<PAGE> 1
SEI INDEX FUNDS
JULY 31, 1996
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S&P 500 INDEX PORTFOLIO
BOND INDEX PORTFOLIO
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This Prospectus concisely sets forth information about the above-referenced
Portfolios 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 July 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, 680
East Swedesford Road, Wayne, Pennsylvania 19087-1658, or by calling
1-800-342-5734. The Statement of Additional Information is incorporated by
reference into this Prospectus.
SEI Index Funds (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 professionally managed diversified portfolios of
securities. This Prospectus offers Class A shares of the portfolios (each a
"Portfolio" and, together, the "Portfolios") listed above.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES 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 TRUST'S 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> 2
ANNUAL OPERATING EXPENSES (as a percentage of average net assets)
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<TABLE>
<CAPTION>
S&P 500 BOND
INDEX INDEX
------- -----
<S> <C> <C> <C> <C>
Management/Advisory Fees (after fee waiver) (1) .19% .32%
12b-1 Fees None None
Total Other Expenses .06% .06%
Shareholder Servicing Expenses (after fee waiver) (2) .00% .00%
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Total Operating Expenses (after fee waivers) (3) .25% .38%
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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 waiver, management/advisory fees would be .25% for
the S&P 500 Index Portfolio and .42% for the Bond Index Portfolio.
Management/Advisory fees have been restated to reflect reductions in fee
waivers.
(2) The Distributor has waived, on a voluntary basis, all or a portion of its
shareholder servicing fee, and the Shareholder Servicing Fees shown reflect
this waiver. The Distributor reserves the right to terminate its waiver at
any time in its sole discretion. Absent such waiver, Shareholder Servicing
Fees would be .25% for each of the Portfolios.
(3) Absent these fee waivers, total operating expenses would be .56% for the
S&P 500 Index Portfolio and .73% for the Bond Index Portfolio. 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 a 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:
S&P 500 Index $ 3 $ 8 $ 14 $32
Bond Index $ 4 $ 12 $ 21 $48
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</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 Class A shares of the Portfolios. The S&P 500 Index Portfolio also offers
Class E shares, which are subject to the same expenses, except that there are
different shareholder servicing costs. A person who purchases shares through a
financial institution may be charged separate fees by that institution.
Additional Information may be found under "The Manager," "The Adviser" and
"Distribution and Shareholder Servicing."
2
<PAGE> 3
FINANCIAL HIGHLIGHTS
The following financial highlights for a share outstanding throughout each
period have been audited by Arthur Andersen LLP, independent public accountants,
whose report dated May 10, 1996, was unqualified. This information should be
read in conjunction with the Trust's financial statements and notes thereto
included in the Statement of Additional Information under the heading "Financial
Information." Additional performance information is set forth in the Trust's
1996 Annual Report to Shareholders, which is available upon request and without
charge by calling 1-800-342-5734.
<TABLE>
<CAPTION>
Income from
Investment Operations Less Distributions
------------------------- ----------------------------------
Net Asset Net Realized and Dividends
Value, Net Unrealized Total from from Net Distributions Returns Net Asset
Beginning Investment Gain (Loss) Investment Investment from Capital of Total Value, End
of Period Income (2) on Investments Operations Income Gains Capital Distributions of Period
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------------
- ---------------------------
S&P 500 INDEX PORTFOLIO
- ---------------------------
For the periods ended March 31,
1996 $ 16.40 $ 0.44 $ 4.72 $ 5.16 $(0.37) $ (0.31) $-- $ (0.68) $20.88
1995 15.07 0.42 1.79 2.21 (0.42) (0.46) -- (0.88) 16.40
1994 15.80 0.43 (0.22) 0.21 (0.42) (0.52) -- (0.94) 15.07
1993 14.17 0.40 1.69 2.09 (0.40) (0.06) -- (0.46) 15.80
1992 13.43 0.40 1.01 1.41 (0.41) (0.26) -- (0.67) 14.17
1991 12.45 0.43 1.24 1.67 (0.43) (0.26) -- (0.69) 13.43
1990 10.88 0.42 1.64 2.06 (0.43) (0.06) -- (0.49) 12.45
1989 9.63 0.39 1.26 1.65 (0.40) -- -- (0.40) 10.88
1988 12.68 0.43 (1.65) (1.22) (0.45) (1.38) -- (1.83) 9.63
1987 12.45 0.42 2.63 3.05 (0.38) (2.44) -- (2.82) 12.68
1986 (1) 10.00 0.29 2.37 2.66 (0.21) -- -- (0.21) 12.45
<CAPTION>
Ratios and Supplemental Data
----------------------------------------------------------
Ratio of
Net
Ratio of Investment
Ratios of Expenses Ratio of Income
Expenses to Average Net to Average
to Net Assets Investment Net Assets
Net Assets Average (Excluding Income (Excluding Portfolio
Total End of Period Net Fee to Average Fee Turnover
Return (000) Assets Waivers) Net Assets Waivers) Rate
<S> <C> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------
- ---------------------------
S&P 500 INDEX PORTFOLIO
- ---------------------------
For the periods ended March 31,
1996 31.88% $ 630,566 0.25% 0.35% 2.31% 2.21% 3.00%
1995 15.26 458,012 0.25 0.35 2.69 2.59 4.00
1994 1.19 424,647 0.25 0.33 2.57 2.49 23.00
1993 14.97 675,484 0.25 0.35 2.75 2.65 1.00
1992 10.71 470,847 0.25 0.34 2.99 2.90 1.00
1991 14.18 261,165 0.25 0.32 3.56 3.49 40.00
1990 19.02 192,154 0.25 0.36 3.58 3.47 10.00
1989 17.60 125,714 0.25 0.39 4.03 3.89 47.00
1988 (9.35) 105,473 0.25 0.43 3.74 3.56 77.00
1987 25.96 103,468 0.23 0.44 3.29 3.08 145.00
1986 (1) 40.43* 94,224 0.20* 0.44* 4.10* 3.86 66.00
* Annualized
(1) Commenced operations on 8/1/85
(2) Had management fees not been waived and certain other expenses not been absorbed by the Manager for the
Portfolio, the net investment income per share would have been $.42, $.41, $.41, $.39, $.38, $.42, $.41, $.37,
$.41, $.39 and $.27 for the periods ending 3/31/96 through 3/31/86, respectively.
</TABLE>
3
<PAGE> 4
FINANCIAL HIGHLIGHTS (CONTINUED)
<TABLE>
<CAPTION>
Income from
Investment Operations Less Distributions
---------------------------- ----------------------------------
Net Asset Net Realized and Dividends
Value, Net Unrealized Total from from Net Distributions Returns Net Asset
Beginning Investment Gain (Loss) Investment Investment from Capital of Total Value, End
of Period Income (2) on Investments Operations Income Gains Capital Distributions of Period
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------
- -----------------------
BOND INDEX PORTFOLIO
- -----------------------
For the periods ended March 31,
1996 (3) $ 9.90 $ 0.64 $ 0.36 $1.00 $(0.64) $ -- $-- $ (0.64) $10.26
1995 10.09 0.63 (0.20) 0.43 (0.62) -- -- (0.62) 9.90
1994 10.43 0.56 (0.33) 0.23 (0.57) -- -- (0.57) 10.09
1993 9.87 0.66 0.56 1.22 (0.66) -- -- (0.66) 10.43
1992 9.73 0.73 0.15 0.88 (0.74) -- -- (0.74) 9.87
1991 9.46 0.80 0.28 1.08 (0.81) -- -- (0.81) 9.73
1990 9.19 0.81 0.27 1.08 (0.81) -- -- (0.81) 9.46
1989 9.62 0.82 (0.43) 0.39 (0.82) -- -- (0.82) 9.19
1988 10.22 0.85 (0.55) 0.30 (0.82) (0.08) -- (0.90) 9.62
1987 (1) 10.00 0.74 0.14 0.88 (0.66) -- -- (0.66) 10.22
<CAPTION>
Ratios and Supplemental Data
-----------------------------------------------------------
Ratio of
Net
Ratio of Investment
Ratios of Expenses Ratio of Income
Expenses to Average Net to Average
to Net Assets Investment Net Assets
Net Assets Average (Excluding Income (Excluding Portfolio
Total End of Period Net Fee to Average Fee Turnover
Return (000) Assets Waivers) Net Assets Waivers) Rate
<S> <C> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------
- -----------------------
BOND INDEX PORTFOLIO
- -----------------------
For the periods ended March 31,
1996 (3) 10.31% $51,185 0.38% 0.48% 6.20% 6.10% 59.00%
1995 4.54 45,643 0.38 0.48 6.33 6.23 21.00
1994 2.10 56,161 0.38 0.47 5.35 5.26 55.00
1993 12.73 56,032 0.38 0.45 6.49 6.42 115.00
1992 9.48 38,449 0.38 0.51 7.45 7.32 99.00
1991 11.92 22,602 0.38 0.61 8.52 8.29 26.00
1990 12.04 12,106 0.38 0.72 8.43 8.09 56.00
1989 4.21 11,457 0.38 0.80 8.62 8.20 31.00
1988 3.39 14,413 0.38 0.68 8.48 8.18 138.00
1987 (1) 9.69* 34,157 0.38* 0.80* 7.98* 7.56 96.00
* Annualized
(1) Commenced operations on 5/19/86
(2) Had management fees not been waived and certain other expenses not been absorbed by the Manager for the
Portfolio, the net investment income per share would have been $.63, $.62, $.55, $.65, $.71, $.78, $.78, $.78,
$.81 and $.69 for the periods ending 3/31/96 through 3/31/87, respectively.
(3) The Investment Adviser was changed from World Asset Management to Mellon Bond Associates effective 10/2/96.
</TABLE>
4
<PAGE> 5
THE TRUST
SEI INDEX FUNDS (the "Trust") is an open-end management investment company that
offers units of beneficial interest ("shares") in two separate, diversified
investment portfolios. This prospectus offers Class A shares of the Trust's S&P
500 Index and Bond Index Portfolios (each a "Portfolio" and, together, the
"Portfolios"). Each Portfolio may have separate classes of shares which provide
for variations in shareholder servicing expenses. The S&P 500 Index Portfolio
has Class A and Class E shares, which provide for variations in shareholder
servicing expenses. Class E shares of the S&P 500 Index Portfolio are offered by
a separate prospectus. Additional information pertaining to the Trust may be
obtained by writing SEI Financial Services Company, 680 East Swedesford Road,
Wayne, Pennsylvania 19087-1658, or by calling 1-800-342-5734.
INVESTMENT
OBJECTIVES AND
POLICIES
S&P 500 INDEX
PORTFOLIO The S&P 500 Index Portfolio seeks to provide investment
results that correspond to the aggregate price and
dividend performance of the securities in the Standard &
Poor's 500 Composite Stock Price Index (the "S&P 500
Index"), which is comprised of 500 selected common stocks,
most which are listed on the New York Stock Exchange.
The S&P 500 Index Portfolio's ability to duplicate
the performance of the S&P 500 Index will depend to some
extent on the size and timing of cashflows into and out of
the Portfolio, as well as on the level of the Portfolio's
expenses.
Adjustments made to accommodate cash flows will
track the index to the maximum extent possible, and may
result in brokerage expenses for the Portfolio. Over time,
the correlation between the performance of the Portfolio
and the S&P 500 Index is expected to be over 0.95. A
correlation of 1.00 would indicate perfect correlation,
which would be achieved when the net asset value of the
Portfolio, including the value of its dividend and capital
gains distributions, increased or decreased in exact
proportion to changes in the S&P 500 Index. An investment
in shares of the Portfolio involves risks similar to those
of investing in a portfolio consisting of the common
stocks of some or all of the companies included in the
Index.
The Portfolio will normally be invested in all of
the stocks which comprise the S&P 500 Index, except when
changes are made to the S&P 500 Index itself. The
Portfolio's policy is to be fully invested in common
stocks, and it is expected that cash reserves or other
non-Index securities would normally be less than 10% of
net assets.
The weightings of stocks in the S&P 500 Index are
based on each stock's relative total market value, i.e.,
market price per share times the number of shares
outstanding. Because of this weighting, approximately 50%
of the S&P 500 Index is currently composed of stocks of
the 50 largest companies in the S&P 500 Index,
5
<PAGE> 6
and the S&P 500 Index currently represents over 65% of
the market value of all U.S. common stocks listed on the
New York Stock Exchange.
World Asset Management ("World"), the Portfolio's
investment adviser, makes no attempt to "manage" the
Portfolio in the traditional sense (i.e., by using
economic, financial or market analyses). The adverse
financial situation of a company usually will not result
in the elimination of a stock from the Portfolio. However,
the Trust reserves the right to remove an investment from
the Portfolio if, in the judgment of World, the merit of
the investment has been substantially impaired by
extraordinary events or adverse financial conditions.
Furthermore, administrative adjustments may be made in the
Portfolio from time to time because of mergers, changes in
the composition of the S&P 500 Index and similar reasons.
In certain circumstances, World may exercise discretion in
determining whether to exercise warrants or rights issued
in respect to portfolio securities or whether to tender
portfolio securities pursuant to a tender or exchange
offer.
The S&P 500 Index Portfolio is not sponsored,
endorsed, sold or promoted by Standard & Poor's
Corporation ("S&P"). S&P makes no representation or
warranty, implied or express, to the purchasers of the
Portfolio or any member of the public regarding the
advisability of investing in index funds or the Portfolio
or the ability of the Index to track general stock market
performance.
S&P DOES NOT GUARANTEE THE ACCURACY AND/OR THE
COMPLETENESS OF THE INDEX OR ANY DATA INCLUDED THEREIN.
S&P MAKES NO WARRANTY, EXPRESS OR IMPLIED, AS TO RESULTS
TO BE OBTAINED BY THE PORTFOLIO, OWNERS OF THE PORTFOLIO,
OR ANY DATA INCLUDED THEREIN. S&P MAKES NO EXPRESS OR
IMPLIED WARRANTIES, AND HEREBY DISCLAIMS ALL WARRANTIES OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE
WITH RESPECT TO THE INDEX OR ANY DATA INCLUDED THEREIN.
S&P'S ONLY RELATIONSHIP TO THE PORTFOLIO IS THE LICENSING
OF THE S&P MARKS AND THE INDEX, WHICH IS DETERMINED,
COMPOSED, AND CALCULATED BY S&P WITHOUT REGARD TO THE
LICENSEE OR THE PORTFOLIO.
The equity securities in which the S&P 500 Index
Portfolio invests are common stocks, preferred stocks,
securities convertible into common stock and American
Depository Receipts ("ADRs").
The Portfolio may enter into stock index futures
contracts, provided that the value of these contracts does
not exceed 20% of the Portfolio's total assets. The
Portfolio may purchase futures contracts solely to
maintain adequate liquidity to meet its redemption demands
while maximizing the level of the Portfolio's assets which
are tracking the performance of the Index. In addition,
the Portfolio may only purchase those stock index futures
contracts--such as futures contracts on the index--that
are likely to closely duplicate the performance of the S&P
500 Index. The Portfolio also can sell such futures
contracts in order to close out a previously established
position. The Portfolio will not enter into any stock
index futures
6
<PAGE> 7
contract for the purpose of speculation, and will only
enter into contracts traded on national securities
exchanges with standardized maturity dates.
The Portfolio may invest cash reserves in
securities issued by the U.S. Government, its agencies or
instrumentalities, bankers' acceptances, commercial paper
rated at least A-1 by S&P and/or Prime-1 by Moody's
Investors Services, Inc. ("Moody's"), certificates of
deposit and repurchase agreements involving such
obligations. Such investments will not be used for
defensive purposes.
BOND INDEX PORTFOLIO The Bond Index Portfolio currently seeks to provide
investment results that correspond to the aggregate price
and interest performance of the Lehman Aggregate Bond
Index (the "Lehman Index"), which tracks the performance
of debt securities. The Lehman Index is made up of the
Government/Corporate Index, the Mortgage-Backed Securities
Index and the Asset-Backed Securities Index. The Lehman
Index includes fixed rate debt issues rated investment
grade or higher by one or more nationally recognized
statistical ratings organizations ("NRSROs"). All issues
have at least one year to maturity and an outstanding par
value of at least $100 million. Price, coupon and total
return are reported for all sectors on a month-end to
month-end basis. All returns are market value-weighted
inclusive of accrued interest. Lehman Brothers, Inc. is
neither a sponsor of nor in any other way affiliated with
the Trust. Inclusion of a security in the Lehman Index in
no way implies an opinion of Lehman Brothers, Inc. as to
its attractiveness or appropriateness as an investment.
In seeking to generate results that correspond to
the performance of the Lehman Index, the Portfolio will
invest in the following obligations: (i) debt obligations
issued or guaranteed by the United States Government or
its agencies or instrumentalities; (ii) investment-grade
debt obligations issued by U.S. corporations; (iii) debt
obligations issued or guaranteed by foreign sovereign
governments, municipalities, governmental agencies or
international agencies; (iv) mortgage-backed securities,
including conventional 15 and 30 year fixed rate
mortgages, graduated payment mortgages, balloon mortgages
and adjustable rate mortgages; (v) asset backed
securities; and (vi) any issues that are included in the
Lehman Index.
Fixed income securities in which the Bond Index
Portfolio may invest must be rated BBB or better by S&P or
Baa or better by Moody's at the time of purchase. Debt
securities rated BBB or Baa lack outstanding investment
characteristics and have speculative characteristics as
well. In the event that a security held by the Portfolio
is downgraded below investment grade, the adviser will
promptly review the situation and take appropriate action.
If an obligation which is included in the Lehman
Index on the first day of the month ceases to meet any of
the qualifications for inclusion in the Lehman Index
during that month, the obligation remains in the Lehman
Index through the end of that month and then is eliminated
from the Lehman Index. Mellon Bond Associates ("MBA"), the
Portfolio's investment adviser, will monitor portfolio
securities in
7
<PAGE> 8
order to determine whether any of these obligations have
ceased to qualify for inclusion in the Lehman Index. If an
obligation has ceased to qualify for inclusion in the
Lehman Index as a result of: (i) a lowered investment
rating, (ii) an aggregate outstanding principal amount of
less than $100 million, or (iii) a remaining maturity that
no longer exceeds one year (collectively, "Ineligible
Obligations"), the investment adviser may either undertake
to sell such Ineligible Obligations as quickly as is
financially prudent, which may be prior to or later than
the time that obligation is removed from the Lehman Index,
or may determine to retain the security. To the extent
that the investment adviser determines to retain
Ineligible Obligations, such Ineligible Obligations,
together with cash and money market instruments, will not
exceed 20% of the Portfolio's net assets. Although the
Portfolio retains the right to invest up to 20% of its net
assets in Ineligible Obligations, cash and money market
instruments, these items are expected to constitute less
than 10% of the net assets of the Portfolio. Obligations
held by the Portfolio that became Ineligible Obligations
as a result of being rated below investment grade (which
securities are often referred to as "junk bonds") will not
constitute more than 5% of the Portfolio's net assets. In
addition, cash holdings will not exceed 5% of the
Portfolio's net assets. In addition, obligations that
become eligible for inclusion in the Lehman Index during a
particular month generally will not actually be included
in the Index until the next month. However, the Portfolio
may elect to purchase any such obligation and deem it to
be included in the Lehman Index once it becomes eligible.
The Portfolio will be unable to hold all of the
individual issues which comprise the Lehman Index because
of the large number of securities involved. Instead, the
Portfolio will hold a representative sample of the
securities in the Index, selecting issues to represent
entire "classes" or types of securities in the Index.
Obligations included in the Lehman Index have been
categorized by MBA into sectors which have been organized
on the basis of type of issuer, and then further
classified by quality and remaining maturities. The
percentage of the Portfolio's assets to be invested in the
aggregate obligations included in a particular sector of
the Lehman Index will approximate, to the maximum extent
feasible, the percentage such sector represents in the
Lehman Index. The Portfolio's ability to duplicate the
performance of the Lehman Index will depend to some extent
on the size and timing of cash flows into and out of the
Portfolio, as well as on the level of the Portfolio's
expenses, and the capability of the Portfolio's Adviser to
select a representative sample of the securities included
in the Lehman Index. To the extent that the size of the
Portfolio's assets limits the number of issues that the
Portfolio can purchase, there is more potential for
deviation from the Lehman Index's performance than at
larger asset levels. Under these circumstances, MBA will
implement strategies designed to minimize this potential
for greater deviation.
The Portfolio may invest in restricted securities,
including Rule 144A securities, included in the Lehman
Index.
8
<PAGE> 9
There can be no assurance that the Portfolios will
achieve their respective investment objectives. For a
description of the above ratings, see the Statement of
Additional Information.
GENERAL
INVESTMENT
POLICIES
Each Portfolio may lend up to 20% of its assets to
qualified institutions for the purpose of realizing
additional income, however neither Portfolio has any
present intention to lend its securities. Each Portfolio
may invest in illiquid securities; however, not more than
10% of the total assets of each Portfolio will be invested
in such instruments. The Portfolios may enter into forward
commitments, or purchase securities on a when-issued or
delayed delivery basis.
For additional information regarding the
Portfolios' permitted investments see "Description of
Permitted Investments and Risk Factors" in this Prospectus
and in the Statement of Additional Information.
INVESTMENT
LIMITATIONS
The investment objective and certain of the investment
limitations are fundamental policies of the Portfolios.
Fundamental policies cannot be changed with respect to the
Trust or a Portfolio without the consent of the holders of
a majority of the Trust's or that Portfolio's outstanding
shares.
Each 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 Portfolio's total assets would be
invested in the securities of such issuer. This
restriction applies to 75% of each Portfolio's total
assets.
2. Purchase any securities which would cause more than 25%
of the Portfolio's total assets 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
United States 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 that Portfolio.
This borrowing provision is included solely to
facilitate the orderly sale of portfolio securities to
accommodate substantial redemption requests if they
should occur, and is not for investment purposes. All
borrowings will be repaid before making additional
investments for that Portfolio, and any interest paid
on such borrowings will reduce the Portfolio's income.
9
<PAGE> 10
4. Make loans, except that each Portfolio (i) may enter
into repurchase agreements, provided that repurchase
agreements and time deposits maturing in more than
seven days, and other illiquid securities, including
securities which are not readily marketable or are
restricted, are not to exceed, in the aggregate, 10% of
the Portfolio's total assets, (ii) may engage in
securities lending as described in this Prospectus, and
(iii) may purchase or hold debt instruments in
accordance with its investment objectives and policies.
The foregoing percentage limitations (except the
limitation on borrowings) will apply at the time of the
purchase of a security. Additional fundamental investment
limitations are set forth in the Statement of Additional
Information.
THE MANAGER
SEI Fund Management ("SEI Management") provides the Trust
with overall management services, regulatory reporting,
all necessary office space, equipment, personnel and
facilities, and acts as dividend disbursing agent and
shareholder servicing agent. SEI Management also serves as
transfer agent (the "Transfer Agent") to certain classes
of the Trust.
For its management services, SEI Management is
entitled to a fee, which is calculated daily and paid
monthly, at an annual rate of .22% of the average daily
net assets of the S&P 500 Index Portfolio and .35% of the
average daily net assets of the Bond Index Portfolio. SEI
Management may from time to time waive all or a portion of
its fee in order to limit the operating expenses of a
Portfolio. Any such waiver is voluntary and may be
terminated at any time in its sole discretion.
For the fiscal year ended March 31, 1996, the S&P
500 Index and Bond Index Portfolios paid management fees,
after fee waivers, of .12% and .25%, respectively, of
their average daily net assets.
THE ADVISERS
WORLD ASSET
MANAGEMENT World Asset Management ("World") serves as investment
adviser to the S&P 500 Index Portfolio.
World is a general partnership organized by Munder
Capital Management ("MCM"), a general partnership formed
in December, 1994, which engages in investment management
and advisory services. As of December 31, 1995 total
assets under management of World were $9.0 billion and
assets under management of MCM were $30.0 billion. The
principal business address for World is 255 Brown Street
Centre, 2nd Floor, Birmingham, Michigan 48009.
Under the terms of the Advisory Agreement, World
provides the Trust with certain record keeping and
management services in connection with the S&P 500 Index
Portfolio, including monitoring the indexing systems and
determining which
10
<PAGE> 11
securities to purchase and sell in order to keep the S&P
500 Index Portfolio in balance with its index.
For its services, World is entitled to a fee, which
is calculated daily and paid monthly, at an annual rate of
.03% of the average daily net assets of the S&P 500 Index
Portfolio. For the fiscal year ended March 31, 1996, the
S&P 500 Index Portfolio paid World an advisory fee of .03%
of its average daily net assets. For the period from March
31, 1995 to October 2, 1995, the Bond Index Portfolio paid
an advisory fee of .03% of its average daily net assets.
MELLON BOND
ASSOCIATES
Mellon Bond Associates ("MBA") serves as the investment
adviser to the Bond Index Portfolio.
MBA is a Pennsylvania business trust. MBA's sole
beneficiary is MBC Investment Corporation, a wholly-owned
subsidiary of Mellon Bank Corporation. MBA was established
in October, 1986, as a spin-off of the Institutional Bond
Management division of Mellon Bank's Trust and Investment
Department. As of March 31, 1996, total assets under
management of MBA were $33.8 billion. The principal
business address for MBA is One Mellon Bank Center, Suite
4135, Pittsburgh, Pennsylvania 15258.
For its services, MBA is entitled to a fee, which
is calculated daily and paid monthly, at the annual rate
of .07% of the average daily net assets of the Bond Index
Portfolio. For the period from October 2, 1995 to March
31, 1996, the Bond Index Portfolio paid MBA an advisory
fee of .07% of its average daily net assets.
DISTRIBUTION
AND SHAREHOLDER
SERVICING
SEI Financial Services Company (the "Distributor"), a
wholly-owned subsidiary of SEI, serves as each Portfolio's
distributor pursuant to a distribution agreement with the
Trust. The S&P 500 Index Portfolio has adopted a
shareholder servicing plan similar to the plan described
below for its Class E shares (the "Class E Plan").
The Portfolios have adopted a shareholder servicing
plan for Class A shares (the "Service Plan") under which a
shareholder servicing fee of up to .25% of average daily
net assets attributable to Class A shares will be paid to
the Distributor. Under the Service Plan, the Distributor
may perform, or may compensate other service providers for
performing, the following shareholder and administrative
services: maintaining client accounts; arranging for bank
wires; responding to client inquiries concerning services
provided on investments; assisting clients in changing
dividend options, account
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designations and addresses; sub-accounting; providing
information on share positions to clients; forwarding
shareholder communications to clients; processing
purchase, exchange and redemption orders; and processing
dividend payments. Under the Service Plan, the Distributor
may retain as a profit any difference between the fee it
receives and the amount it pays to third parties.
It is possible that an institution may offer
different classes of shares to its customers and thus
receive different compensation with respect to different
classes. These financial institutions may also charge
separate fees to their customers.
The Trust may also execute brokerage or other
agency transactions through the Distributor for which the
Distributor may receive usual and customary compensation.
In addition, 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 Portfolios
sold by the dealer.
PURCHASE AND
REDEMPTION OF
SHARES
Financial institutions may acquire shares of the
Portfolios 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. State securities
laws may require banks and financial institutions
purchasing shares for their customers to register as
dealers pursuant to state laws. 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. Financial institutions
which purchase shares for the accounts of their customers
may impose separate charges on these customers for account
services. Shares of the Portfolios are offered only to
residents of states in which the shares are eligible for
purchase.
Shares of each Portfolio may be purchased or
redeemed on days on which the New York Stock Exchange is
open for business ("Business Days"). However, 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 prior to
4:00 p.m. Eastern time on any Business Day for
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<PAGE> 13
the order to be accepted on that Business Day. Generally,
cash investments must be transmitted or delivered in
federal funds to the wire agent on the next Business Day
following the day the order is placed. The Trust reserves
the right to reject a purchase order when the Distributor
determines that it is not in the best interest of the
Trust or shareholders to accept such purchase order.
Purchases will be made in full and fractional
shares of the Portfolios calculated to three decimal
places. 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. The
net asset value per share of each Portfolio is determined
by dividing the total market value of a Portfolio's
investment and other assets, less any liabilities, by the
total number of outstanding shares of that Portfolio. Net
asset value per share is determined daily as of the close
of business of the New York Stock Exchange (currently,
4:00 p.m. Eastern time) on any Business Day.
The market value of each portfolio security is
obtained by the Manager from an independent pricing
service. The pricing service relies primarily on prices of
actual market transactions as well as trader quotations.
However, the pricing service may use a matrix system to
determine valuations of equity and fixed income
securities. This system considers such factors as security
prices, yields, maturities, call features, ratings and
developments relating to specific securities in arriving
at valuations. The pricing service may also provide market
quotations. The procedures of the pricing service and its
valuations are reviewed by the officers of the Trust under
the general supervision of the Trustees.
Shareholders who desire to redeem shares of the
Portfolios must place their redemption orders with the
Transfer Agent prior to 4:00 p.m. Eastern time on any
Business Day. The redemption price is the net asset value
per share of the Portfolio next determined after receipt
by the Transfer Agent of the redemption order. Payment on
redemption will be made as promptly as possible and, in
any event, within seven days after the redemption order is
received.
Shares of a Portfolio may be purchased in exchange
for securities included in the Portfolio subject to an
adviser's determination that the securities are
acceptable. Securities accepted in an exchange will be
valued at market value. All accrued interest and
subscription of other rights which are reflected in the
market price of accepted securities at the time of
valuation become the property of the Trust and must be
delivered by the Shareholder to the Trust upon receipt
from the issuer.
A Portfolio will not accept securities unless (1)
such securities are appropriate in the Portfolio at the
time of the exchange; (2) such an exchange will not cause
the Portfolio's weightings to become materially imbalanced
with respect to the weightings of the securities included
in the Index; (3) such securities are acquired for
investment and not for resale; (4) the Shareholder
represents that all securities offered to the Trust for
the Portfolio are not subject to any restrictions
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<PAGE> 14
upon their sale by the Portfolio under the Securities Act
of 1933, or otherwise; (5) such securities are traded on
the American Stock Exchange, the New York Stock Exchange
or on NASDAQ in an unrelated transaction with a quoted
sales price on the same day the exchange valuation is made
or, if not listed on such exchanges or on NASDAQ, have
prices available from an independent pricing service
approved by the Trust's Board of Trustees; and (6) the
securities may be acquired under investment restrictions
applicable to the Portfolio.
Purchase and redemption orders may be placed by
telephone. Neither the Trust nor the Trust's 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 the Trust's 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 reasonable
procedures are not employed, the Trust and/or Trust's
Transfer Agent may be liable for any losses due to
unauthorized or fraudulent telephone transactions.
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, each Portfolio may advertise yield and
total return. These figures will be based on historical
earnings and are not intended to indicate future
performance. No representation can be made concerning
actual future yields or returns. The yield of a Portfolio
refers to the income generated by a hypothetical
investment in such Portfolio over a thirty day period.
This income is then "annualized," i.e., the income over
thirty days is assumed to be generated over one year, and
is shown as a percentage of the investment.
The total return of a Portfolio refers to the
average compounded rate of return on a hypothetical
investment for designated time periods, assuming that the
entire investment is redeemed at the end of each period
and assuming the reinvestment of all dividend and capital
gain distributions.
A Portfolio may periodically compare its
performance to the performance of: other mutual funds
tracked by mutual fund rating services (such as Lipper
Analytical); financial and business publications and
periodicals; broad groups of comparable mutual funds;
unmanaged indices which may assume investment of dividends
but generally do not reflect deductions for administrative
and management costs; or to other investment alternatives.
A Portfolio may quote Morningstar, Inc., a service that
ranks mutual funds on the basis of risk-adjusted
performance. A
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<PAGE> 15
Portfolio may use long-term performance of these capital
markets to demonstrate general long-term risk versus
reward scenarios and could include the value of a
hypothetical investment in any of the capital markets. A
Portfolio may also quote financial and business
publications and periodicals as they relate to fund
management, investment philosophy and investment
techniques.
A Portfolio may quote various measures of
volatility and benchmark correlation in advertising and
may compare these measures to those of other funds.
Measures of volatility attempt to compare historical share
price fluctuations or total returns to a benchmark while
measures of benchmark correlation indicate how valid a
comparative benchmark might be. Measures of volatility and
correlation are calculated using averages of historical
data and cannot be calculated precisely.
The performance of Class A shares of the S&P 500
Index Portfolio will normally be higher than that on the
Class E shares of the S&P 500 Index Portfolio because of
the different shareholder servicing expenses actually
charged to Class E 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, state or local income tax treatment of the
Portfolios or their shareholders. In addition, state and
local tax consequences of an investment in a 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 taxes. Additional information
concerning taxes is set forth in the Statement of
Additional Information.
Tax Status
of the Portfolios Each Portfolio is treated as a separate entity for federal
income tax purposes and is not combined with the Trust's
other portfolios. The Portfolios intend to qualify for the
special tax treatment afforded regulated investment
companies ("RICs") 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 gains (the excess of net
long-term capital gain over net short-term capital losses)
distributed to shareholders.
Tax Status
of Distributions Each Portfolio will distribute substantially all of its
net investment income (including net short-term capital
gains) to shareholders. Dividends from a Portfolio's net
investment company taxable income are taxable to its
shareholders as ordinary income (whether received in cash
or in additional shares) to the extent of a Portfolio's
earnings and profits. Dividends paid by the S&P 500 Index
Portfolio to corporate shareholders will qualify for the
dividends-received deduction to the
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<PAGE> 16
extent attributable to dividends received by a Portfolio
from domestic corporations. Capital gains will be
distributed at least annually and will be taxable to
shareholders as long-term capital gains regardless of how
long the shareholder has held shares and regardless of
whether the distributions are received in cash or in
additional shares. Distributions from net capital gains do
not qualify for the dividends received deduction. The
Portfolio will provide annual reports to shareholders of
the federal income tax status of all distributions.
Dividends declared by a Portfolio in October,
November or December of any year and payable to
shareholders of record on a date in such a month will be
deemed to have been paid by the Portfolio and received by
the shareholders on December 31 of the year declared if
paid by the Portfolio at any time during the following
January.
Certain securities purchased by a Portfolio (such
as STRIPS, defined in "Description of Permitted
Investments and Risk Factors") are sold with original
issue discount and thus do not make periodic cash interest
payments. Each Portfolio will be required to include as
part of its current income the imputed interest on such
obligations even though the Portfolio has not received any
interest payments on such obligations during the period.
Because each Portfolio will distribute substantially all
of its net investment income to its shareholders, a
Portfolio may have to sell portfolio securities to
distribute such imputed income, which may occur at a time
when the Adviser would not have chosen to sell such
securities and which may result in a taxable gain or loss.
Investment income received directly by a Portfolio
on direct U.S. government obligations is exempt from
income tax at the state level and may be exempt, depending
on the state, when received by a shareholder as income
dividends provided certain state-specific conditions are
satisfied. Interest received on repurchase agreements
collateralized by U.S. government obligations normally is
not exempt from state tax. Each Portfolio will inform
shareholders annually of the percentage of income and
distributions derived from direct U.S. obligations.
Shareholders should consult their tax advisers to
determine whether any portion of income dividends received
from a Portfolio is considered tax-exempt in their state.
Each Portfolio intends to make sufficient
distributions prior to the end of each calendar year to
avoid liability for the federal excise tax applicable to
RICs.
Each sale, exchange or redemption of Portfolio
shares is a taxable transaction to the shareholder.
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<PAGE> 17
GENERAL
INFORMATION
The Trust The Trust was organized as a Massachusetts business trust
under a Declaration of Trust dated March 6, 1985. The
Declaration of Trust permits the Trust to offer separate
series of shares and different classes of each Portfolio.
All consideration received by the Trust for shares of any
class of any Portfolio, and all assets of such Portfolio
or class, belong to that Portfolio or class, respectively,
and would be subject to the liabilities related thereto.
The Trust pays 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 under
which, as described above, certain companies provide
essential management services to the Trust.
Voting Rights Each share held entitles the shareholder of record to one
vote. Shareholders of each Portfolio or class will vote
separately on matters pertaining 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.
As of May 15, 1996, Transco & Co. owned a
controlling interest (as defined by the Investment Company
Act of 1940) in the Trust's Bond Index Portfolio.
Reporting The Trust issues an unaudited report 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 Financial Management Corporation, 680 East Swedesford
Road, Wayne, Pennsylvania 19087-1658.
Dividends Substantially all of the net investment income (not
including capital gains) of the S&P 500 Index Portfolio is
distributed in the form of quarterly dividends and that of
the Bond Index Portfolio is distributed in the form of
monthly dividends.
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Shareholders automatically receive all income
dividends and capital gain distributions in additional
shares at the net asset value next determined following
the record date, 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.
Dividends and capital gains of each Portfolio are
paid on a per-share basis. The value of each share will be
reduced by the amount of any such payment. If shares are
purchased shortly before the record date for a dividend or
capital gains distributions, a shareholder will pay the
full price for the share and receive some portion of the
price back as a taxable dividend or distribution.
The dividends on Class A shares of the S&P 500
Index Portfolio are normally higher than those on the
Class E shares because of the different shareholder
servicing expenses actually charged to Class E shares.
Counsel and Independent
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
Comerica Bank, 411 W. Lafayette, Detroit, Michigan 48226,
acts as custodian of the Portfolios' assets. The Custodian
holds cash, securities and other assets of the Trust as
required by the 1940 Act. CoreStates Bank, N.A., Broad and
Chestnut Streets, P.O. Box 7618, Philadelphia,
Pennsylvania 19101, acts as wire agent of the Trust's
assets.
DESCRIPTION
OF PERMITTED
INVESTMENTS
AND RISK FACTORS
The following is a description of certain of the permitted
investment practices for the Portfolios, and the
associated risk factors:
American Depositary
Receipts ("ADRs") ADRs are securities, typically issued by a U.S. financial
institution (a "depositary"), that evidence ownership
interests in a security or a pool of securities issued by
a foreign issuer and deposited with the depositary. ADRs
may be available through "sponsored" or "unsponsored"
facilities. A sponsored facility is established jointly by
the issuer of the security underlying the receipt and a
depositary, whereas an unsponsored facility may be
established by a depositary without participation by the
issuer of the underlying security. Holders of unsponsored
depositary receipts generally bear all the costs of the
unsponsored facility. The depositary of an unsponsored
facility frequently is under no obligation to distribute
shareholder communications received from the issuer of the
deposited security or to pass through, to the holders of
the receipts, voting rights with respect to the deposited
securities.
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Asset-Backed Securities
(Non-mortgage) Asset-backed securities consist of securities secured by
company receivables, truck and auto loans, leases and
credit card receivables. Such securities are generally
issued as pass-through certificates, which represent
undivided fractional ownership interests in the underlying
pools of assets. Such securities also may be debt
instruments, which are also known as collateralized
obligations and are generally issued as the debt of a
special purpose entity, such as a trust, organized solely
for purpose of owning such assets and issuing such debt. A
Fund may invest in other asset-backed securities that may
be created in the future if the Advisor determines they
are suitable.
Equity Securities Equity securities represent ownership interests in a
company or corporation and consist of common stock,
preferred stock, and securities convertible into or
exchangeable for common stock. Investments in equity
securities are subject to market risks that may cause
their prices to fluctuate over time. The value of
convertible equity securities is also affected by
prevailing interest rates, the credit quality of the
issuer and any call provisions. Fluctuations in the value
of equity securities will not necessarily affect cash
income derived from these securities, but will affect a
Portfolio's net asset value.
Fixed Income Securities
Fixed income securities are debt obligations issued by
corporations, municipalities and other borrowers. The
market value of the fixed income investments will
generally change in response to interest rate changes and
other factors. During periods of falling interest rates,
the values of outstanding fixed income securities
generally rise. Conversely, during periods of rising
interest rates, the values of such securities generally
decline. Moreover, while securities with longer maturities
tend to produce higher yields, the prices of longer
maturity securities are also subject to greater market
fluctuations as a result of changes in interest rates.
Changes by recognized agencies in the rating of any fixed
income security and in the ability of an issuer to make
payments of interest and principal also affect the value
of these investments. Changes in the value of these
securities will not necessarily affect cash income derived
from these securities but will affect a Portfolio's net
asset value.
Illiquid Securities Illiquid securities are securities which cannot be
disposed of within seven business days at approximately
the price at which they are being carried on the
Portfolio's books. Illiquid securities include demand
instruments with demand notice periods exceeding seven
days, when there is no secondary market for such security
and repurchase agreements with durations (or maturities)
over 7 days in length.
Junk Bonds Bonds rated below investment grade are often referred to
as "junk bonds." Such securities involve greater risk of
default or price declines than investment grade securities
due to changes in the issuer's creditworthiness and the
outlook for economic growth. The market for these
securities may be less active, causing market price
volatility and limited liquidity in the secondary market.
This may limit a
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Portfolio's ability to sell such securities at their
market value. In addition, the market for these securities
may also be adversely affected by legislative and
regulatory developments. Credit quality in the junk bond
market can change suddenly and unexpectedly, and even
recently issued credit ratings may not fully reflect the
actual risks imposed by a particular security.
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 highly-rated 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)
high-quality commercial paper issued by U.S. and foreign
corporations; (iv) debt obligations with a maturity of one
year or less issued by corporations that issue
high-quality commercial paper; and (v) repurchase
agreements involving any of the foregoing obligations
entered into with highly-rated banks and broker-dealers.
Mortgage-Backed
Securities Mortgage-backed securities are instruments that entitle
the holder to a share of all interest and principal
payments from mortgages underlying the security. The
mortgages backing these securities include conventional
fifteen- and thirty-year fixed rate mortgages, graduated
payment mortgages, balloon mortgages and adjustable rate
mortgages. Prepayment of mortgages which underlie
securities purchased at a premium often results in capital
losses, while prepayment of mortgages purchased at a
discount often results in capital gains. Because of these
unpredictable prepayment characteristics, it is often not
possible to predict accurately the average life or
realized yield of a particular issue.
Government Pass-Through Securities These are securities
that are issued or guaranteed by a U.S. Government agency
representing an interest in a pool of mortgage loans. The
primary issuers or guarantors of these mortgage-backed
securities are GNMA, FNMA and FHLMC. FNMA and FHLMC
obligations are not backed by the full faith and credit of
the U.S. Government as GNMA certificates are, but FNMA and
FHLMC securities are supported by the instrumentalities'
right to borrow from the U.S. Treasury.
Private Pass-Through Securities These are mortgage-backed
securities issued by a non-governmental entity, such as a
trust. These securities include collateralized mortgage
obligations ("CMOs") and real estate mortgage investment
conduits ("REMICs") that are rated in one of the top two
rating categories. While they are generally structured
with one or more types of credit enhancement, private
pass-through securities typically lack a guarantee by an
entity having the credit status of a governmental agency
or instrumentality.
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Collateralized Mortgage Obligations ("CMOs") CMOs are
debt obligations or multiclass pass-through certificates
issued by agencies or instrumentalities of the U.S.
Government or by private originators or investors in
mortgage loans. In a CMO, series of bonds or certificates
are usually issued in multiple classes. Principal and
interest paid on the underlying mortgage assets may be
allocated among the several classes of a series of a CMO
in a variety of ways. Each class of a CMO, often referred
to as a "tranche," is issued with a specific fixed or
floating coupon rate and has a stated maturity or final
distribution date. Principal payments on the underlying
mortgage assets may cause CMOs to be retired substantially
earlier then their stated maturities or final distribution
dates, resulting in a loss of all or part of any premium
paid.
REMICs A REMIC is a CMO that qualifies for special tax
treatment under the Internal Revenue Code and invests in
certain mortgages principally secured by interests in real
property. Investors may purchase beneficial interests in
REMICs, which are known as "regular" interests, or
"residual" interests. Guaranteed REMIC pass-through
certificates ("REMIC Certificates") issued by FNMA or
FHLMC represent beneficial ownership interests in a REMIC
trust consisting principally of mortgage loans or FNMA,
FHLMC or GNMA-guaranteed mortgage pass-through
certificates. For FHLMC REMIC Certificates, FHLMC
guarantees the timely payment of interest, and also
guarantees the payment of principal as payments are
required to be made on the underlying mortgage
participation certificates.
Stripped Mortgage-Backed Securities ("SMBs") SMBs are
usually structured with two classes that receive specified
proportions of the monthly interest and principal payments
from a pool of mortgage securities. One class may receive
all of the interest payments and is thus termed an
interest-only class ("IO"), while the other class may
receive all of the principal payments and is thus termed
the principal-only class ("PO"). The value of IOs tends to
increase as rates rise and decrease as rates fall; the
opposite is true of POs. SMBs are extremely sensitive to
changes in interest rates because of the impact thereon of
prepayment of principal on the underlying mortgage
securities.
Repurchase Agreements Repurchase agreements are agreements by which a Portfolio
obtains a security and simultaneously commits to return
the security to the seller at an agreed upon price on an
agreed upon date within a number of days from the date of
purchase. The Portfolio or its agent will have actual or
constructive possession of the securities held as
collateral for the repurchase agreement. Collateral must
be maintained at a value at least equal to 100% of the
purchase price. A Portfolio bears a risk of loss in the
event the other party defaults on its obligations and the
Portfolio is delayed or prevented from exercising its
right to dispose of the collateral securities or if the
Portfolio realizes a loss on the sale of the collateral
securities. A Portfolio will enter
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into repurchase agreements only with financial
institutions deemed to present minimal risk of bankruptcy
during the term of the agreement based on guidelines
established and periodically reviewed by the Trustees.
Repurchase agreements are considered loans under the 1940
Act.
Stock Index Futures A stock index futures contract is a bilateral agreement
pursuant to which two parties agree to take or make
delivery of an amount of cash equal to a specified dollar
amount times the difference between the stock index value
at the close of trading of the contract and the price at
which the futures contract is originally struck. No
physical delivery of the stocks comprising the Index is
made; generally contracts are closed out prior to the
expiration date of the contract. No price is paid upon
entering into futures contracts. Instead, a Portfolio is
required to deposit an amount of cash or U.S. Treasury
securities known as "initial margin." Subsequent payments,
call "variation margin," to and from the broker, would be
made on a daily basis as the value of the futures position
varies (a process known as "marking to market"). The
margin is in the nature of a performance bond or
good-faith deposit on a futures contract.
In order to avoid leveraging and related risks,
when a Portfolio purchases futures contracts, it will
collateralize its position by depositing an amount of cash
or liquid, high grade debt securities equal to the market
value of the futures positions held, less margin deposits,
in a segregated account with the Trust's Custodian.
Collateral equal to the current market value of the
futures position will be marked to market on a daily
basis.
In considering the proposed use of futures
contracts, particular note should be taken that futures
contracts relate to the anticipated levels at some point
in the future, not to the current level of the underlying
instrument. Thus trading of stock index futures may not
reflect the trading of the securities which are used to
formulate an index or even actual fluctuations in the
relevant index itself. There is, in addition, a risk that
movements in the price of futures contracts will not
correlate with the movement in prices of the stock index
being tracked.
There are risks associated with these activities,
including the following: (1) the success of a hedging
strategy may depend on an ability to predict movements in
the prices of individual securities, fluctuations in
markets and movements in interest rates; (2) there may be
an imperfect or no correlation between the changes in
market value of the securities held by the Portfolio and
the prices of futures and options on futures; (3) there
may not be a liquid secondary market for a futures
contract or option; (4) trading restrictions or
limitations may be imposed by an exchange; and (5)
government regulations may restrict trading in futures
contracts and options on futures.
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U.S. Government
Agency Obligations Obligations issued or guaranteed by agencies of the U.S.
Government including, among others, the Federal Farm
Credit Bank, the Federal Housing Administration and the
Small Business Administration, and obligations issued or
guaranteed by instrumentalities of the U.S. Government
including, among others, the Federal Home Loan Mortgage
Corporation, the Federal Land Banks and the U.S. Postal
Service. Some of these securities are supported by the
full faith and credit of the U.S. Treasury (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 others are supported only by the credit
of the instrumentality (e.g., Federal National Mortgage
Association 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 nor to
the value of the Portfolios' shares.
U.S. Treasury
Obligations U.S. Treasury obligations consist of bills, notes and
bonds issued by the U.S. Treasury, as well as separately
traded interest and principal component parts of such
obligations known as Separately Traded Registered Interest
and Principal Securities ("STRIPS") that are transferable
through the Federal book-entry system.
Variable and Floating
Rate
Instruments Certain obligations may carry variable or floating rates
of interest, and may involve a conditional or
unconditional demand feature. Such instruments bear
interest at rates which are not fixed, but which vary with
changes in specified market rates or indices, such as a
Federal Reserve composite index. 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 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. A Portfolio will maintain with the
Custodian a separate account with 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 a Portfolio before settlement. These
securities are subject to market fluctuation due to
changes in market interest rates, and it is possible that
the market value at the time of settlement could be higher
or lower than the purchase price if the general level of
interest rates has changed.
23
<PAGE> 24
Although a Portfolio generally purchases securities on a
when-issued or forward commitment basis with the intention
of actually acquiring such securities, a Portfolio may
dispose of a when-issued security or forward commitment
prior to settlement if the adviser deems it appropriate to
do so.
Additional information on other permitted
investments can be found in the Statement of Additional
Information.
24
<PAGE> 25
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Annual Operating Expenses......................... 2
Financial Highlights.............................. 3
The Trust......................................... 5
Investment Objectives and Policies................ 5
General Investment Policies....................... 9
Investment Limitations............................ 9
The Manager....................................... 10
The Advisers...................................... 10
Distribution and Shareholder Servicing............ 11
Purchase & Redemption of Shares................... 12
Performance....................................... 14
Taxes............................................. 15
General Information............................... 17
Description of Permitted Investments and Risk
Factors......................................... 18
</TABLE>
25
<PAGE> 26
SEI INDEX FUNDS
JULY 31, 1996
- --------------------------------------------------------------------------------
S&P 500 INDEX PORTFOLIO
- --------------------------------------------------------------------------------
This Prospectus concisely sets forth 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 July 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, 680
East Swedesford Road, Wayne, Pennsylvania 19087-1658, or by calling
1-800-342-5734. The Statement of Additional Information is incorporated by
reference into this Prospectus.
SEI Index Funds (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 professionally managed diversified portfolios of
securities. Each Portfolio may offer separate classes of shares that differ from
each other primarily in the allocation of certain shareholder servicing
expenses. This Prospectus offers Class E shares of the Trust's S&P 500 Index
Portfolio (the "Portfolio").
- --------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES 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 TRUST'S 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> 27
ANNUAL OPERATING EXPENSES (as a percentage of average net assets)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
S&P 500
INDEX
-------
<S> <C> <C>
Management/Advisory Fees (after fee waiver) (1) .19%
12b-1 Fees None
Total Other Expenses .21%
Shareholder Servicing Expenses .15%
- --------------------------------------------------------------------------------------------------------------------
Total Operating Expenses (after fee waiver) (2) .40%
- --------------------------------------------------------------------------------------------------------------------
</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 the
Portfolio would be .25%. Management/Advisory fees have been restated to
reflect reductions in fee waivers.
(2) Absent this fee waiver, total operating expenses for the Portfolio would be
.46%. Additional information may be found under "The Adviser" and "The
Manager."
EXAMPLE
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1 YR. 3 YRS. 5 YRS. 10 YRS.
----- ------ ------ -------
<S> <C> <C> <C> <C>
An investor in a 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: $ 4 $ 13 $ 22 $51
- ---------------------------------------------------------------------------------------------------------------------
</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 Class E shares of the Portfolio. A person who purchases shares through a
financial institution may be charged separate fees by that institution. The
Portfolio also offers Class A shares, which are subject to the same expenses,
except there are different shareholder servicing costs. Additional Information
may be found under "The Manager," "The Adviser" and "Distribution and
Shareholder Servicing."
2
<PAGE> 28
FINANCIAL HIGHLIGHTS
The following financial highlights for a share outstanding throughout each
period have been audited by Arthur Andersen LLP, independent public accountants,
whose report dated May 10, 1996, thereon was unqualified. This information
should be read in conjunction with the Trust's financial statements and notes
thereto, included in the Statement of Additional Information under the heading
"Financial Information." Additional performance information is set forth in the
Trust's 1996 Annual Report to Shareholders, which is available upon request and
without charge by calling 1-800-342-5734.
For a Class E Share Outstanding Throughout the Period
<TABLE>
<CAPTION>
Income from
Investment Operations Less Distributions
---------------- ----------------------------------
Net Asset Net Realized and Dividends
Value, Net Unrealized Total from from Net Distributions Returns Net Asset
Beginning Investment Gain (Loss) Investment Investment from Capital of Total Value, End
of Period Income on Investments Operations Income Gains Capital Distributions of Period
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------
- ---------------------------
S&P 500 INDEX PORTFOLIO
- ---------------------------
For the period from
February 28
to March 31, 1996 (1)
$ 20.82 $ -- $ 0.05 $ 0.05 $ -- $ -- $-- $ -- $20.87
<CAPTION>
Ratios and Supplemental Data
----------------------------------------------------------
Ratio of
Net
Ratio of Investment
Ratios of Expenses Ratio of Income
Expenses to Average Net to Average
to Net Assets Investment Net Assets
Net Assets Average (Excluding Income (Excluding Portfolio
Total End of Period Net Fee to Average Fee Turnover
Return (000) Assets Waivers) Net Assets Waivers) Rate
<S> <C> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------
- ---------------------------
S&P 500 INDEX PORTFOLIO
- ---------------------------
For the period from
February 28
to March 31, 1996 (1)
0.24%* $ 3,007 0.46% 0.58% 0.97% 0.85% 3.00%
* Total return has not been annualized.
(1) S&P 500 Index Class E Shares were offered beginning February 28, 1996. All ratios for that period have been
annualized.
</TABLE>
3
<PAGE> 29
THE TRUST
SEI INDEX FUNDS (the "Trust") is an open-end management investment company that
offers units of beneficial interest ("shares") in two separate diversified
investment portfolios. This prospectus offers Class E shares of the Trust's S&P
500 Index Portfolio (the "Portfolio"). The S&P 500 Index Portfolio has Class A
and Class E shares which provide for variations in certain shareholder servicing
expenses. Class A shares of the S&P 500 Index Portfolio and the Bond Index
Portfolio are offered by a separate prospectus. Additional information
pertaining to the Trust may be obtained by writing SEI Financial Services
Company, 680 East Swedesford Road, Wayne, Pennsylvania 19087-1658, or by calling
1-800-342-5734.
INVESTMENT
OBJECTIVES AND
POLICIES
S&P 500 INDEX
PORTFOLIO The S&P 500 Index Portfolio seeks to provide investment
results that correspond to the aggregate price and
dividend performance of the securities in the Standard &
Poor's 500 Composite Stock Price Index (the "S&P 500
Index"), which is comprised of 500 selected common stocks,
most which are listed on the New York Stock Exchange.
The S&P 500 Index Portfolio's ability to duplicate
the performance of the S&P 500 Index will depend to some
extent on the size and timing of cashflows into and out of
the Portfolio, as well as on the level of the Portfolio's
expenses.
Adjustments made to accommodate cash flows will
track the index to the maximum extent possible, and may
result in brokerage expenses for the Portfolio. Over time,
the correlation between the performance of the Portfolio
and the S&P 500 Index is expected to be over 0.95. A
correlation of 1.00 would indicate perfect correlation,
which would be achieved when the net asset value of the
Portfolio, including the value of its dividend and capital
gains distributions, increased or decreased in exact
proportion to changes in the S&P 500 Index. An investment
in shares of the Portfolio involves risks similar to those
of investing in a portfolio consisting of the common
stocks of some or all of the companies included in the
Index.
The Portfolio will normally be invested in all of
the stocks which comprise the S&P 500 Index, except when
changes are made to the S&P 500 Index itself. The
Portfolio's policy is to be fully invested in common
stocks, and it is expected that cash reserve items would
normally be less than 10% of net assets.
The weightings of stocks in the S&P 500 Index are
based on each stock's relative total market value, i.e.,
market price per share times the number of shares
outstanding. Because of this weighting, approximately 50%
of the S&P 500 Index is currently composed of stocks of
the 50 largest companies in the S&P 500 Index, and the S&P
500 Index currently represents over 65% of the market
value of all U.S. common stocks listed on the New York
Stock Exchange.
4
<PAGE> 30
World Asset Management ("World"), the Portfolio's
investment adviser, makes no attempt to "manage" the
Portfolio in the traditional sense (i.e. by using
economic, financial or market analyses). The adverse
financial situation of a company usually will not result
in the elimination of a stock from the Portfolio. However,
the Trust reserves the right to remove an investment from
the Portfolio if, in the judgment of World, the merit of
the investment has been substantially impaired by
extraordinary events or adverse financial conditions.
Furthermore, administrative adjustments may be made in the
Portfolio from time to time because of mergers, changes in
the composition of the S&P 500 Index and similar reasons.
In certain circumstances, World may exercise discretion in
determining whether to exercise warrants or rights issued
in respect to portfolio securities or whether to tender
portfolio securities pursuant to a tender or exchange
offer.
The S&P 500 Index Portfolio is not sponsored,
endorsed, sold or promoted by Standard & Poor's
Corporation ("S&P"). S&P makes no representation or
warranty, implied or express, to the purchasers of the
Portfolio or any member of the public regarding the
advisability of investing in index funds or the Portfolio
or the ability of the Index to track general stock market
performance.
S&P DOES NOT GUARANTEE THE ACCURACY AND/OR THE
COMPLETENESS OF THE INDEX OR ANY DATA INCLUDED THEREIN.
S&P MAKES NO WARRANTY, EXPRESS OR IMPLIED, AS TO RESULTS
TO BE OBTAINED BY THE PORTFOLIO, OWNERS OF THE PORTFOLIO,
OR ANY DATA INCLUDED THEREIN. S&P MAKES NO EXPRESS OR
IMPLIED WARRANTIES, AND HEREBY DISCLAIMS ALL WARRANTIES OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE
WITH RESPECT TO THE INDEX OR ANY DATA INCLUDED THEREIN.
S&P'S ONLY RELATIONSHIP TO THE PORTFOLIO IS THE LICENSING
OF THE S&P MARKS AND THE INDEX, WHICH IS DETERMINED,
COMPOSED, AND CALCULATED BY S&P WITHOUT REGARD TO THE
LICENSEE OR THE PORTFOLIO.
The equity securities in which the S&P 500 Index
Portfolio invests are common stocks, preferred stocks,
securities convertible into common stock and American
Depositary Receipts ("ADRs").
The Portfolio may enter into stock index futures
contracts, provided that the value of these contracts does
not exceed 20% of the Portfolio's total assets. The
Portfolio may purchase futures contracts solely to
maintain adequate liquidity to meet its redemption demands
while maximizing the level of the Portfolio's assets which
are tracking the performance of the Index. In addition,
the Portfolio may only purchase those stock index futures
contracts-such as futures contracts on the index-that are
likely to closely duplicate the performance of the S&P 500
Index. The Portfolio also can sell such futures contracts
in order to close out a previously established position.
The Portfolio will not enter into any stock index futures
contract for the purpose of speculation, and will only
enter into contracts traded on national securities
exchanges with standardized maturity dates.
5
<PAGE> 31
The Portfolio may invest cash reserves in
securities issued by the U.S. Government, its agencies or
instrumentalities, bankers' acceptances, commercial paper
rated at least A-1 by S&P and/or Prime-1 by Moody's
Investors Services, Inc. ("Moody's"), certificates of
deposit and repurchase agreements involving such
obligations. Such investments will not be used for
defensive purposes.
There can be no assurance that the Portfolio will
achieve its investment objective. For a description of the
above ratings, see the Statement of Additional
Information.
GENERAL
INVESTMENT
POLICIES
The Portfolio may lend up to 20% of its assets to
qualified institutions for the purpose of realizing
additional income, however the Portfolio has no present
intention to lend its securities. The Portfolio may invest
in illiquid securities; however, not more than 10% of the
total assets of the Portfolio will be invested in such
instruments. The Portfolio may enter into forward
commitments, or purchase securities on a when-issued or
delayed delivery basis.
For additional information regarding the
Portfolio's permitted investments see "Description of
Permitted Investments and Risk Factors" in this Prospectus
and in the Statement of Additional Information.
INVESTMENT
LIMITATIONS
The investment objective and certain of the investment
limitations are fundamental policies of the Portfolio.
Fundamental policies cannot be changed with respect to the
Trust or a Portfolio without the consent of the holders of
a majority of the Trust's or that Portfolio's outstanding
shares.
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 Portfolio's total assets would be
invested in the securities of such issuer. This
restriction applies to 75% of the Portfolio's total
assets.
2. Purchase any securities which would cause more than
25% of the Portfolio's total assets 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
United States 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.
6
<PAGE> 32
This borrowing provision is included solely to
facilitate the orderly sale of portfolio securities to
accommodate substantial redemption requests if they
should occur, and is not for investment purposes. All
borrowings will be repaid before making additional
investments for the Portfolio, and any interest paid
on such borrowings will reduce the Portfolio's income.
4. Make loans, except that the Portfolio: (i) may enter
into repurchase agreements, provided that repurchase
agreements and time deposits maturing in more than
seven days, and other illiquid securities, including
securities which are not readily marketable or are
restricted, are not to exceed, in the aggregate, 10%
of the Portfolio's total assets, (ii) may engage in
securities lending as described in this Prospectus,
and (iii) may purchase or hold debt instruments in
accordance with its investment objectives and
policies.
The foregoing percentage limitations (except the
limitation on borrowings) will apply at the time of the
purchase of a security. Additional fundamental investment
limitations are set forth in the Statement of Additional
Information.
THE MANAGER
SEI Fund Management ("SEI Management") provides the Trust
with overall management services, regulatory reporting,
all necessary office space, equipment, personnel and
facilities, and acts as dividend disbursing agent and
shareholder servicing agent. SEI Management also serves as
transfer agent (the "Transfer Agent") to certain classes
of the Trust.
For its management services, SEI Management is
entitled to a fee, which is calculated daily and paid
monthly, at an annual rate of .22% of the average daily
net assets of the Portfolio. SEI Management may from time
to time waive all or a portion of its fee in order to
limit the operating expenses of the Portfolio. Any such
waiver is voluntary and may be terminated at any time in
its sole discretion.
For the fiscal year ended March 31, 1996, the
Portfolio paid management fees, after fee waivers, of .12%
of its average daily net assets.
THE ADVISER
World Asset Management ("World") serves as investment
adviser to the S&P 500 Index Portfolio.
World is a general partnership organized by Munder
Capital Management ("MCM"), a general partnership formed
in December, 1994, which engages in investment management
and advisory services. As of December 31, 1995 total
assets under management of World were $9.0 billion and
assets under management of MCM were $30.0 billion. The
principal business address for World is 255 Brown Street
Centre, 2nd Floor, Birmingham, Michigan 48009.
7
<PAGE> 33
Under the terms of this Advisory Agreement, World
provides the Trust with certain record keeping and
management services in connection with the Portfolio
including monitoring the indexing systems and determining
which securities to purchase and sell in order to keep the
Portfolio in balance with its index.
World is entitled to a fee, which is calculated
daily and paid monthly, at an annual rate of .03% of the
average daily net assets of the Portfolio. For the fiscal
year ended March 31, 1996, the Portfolio paid World an
advisory fee of .03% of its average daily net assets.
DISTRIBUTION
AND SHAREHOLDER
SERVICING
SEI Financial Services Company (the "Distributor"), a
wholly-owned subsidiary of SEI, serves as the Portfolio's
distributor pursuant to a distribution agreement (the
"Distribution Agreement") with the Trust. The Portfolio
has also adopted a shareholder servicing plan for its
Class A shares (the "Class A Service Plan") which is
similar to the Plan described below.
The Portfolios have adopted a shareholder servicing
plan for Class E shares (the "Service Plan") under which a
shareholder servicing fee of up to .15% of average daily
net assets attributable to Class E shares will be paid to
the Distributor. Under the Service Plan, the Distributor
may perform, or may compensate other service providers for
performing, the following shareholder and administrative
services; maintaining client accounts; arranging for bank
wires; responding to client inquiries concerning services
provided on investments; assisting clients in changing
dividend options, account designations and addresses; sub-
accounting; providing information on share positions to
clients; forwarding shareholder communications to clients;
processing purchase, exchange and redemption orders; and
processing dividend payments. Under the Service Plan, the
Distributor may retain as a profit any difference between
the fee it receives and the amount it pays to third
parties.
It is possible that an institution may offer
different classes of shares to its customers and thus
receive different 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 for 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
8
<PAGE> 34
shares of the Portfolio. Such promotional incentives will
be offered uniformly to all shares of the Portfolio, and
also will be offered uniformly to all dealers, predicated
upon the amount of shares of the Portfolio sold by such
dealer.
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. State securities laws may require
banks and financial institutions purchasing shares for
their customers to register as dealers pursuant to state
laws. 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.
Financial institutions which purchase shares for the
accounts of their customers may impose separate charges on
these customers for account services. Shares of the
Portfolio are offered only to residents of states in which
the shares are eligible for purchase.
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, 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 prior to
4:00 p.m. Eastern time on any Business Day for the order
to be accepted on that Business Day. Generally, cash
investments must be transmitted or delivered in federal
funds to the wire agent on the next Business Day following
the day the order is placed. The Trust reserves the right
to reject a purchase order when the Distributor determines
that it is not in the best interest of the Trust or
shareholders to accept such purchase order.
Purchases will be made in full and fractional
shares of the Portfolio calculated to three decimal
places. 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. The
net asset value per share of the Portfolio is determined
by dividing the total market value of the Portfolio's
investment and other assets, less any liabilities, by the
total number of outstanding shares of the Portfolio. Net
asset value per share is determined daily as of the close
of business of the New York Stock Exchange (currently,
4:00 p.m. Eastern time) on any Business Day.
9
<PAGE> 35
The market value of each portfolio security is
obtained by the Manager from an independent pricing
service. The pricing service relies primarily on prices of
actual market transactions as well as trader quotations.
However, the pricing service may use a matrix system to
determine valuations of equity and fixed income
securities. This system considers such factors as security
prices, yields, maturities, call features, ratings and
developments relating to specific securities in arriving
at valuations. The pricing service may also provide market
quotations. The procedures of the pricing service and its
valuations are reviewed by the officers of the Trust under
the general supervision of the Trustees.
Shareholders who desire to redeem shares of the
Portfolio must place their redemption orders with the
Transfer Agent prior to 4:00 p.m. Eastern time on any
Business Day. The redemption price is the net asset value
per share of the Portfolio next determined after receipt
by the Transfer Agent of the redemption order. Payment on
redemption will be made as promptly as possible and, in
any event, within seven days after the redemption order is
received.
Shares of the Portfolio may be purchased in
exchange for securities included in the Portfolio subject
to the adviser's determination that the securities are
acceptable. Securities accepted in an exchange will be
valued at market value. All accrued interest and
subscription of other rights which are reflected in the
market price of accepted securities at the time of
valuation become the property of the Trust and must be
delivered by the Shareholder to the Trust upon receipt
from the issuer.
The Portfolio will not accept securities unless (1)
such securities are appropriate in the Portfolio at the
time of the exchange; (2) such an exchange will not cause
the Portfolio's weightings to become materially imbalanced
with respect to the weightings of the securities included
in the Index; (3) such securities are acquired for
investment and not for resale; (4) the Shareholder
represents that all securities offered to the Trust for
the Portfolio are not subject to any restrictions upon
their sale by the Portfolio under the Securities Act of
1933, or otherwise; (5) such securities are traded on the
American Stock Exchange, the New York Stock Exchange or on
NASDAQ in an unrelated transaction with a quoted sales
price on the same day the exchange valuation is made or,
if not listed on such exchanges or on NASDAQ, have prices
available from an independent pricing service approved by
the Trust's Board of Trustees; and (6) the securities may
be acquired under investment restrictions applicable to
the Portfolio.
Purchase and redemption orders may be placed by
telephone. Neither the Trust nor the Trust's 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 the Trust's 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
10
<PAGE> 36
acting upon instructions received by telephone and
recording telephone instructions. If reasonable procedures
are not employed, the Trust and/or Trust's Transfer Agent
may be liable for any losses due to unauthorized or
fraudulent telephone transactions.
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 may advertise yield and
total return. These figures will be based on historical
earnings and are not intended to indicate future
performance. No representation can be made concerning
actual future yields or returns. The yield of a Portfolio
refers to the income generated by a hypothetical
investment in the Portfolio over a thirty day period. This
income is then "annualized," i.e., the income over thirty
days is assumed to be generated over one year, and is
shown as a percentage of the investment.
The total return of the Portfolio refers to the
average compounded rate of return on a hypothetical
investment for designated time periods, assuming that the
entire investment is redeemed at the end of each period
and assuming the reinvestment of all dividend and capital
gain distributions.
The Portfolio may periodically compare its
performance to the performance of: other mutual funds
tracked by mutual fund rating services (such as Lipper
Analytical); financial and business publications and
periodicals; broad groups of comparable mutual funds;
unmanaged indices which may assume investment of dividends
but generally do not reflect deductions for administrative
and management costs; or to other investment alternatives.
The Portfolio may quote Morningstar, Inc., a service that
ranks mutual funds on the basis of risk-adjusted
performance. The Portfolio may use long-term performance
of these capital markets to demonstrate general long-term
risk versus reward scenarios and could include the value
of a hypothetical investment in any of the capital
markets. The Portfolio may also quote financial and
business publications and periodicals as they relate to
fund management, investment philosophy and investment
techniques.
The Portfolio may quote various measures of
volatility and benchmark correlation in advertising, and
may compare these measures to those of other funds.
Measures of volatility attempt to compare historical share
price fluctuations or total returns to a benchmark while
measures of benchmark correlation indicate how valid a
comparative benchmark might be. Measures of volatility and
correlation are calculated using averages of historical
data and cannot be calculated precisely.
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The performance on Class A shares will normally be
higher than that on the Class E shares of the S&P 500
Index Portfolio because of the different shareholder
servicing expenses actually charged to Class E 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, state or local income tax treatment of the
Portfolio or its shareholders. In addition, 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 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 qualify for the
special tax treatment afforded regulated investment
companies ("RICs") 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 gains (the excess of net
long-term capital gain over net short-term capital losses)
distributed to shareholders regardless of how long the
shareholder has held shares and regardless of whether the
distributions are received in cash or in additional
shares. Distributions from net capital gains do not
qualify for the dividends-received deduction.
Tax Status
of Distributions The Portfolio will distribute substantially all of its net
investment income (including net short-term capital gains)
to shareholders. Dividends from the Portfolio's net
investment company taxable income are taxable to its
shareholders as ordinary income (whether received in cash
or in additional shares) to the extent of the Portfolio's
earnings and profits. Dividends paid by the Portfolio to
corporate shareholders will qualify for the
dividends-received deduction to the extent attributable to
dividends received by the Portfolio from domestic
corporations. Capital gains will be distributed at least
annually and will be taxable to shareholders as long-term
capital gains. The Portfolio will provide annual reports
to shareholders of the federal income tax status of all
distributions.
Dividends declared by the Portfolio in October,
November or December of any year and payable to
shareholders of record on a date in such a month will be
deemed to have been paid by the Portfolio and received by
the shareholders on December 31 of the year declared if
paid by the Portfolio at any time during the following
January.
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Investment income received directly by the
Portfolio on direct U.S. government obligations is exempt
from income tax at the state level and may be exempt,
depending on the state, when received by a shareholder as
income dividends provided certain state-specific
conditions are satisfied. Interest received on repurchase
agreements collateralized by U.S. government obligations
normally is not exempt from state tax. The Portfolio will
inform shareholders annually of the percentage of income
and distributions derived from direct U.S. obligations.
Shareholders should consult their tax advisers to
determine whether any portion of income dividends received
from the Portfolio is considered tax-exempt in their
state.
The Portfolio intends to make sufficient
distributions to avoid liability for the federal excise
tax applicable to RICs.
Each sale, exchange or redemption of Portfolio
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 6, 1985. The
Declaration of Trust permits the Trust to offer separate
series of shares and different classes of the Portfolio.
In addition to the Portfolio, the Trust consists of the
Bond Index Portfolio. All consideration received by the
Trust for shares of any class of any Portfolio, and all
assets of such Portfolio or class, belong to that
Portfolio or class, respectively, and would be subject to
the liabilities related thereto.
The Trust pays 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 under
which, as described above, certain companies provide
essential management services to the Trust.
Voting Rights Each share held entitles the shareholder of record to one
vote. Shareholders of each Portfolio or class will vote
separately on matters pertaining 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
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<PAGE> 39
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 an unaudited report 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 Financial Management Corporation, 680 East Swedesford
Road, Wayne, Pennsylvania 19087-1658.
Dividends Substantially all of the net investment income (exclusive
of capital gains) of the Portfolio is periodically
declared and paid as a dividend. Dividends are paid
currently on a quarterly basis. Currently, net capital
gains (the excess of net long-term capital gain over net
short-term capital loss) realized, if any, will be
distributed at least annually.
Shareholders automatically receive all income
dividends and capital gain distributions in additional
shares at the net asset value next determined following
the record date, 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.
Dividends and capital gains of the Portfolio are
paid on a per-share basis. The value of each share will be
reduced by the amount of any such payment. If shares are
purchased shortly before the record date for a dividend or
capital gains distributions, a shareholder will pay the
full price for the share and receive some portion of the
price back as a taxable dividend or distribution.
The dividends on Class A shares of the Portfolio
are normally higher than those on the Class E shares
because of the different shareholder servicing expenses
actually charged to Class E shares.
Counsel and Independent
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 Comerica Bank, 411 W. Lafayette, Detroit, Michigan 48226,
acts as custodian of the Trust's assets. The Custodian
holds cash, securities and other assets of the Trust as
required by the 1940 Act. CoreStates Bank, N.A., Broad and
Chestnut Streets, P.O. Box 7618, Philadelphia,
Pennsylvania 19101, acts as wire agent of the Trust's
assets.
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<PAGE> 40
DESCRIPTION
OF PERMITTED
INVESTMENTS
AND RISK FACTORS
The following is a description of certain of the permitted
investment practices for the Portfolio, and the associated
risk factors:
American Depositary
Receipts ("ADRs") ADRs are securities, typically issued by a U.S. financial
institution (a "depositary"), that evidence ownership
interests in a security or a pool of securities issued by
a foreign issuer and deposited with the depositary. ADRs
may be available through "sponsored" or "unsponsored"
facilities. A sponsored facility is established jointly by
the issuer of the security underlying the receipt and a
depositary, whereas an unsponsored facility may be
established by a depositary without participation by the
issuer of the underlying security. Holders of unsponsored
depositary receipts generally bear all the costs of the
unsponsored facility. The depositary of an unsponsored
facility frequently is under no obligation to distribute
shareholder communications received from the issuer of the
deposited security or to pass through, to the holders of
the receipts, voting rights with respect to the deposited
securities.
Equity Securities Equity securities represent ownership interests in a
company or corporation and consist of common stock,
preferred stock, and securities convertible into or
exchangeable for common stock. Investments in equity
securities are subject to market risks that may cause
their prices to fluctuate over time. The value of
convertible equity securities is also affected by
prevailing interest rates, the credit quality of the
issuer and any call provisions. Fluctuations in the value
of equity securities will not necessarily affect cash
income derived from these securities, but will affect the
Portfolio's net asset value.
Illiquid Securities Illiquid securities are securities which cannot be
disposed of within seven business days at approximately
the price at which they are being carried on the
Portfolio's books. Illiquid securities include demand
instruments with demand notice periods exceeding seven
days, when there is no secondary market for such security
and repurchase agreements with durations (or maturities)
over 7 days in length.
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 highly-rated 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)
high-quality commercial paper issued by U.S. and foreign
corporations; (iv) debt obligations with a maturity of one
year or less issued by corporations that issue
high-quality commercial paper; and (v) repurchase
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<PAGE> 41
agreements involving any of the foregoing obligations
entered into with highly-rated banks and broker-dealers.
Repurchase Agreements Repurchase agreements are agreements by which the
Portfolio obtains a security and simultaneously commits to
return the security to the seller at an agreed upon price
on an agreed upon date within a number of days from the
date of purchase. The Portfolio or its agent will have
actual or constructive possession of the securities held
as collateral for the repurchase agreement. Collateral
must be maintained at a value at least equal to 100% of
the purchase price. The Portfolio bears a risk of loss in
the event the other party defaults on its obligations and
the Portfolio is delayed or prevented from exercising its
right to dispose of the collateral securities or if the
Portfolio realizes a loss on the sale of the collateral
securities. The Portfolio will enter into repurchase
agreements only with financial institutions deemed to
present minimal risk of bankruptcy during the term of the
agreement based on established guidelines. Repurchase
agreements are considered loans under the 1940 Act.
Stock Index Futures A stock index futures contract is a bilateral agreement
pursuant to which two parties agree to take or make
delivery of an amount of cash equal to a specified dollar
amount times the difference between the stock index value
at the close of trading of the contract and the price at
which the futures contract is originally struck. No
physical delivery of the stocks comprising the Index is
made; generally contracts are closed out prior to the
expiration date of the contract. No price is paid upon
entering into futures contracts. Instead, the Portfolio is
required to deposit an amount of cash or U.S. Treasury
securities known as "initial margin." Subsequent payments,
call "variation margin," to and from the broker, would be
made on a daily basis as the value of the futures position
varies (a process known as "marking to market"). The
margin is in the nature of a performance bond or
good-faith deposit on a futures contract.
In order to avoid leveraging and related risks,
when the Portfolio purchases futures contracts, it will
collateralize its position by depositing an amount of cash
or liquid, high grade debt securities equal to the market
value of the futures positions held, less margin deposits,
in a segregated account with the Trust's Custodian.
Collateral equal to the current market value of the
futures position will be marked to market on a daily
basis.
In considering the proposed use of futures
contracts, particular note should be taken that futures
contracts relate to the anticipated levels at some point
in the future, not to the current level of the underlying
instrument. Thus trading of stock index futures may not
reflect the trading of the securities which are used to
formulate an index or even actual fluctuations in the
relevant index itself. There is, in addition, a risk that
movements in the price of futures contracts will not
correlate with the movement in prices of the stock index
being tracked.
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<PAGE> 42
There are risks associated with these activities,
including the following: (1) the success of a hedging
strategy may depend on an ability to predict movements in
the prices of individual securities, fluctuations in
markets and movements in interest rates; (2) there may be
an imperfect or no correlation between the changes in
market value of the securities held by the Portfolio and
the prices of futures and options on futures; (3) there
may not be a liquid secondary market for a futures
contract or option; (4) trading restrictions or
limitations may be imposed by an exchange; and (5)
government regulations may restrict trading in futures
contracts and options on futures.
U.S. Government
Agency Obligations Obligations issued or guaranteed by agencies of the U.S.
Government including, among others, the Federal Farm
Credit Bank, the Federal Housing Administration and the
Small Business Administration, and obligations issued or
guaranteed by instrumentalities of the U.S. Government
including, among others, the Federal Home Loan Mortgage
Corporation, the Federal Land Banks and the U.S. Postal
Service. Some of these securities are supported by the
full faith and credit of the U.S. Treasury (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 others are supported only by the credit
of the instrumentality (e.g., Federal National Mortgage
Association 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 nor to
the value of the Portfolio's shares.
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 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. These
securities are subject to market fluctuation due to
changes in market interest rates, and it is possible that
the market value at the time of settlement could be higher
or lower than the purchase price if the general level of
interest rates has changed. Although the Portfolio
generally purchases securities on a when-issued or forward
commitment basis with the intention of actually acquiring
such securities, the Portfolio may dispose of a
when-issued security or forward commitment prior to
settlement if the adviser deems it appropriate to do so.
Additional information on other permitted
investments can be found in the Statement of Additional
Information.
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TABLE OF CONTENTS
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Annual Operating Expenses......................... 2
Financial Highlights.............................. 3
The Trust......................................... 4
Investment Objectives and Policies................ 4
General Investment Policies....................... 6
Investment Limitations............................ 6
The Manager....................................... 7
The Adviser....................................... 7
Distribution and Shareholder Servicing............ 8
Purchase & Redemption of Shares................... 9
Performance....................................... 11
Taxes............................................. 12
General Information............................... 13
Description of Permitted Investments and Risk
Factors......................................... 15
</TABLE>
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<PAGE> 44
SEI INDEX FUNDS
MANAGER:
SEI FUND MANAGEMENT
DISTRIBUTOR:
SEI FINANCIAL SERVICES COMPANY
INVESTMENT ADVISERS:
WORLD ASSET MANAGEMENT
MELLON BOND ASSOCIATES
This Statement of Additional Information is not a Prospectus. It is intended to
provide additional information regarding the activities and operations of the
Trust and should be read in conjunction with the Trust's Prospectuses dated July
31, 1996. Prospectuses may be obtained without charge by writing the Trust's
distributor, SEI Financial Services Company, 680 East Swedesford Road, Wayne,
Pennsylvania 19087-1658, or by calling 1-800-342-5734. Unless otherwise defined
herein, capitalized terms used herein but not defined herein shall have the
respective meanings set forth in the Prospectus.
TABLE OF CONTENTS
<TABLE>
<S> <C>
The Trust....................................... 2
Description of Certain Permitted Investments.... 2
Investment Limitations.......................... 5
The Manager and Transfer Agent.................. 6
The Advisers.................................... 7
Distribution and Shareholder Servicing.......... 8
Trustees and Officers of the Trust.............. 9
Performance..................................... 11
Purchase and Redemption of Shares............... 12
Taxes........................................... 13
Portfolio Transactions.......................... 15
Description of Shares........................... 16
Limitation of Trustees' Liability............... 17
Shareholder Liability........................... 17
5% Shareholders................................. 17
Custodian and Independent Public Accountant..... 18
Experts......................................... 19
Financial Information........................... F-1
</TABLE>
July 31, 1996
SEI-F-047-06
<PAGE> 45
THE TRUST
SEI Index Funds (the "Trust") is a diversified, open-end management investment
company established as a Massachusetts business trust pursuant to a Declaration
of Trust dated March 6, 1985. The Declaration of Trust permits the Trust to
offer separate series of units of beneficial interest ("shares") and separate
classes of series. Except for differences between Class A and Class E shares of
the S&P 500 Index Portfolio pertaining to shareholder service plans, each share
of each portfolio represents an equal proportionate interest in that portfolio
with each other share of that portfolio. This Statement of Additional
Information relates to the Trust's S&P 500 Index Portfolio and the Bond Index
Portfolio (the "Portfolios").
The S&P 500 Index Portfolio is not sponsored, endorsed, sold or promoted by
Standard & Poor's Corporation ("S&P"). S&P makes no representation or warranty,
express or implied, to the purchasers of the Portfolio or any member of the
public regarding the advisability of investing in index funds or the Portfolio
or the ability of the S&P 500 Composite Stock Price Index (the "S&P 500 Index")
to track general stock market performance. S&P's only relationship to the
licensee, the Trust, is the licensing of certain trademarks and trade names of
S&P and of the S&P 500 Index which is determined, composed and calculated by S&P
without regard to the licensee or the Portfolio. S&P has no obligation to take
the needs of the licensee or the owners of the Portfolio into consideration in
determining, composing or calculating the S&P 500 Index. S&P is not responsible
for and has not participated in the determination of, the timing of, prices at,
or quantities of the Portfolio to be issued or in the determination or
calculation of the equation by which the Portfolio is to be converted into cash.
S&P has no obligation or liability in connection with the administration,
marketing or trading of the Portfolio.
S&P DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF THE S&P 500 INDEX
OR ANY DATA INCLUDED THEREIN. S&P MAKES NO WARRANTY, EXPRESS OR IMPLIED, AS TO
RESULTS TO BE OBTAINED BY THE PORTFOLIO, OWNERS OF THE PORTFOLIO, OR ANY OTHER
PERSON OR ENTITY FROM THE USE OF THE S&P 500 INDEX OR ANY DATA INCLUDED THEREIN
IN CONNECTION WITH THE RIGHTS LICENSED HEREUNDER OR FOR ANY OTHER USE. S&P MAKES
NO EXPRESS OR IMPLIED WARRANTIES, AND HEREBY DISCLAIMS ALL WARRANTIES OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE WITH RESPECT TO THE
S&P 500 INDEX OR ANY DATA INCLUDED THEREIN. WITHOUT LIMITING ANY OF THE
FOREGOING, IN NO EVENT SHALL S&P HAVE ANY LIABILITY FOR ANY SPECIAL, PUNITIVE,
INDIRECT, OR CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS), EVEN IF NOTIFIED OF
THE POSSIBILITY OF SUCH DAMAGES.
DESCRIPTION OF CERTAIN PERMITTED INVESTMENTS
The following information supplements the information about permitted
investments set forth in the corresponding Prospectus for the relevant
Portfolio.
BANK OBLIGATIONS - The Portfolios may invest in bank obligations of U.S.
commercial banks or savings and loan institutions, including certificates of
deposit, time deposits and bankers' acceptances. A time deposit is an account
containing a currency balance pledged to remain at a particular bank for a
specified period in return for payment of interest. A bankers' acceptance is a
bill of exchange guaranteed by a bank or trust company for payment within one to
six months. Bankers' acceptances are used to provide manufacturers and exporters
with capital to operate between the time of manufacture or export and payment by
the purchaser. A certificate of deposit is an interest-bearing instrument with a
specific maturity issued by a bank or savings and loan institution in exchange
for the deposit of funds that normally can be traded in the secondary market
prior to maturity.
MORTGAGE PASS-THROUGH SECURITIES - The Bond Index Portfolio may purchase
securities representing interests in mortgage pools guaranteed by U.S.
Government agencies or instrumentalities, including Government National Mortgage
Association ("GNMA"), Federal National Mortgage Association ("FNMA") and Federal
Home Loan Mortgage Corporation ("FHLMC"), conventional mortgage-pass through
obligations, and Federal Housing Administration-insured mortgage pools.
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<PAGE> 46
GNMA is a wholly-owned U.S. Government corporation which guarantees the timely
payment of principal and interest. The market value and interest yield of these
instruments can vary due to market interest rate fluctuations and early
prepayments of underlying mortgages. These securities represent ownership in a
pool of federally insured mortgage loans. GNMA certificates consist of
underlying mortgages with a maximum maturity of 30 years. However, due to
scheduled and unscheduled principal payments, GNMA certificates have a shorter
average maturity and, therefore, less principal volatility than a comparable
30-year bond. Since prepayment rates vary widely, it is not possible to predict
accurately the average maturity of a particular GNMA pool. The scheduled monthly
interest and principal payments relating to mortgages in the pool will be
"passed through" to investors. GNMA securities differ from conventional bonds in
that principal is paid back to the certificate holders over the life of the loan
rather than at maturity. As a result, the Portfolio will receive monthly
scheduled payments of principal and interest. In addition, the Portfolio may
receive unscheduled principal payments representing prepayments on the
underlying mortgages. Any prepayments will be reinvested at the then prevailing
interest rate.
Mortgage-backed securities issued by the FNMA include FNMA Guaranteed Mortgage
Pass-Through Certificates (also known as "Fannie Maes") that are solely the
obligations of the FNMA and are not backed by or entitled to the full faith and
credit of the United States. The FNMA is a government-sponsored organization
owned entirely by private stockholders. Fannie Maes are guaranteed as to timely
payment of the principal and interest by FNMA. Mortgage-backed securities issued
by the FHLMC include FHLMC Mortgage Participation Certificates (also known as
"Freddie Macs" or "PC's"). The FHLMC is a corporate instrumentality of the
United States, created pursuant to an Act of Congress, which is owned entirely
by Federal Home Loan Banks. Freddie Macs are not guaranteed by the United States
or by any Federal Home Loan Banks and do not constitute a debt or obligation of
the United States or of any Federal Home Loan Bank. Freddie Macs entitle the
holder to timely payment of interest, which is guaranteed by the FHLMC. The
FHLMC guarantees either ultimate collection or timely payment of all principal
payments on the underlying mortgage loans. When the FHLMC does not guarantee
timely payment of principal, FHLMC may remit the amount due on account of its
guarantee of ultimate payment of principal at any time after default on an
underlying mortgage, but in no event later than one year after it becomes
payable.
REPURCHASE AGREEMENTS - Repurchase agreements are agreements under which
securities are acquired from a securities dealer or bank subject to resale on an
agreed upon date and at an agreed upon price which includes principal and
interest. A Portfolio bears a risk of loss in the event that the other party to
a repurchase agreement defaults on its obligations and the Portfolio is delayed
or prevented from exercising its rights to dispose of the collateral securities.
A portfolio may enter into repurchase agreements only with financial
institutions that its adviser deems to present minimal risk of bankruptcy during
the term of the agreement, based on guidelines that are periodically reviewed by
the Board of Trustees. These guidelines currently permit each Portfolio to enter
into repurchase agreements only with approved banks and primary securities
dealers, as recognized by the Federal Reserve Bank of New York, which have
minimum net capital of $100 million, or with a member bank of the Federal
Reserve System. Repurchase agreements are considered to be loans collateralized
by the underlying security. Repurchase agreements entered into by a Portfolio
will provide that the underlying security at all times shall have a value at
least equal to 102% of the price stated in the agreement. This underlying
security will be marked to market daily. Each adviser will monitor compliance
with this requirement. Under all repurchase agreements entered into by a
Portfolio, the Custodian or its agent must take possession of the underlying
collateral. However, if the seller defaults, a Portfolio could realize a loss on
the sale of the underlying security to the extent the proceeds of the sale are
less than the resale price. In addition, even though the Bankruptcy Code
provides protection for most repurchase agreements, if the seller should be
involved in bankruptcy or insolvency proceedings, a Portfolio may incur delay
and costs in selling the security and may suffer a loss if the Portfolio is
treated as an unsecured creditor.
SECURITIES LENDING - In order to generate additional income, a Portfolio may
lend its securities pursuant to agreements requiring that the loans be
continuously secured by cash, securities of the U.S. Government or its agencies,
or any combination of cash and such securities, in an amount at least equal to
the market value of the loaned securities. Loans are made only to borrowers
deemed by the advisers to be in good standing and when, in the judgment of the
advisers, the consideration that can be earned currently from such loaned
3
<PAGE> 47
securities justifies the attendant risk. Any loan may be terminated by either
party upon reasonable notice to the other party. Each of the Portfolios may use
the Distributor as a broker in these transactions.
STOCK INDEX FUTURES - The S&P 500 Index Portfolio may invest in stock index
futures. The nature of initial and variation margin in futures transactions is
different from that of margin in security transactions in that futures contract
margin does not involve the borrowing of funds to finance the transactions.
Rather, the margin is in the nature of a performance bond or good-faith deposit
on the contract that is returned to the Portfolio upon termination of the
contract, assuming all contractual obligations have been satisfied. Positions in
futures contracts may be closed only on an exchange or board of trade providing
a secondary market for such futures contracts. The value of the contract usually
will vary in direct proportion to the total face value. Market value of a stock
index futures position is defined as the closing value of the Index multiplied
by 500 times the number of contracts held.
The Portfolio's ability to effectively utilize futures contracts depends on
several factors. First, it is possible that there will not be a perfect price
correlation between the futures contracts and their underlying stock index. In
addition, the purchase of a futures contract involves the risk that the
Portfolio could lose more than the original margin deposit required to initiate
a futures transaction.
In considering the proposed use of futures contracts, particular note should be
taken that futures contracts relate to the anticipated levels at some point in
the future not to the current level of the underlying instrument; thus, for
example, trading of stock index futures may not reflect the trading of the
securities which are used to formulate an index or even actual fluctuations in
the relevant index itself. There is, in addition, a risk that movements in the
price of futures contracts will not correlate with the movement in prices of the
stock index being tracked. There may be several reasons unrelated to the value
of the underlying securities which causes this situation to occur. First, all
participants in the futures market are subject to initial and variation margin
requirements. If, to avoid meeting additional margin deposit requirements or for
other reasons, investors choose to close a significant number of futures
contracts through offsetting transactions, distortions in the normal price
relationship between the securities markets and the futures markets may occur.
Second, because the deposit requirements in the futures market are less onerous
than margin requirements in the securities market, there may be increased
participation by speculators in the futures market which may also cause
temporary price distortions.
The Portfolio has undertaken to restrict its futures contract trading as
follows: First, the Portfolio will not engage in transactions in futures
contracts for speculative purposes. Second, the Portfolio will not market itself
to the public as a commodity pool or otherwise as a vehicle for trading in the
commodities futures or commodity options markets. Third, the Portfolio will
disclose to all prospective shareholders the purpose of and limitations on its
commodity futures trading. Fourth, the Portfolio will submit to the Commodity
Futures Trading Commission ("CFTC") special calls for information. Accordingly,
registration as a commodities pool operator with the CFTC is not expected to be
required.
U.S. GOVERNMENT SECURITIES - The Portfolios may invest in U.S. Government
Securities, which include bills, notes and bonds issued by the United States
Treasury, obligations issued or guaranteed by agencies of the United States
Government including, among others, Export Import Bank of the United States,
Farmers Home Administration, Federal Farm Credit Bank, Federal Housing
Administration, Maritime Administration, Small Business Administration, and The
Tennessee Valley Authority and obligations issued or guaranteed by
instrumentalities of the United States Government including, among others,
Federal Home Loan Banks, FHLMC, Federal Intermediate Credit Banks, Federal Land
Banks, FNMA and the United States Postal Service. Some of these securities are
supported by the full faith and credit of the United States Treasury (e.g., GNMA
securities), others are supported by the right of the issuer to borrow from the
Treasury (e.g., Federal Farm Credit Bank securities) and still others are
supported only by the credit of the instrumentality (e.g., FNMA securities).
Guarantees of principal by agencies or instrumentalities of the United States
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 obliga-
4
<PAGE> 48
tion prior to maturity. Guarantees as to the timely payment of principal and
interest do not extend to the value or yield of these securities nor to the
value of the Portfolio's shares.
WHEN-ISSUED SECURITIES - The Bond Index Portfolio may purchase debt obligations
on a when-issued basis, in which case delivery and payment normally take place
within 45 days after the date of the commitment to purchase. The Portfolio will
only make commitments to purchase obligations on a when-issued basis with the
intention of actually acquiring the securities, but may sell them before the
settlement date if it is deemed advisable. The when-issued securities are
subject to market fluctuation, and no interest accrues to the purchaser during
the period prior to settlement. The payment obligation and the interest rate
that will be received on the securities are each fixed at the time the purchaser
enters into the commitment. Purchasing obligations on a when-issued basis is a
form of leveraging, and can involve a risk that the yields available in the
market when the delivery takes place may actually be higher than those obtained
in the transaction itself, in which case there could be an unrealized loss at
the time of delivery.
The Portfolio will establish a segregated account with its Custodian and
maintain liquid, high grade assets in an amount at least equal in value to the
Portfolio's commitments to purchase when-issued securities. If the value of
these assets declines, the Portfolio will place additional liquid assets in the
account on a daily basis so that the value of the assets in the account is equal
to the amount of such commitments.
INVESTMENT LIMITATIONS
Neither Portfolio may:
1. Pledge, mortgage or hypothecate assets except to secure temporary
borrowings as described in the Prospectus in aggregate amounts not to
exceed 10% of the net assets of the Portfolio taken at current value at
the time of the incurrence of such loan and, as to the S&P 500 Index
Portfolio, in connection with stock index futures trading as provided in
the Prospectus and this Statement of Additional Information.
2. Invest in companies for the purpose of exercising control.
3. Purchase or sell real estate, real estate limited partnership interests,
physical commodities or commodities contracts. However, subject to its
permitted investments, a Portfolio may purchase (i) obligations issued
by companies which invest in real estate, commodities or commodities
contracts, and (ii) commodities contracts related to financial
instruments, such as financial futures contracts.
4. Make short sales of securities, maintain a short position or purchase
securities on margin, except that the Trust may obtain short-term
credits as necessary for the clearance of security transactions.
5. Act as an underwriter of securities of other issuers except as it may be
deemed an underwriter in selling a portfolio security.
6. Purchase securities of other investment companies except as permitted by
the Investment Company Act of 1940 and the rules and regulations
thereunder and may only purchase securities of money market funds.
7. Issue senior securities (as defined in the Investment Company Act of
1940) except in connection with permitted borrowings as described in the
Prospectus and this Statement of Additional Information or as permitted
by rule, regulation or order of the Securities and Exchange Commission
("SEC").
8. Purchase or retain securities of an issuer if, to the knowledge of the
Trust, an officer, trustee, partner or director of the Trust or any
investment adviser of the Trust owns beneficially more than 1/2 of 1% of
the shares or securities of such issuer and all such officers, trustees,
partners and directors owning
5
<PAGE> 49
more than 1/2 of 1% of such shares or securities together own more than
5% of such shares or securities.
9. Purchase securities of any company which has (with predecessors) a
record of less than three years continuing operations if, as a result,
more than 5% of the total assets (taken at current value) would be
invested in such securities.
10. Purchase warrants, puts, calls, straddles, spreads or combinations
thereof.
11. Invest in interests in oil, gas or other mineral exploration or
development programs.
12. Purchase restricted securities (securities which must be registered
under the Securities Act of 1933 before they may be offered or sold to
the public) or other illiquid securities except as described in the
Prospectus and this Statement of Additional Information.
The foregoing percentages will apply at the time of the purchase of a security
and shall not be considered violated unless an excess or deficiency occurs or
exists immediately after and as a result of a purchase of such security. These
investment limitations and the investment limitations in the Prospectus are
fundamental policies of the Trust and may not be changed without shareholder
approval.
THE MANAGER AND TRANSFER AGENT
The Management Agreement provides that the Manager, SEI Fund Management, shall
not be liable for any error of judgment or mistake of law or for any loss
suffered by the Trust in connection with the matters to which the Management
Agreement relates, except a loss resulting from willful misfeasance, bad faith
or gross negligence on the part of the Manager in the performance of its duties
or from reckless disregard of its duties and obligations thereunder.
The continuance of the Management Agreement must be specifically approved at
least annually (i) by the vote of a majority of the Trustees or by the vote of a
majority of the outstanding voting securities of the Portfolio, and (ii) by the
vote of a majority of the Trustees of the Trust who are not parties to the
Management Agreement or an "interested person" (as that term is defined in the
Investment Company Act of 1940) of any party thereto, cast in person at a
meeting called for the purpose of voting on such approval. The Management
Agreement is terminable at any time without penalty by the Trustees of the
Trust, by a vote of a majority of the outstanding shares of a Portfolio or by
the Manager on not less than 30 days' nor more than 60 days' written notice.
This Agreement shall not be assignable by either party without the written
consent of the other party.
The Manager, a Delaware business trust, has its principal business offices at
680 East Swedesford Road, Wayne, Pennsylvania 19087-1658. SEI Financial
Management Corporation ("SFM"), a wholly-owned subsidiary of SEI Corporation
("SEI"), is the owner of all beneficial interest in the Administrator. SEI and
its subsidiaries and affiliates, including the Manager, are leading providers of
funds evaluation services, trust accounting systems, and brokerage and
information services to financial institutions, institutional investors, and
money managers. The Manager and its affiliates also serve as administrator to
the following other mutual funds: The Achievement Funds Trust, The Advisors'
Inner Circle Fund, The Arbor Fund, ARK Funds, Bishop Street Funds, CoreFunds,
Inc., CrestFunds, Inc., CUFUND, FMB Funds, Inc., First American Funds, Inc.,
First American Investment Funds, Inc., Inventor Funds, Inc., Marquis Funds(R),
Monitor Funds, Morgan Grenfell Investment Trust, The PBHG Funds, Inc., The
Pillar Funds, Rembrandt Funds(R), 1784 Funds(R), SEI Asset Allocation Trust, SEI
Daily Income Trust, SEI Index Funds, SEI Institutional Investments Trust, SEI
Institutional Managed Trust, SEI International Trust, SEI Liquid Asset Trust,
SEI Tax Exempt Trust, Stepstone Funds, STI Classic Funds, STI Classic Variable
Trust, and Turner Funds.
If operating expenses of either Portfolio exceed limitations established by
certain states, the Manager will pay such excess. The Manager will not be
required to bear expenses of the Portfolios to an extent which would
6
<PAGE> 50
result in the Portfolio's inability to qualify as a regulated investment company
under provisions of the Internal Revenue Code. The term "expenses" is defined in
such laws or regulations, and generally excludes brokerage commissions,
distribution expenses, taxes, interest and extraordinary expenses.
For the fiscal years ended March 31, 1994, 1995 and 1996, the Manager received
fees of $1,206,920, $933,762, and $657,618 respectively, from the S&P 500 Index
Portfolio, of which $436,000, $404,164 and $524,362, respectively, was waived.
For the fiscal years ended March 31, 1994, 1995 and 1996, the Manager received
fees of $216,261, $174,635 and $110,937 from the Bond Index Portfolio, of which
$55,472, $49,700 and $44,781, respectively, was waived.
THE ADVISERS
Each Investment 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.
The continuance of each Investment Advisory Agreement after the first two (2)
years must be specifically approved at least annually (i) by the vote of a
majority of the outstanding shares of the Portfolios or by the Trustees, and
(ii) by the vote of a majority of the Trustees who are not parties to such
Investment Advisory Agreement or "interested persons" of any party thereto, cast
in person at a meeting called for the purpose of voting on such approval. The
Investment Advisory Agreement will terminate automatically in the event of its
assignment, and is terminable at any time without penalty by the Trustees of the
Trust or, with respect to the Portfolio, by a majority of the outstanding shares
of the Portfolio, on not less than 30 days' nor more than 60 days' written
notice to the adviser, or by the adviser on 90 days' written notice to the
Trust.
World Asset Management, the adviser to the S&P 500 Index Portfolio, is a general
partnership organized by Munder Capital Management, a general partnership formed
in December, 1994, which engages in investment management and advisory services.
World is entitled to a fee for its investment advisory services, which is
calculated daily and paid monthly, at an annual rate of .03% of the average
daily net assets of each Portfolio. No monthly payment to World shall exceed the
payment actually made to the Manager pursuant to the current Management
Agreement between the Manager and the Trust.
For the fiscal years ended March 31, 1994, 1995 and 1996, World received fees of
$164,581, $127,331 and, $161,179, respectively, from the S&P 500 Index
Portfolio, and for the fiscal years ended March 31, 1994 and 1995, World
received fees of $18,537 and $14,969, respectively, from the Bond Index
Portfolio. For the period from March 31, 1995 to October 2, 1995, World received
a fee of $6,597 from the Bond Index Portfolio.
Mellon Bond Associates ("MBA") serves as the investment adviser to the Bond
Index Portfolio. MBA has been serving as the adviser to the Bond Index Portfolio
since October 2, 1995. MBA is a Pennsylvania business trust. MBA's sole
beneficiary is MBC Investment Corporation, a wholly-owned subsidiary of Mellon
Bank Corporation. MBA was established in October, 1986, as a spin-off of the
Institutional Bond Management division of Mellon Bank's Trust and Investment
Department. As of March 31, 1996, total assets under management of MBA were
$33.8 billion. The principal business address for MBA is One Mellon Bank Center,
Suite 4135, Pittsburgh, Pennsylvania 15258.
For its services, MBA is entitled to a fee, which is calculated daily and paid
monthly, at the annual rate of .07% of the average daily net assets of the Bond
Index Portfolio. For the period from October 2, 1995 to March 31, 1996, MBA
received a fee of $12,342 from the Bond Index Portfolio.
7
<PAGE> 51
DISTRIBUTION AND SHAREHOLDER SERVICING
The Distribution Agreement is renewable annually and may be terminated by the
Distributor, a majority vote of the Disinterested Trustees or by a majority vote
of the outstanding securities of the Trust upon not more than 60 days' written
notice by either party. No compensation is paid to the Distributor under the
Distribution Agreement. The Distributor, SEI Financial Services Company, is a
wholly-owned subsidiary of SEI.
The Portfolios have adopted shareholder servicing plans for its Class A and
Class E shares (the "Service Plans"). Under these Plans, the Distributor may
perform, or may compensate other service providers for performing, the following
shareholder and administrative services: maintaining client accounts; arranging
for bank wires; responding to client inquiries concerning services provided on
investments; assisting clients in changing dividend options, account
designations and addresses; sub-accounting; providing information on share
positions to clients; forwarding shareholder communications to clients;
processing purchase, exchange and redemption orders; and processing dividend
payments. Under the Service Plans, the Distributor may retain as a profit any
difference between the fee it receives and the amount it pays to third parties.
Certain institutions may also charge separate fees for related services. It is
possible that an institution may offer different classes of shares to its
customers and thus receive compensation with respect to different classes.
Certain Class A and Class E shareholders offering shares to their customers may
be required to register as dealers pursuant to state laws.
Prior to May 1, 1996, Class A shares and Class E shares of the Portfolio were
subject to a Rule 12b-1 distribution plan. Distribution expenditures by the
Portfolios under the former plans were the lesser of the approved budget or
actual expenditures by the Distributor. For the fiscal year ended March 31,
1994, the S&P 500 Index Portfolio and the Bond Index Portfolio incurred
distribution expenses of $210,394 and $26,265 under the Plan or .05% of net
assets, respectively, during such period. These expenditures included $170,537
and $13,104, respectively, for sales expenses; and $39,857 and $13,161,
respectively, for printing and mailing costs.
For the fiscal year ended March 31, 1995, the S&P Index Portfolio and the Bond
Index Portfolio incurred distribution expenses of $201,693 and $25,212 under the
Plan or .05% of net assets, respectively, during such period. These expenditures
included $134,725 and $14,686, respectively, for sales expenses; $32,836 and
$6,763, respectively, for printing and mailing costs; and $34,132 and $3,763,
respectively, for costs associated with registration fees.
For the fiscal year ended March 31, 1996, the Class A S&P Index Portfolio, Class
E S&P Index Portfolio and the Class A Bond Index Portfolio incurred distribution
expenses of $283,605, $70 and $22,472 under the Plan or .05%, .20% and .05% of
net assets, respectively, during such period. These expenditures included
$184,195, $12 and $10,681, respectively, for sales expenses; $63,981, $6 and
$7,784, respectively, for printing and mailing costs; and $35,429, $2 and
$4,007, respectively, for costs associated with registration fees. In addition,
the Class E S&P Index Portfolio paid $50 to 3rd parties by SEI Financial
Services Company for Distributor related services.
TRUSTEES AND OFFICERS OF THE TRUST
The Trustees and executive officers of the Trust 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 executive officer is SEI Financial
Management Corporation, 680 East Swedesford Road, Wayne, Pennsylvania
19087-1658. Certain officers of the Trust also serve as trustees and/or officers
of The Achievement Funds Trust, The Advisors' Inner Circle Fund, The Arbor Fund,
ARK Funds, Bishop Street Funds, CoreFunds, Inc., CrestFunds, Inc., CUFUND, First
American Funds, Inc., First American Investment Funds, Inc., FMB Funds, Inc.,
Insurance Investment Products Trust, Inventor Funds, Inc., Marquis Funds(R),
Monitor Funds, Morgan Grenfell Investment Trust, The PBHG Funds, Inc., The
8
<PAGE> 52
Pillar Funds, Rembrandt Funds(R), 1784 Funds, SEI Asset Allocation Trust, SEI
Daily Income Trust, SEI Institutional Managed Trust, SEI International Trust,
SEI Liquid Asset Trust, SEI Tax Exempt Trust, Stepstone Funds, STI Classic
Funds, STI Classic Variable Trust and Turner Funds, open-end management
investment companies which are managed by SEI Financial Management Corporation
and with the exception of Rembrandt Funds, are distributed by SEI Financial
Services Company.
ROBERT A. NESHER (DOB 08/17/46) - Chairman of the Board of Trustees* - Retired
since 1994. Executive Vice President of SEI, 1986-1994. Director and Executive
Vice President of the Manager and the Distributor, 1981-1994. Trustee of the
Arbor Fund, Marquis Funds(R), Advisors' Inner Circle Fund, and Inventor Funds,
Inc.
WILLIAM M. DORAN (DOB 05/26/40) - Trustee* - 2000 One Logan Square,
Philadelphia, PA 19103. Partner, Morgan, Lewis & Bockius LLP (law firm), counsel
to the Trust, Manager and Distributor, Director and Secretary of SEI and
Secretary of the Manager and Distributor.
F. WENDELL GOOCH (DOB 12/03/37) - Trustee** - P.O. Box 190, Paoli, IN 47454.
President, Orange County Publishing Co., Inc. since October 1981. Publisher of
the Paoli News and the Paoli Republican and Editor of the Paoli Republican since
January 1981. President, H & W Distribution, Inc. since July 1984. Executive
Vice President, Trust Department, Harris Trust and Savings Bank and Chairman of
the Board of Directors of The Harris Trust Company of Arizona before January
1981. Trustee of STI Classic Funds.
FRANK E. MORRIS (DOB 12/30/23) - Trustee** - 105 Walpole Street, Dover, MA
02030. Retired since 1990. Peter Drucker Professor of Management, Boston
College, 1989-1990. President, Federal Reserve Bank of Boston, 1968-1988.
Trustee of the Arbor Fund, Marquis Funds(R), Advisors' Inner Circle Fund, and
Inventor Funds, Inc.
DAVID G. LEE (DOB 04/16/52) - President and Chief Executive Officer - Senior
Vice President of the Manager and Distributor since 1993. Vice President of the
Manager and Distributor, 1991-1993. President, GW Sierra Trust Funds before
1991.
SANDRA K. ORLOW (DOB 10/18/53) - Vice President and Assistant Secretary - Vice
President and Assistant Secretary of the Manager and Distributor since 1988.
KEVIN P. ROBINS (DOB 04/15/61) - Vice President and Assistant Secretary - Senior
Vice President and General Counsel of SEI, the Administrator and Distributor
since 1994. Vice President and Assistant Secretary of SEI, the Administrator and
Distributor, 1992-1994. Associate, Morgan, Lewis & Bockius LLP (law firm), 1988-
1992.
RICHARD W. GRANT (DOB 10/25/45) - Secretary - 2000 One Logan Square,
Philadelphia, PA 19103, Partner, Morgan, Lewis & Bockius LLP (law firm), counsel
to the Trust, Manager and Distributor.
KATHRYN L. STANTON (DOB 11/19/58) - Vice President and Assistant Secretary -
Vice President, Assistant Secretary of SEI, the Administrator and Distributor
since 1994. Associate, Morgan, Lewis & Bockius LLP (law firm), 1989-1994.
JOSEPH P. LYDON (DOB 09/27/59) - Vice President and Assistant Secretary -
Director, Business Administration of Fund Resources, April 1995. Vice President,
Fund Group, Dremen Value Management, LP, President Dremen Financial Services,
Inc. prior to 1995.
JEFFREY A. COHEN (DOB 04/22/61) - Controller and Chief Financial Officer -
Director, International and Domestic Funds Accounting, SEI Corporation, 1991 to
Present; Price Waterhouse, Audit Manager prior to 1991.
TODD CIPPERMAN (DOB 01/14/66) - Vice President and Assistant Secretary - Vice
President and Assistant Secretary of SEI, the Administrator and the Distributor
since 1995. Associate, Dewey Ballantine (law firm) (1994-1995). Associate,
Winston & Strawn (law firm) (1991-1994).
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<PAGE> 53
BARBARA A. NUGENT (DOB 06/18/56) - Vice President and Assistant Secretary - Vice
President and Assistant Secretary of SEI, the Administrator and Distributor
since 1996. Associate, Drinker, Biddle & Reath (law firm). Assistant Vice
President/Administration, Delaware Service Company, Inc.
MARC H. CAHN (DOB 06/19/57) - Vice President and Assistant Secretary - Vice
President and Assistant Secretary of SEI, the Administrator and Distributor
since 1996. Associate General Counsel, Barclays Bank PLC. ERISA counsel, First
Fidelity Bancorporation.
- -------------------------
* Messrs. Nesher and Doran are Trustees who may be deemed to be
"interested persons" of the Trust as the term is defined in the
Investment Company Act of 1940.
** Messrs. Gooch and Morris serve as members of the Audit Committee of the
Trust.
The Trustees and officers of the Trust own less than 1% of the outstanding
shares of the Trust.
As of March 31, 1996, the Trustees and officers of the Trust received
the following compensation:
<TABLE>
<CAPTION>
Pension or Total
Aggregate Retirement Estimated Compensation From
NAME OF PERSON Compensation Benefits Accrued Annual Registrant and
AND POSITION From Registrant as Part of Fund Benefits Upon Fund Complex Paid to
for FYE 96 Expenses Retirement Directors for FYE 96
<S> <C> <C> <C> <C>
Robert A. Nesher, -- -- -- --
Chairman of the Board
William M. Doran, -- -- -- --
Trustee
F. Wendell Gooch, -- $4,326 -- $90,000 for services on 6
Trustee board(s)
Frank E. Morris, Trustee -- $4,326 -- $90,000 for services on 6
board(s)
Richard F. Blanchard, -- $4,326 -- $90,000 for services on 6
Trustee board(s)
James M. Storey -- $4,326 -- $90,000 for services on 6
Trustee board(s)
</TABLE>
- --------------------------
* Deceased as of May 7, 1996
** Mr. Storey received the stated amounts as compensation for service as an
Honorary Trustee for the Trust during the most recent fiscal year.
PERFORMANCE
From time to time, a Portfolio may advertise yield. These figures will be based
on historical earnings and are not intended to indicate future performance. The
yield of a Portfolio refers to the annualized income generated by an investment
in such Portfolio over a specified 30-day period. The yield is calculated by
assuming that the income generated by the investment during that period is
generated over a one year and is shown as a percentage of the investment. In
particular, yield will be calculated according to the following formula:
6
Yield = 2[(a-b/cd + 1) - 1], where a = dividends and interest earned
during the period; b = expenses accrued for the period (net of
reimbursement); c = the current daily number of shares outstanding
during the period that were entitled to receive dividends; and d = the
maximum offering price per share on the last day of the period.
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<PAGE> 54
Actual yield will depend on such variables as asset quality, average asset
maturity, the type of instruments a Portfolio invests in, changes in interest
rates on money market instruments, changes in the expenses of the Portfolio and
other factors. For the 30-day period ending March 31, 1996, the yield for the
Class A S&P 500 Index Portfolio was 2.16% and the yield for the Class A Bond
Index Portfolio was 6.16%.
From time to time, each Portfolio may advertise total return. The total return
of a Portfolio 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 the Portfolio commenced operations through the specified
date), assuming that the entire investment is redeemed at the end of each
period. In particular, total return will be calculated according to the
following formula:
n
P(1 + T) = ERV, where P = a hypothetical initial payment of $1,000; T =
average annual total return; n = number of years; and ERV = ending
redeemable value of a hypothetical $1,000 payment made at the beginning
of the designated time period as of the end of such period.
For the fiscal year ended March 31, 1996, the one year total return of the Class
A S&P 500 Index Portfolio was 31.88% and the average annual total return for the
past five years and since the inception of the Portfolio was 14.38% and 15.19%,
respectively. The total annualized return of the Class E S&P Portfolio since its
inception was 2.77%. For the fiscal year ended March 31, 1996, the one year
total return of the Class A Bond Index Portfolio was 10.31% and the average
annual total return for the past five years and since the inception of the
Portfolio was 7.76% and 7.96%, respectively.
PURCHASE AND REDEMPTION OF SHARES
The market value of portfolio securities is obtained by the Manager from
independent pricing services and from brokers. Portfolio securities listed on a
securities exchange for which market quotations are available are valued at the
last quoted sale price on each Business Day or, if there is no such reported
sale, at the most recently quoted bid price. Unlisted securities for which
market quotations are readily available are valued at the most recently quoted
bid price. The pricing service may also use a matrix system to determine
valuations, 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.
The Trust reserves the right to suspend the right of redemption and/or to
postpone the date of payment upon redemption for any period during which trading
on the New York Stock Exchange is restricted, or during the existence of an
emergency (as determined by the SEC by rule or regulation) as a result of which
disposal or evaluation of the portfolio securities is not reasonably
practicable, or for such other periods as the SEC may by order permit. The Trust
also reserves the right to suspend sales of shares of the Portfolio for any
period during which the New York Stock Exchange, the Manager, the Administrator,
the Distributor and/or the Custodians are not open for business. The New York
Stock Exchange will not open in observance of the following holidays: New Year's
Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving and Christmas.
It is currently the Trust's policy to pay for all redemptions in cash. The Trust
retains the right, however, to alter this policy to provide for redemptions in
whole or in part by a distribution in kind of securities held by a Portfolio in
lieu of cash. Shareholders may incur brokerage charges on the sale of any such
securities so received in payment of redemptions. However, a shareholder will at
all times be entitled to aggregate cash redemptions from the Portfolio of the
Trust during any 90-day period of up to the lesser of $250,000 or 1% of the
Trust's net assets in cash. A gain or loss for federal income tax purposes would
be realized by a shareholder subject to taxation upon an in-kind redemption
depending upon the shareholder's basis in the shares of the Portfolio redeemed.
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<PAGE> 55
TAXES
QUALIFICATION AS A RIC
The following discussion of 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. Certain legislation proposed at the time of writing, 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.
Each Portfolio intends to qualify as a "regulated investment company" ("RIC") as
defined under Subchapter M of the Code. By following such a policy, each
Portfolio expects to eliminate or reduce to a nominal amount the federal taxes
to which such Portfolio may be subject. In order to qualify for treatment as a
RIC under the Code, each Portfolio must distribute annually to its shareholders
at least 90% of its investment company taxable income (generally, net investment
income, including net short-term capital gain) and 90% of its net interest
exempt income, if any (the excess of its tax-exempt interest income over certain
deductions attributable to that income), ("Distribution Requirement") and must
meet several additional requirements. Among these requirements are the
following: (i) at least 90% of the Portfolio's gross income each taxable year
must be derived from dividends, interest, payments with respect to securities
loans, gains from the sale or other disposition of stocks or securities or
certain other income (including gains from options, futures or forward
contracts) derived with respect to its business of investing in stocks or
securities; (ii) less than 30% of a Portfolio's gross income each taxable year
may be derived from the sale or other disposition of any of the following
investments that were held for less than three months: (a) stock or securities
(as defined in Section 2(a)(30) of the Investment Company Act); (b) options,
futures, or forward contracts (other than options, futures, or forward contracts
on foreign currencies); and (c) foreign currencies (or options, futures, or
forward contracts on foreign currencies) but only if such currencies (or
options, futures, or forward contracts) are not directly related to the
Portfolio's principal business of investing in stock or securities; (iii) at the
close of each quarter of a Portfolio's taxable year, at least 50% of the value
of its total assets must be represented by cash and cash items, U.S. Government
securities, securities of other RICs and other securities, with such other
securities limited, in respect of any one issuer, to an amount that does not
exceed 5% of the value of the Portfolio's total assets and that does not
represent more than 10% of the outstanding voting securities of the issuer; and
(iv) at the close of each quarter of the Portfolio's taxable year, not more than
25% of the value of its total 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 are engaged in the same, similar or related
trades or businesses, if the Portfolio owns at least 20% of the voting power of
such issuers.
Notwithstanding the Distribution Requirement described above, a Portfolio will
be subject to a nondeductible 4% federal excise tax to the extent it fails to
distribute by the end of any calendar year 98% of its ordinary income for that
year and 98% of its capital gain net income (the excess of short and long-term
capital gains over short and long-term capital losses) for the one-year period
ending on October 31 of that year (and any retained amount from the prior
calendar year).
Although each Portfolio intends to distribute substantially all of its net
investment income and capital gains for any taxable (i.e., fiscal) year, a
Portfolio will be subject to Federal income taxation to the extent any such
income or gains are not distributed. If for any taxable year a Portfolio does
not qualify as a RIC, all of its taxable income will be subject to tax at
regular corporate rates without any deduction for distributions to shareholders.
In such case, distributions (including capital gains distributions) will be
taxable as ordinary dividends to the extent of the Portfolio's current and
accumulated earnings and profits.
Tax Status of Distributions: Dividends from a Portfolio's net investment income
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.
Dividends paid by the S&P 500 Index Portfolio will be eligible for the
dividends-received deduction allowed to corporate shareholders to the extent
they are derived from dividends from domestic corporations,
12
<PAGE> 56
subject to certain limitations; however, dividends received by a corporate
shareholder which qualify for the dividends-received deduction may be subject to
the alternative minimum tax.
Each Portfolio 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 capital gains, they will not qualify
for the dividends received deduction, and they are taxable to shareholders as
long-term capital gains, regardless of the length of time the shareholder has
held shares. Conversely, if a Portfolio elects to retain its net capital gains,
it will be taxed thereon (except to the extent of any available capital loss
carryovers) at the applicable corporate capital gains tax rate. In this event,
it is expected that a Portfolio also will elect to have shareholders treated as
having received a distribution of such gains, with the result that they will be
required to report such gains on their returns as long-term capital gains, will
receive a tax credit for their allocable share of capital gains tax paid by the
Portfolio on the gains, and will increase the tax basis for their shares by an
amount equal to the deemed distribution less the tax credit.
Generally, gains or losses on the sale or exchange of a share will be capital
gains or losses which will be long-term if the share is held for more than one
year. 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 there are undistributed
net capital gains of a Portfolio with respect to such share which have been
included in determining the shareholder's long-term capital gains), the
shareholder must treat the loss as a long-term capital loss to the extent of the
amount of the prior capital gains distribution (or any undistributed net capital
gains of the Portfolio which have been included in determining such investor'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). Investors should particularly note that this loss disallowance rule
will apply to shares received through the reinvestment of dividends during the
61-day period.
Each Portfolio will be required in certain cases to withhold and remit to the
United States Treasury 31% of distributions payable to any individual or
non-corporate shareholder who (1) has provided either an incorrect tax
identification number or no number at all, (2) who is subject to backup
withholding by the Internal Revenue Service for failure to properly report
payments of interest or dividends, or (3) who has failed to certify to the
Portfolio that such shareholder is not subject to backup withholding.
The S&P 500 Index Portfolio may invest in stock index futures. The use of stock
index futures contracts involves specialized and complex income tax rules that
will determine the character and timing of recognition of the income received in
connection therewith by the Portfolio and thereby affect the amount and
proportion of income that will be available for distribution as dividends or
capital gain distributions.
Stock index futures contracts held by the Portfolio at the end of each taxable
year will be required to be "marked to market" for Federal income tax purposes
(that is, treated as having been sold at that time at market value). Any
unrealized gain or loss taxed pursuant to this rule will be added to realized
gains and losses recognized on other futures contracts sold by the Portfolio
during the year, and the resulting gain or loss will be deemed to consist of 60%
long-term capital gain or loss and 40% short-term capital gain or loss. The
Portfolio may elect to exclude certain hedging transactions from the
mark-to-market rule. Gain from hedging transactions is treated as ordinary
income.
The Trust has obtained a private letter ruling from the Internal Revenue Service
confirming that the income and assets attributable to transactions in stock
index futures contracts qualify under the above-described income and asset tests
applicable to RICs.
For purposes of the Distribution Requirement (as well as for other purposes) the
Bond Index Portfolio will be required to treat any recognized market discount on
debt obligations which it holds as interest income. Generally, market discount
is the amount by which the stated redemption price of a bond exceeds the amount
paid by a purchaser of the bond (most common where the value of a bond decreases
after original issue as
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a result of a decline in the creditworthiness of the issuer or an increase in
prevailing interest rates). Generally, market discount is recognized on the
disposition, or receipt of any principal payment, with respect to a bond bearing
market discount, by treating a portion of the proceeds as interest income. The
application of these rules (and the rules regarding original issue discount) to
debt obligations held by the Bond Index Portfolio could affect (i) the amount
and timing of distributions to shareholders and (ii) the ability of the
Portfolio to satisfy the Distribution Requirement.
STATE TAXES
Neither Portfolio is liable for any income or franchise tax in Massachusetts if
it qualifies as a RIC for Federal income tax purposes. Distributions by the
Portfolios to shareholders and the ownership of shares may be subject to state
and local taxes.
PORTFOLIO TRANSACTIONS
The Trust has no obligation to deal with any dealer or group of dealers in the
execution of transactions in portfolio securities. Subject to policies
established by the Trustees, each Administrator is responsible for placing
orders to execute portfolio transactions. In placing orders, it is the Trust's
policy to seek to obtain the best net results taking into account such factors
as price (including the applicable dealer spread), 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
each Administrator generally seeks reasonably competitive spreads or
commissions, the Trust will not necessarily be paying the lowest spread or
commission available. The Trust's policy of investing in securities with short
maturities will result in high portfolio turnover. The Trust will not purchase
portfolio securities from any affiliated person acting as principal except in
conformity with the regulations of the SEC.
The Trust does not expect to use one particular dealer, but, subject to the
Trust's policy of seeking the best net results, dealers who provide supplemental
investment research to an Administrator may receive orders for transactions by
the Trust. Information so received will be in addition to and not in lieu of the
services required to be performed by the Administrator under the Administration
Agreement, and the expenses of the Administrator will not necessarily be reduced
as a result of the receipt of such supplemental information.
The money market securities in which the Portfolios invest are traded primarily
in the over-the-counter market generally do not involve either brokerage
commissions or transfer taxes. Bonds and debentures are usually traded
over-the-counter, but may be traded on an exchange. Where possible, each
Administrator 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. The cost of executing portfolio securities transactions of the
Portfolio will primarily consist of dealer spreads and underwriting commissions.
Each Portfolio may execute brokerage or other agency transactions through the
Distributor, a registered broker-dealer, for a commission, in conformity with
the Investment Company Act of 1940, the Securities Exchange Act of 1934 and the
rules and regulations thereunder. Under these provisions, the Distributor is
permitted to receive and retain compensation for effecting portfolio
transactions for a Portfolio 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 provisions further require that
commissions paid to the Distributor by the Trust 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.
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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 Administrator may place portfolio orders with qualified
broker-dealers who recommend the Trust to clients, and may, when a number of
brokers and dealers can provide best price and execution on a particular
transaction, consider such recommendations by a broker or dealer in selecting
among broker-dealers.
It is expected that the Portfolio turnover rate will normally not exceed 100%
for any Portfolio. A Portfolio turnover rate would exceed 100% if all of its
securities, exclusive of U.S. Government securities and other securities whose
maturities at the time of acquisition are one year or less, are replaced in the
period of one year. Turnover rates may vary from year to year and may be
affected by cash requirements for redemptions and by requirements which enable a
Portfolio to receive favorable tax treatment.
The portfolio turnover rate for the S&P 500 Index Portfolio for the fiscal years
ending March 31, 1994, 1995 and 1996 were 23%, 4% and 3%, respectively. The
portfolio turnover rate for the Bond Index Portfolio for the fiscal years ending
March 31, 1994, 1995 and 1996 were 55%, 21% and 59%, respectively.
For the fiscal years ended March 31, 1994, 1995 and 1996, the S&P 500 Index
Portfolio paid $27,000, $33,285 and $36,384 for brokerage commissions. For the
fiscal years ended March 31, 1994, 1995 and 1996 the Bond Index Portfolio paid
no brokerage commissions.
DESCRIPTION OF SHARES
The Declaration of Trust authorizes the issuance of an unlimited number of
shares of each Portfolio, each of which represents an equal proportionate
interest in such Portfolio. Each share upon liquidation entitles a shareholder
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 portfolios of shares or classes of portfolios. Share
certificates representing the shares will not be issued.
LIMITATION OF TRUSTEES' LIABILITY
The Declaration of Trust provides that a Trustee shall be liable only for his
own willful defaults and, if reasonable care has been exercised in the selection
of officers, agents, employees or administrators, 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 wilful misfeasance,
bad faith, gross negligence or reckless disregard of his duties.
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 shareholders held personally liable for the
obligations of the Trust.
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<PAGE> 59
5% SHAREHOLDERS
As of May 15, 1996, the following persons were the only persons who were record
owners (or to the knowledge of the Trust, beneficial owners) of 5% or more of
the shares of the Portfolios. The Trust believes that most of the shares
referred to above were held by the above persons in accounts for their
fiduciary, agency, or custodial customers.
<TABLE>
<CAPTION>
Address Number of Shares Percentage
------- ---------------- ----------
<S> <C> <C>
S&P 500 Index Portfolio:
Nabank & Co. 3,875,674.966 12.578%
c/o Bank of Oklahoma, N.A.
Attn: Lisa Marrs
P.O. Box 2300
Tulsa, OK 74192
West One Bank, Idaho N.A. 2,059,489.8600 6.684%
Attn: Tom Coleman
Trust Department Securities
Clearance
P.O. Box 7928
Boise, ID 83707
Lane & Company 1,653,687.9460 5.367%
c/o Union Bank
Attn: Linda Brown
P.O. Box 109
San Diego, CA 92112
Transco & Company 1,805,127.9230 5.858%
c/o Intrust Bank, N.A.
Attn: Pat Wills
P..O. Box 48698
Wichita, KS 67201
S&P 500 Index Class E Portfolio:
SEI Trust Company 847,239.330 97.818%
Attn: Jacqueline Esposito
680 E. Swedesford Road
Wayne, PA 19087
Bond Index Portfolio:
Transco & Company 1,328,869.5940 25.814%
c/o Intrust Bank, N.A.
Attn: Pat Wills
P..O. Box 48698
Wichita, KS 67201
</TABLE>
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<TABLE>
<S> <C> <C>
Smith & Co. 280,139.7400 5.442%
c/o First Security Bank of
Utah, N.A.
Attn: Rick Parr
P.O. Box 30007
Salt Lake City, UT 84130
SEI Trust Company 1,266,444.0560 24.601%
Attn: Jacqueline Esposito
680 E. Swedesford Road
Wayne, PA 19087
</TABLE>
CUSTODIAN AND INDEPENDENT PUBLIC ACCOUNTANTS
Comerica Bank, the custodian for the Portfolios, holds cash, securities and
other assets of the Trust as required by the Investment Company Act of 1940. The
principal business address of Comerica Bank is 411 W. Lafayette, Detroit,
Michigan 48226.
Arthur Andersen LLP, the independent public accountants for the Portfolios,
provides audit services and assistance and consultation with respect to taxes
and the preparation of filings with the Securities and Exchange Commission. The
principal business address of Arthur Andersen LLP is 1601 Market Street,
Philadelphia, Pennsylvania 19103.
EXPERTS
The financial statements and the Financial Highlights have been audited by
Arthur Andersen LLP, independent public accountants.
FINANCIAL INFORMATION
The Trust's Financial Statements for the fiscal year ended March 31, 1996,
including notes thereto and the report of Arthur Andersen LLP thereon, are
herein incorporated by reference. A copy of the 1996 Annual Report must
accompany the delivery of this Statement of Additional Information.
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