cash or are reinvested in additional Shares, to the extent of the Fund's
earnings and profits. The Fund anticipates that it will distribute substantially
all of its investment company taxable income for each taxable year.
The Fund may either retain or distribute to shareholders its excess of net
long-term capital gains over net short-term capital losses ("net capital
gains"). If such gains are distributed as a capital gains distribution, they are
taxable to shareholders who are individuals at a maximum rate of 20%, regardless
of the length of time the shareholder has held shares. If any such gains are
retained, the Fund will pay federal income tax thereon.
In the case of corporate shareholders, distributions (other than capital
gains distributions) from a RIC, generally qualify for the dividends-received
deduction only to the extent of the gross amount of qualifying dividends
received by the Fund for the year. Generally, and subject to certain
limitations, a dividend will be treated as a qualifying dividend if it has been
received from a domestic corporation. Accordingly, such distributions will
generally qualify for the corporate dividends-received deduction.
Ordinarily, investors should include all dividends as income in the year of
payment. However, dividends declared payable to shareholders of record in
December of one year, but paid in January of the following year, will be deemed
for tax purposes to have been received by the shareholder and paid by the Fund
in the year in which the dividends were declared.
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The Fund will provide a statement annually to shareholders as to the federal
tax status of distributions paid (or deemed to be paid) by the Fund during the
year, including the amount of dividends eligible for the corporate
dividends-received deduction.
SALE 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 the Fund
with respect to such Share are included in determining the shareholder'
long-term capital gains), the shareholder must treat the loss as a long-term
capital loss to the extent of the amount of the prior capital gains distribution
(or any undistributed net capital gains of the Fund that have been included in
determining such shareholder's long-term capital gains). In addition, any loss
realized on a sale or other disposition of Shares will be disallowed to the
extent an investor repurchases (or enters into a contract or option to
repurchase) Shares within a period of 61 days (beginning 30 days before and
ending 30 days after the disposition of the Shares). This loss disallowance rule
will apply to Shares received through the reinvestment of dividends during the
61-day period.
In certain cases, the Fund will be required to withhold, and remit to the
United States Treasury, 31% of any distributions paid to a shareholder who (1)
has failed to provide a correct taxpayer identification number, (2) is subject
to backup withholding by the Internal Revenue Service, or (3) has failed to
certify to the Fund that such shareholder is not subject to backup withholding.
IN-KIND PURCHASES
The Fund may, in certain circumstances involving tax-free reorganizations
and certain other transactions, accept securities that are appropriate
investments as payment for Fund shares (an "In-Kind Purchase"). An In-Kind
Purchase may result in adverse tax consequences under certain circumstances to:
(1) investors transferring securities for shares ("In-Kind Investors"), (2)
investors who acquire shares of the Fund after a transfer ("new shareholders")
or (3) investors who own shares at the time of transfer ("current
shareholders"). As a result of an In-Kind Purchase, the Fund may acquire
securities that have appreciated in value or depreciated in value from the date
they were acquired. If appreciated securities were to be sold after an In-Kind
Purchase, the amount of the gain would be taxable to new shareholders, current
shareholders and In-Kind Investors. The effect of this for current shareholders
or new shareholders would be to tax them on a distribution that represents an
increase in the value of their investment. The effect on In-Kind Investors would
be to reduce their potential liability for tax on capital gains by spreading it
over a larger asset base. The opposite may occur if the Fund acquire securities
having an unrealized capital loss. In that case, In-Kind Investors will be
unable to utilize the loss to offset gains, but, because an In-Kind Purchase
will not result in any gains, the inability of In-Kind Investors to utilize
unrealized losses will have no immediate tax effect. For new shareholders or
current shareholders, to the extent that unrealized losses are realized by the
Fund, new shareholders or current shareholders may benefit by any reduction in
net tax liability attributable to the losses. The Adviser cannot predict whether
securities acquired in any In-Kind Purchase will have unrealized gains or losses
on the date of the In-Kind Purchase. Consistent with its duties as investment
adviser, the Adviser will, however, take tax consequences to investors into
account when making decisions to sell portfolio assets, including the impact of
realized capital gains on shareholders of the Fund.
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FEDERAL EXCISE TAX
If the Fund fails to distribute in a calendar year at least 98% of its
ordinary income for the year and 98% of its capital gain net income (the excess
of short and long term capital gains over short and long term capital losses)
for the one-year period ending October 31 of that year (and any retained amount
from the prior calendar year), the Fund will be subject to a nondeductible 4%
Federal excise tax on the undistributed amounts. The Fund intends to make
sufficient distributions to avoid imposition of this tax, or to retain, at most
its net capital gains and pay tax thereon.
STATE AND LOCAL TAXES
The Fund is not liable for any income or franchise tax in Massachusetts if
it qualifies as a RIC for federal income tax purposes. Distributions by the Fund
to shareholders and the ownership of shares may be subject to state and local
taxes.
FUND TRANSACTIONS
The Fund has no obligation to deal with any broker-dealer or group of
broker-dealers in the execution of transactions in portfolio securities. Subject
to policies established by the Trustees of the Trust, the Adviser is responsible
for placing the orders to execute transactions for the Fund. In placing orders,
it is the policy of the Trust to seek to obtain the best net results taking into
account such factors as price (including the applicable dealer spread), the
size, type and difficulty of the transaction involved, the firm's general
execution and operational facilities and the firm's risk in positioning the
securities involved. While the Adviser generally seeks reasonably competitive
spreads or commissions, the Fund will not necessarily be paying the lowest
spread or commission available.
The money market instruments in which the Fund invests are traded primarily
in the over-the-counter market. Bonds and debentures are usually traded
over-the-counter, but may be traded on an exchange. Where possible, the Adviser
will deal directly with the dealers who make a market in the securities involved
except in those circumstances where better prices and execution are available
elsewhere. Such dealers usually are acting as principal for their own account.
On occasion, securities may be purchased directly from the issuer. Money market
instruments are generally traded on a net basis and do not normally involve
either brokerage commissions or transfer taxes. The cost of executing portfolio
securities transactions of the Fund will primarily consist of dealer spreads and
underwriting commissions.
TRADING PRACTICES AND BROKERAGE
The Adviser selects brokers or dealers to execute transactions for the
purchase or sale of portfolio securities on the basis of its judgment of their
professional capability to provide the service. The primary consideration is to
have brokers or dealers provide transactions at best price and execution for the
Adviser. Best price and execution includes many factors, including the price
paid or received for a security, the commission charged, the promptness and
reliability of execution, the confidentiality and placement accorded the order
and other factors affecting the overall benefit obtained by the account on the
transaction. The Adviser's determination of what are reasonably competitive
rates is based upon the professional knowledge of its trading department as to
rates paid and charged for similar transactions throughout the securities
industry. In some instances, the Adviser pays a minimal share transaction cost
when the transaction presents no difficulty. Some trades are made on a net basis
where the Adviser either buys securities directly from the dealer or sells them
to the dealer. In these instances, there is no direct commission charged but
there is a spread (the difference between the buy and sell price) which is the
equivalent of a commission.
The Adviser may place a combined order for two or more accounts or funds
engaged in the purchase or sale of the same security if, in its judgment, joint
execution is in the best interest of each participant and will result in best
price and execution. Transactions involving commingled orders are allocated in a
manner
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deemed equitable to each account or fund. It is believed that the ability of the
accounts to participate in volume transactions will generally be beneficial to
the accounts and funds. Although it is recognized that, in some cases, the joint
execution of orders could adversely affect the price or volume of the security
that a particular account or the Fund may obtain, it is the opinion of the
Adviser and the Trust's Board of Trustees that the advantages of combined orders
outweigh the possible disadvantages of separate transactions.
It is expected that the Fund may execute brokerage or other agency
transactions through the Distributor, which is a registered broker-dealer, for a
commission in conformity with the 1940 Act, the Securities Exchange Act of 1934
and rules promulgated by the SEC. Under these provisions, the Distributor is
permitted to receive and retain compensation for effecting portfolio
transactions for the Fund on an exchange if a written contract is in effect
between the Distributor and the Trust expressly permitting the Distributor to
receive and retain such compensation. These rules further require that
commissions paid to the Distributor by the Fund for exchange transactions not
exceed "usual and customary" brokerage commissions. The rules define "usual and
customary" commissions to include amounts which are "reasonable and fair
compared to the commission, fee or other remuneration received or to be received
by other brokers in connection with comparable transactions involving similar
securities being purchased or sold on a securities exchange during a comparable
period of time." The Trustees, including those who are not "interested persons"
of the Trust, have adopted procedures for evaluating the reasonableness of
commissions paid to the Distributor and will review these procedures
periodically.
Since the Trust does not market its shares through intermediary brokers or
dealers, it is not the Trust's practice to allocate brokerage or principal
business on the basis of sales of its shares which may be made through such
firms. However, the Adviser may place portfolio orders with qualified
broker-dealers who recommend the Fund's shares to clients, and may, when a
number of brokers and dealers can provide best net results on a particular
transaction, consider such recommendations by a broker or dealer in selecting
among broker-dealers.
DESCRIPTION OF SHARES
The Declaration of Trust authorizes the issuance of an unlimited number of
portfolios and shares of each portfolio, each of which represents an equal
proportionate interest in the portfolio with each other share. Shares are
entitled upon liquidation to a pro rata share in the net assets of the
portfolio. Shareholders have no preemptive rights. The Declaration of Trust
provides that the Trustees of the Trust may create additional series of shares.
All consideration received by the Trust for shares of any additional series and
all assets in which such consideration is invested would belong to that series
and would be subject to the liabilities related thereto. Share certificates
representing shares will not be issued.
SHAREHOLDER LIABILITY
The Trust is an entity of the type commonly known as a "Massachusetts
business trust." Under Massachusetts law, shareholders of such a trust could,
under certain circumstances, be held personally liable as partners for the
obligations of the trust. Even if, however, the Trust were held to be a
partnership, the possibility of the shareholders incurring financial loss for
that reason appears remote because the Trust's Declaration of Trust contains an
express disclaimer of shareholder liability for obligations of the Trust and
requires that notice of such disclaimer be given in each agreement, obligation
or instrument entered into or executed by or on behalf of the Trust or the
Trustees, and because the Declaration of Trust provides for indemnification out
of the Trust property for any shareholder held personally liable for the
obligations of the Trust.
LIMITATION OF TRUSTEES' LIABILITY
The Declaration of Trust provides that a Trustee shall be liable only for
his or her own willful defaults and, if reasonable care has been exercised in
the selection of officers, agents, employees or investment
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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.
YEAR 2000
The Trust depends on the smooth functioning of computer systems in almost
every aspect of its business. Like other mutual funds, businesses and
individuals around the world, the Trust could be adversely affected if the
computer systems used by its service providers do not properly process dates on
and after January 1, 2000 and distinguish between the year 2000 and the year
1900. The Trust has asked its service providers whether they expect to have
their computer systems adjusted for the year 2000 transition, and received
assurances from each that its system is expected to accommodate the year 2000
without material adverse consequences to the Trust. The Trust and its
shareholders may experience losses if these assurances prove to be incorrect or
as a result of year 2000 computer difficulties experienced by issuers of
portfolio securities or third parties, such as custodians, banks, broker-dealers
or others with which the Trust does business.
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