<PAGE>
SEI TAX EXEMPT TRUST
DECEMBER 31, 1996
- --------------------------------------------------------------------------------
INSTITUTIONAL TAX FREE PORTFOLIO
- ---------------------------------------------------------------------
This Prospectus sets forth concisely information about the above-referenced
Portfolio that an investor needs to know before investing. Please read this
Prospectus carefully, and keep it on file for future reference.
A Statement of Additional Information dated December 31, 1996 has been filed
with the Securities and Exchange Commission and is available upon request and
without charge by writing the Distributor, SEI Financial Services Company, Oaks,
Pennsylvania 19456, or by calling 1-800-342-5734. The Statement of Additional
Information is incorporated into this Prospectus by reference.
SEI Tax Exempt Trust (the "Trust") is an open-end management investment company,
certain classes of which offer financial institutions a convenient means of
investing their own funds, or funds for which they act in a fiduciary, agency or
custodial capacity, in one or more professionally managed diversified and non-
diversified portfolios of securities. A portfolio may offer separate classes of
shares that differ from each other primarily in the allocation of certain
expenses and minimum investment amounts. This Prospectus offers Class B shares
of the Institutional Tax Free Portfolio (the "Portfolio"), a money market
portfolio.
AN INVESTMENT IN THE PORTFOLIO IS NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT, AND THERE CAN BE NO ASSURANCE THAT THE PORTFOLIO WILL BE ABLE TO
MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE.
- --------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
THE TRUST'S SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK. THE SHARES ARE NOT FEDERALLY INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER
GOVERNMENT AGENCY. INVESTMENT IN THE SHARES INVOLVES RISK, INCLUDING
POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED.
<PAGE>
<TABLE>
<CAPTION>
ANNUAL OPERATING EXPENSES (AS A PERCENTAGE OF
AVERAGE NET ASSETS) CLASS B
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------
Management/Advisory Fees (AFTER FEE WAIVER) (1) .29%
12b-1 Fees None
Total Other Expenses .34%
Shareholder Servicing Fees .25%
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Total Operating Expenses (AFTER FEE WAIVERS) (2) .63%
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</TABLE>
(1) THE MANAGER HAS WAIVED, ON A VOLUNTARY BASIS, A PORTION OF ITS FEE, AND THE
MANAGEMENT/ADVISORY FEES SHOWN REFLECT THIS VOLUNTARY WAIVER. THE MANAGER
RESERVES THE RIGHT TO TERMINATE ITS WAIVER AT ANY TIME IN ITS SOLE
DISCRETION. ABSENT SUCH FEE WAIVER, MANAGEMENT/ADVISORY FEES FOR CLASS B
SHARES OF THE PORTFOLIO WOULD BE .40%.
(2) ABSENT THESE FEE WAIVERS, TOTAL OPERATING EXPENSES OF THE PORTFOLIO WOULD BE
.74% FOR THE CLASS B SHARES. ADDITIONAL INFORMATION MAY BE FOUND UNDER "THE
ADVISER" AND "THE MANAGER."
EXAMPLE
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<TABLE>
<CAPTION>
1 YR. 3 YRS. 5 YRS. 10 YRS.
----- ------ ------ -------
<S> <C> <C> <C> <C>
An investor in Class A shares of the
Portfolio would pay the following expenses
on a $1,000 investment assuming (1) a 5%
annual return and (2) redemption at the end
of each time period:
Class B $6 $20 $35 $79
- --------------------------------------------------------------------------------
</TABLE>
THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
THE PURPOSE OF THE EXPENSE TABLE AND EXAMPLE IS TO ASSIST THE INVESTOR IN
UNDERSTANDING THE VARIOUS COSTS AND EXPENSES THAT MAY BE DIRECTLY OR INDIRECTLY
BORNE BY INVESTORS IN THE PORTFOLIO'S CLASS B SHARES. THE PORTFOLIO ALSO OFFERS
CLASS A AND CLASS C SHARES, WHICH ARE SUBJECT TO THE SAME EXPENSES, EXCEPT THAT
CLASS A AND CLASS C SHARES BEAR DIFFERENT SHAREHOLDER SERVICING COSTS. A PERSON
WHO PURCHASES SHARES THROUGH AN ACCOUNT WITH A FINANCIAL INSTITUTION MAY BE
CHARGED SEPARATE FEES BY THAT INSTITUTION. ADDITIONAL INFORMATION MAY BE FOUND
UNDER "THE MANAGER," "DISTRIBUTION AND SHAREHOLDER SERVICING" AND "THE ADVISER."
2
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FINANCIAL HIGHLIGHTS
______________________________________________________________
The following financial highlights have been audited by Arthur Andersen LLP,
independent public accountants, whose report thereon was unqualified. This
information should be read in conjunction with the Trust's financial statements
and notes thereto which appear, along with the report of Arthur Andersen LLP, in
the Trust's 1996 Annual Report to Shareholders. Additional performance
information is set forth in the 1996 Annual Report to Shareholders, which is
available upon request and without charge by calling 1-800-342-5734.
FOR CLASS B SHARES OUTSTANDING THROUGHOUT THE PERIOD
<TABLE>
<CAPTION>
NET REALIZED
AND
INVESTMENT UNREALIZED
NET ACTIVITIES DISTRIBUTIONS GAIN (LOSS)
ASSET ---------- -------------------------------------- ON NET
VALUE, NET NET NET INVESTMENTS ASSET VALUE
BEGINNING INVESTMENT INVESTMENT REALIZED TOTAL AND CAPITAL END TOTAL
OF PERIOD INCOME INCOME GAIN DISTRIBUTIONS TRANSACTIONS OF PERIOD RETURN
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------
- -------------
Institutional
Tax Free
Portfolio
- -------------
Class B
For the years ended August 31:
1996 $ 1.00 $ 0.032 $ (0.032) -- $ (0.032) -- $ 1.00 3.21%
1995 1.00 0.033 (0.033) -- (0.033) -- 1.00 3.39%
1994 1.00 0.022 (0.022) -- (0.022) -- 1.00 2.21%
1993 1.00 0.023 (0.023) -- (0.023) -- 1.00 2.29%
1992 1.00 0.033 (0.033) -- (0.033) -- 1.00 3.35%
1991 (2) 1.00 0.038 (0.038) -- (0.038) -- 1.00 3.89%
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
<CAPTION>
RATIO OF NET
RATIO OF INVESTMENT
EXPENSES TO RATIO OF NET INCOME TO
NET ASSETS, RATIO OF AVERAGE NET INVESTMENT AVERAGE NET
END EXPENSES ASSETS INCOME TO ASSETS
OF PERIOD TO AVERAGE (EXCLUDING FEE AVERAGE NET (EXCLUDING FEE PORTFOLIO
(000) NET ASSETS WAIVERS) ASSETS WAIVERS) TURNOVER RATE
<S> <C> <C> <C> <C> <C> <C>
- -------------
- -------------
Institutional
Tax Free
Portfolio
- -------------
Class B
For the years
1996 $ 14,156 0.63% 0.80% 3.16% 2.99% --
1995 15,084 0.63% 0.82% 3.32% 3.13% --
1994 21,725 0.63% 0.81% 2.31% 2.13% --
1993 3,040 0.63% 0.79% 2.22% 2.06% --
1992 686 0.63% 0.81% 3.22% 3.04% --
1991 (2) 1,515 0.63%* 0.84%* 4.34%* 4.13%* --
- -------------
- -------------
</TABLE>
* ANNUALIZED
+ RETURN IS FOR THE PERIOD INDICATED AND HAS NOT BEEN ANNUALIZED.
(1) THE INSTITUTIONAL TAX-FREE PORTFOLIO--CLASS B COMMENCED OPERATIONS ON
OCTOBER 15, 1990.
3
<PAGE>
THE TRUST
_________________________________________________________________________
SEI Tax Exempt Trust (the "Trust") is an open-end management investment company
that offers units of beneficial interest ("shares") in separate diversified and
non-diversified investment portfolios. This Prospectus offers Class B shares of
the Trust's Institutional Tax Free Portfolio (the "Portfolio"). As of September
30, 1996, the aggregate net assets of all classes of the Institutional Tax Free
Portfolio was $836,115,973. Investors may also purchase Class A and Class C
shares of the Portfolio. Each class provides for variation in shareholder
servicing expenses, voting rights and dividends. Additional information
pertaining to the Trust may be obtained by writing to SEI Financial Services
Company, Oaks, Pennsylvania 19456, or by calling 1-800-342-5734.
INVESTMENT
OBJECTIVE AND
POLICIES
___________________________________________________________________________
The Portfolio's investment objective is to preserve
principal value and maintain a high degree of liquidity
while providing current income exempt from federal income
taxes. There can be no assurance that the Portfolio will
meet its investment objective.
The Portfolio invests in U.S. dollar denominated
municipal securities of issuers located in all fifty
states, the District of Columbia, Puerto Rico and other
U.S. territories and possessions (collectively, "Municipal
Securities"). It is a fundamental policy of the Portfolio
to invest at least 80% of its net assets in securities the
interest on which is exempt from federal income taxes,
based on opinions from bond counsel for the issuers, and
the Portfolio will invest, under normal conditions, at
least 80% of its net assets in securities the interest on
which is not a preference item for purposes of the federal
alternative minimum tax.
The Portfolio may purchase municipal bonds, municipal
notes and tax-exempt commercial paper, but only if such
securities, at the time of purchase, either meet rating
requirements imposed by Rule 2a-7 or, if not rated, are
determined to be of comparable quality by Weiss, Peck &
Greer, L.L.C., the Portfolio's investment adviser (the
"Adviser or "WPG"). See "General Investment Policies."
The Adviser will not invest more than 25% of
Portfolio assets in municipal securities (a) whose issuers
are located in the same state or (b) the interest on which
is derived from revenues of similar type projects. This
restriction does not apply to municipal securities in any
of the following categories: public housing authorities;
general obligations of states and localities; state and
local housing finance authorities or municipal utilities
systems.
There could be economic, business, or political
developments which might affect all municipal securities
of a similar type. To the extent that a significant
portion of the Portfolio's assets are invested in
municipal securities payable from revenues on similar
projects, the Portfolio will be subject to the peculiar
risks presented by such projects to a greater extent than
it would be if the Portfolio's
4
<PAGE>
assets were not so invested. Moreover, in seeking to
attain its investment objective, the Portfolio may invest
all or any part of its assets in municipal securities that
are industrial development bonds.
GENERAL
INVESTMENT
POLICIES
___________________________________________________________________________
In purchasing obligations, the Portfolio complies with the
requirements of Rule 2a-7 under the Investment Company Act
of 1940 (the "1940 Act"), as that Rule may be amended from
time to time. These requirements currently provide that
the Portfolio must limit its investments to securities
with remaining maturities of 397 days or less, and must
maintain a dollar-weighted average maturity of 90 days or
less. In addition, the Portfolio may only invest in
securities (other than U.S. Government Securities) rated
in one of the two highest categories for short-term
securities by at least two nationally recognized
statistical rating organizations ("NRSROs") (or by one
NRSRO if only one NRSRO has rated the security), or, if
unrated, determined by the Adviser (in accordance with
procedures adopted by the Trust's Board of Trustees) to be
of equivalent quality to rated securities in which the
Portfolio may invest. Since the Portfolio often purchases
securities supported by credit enhancements from banks and
other financial institutions, changes in the credit
quality of these institutions could cause losses to the
Portfolio and affect its share price.
Securities rated in the highest rating category
(e.g., A-1 by S&P) by at least two NRSROs (or, if unrated,
determined by the Adviser to be of comparable quality) are
"first tier" securities. Non-first tier securities rated
in the second highest rating category (e.g., A-2 by S&P)
by at least one NRSRO (or, if unrated, determined by the
Adviser to be of comparable quality) are considered to be
"second tier" securities.
Although the Portfolio is governed by Rule 2a-7, its
investment policies are more restrictive than those
imposed by that Rule.
The Portfolio may purchase securities on a
"when-issued" basis, variable and floating rate
obligations and reserves the right to engage in
transactions involving standby commitments. The Portfolio
may invest up to 20% of its net assets in taxable money
market instruments (including repurchase agreements) and
securities the interest on which is a preference item for
purposes of the federal alternative minimum tax. However,
the Portfolio generally intends to be fully invested in
federally tax-exempt securities. The Portfolio will not
invest more than 10% of its total assets in securities
which are considered to be illiquid.
Taxable money market instruments in which the
Portfolio may invest consist of U.S. Treasury obligations;
obligations issued or guaranteed by the U.S.
5
<PAGE>
Government or by its agencies or instrumentalities,
whether or not backed by the full faith and credit of the
U.S. Government; obligations of U.S. commercial banks or
savings and loan institutions (not including foreign
branches of U.S. banks or U.S. branches of foreign banks)
that are members of the Federal Reserve System or the
Federal Deposit Insurance Corporation and that have total
assets of $1 billion or more as shown on their last
published financial statements at the time of investment;
and repurchase agreements involving any of the foregoing
obligations.
For a description of the permitted investments and
ratings, see the "Description of Permitted Investments and
Risk Factors" and the Statement of Additional Information.
INVESTMENT
LIMITATIONS
_______________________________________________________________________
The investment objective and investment limitations are
fundamental policies of the Portfolio. Fundamental
policies cannot be changed with respect to the Trust or
the Portfolio without the consent of the holders of a
majority of the Trust's or the Portfolio's outstanding
shares. It is a fundamental policy of the Portfolio to use
its best efforts to maintain a constant net asset value of
$1.00 per share.
THE PORTFOLIO MAY NOT:
1. Purchase securities of any issuer (except securities
issued or guaranteed by the United States Government,
its agencies or instrumentalities) if, as a result,
more than 5% of the total assets of the Portfolio
(based on current market value at the time of
investment) would be invested in the securities of such
issuer; provided, however, that the Portfolio may
invest up to 25% of its total assets without regard to
this restriction of, and as permitted by, Rule 2a-7.
2. Purchase any securities which would cause more than 25%
of the total assets of the Portfolio, based on current
value at the time of such purchase, 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 or its agencies and instrumentalities.
3. Borrow money except for temporary or emergency
purposes, and then only in an amount not exceeding 10%
of the value of the total assets of the Portfolio. All
borrowings will be repaid before making additional
investments and any interest paid on such borrowings
will reduce the income of the Portfolio.
The foregoing percentage limitations will apply at the
time of the purchase of a security. Additional fundamental
investment limitations are set forth in the Statement of
Additional Information.
6
<PAGE>
THE MANAGER_____________________________________________________________________
SEI Fund Management (the "Manager" and the "Transfer
Agent") provides the Trust with overall management
services, regulatory reporting, all necessary office
space, equipment, personnel and facilities, and serves as
institutional transfer agent, dividend disbursing agent,
and shareholder servicing agent.
For these services, the Manager is entitled to a fee,
which is calculated daily and paid monthly, at an annual
rate of .36% of the average daily net assets of the
Portfolio. The Manager has voluntarily agreed to waive a
portion of its fee in order to limit the total operating
expenses to not more than .63% of the average daily net
assets of the Class B shares of the Portfolio, on an
annualized basis. The Manager reserves the right, in its
sole discretion, to terminate this voluntary fee waiver at
any time. For the fiscal year ended August 31, 1996, the
Portfolio paid management fees, after waivers, of .25% of
its average daily net assets.
THE ADVISER
_______________________________________________________________________
Weiss, Peck & Greer, L.L.C. serves as the Portfolio's
investment adviser under an investment advisory agreement
with the Trust (the "Advisory Agreement"). Under the
Advisory Agreement, the Adviser invests the assets of the
Portfolio, and continuously reviews, supervises and
administers the Portfolio's investment program. The
Adviser is independent of the Manager and discharges its
responsibilities subject to the supervision of, and
policies set by, the Trustees of the Trust.
The Adviser is a limited liability company founded as
a limited partnership in 1970, and engages in investment
management, venture capital management and management
buyouts. WPG has been active since its founding in
managing portfolios of tax exempt securities. As of
September 30, 1996, total assets under management were
approximately $13 billion. The principal business address
of the Adviser is One New York Plaza, New York, New York
10004.
For its services, the Adviser is entitled to a fee,
which is calculated daily and paid monthly, at an annual
rate of .05% of the combined average daily net assets of
the money market portfolios of the Trust that are advised
by the Adviser up to $500 million, .04% of such assets
from $500 million to $1 billion and .03% of such assets in
excess of $1 billion. Such fees are allocated daily among
these portfolios based on their relative net assets. For
the fiscal year ended August 31, 1996 the Portfolio paid
advisory fees, after waivers, of .04% of its relative net
assets.
7
<PAGE>
DISTRIBUTION AND
SHAREHOLDER
SERVICING
__________________________________________________________________________
SEI Financial Services Company (the "Distributor"), a
wholly owned subsidiary of SEI Investments Company
("SEI"), serves as the Portfolio's distributor pursuant to
a distribution agreement (the "Distribution Agreement")
with the Trust.
The Portfolio has adopted plans under which firms,
including the Distributor, that provide shareholder and
administrative services may receive compensation therefor.
The Class A, B and C plans differ in a number of ways,
including the amounts that may be paid. Under each plan,
the Distributor may provide those services itself or may
enter into arrangements under which third parties provide
such services and are compensated by the Distributor.
Under such arrangements the Distributor may retain as a
profit any difference between the fee it receives and the
amount it pays such third party. In addition, the
Portfolio may enter into such arrangements directly.
Under the Class B shareholder service plan, the
Portfolio will pay shareholder service fees to the
Distributor at an annual rate of up to .25% of average
daily net assets in return for the Distributor's (or its
agent's) efforts in maintaining client accounts; arranging
for bank wires; responding to client inquiries concerning
services provided or investment; and assisting clients in
changing dividend options, account designations and
addresses. In addition, under its administrative services
plan, Class B shares will pay administrative services fees
at specified percentages of the average daily net assets
of the shares of the Class (up to .05%). Administrative
services include sub-accounting; providing information on
share positions to clients; forwarding shareholder
communications to clients; processing purchase, exchange
and redemption orders and processing dividend payments.
It is possible that an institution may offer
different classes of shares to its customers and differing
services to the Classes of the Portfolio and thus receive
compensation with respect to different classes. These
financial institutions may also charge separate fees to
their customers.
The Trust may execute brokerage or other agency
transactions through the Distributor for which the
Distributor may receive compensation.
The Distributor may, from time to time in its sole
discretion, institute one or more promotional incentive
programs, which will be paid by the Distributor from its
own resources. Under any such program, the Distributor
will provide promotional incentives, in the form of cash
or other compensation, including merchandise, airline
vouchers, trips and vacation packages, to all dealers
selling shares of the Portfolios. Such promotional
incentives will be offered uniformly to all dealers and
predicated upon the amount of shares of the Portfolio sold
by the dealer.
8
<PAGE>
PURCHASE AND
REDEMPTION OF
SHARES
____________________________________________________________________________
Financial institutions may acquire shares of the Portfolio
for their own account, or as a record owner on behalf of
fiduciary, agency or custody accounts, by placing orders
with the Transfer Agent. Institutions that use certain SEI
proprietary systems may place orders electronically
through those systems. Financial institutions which
purchase shares for the accounts of their customers may
impose separate charges on these customers for account
services. Financial institutions may impose an earlier
cut-off time for receipt of purchase orders directed
through them to allow for processing and transmittal of
these orders to the Transfer Agent for effectiveness on
the same day.
Shares of the Portfolio may be purchased or redeemed
on days on which the New York Stock Exchange is open for
business ("Business Days"). However, money market fund
shares cannot be purchased by Federal Reserve wire on
federal holidays restricting wire transfers.
Shareholders who desire to purchase shares for cash
must place their orders with the Transfer Agent (or its
authorized agent) prior to 2:00 p.m., Eastern time on any
Business Day for the order to be accepted on that Business
Day. Cash investments must be transmitted or delivered in
federal funds to the wire agent by the close of business
on the same day the order is placed.
The Trust reserves the right to reject a purchase
order when the Transfer Agent determines that it is not in
the best interest of the Trust or shareholders to accept
such purchase order.
The Trust will send shareholders a statement of
shares owned after each transaction. The purchase price of
shares is the net asset value next determined after a
purchase order is received and accepted by the Trust,
which is expected to remain constant at $1.00. The net
asset value per share of the Portfolio is determined by
dividing the total value of its investments and other
assets, less any liabilities, by the total number of
outstanding shares of the Portfolio. The Portfolio's
investments will be valued by the amortized cost method
described in the Statement of Additional Information. Net
asset value per share is determined daily as of 2:00 p.m.,
Eastern time on each Business Day.
Shareholders who desire to redeem shares of the
Portfolio must place their redemption orders with the
Transfer Agent (or its authorized agent) prior to 12:30
p.m., Eastern time on any Business Day. Otherwise, the
redemption order will be effective on the next Business
Day. The redemption price is the net asset value per share
of the Portfolio next determined after receipt by the
Transfer Agent, and effectiveness, of the redemption
order. For redemption orders received before 12:30 p.m.,
Eastern time on any Business Day, payment will be made the
9
<PAGE>
same day by transfer of federal funds. Otherwise, the
redemption will be effective on the next Business Day.
If a shareholder's aggregate balance is less than $45
million as a result of redemption or transfer, for a
period of seven consecutive days, the Trust reserves the
right to redeem that shareholder's shares in the Portfolio
for their current net asset value. Before the Trust
redeems such shares, the shareholder will be given notice
that the value of its shares is less than the minimum
amount and will be allowed sixty days to make an
additional investment in an amount that will increase the
value of the account to at least $50 million.
Purchase and redemption orders may be placed by
telephone. Neither the Trust nor its Transfer Agent will
be responsible for any loss, liability, cost or expense
for acting upon wire instructions or upon telephone
instructions that it reasonably believes to be genuine.
The Trust and its Transfer Agent will each employ
reasonable procedures to confirm that instructions
communicated by telephone are genuine, including requiring
a form of personal identification prior to acting upon
instructions received by telephone and recording telephone
instructions.
If market conditions are extraordinarily active, or
other extraordinary circumstances exist, shareholders may
experience difficulties placing redemption orders by
telephone, and may wish to consider placing orders by
other means.
PERFORMANCE_____________________________________________________________________
From time to time the Portfolio advertises its "current
yield," "tax equivalent yield" and "effective yield."
These figures are based on historical earnings and are not
intended to indicate future performance. The "current
yield" of the Portfolio refers to the income generated by
an investment over a seven-day period which is then
"annualized." That is, the amount of income generated by
the investment during the week is assumed to be generated
each week over a 52-week period and is shown as a
percentage of the investment. The "effective yield" (also
called "effective compound yield") is calculated similarly
but, when annualized, the income earned by an investment
is assumed to be reinvested. The "effective yield" will be
slightly higher than the "current yield" because of the
compounding effect of this assumed reinvestment. The "tax
equivalent yield" is calculated by determining the rate of
return that would have been achieved on a fully taxable
investment to produce the after-tax equivalent of the
Portfolio's yield, assuming certain tax brackets for a
shareholder.
The Portfolio may periodically compare its
performance to that of: (i) other mutual funds tracked by
mutual fund rating services (such as Lipper Analytical),
financial and business publications and periodicals; (ii)
broad groups of comparable mutual funds; (iii) unmanaged
indices which may assume investment of dividends but
generally do not reflect deductions for administrative and
management costs; or (iv) other investment alternatives.
The Portfolio may also quote financial and
10
<PAGE>
business publications and periodicals as they relate to
fund management, investment philosophy and investment
techniques.
The performance of Class A shares will normally be
higher than that of Class B and Class C shares because of
the additional administrative services expenses charged to
Class B and Class C shares.
TAXES
______________________________________________________________________________
The following summary of federal income tax consequences
is based on current tax laws and regulations, which may be
changed by legislative, judicial or administrative action.
No attempt has been made to present a detailed explanation
of the federal income tax treatment of the Portfolio or
its shareholders, and state and local tax consequences of
an investment in the Portfolio may differ from the federal
income tax consequences described below. Accordingly,
shareholders are urged to consult their tax advisers
regarding specific questions as to federal, state and
local income taxes. Additional information concerning
taxes is set forth in the Statement of Additional
Information.
TAX STATUS OF THE PORTFOLIO
The Portfolio is treated as a separate entity for federal
income tax purposes and is not combined with the Trust's
other portfolios. The Portfolio intends to continue to
qualify for the special tax treatment afforded regulated
investment companies under Subchapter M of the Internal
Revenue Code of 1986, as amended (the "Code"), so as to be
relieved of federal income tax on net investment company
taxable income and net capital gain (the excess of net
long-term capital gain over net short-term capital loss)
distributed to shareholders.
TAX STATUS OF DISTRIBUTIONS
The Portfolio intends to distribute substantially all of
its net investment income (including net short-term
capital gain) to shareholders. If, at the close of each
quarter of its taxable year, at least 50% of the value of
the Portfolio's total assets consists of obligations the
interest on which is excludable from gross income, the
Portfolio may pay "exempt-interest dividends" to its
shareholders. Exempt- interest dividends are excludable
from a shareholder's gross income for federal income tax
purposes but may have certain collateral federal tax
consequences including alternative minimum tax
consequences. In addition, the receipt of exempt-interest
dividends may cause persons receiving Social Security or
Railroad Retirement benefits to be taxable on a portion of
such benefits. See the Statement of Additional
Information.
Any dividends paid out of income realized by the
Portfolio on taxable securities will be taxable to
shareholders as ordinary income (whether received in cash
or in additional shares) to the extent of the Portfolio's
earnings and profits and will not qualify for the
dividends-received deduction for corporate shareholders.
Distributions to shareholders of net capital gains of the
Portfolio also will not qualify for the dividends received
deduction and will be taxable to shareholders as
11
<PAGE>
long-term capital gain, whether received in cash or
additional shares, and regardless of how long a
shareholder has held the shares.
Dividends declared by the Portfolio in October,
November or December of any year and payable to
shareholders of record on a date in any such month will be
deemed to have been paid by the Portfolio and received by
the shareholders on December 31 of that year if paid by
the Portfolio at any time during the following January.
The Portfolio intends to make sufficient distributions
prior to the end of each calendar year to avoid liability
for federal excise tax applicable to regulated investment
companies.
Interest on indebtedness incurred or continued by a
shareholder in order to purchase or carry shares of the
Portfolio is not deductible for federal income tax
purposes. Furthermore, the Portfolio may not be an
appropriate investment for persons (including corporations
and other business entities) who are "substantial users"
(or persons related to "substantial users") of facilities
financed by industrial development bonds or private
activity bonds. Such persons should consult their tax
advisers before purchasing shares.
The Portfolio will report annually to its
shareholders the portion of dividends that is taxable and
the portion that is tax-exempt based on income received by
the Portfolio during the year to which the dividends
relate.
Each sale, exchange, or redemption of the Portfolio's
shares is a taxable transaction to the shareholder.
GENERAL
INFORMATION
_______________________________________________________________________
THE TRUST
The Trust was organized as a Massachusetts business trust
under a Declaration of Trust dated March 15, 1982. The
Declaration of Trust permits the Trust to offer separate
portfolios of shares and different classes of each
portfolio. In addition to the Portfolio, the Trust
consists of the following portfolios: Tax Free Portfolio,
California Tax Exempt Portfolio, Intermediate-Term
Municipal Portfolio, Pennsylvania Municipal Portfolio,
Kansas Tax Free Income Portfolio, New York
Intermediate-Term Municipal Portfolio, and Pennsylvania
Tax Free Portfolio. All consideration received by the
Trust for shares of any portfolio and all assets of such
portfolio belong to that portfolio and would be subject to
liabilities related thereto.
The Trust pay its expenses, including fees of its
service providers, audit and legal expenses, expenses of
preparing prospectuses, proxy solicitation materials and
reports to shareholders, costs of custodial services and
registering the shares under federal and state securities
laws, pricing, insurance expenses, litigation and other
extraordinary expenses, brokerage costs, interest charges,
taxes and organization expenses.
TRUSTEES OF THE TRUST
The management and affairs of the Trust are supervised by
the Trustees under the laws of the Commonwealth of
Massachusetts. The Trustees have approved contracts
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under which, as described above, certain companies provide
essential services to the Trust.
VOTING RIGHTS
Each share held entitles the shareholder of record to one
vote. The shareholders of each portfolio or class will
vote separately on matters relating solely to that
Portfolio or class, such as any distribution plan. As a
Massachusetts business trust, the Trust is not required to
hold annual meetings of shareholders, but approval will be
sought for certain changes in the operation of the Trust
and for the election of Trustees under certain
circumstances. In addition, a Trustee may be removed by
the remaining Trustees or by shareholders at a special
meeting called upon written request of shareholders owning
at least 10% of the outstanding shares of the Trust. In
the event that such a meeting is requested the Trust will
provide appropriate assistance and information to the
shareholders requesting the meeting.
REPORTING
The Trust issues unaudited financial statements
semi-annually and audited financial statements annually.
The Trust furnishes proxy statements and other reports to
shareholders of record.
SHAREHOLDER INQUIRIES
Shareholder inquiries should be directed to the Manager.
SEI Fund Management, Oaks, Pennsylvania, 19456.
DIVIDENDS
The net investment income (exclusive of capital gains) of
the Portfolio is determined and declared on each Business
Day as a dividend for shareholders of record as of the
close of business on that day. Dividends are paid by the
Portfolio in federal funds or in additional shares at the
discretion of the shareholder on the first Business Day of
each month. Currently, capital gains, if any, are
distributed at the end of the calendar year.
Shareholders automatically receive all income
dividends and capital gain distributions in additional
shares, unless the shareholder has elected to take such
payment in cash. Shareholders may change their election by
providing written notice to the Manager at least 15 days
prior to the distribution.
The dividends on Class A shares of the Portfolio are
normally higher than those on Class B and Class C shares
because of the additional administrative services expenses
charged to Class B and Class C shares.
COUNSEL AND INDEPENDENT PUBLIC ACCOUNTANTS
Morgan, Lewis & Bockius LLP serves as counsel to the
Trust. Arthur Andersen LLP serves as the independent
public accountants of the Trust.
CUSTODIAN AND WIRE AGENT
CoreStates Bank, N.A., Broad and Chestnut Streets, P.O.
Box 7618, Philadelphia, Pennsylvania 19101, serves as
Custodian of the Trust's assets and acts as wire agent of
the Trust. The Custodian holds cash, securities and other
assets of the Trust as required by the 1940 Act.
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DESCRIPTION
OF PERMITTED
INVESTMENTS
AND RISK FACTORS
_________________________________________________________________
The following is a description of certain of the permitted
investments for the Portfolio, and the associated risk
factors:
MONEY MARKET SECURITIES
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 highly-rated U.S.
banks; (ii) U.S. Treasury obligations and obligations
issued by the agencies and instrumentalities of the U.S.
Government; and (iii) repurchase agreements involving any
of the foregoing obligations entered into with
highly-rated banks and broker-dealers.
MUNICIPAL SECURITIES
Municipal Securities consist of (i) debt obligations
issued by or on behalf of public authorities to obtain
funds to be used for various public facilities, for
refunding outstanding obligations, for general operating
expenses and for lending such funds to other public
institutions and facilities, and (ii) certain private
activity and industrial development bonds issued by or on
behalf of public authorities to obtain funds to provide
for the construction, equipment, repair or improvement of
privately operated facilities.
General obligation bonds are backed by the taxing
power of the issuing municipality. Revenue bonds are
backed by the revenues of a project or facility, tolls
from a toll bridge, for example. Certificates of
participation represent an interest in an underlying
obligation or commitment such as an obligation issued in
connection with a leasing arrangement. The payment of
principal and interest on private activity and industrial
development bonds generally is dependent solely on the
ability of the facility's user to meet its financial
obligations and the pledge, if any, of real and personal
property so financed as security for such payment.
Municipal notes include general obligation notes, tax
anticipation notes, revenue anticipation notes, bond
anticipation notes, certificates of indebtedness, demand
notes and construction loan notes and participation
interests in municipal notes. Municipal bonds include
general obligation bonds, revenue or special obligation
bonds, private activity and industrial development bonds
and participation interests in municipal bonds.
REPURCHASE AGREEMENTS
Repurchase agreements are arrangements by which a
Portfolio obtains a security and simultaneously commits to
return the security to the seller at an agreed upon price
(including principal and interest) on an agreed upon date
within a number of days from the date of purchase.
Repurchase agreements are considered loans under the 1940
Act.
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<PAGE>
STANDBY COMMITMENTS AND PUTS
Securities subject to standby commitments or puts permit
the holder thereof to sell the securities at a fixed price
prior to maturity. Securities subject to a standby
commitment or put may be sold at any time at the current
market price. However, unless the standby commitment or
put was an integral part of the security as originally
issued, it may not be marketable or assignable; therefore,
the standby commitment or put would only have value to the
Portfolio owning the security to which it relates. In
certain cases, a premium may be paid for a standby
commitment or put, which premium will have the effect of
reducing the yield otherwise payable on the underlying
security. The Portfolio will limit standby commitment or
put transactions to institutions believed to present
minimal credit risk.
U.S. GOVERNMENT OBLIGATIONS
Obligations issued by the U.S. Treasury or issued or
guaranteed by agencies of the U.S. Government, including,
among others, the Federal Farm Credit Bank, the Federal
Housing Administration and the Small Business
Administration, and obligations issued or guaranteed by
instrumentalities of the U.S. Government, including, among
others, the Federal Home Loan Mortgage Corporation, the
Federal Land Banks and the U.S. Post Service. Some of
these securities are supported by the full faith and
credit of the U.S. Treasury (e.g., Government National
Mortgage Association securities), others are supported by
the right of the issuer to borrow from the Treasury (e.g.,
Federal Farm Credit Bank securities), while still others
are supported only by the credit of the instrumentality
(e.g., Fannie Mae securities). Guarantees of principal by
agencies or instrumentalities of the U.S. Government may
be a guarantee of payment at the maturity of the
obligation so that in the event of a default prior to
maturity there might not be a market and thus no means of
realizing on the obligation prior to maturity. Guarantees
as to the timely payment of principal and interest do not
extend to the value or yield of these securities not to
the value of the Fund's shares.
VARIABLE AND FLOATING RATE INSTRUMENTS
Certain of the obligations purchased by the Portfolio may
carry variable or floating rates of interest and may
involve a conditional or unconditional demand feature.
Such obligations may include variable amount master demand
notes. 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 at some other
interval, and may have a 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 period exceeding seven days may be considered
illiquid if there is no secondary market for such
security.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES
When-issued or delayed delivery transactions involve the
purchase of an instrument with payment and delivery taking
place in the future. Delivery of and payment for these
securities may occur a month or more after the date of the
purchase commitment. The Portfolio will maintain with the
custodian a separate account with
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<PAGE>
liquid, high grade debt securities or cash in an amount at
least equal to these commitments. The interest rate
realized on these securities is fixed as of the purchase
date, and no interest accrues to the Portfolio before
settlement.
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TABLE OF CONTENTS
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Annual Operating Expenses........................ 2
Financial Highlights............................. 3
The Trust........................................ 4
Investment Objective and Policies................ 4
General Investment Policies...................... 5
Investment Limitations........................... 6
The Manager...................................... 7
The Adviser...................................... 7
Distribution and Shareholder Servicing........... 8
Purchase and Redemption of Shares................ 9
Performance...................................... 10
Taxes............................................ 11
General Information.............................. 12
Description of Permitted Investments and Risk
Factors........................................ 14
</TABLE>
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<PAGE>
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PROSPECTUS AS OF
DECEMBER 31, 1996
MONEY
MARKET
Financial
SEI Services
Company
Oaks, PA 19456 _________________________
800-DIAL-SEI/800-342-5734
INSTITUTIONAL TAX
FREE PORTFOLIO
_________________________
CLASS B
SEI-F-102-03 SEI
- -------------------------------------------
