<PAGE>
SEI INDEX FUNDS
JULY 31, 1997
- --------------------------------------------------------------------------------
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, 1997, has been filed with
the Securities and Exchange Commission, and is available upon request and
without charge by writing the Distributor, SEI Investments Distribution Co.,
Oaks, Pennsylvania 19456, 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. NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
THE TRUST'S SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK. THE 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>
ANNUAL OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS) CLASS E
SHARES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
S&P 500
INDEX
---------
<S> <C> <C>
Management/Advisory Fees (AFTER FEE WAIVER) (1) .19%
12b-1 Fees None
Total Other Expenses .06%
Shareholder Servicing Expenses (after fee waiver) (2) .00%
- --------------------------------------------------------------------------------------------------------------------------
Total Operating Expenses (AFTER FEE WAIVERS) (3) .25%
- --------------------------------------------------------------------------------------------------------------------------
</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%.
(2) THE DISTRIBUTOR HAS WAIVED, ON A VOLUNTARY BASIS, ALL OF ITS SHAREHOLDER
SERVICING FEE, AND THE SHAREHOLDER SERVICING EXPENSES 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
EXPENSES WOULD BE .25% FOR THE PORTFOLIO.
(3) ABSENT FEE WAIVERS, TOTAL OPERATING EXPENSES FOR THE PORTFOLIO WOULD BE
.55%. 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: $ 3 $ 8 $ 14 $ 32
- -----------------------------------------------------------------------------------------------------------------------------------
</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>
FINANCIAL HIGHLIGHTS
______________________________________________________________
The following information has been audited by Arthur Andersen LLP, the Trust's
independent accountants, as indicated in their report dated May 2, 1997, on the
Trust's financial statements as of March 31, 1997, which are incorporated by
reference into the Trust's Statement of Additional Information. The Trust's
financial statements and additional performance information are set forth in the
1997 Annual Report to Shareholders, which is available upon request and without
charge by calling 1-800-342-5734. This table should be read in conjunction with
the Trust's financial statements and notes thereto.
<TABLE>
<CAPTION>
FOR A CLASS E SHARE OUTSTANDING THROUGHOUT THE PERIOD INCOME FROM
INVESTMENT OPERATIONS LESS DISTRIBUTIONS
---------------------------- -------------------------------------
NET ASSET NET REALIZED AND DIVIDENDS
VALUE NET UNREALIZED GAIN TOTAL FROM FROM NET DISTRIBUTIONS RETURNS
BEGINNING INVESTMENT (LOSS) INVESTMENT INVESTMENT FROM CAPITAL OF
OF PERIOD INCOME ON INVESTMENTS OPERATIONS INCOME GAINS CAPITAL
<S> <C> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------------
- --------------------------
S&P 500 INDEX PORTFOLIO**
- --------------------------
For the periods ended March 31,
1997 $ 20.88 $0.46 $ 3.54 $ 4.00 $(0.45) $(0.33) --
1996 16.40 0.44 4.72 5.16 (0.37) (0.31) --
1995 15.07 0.42 1.79 2.21 (0.42) (0.46) --
1994 15.80 0.43 (0.22) 0.21 (0.42) (0.52) --
1993 14.17 0.40 1.69 2.09 (0.40) (0.06) --
1992 13.43 0.40 1.01 1.41 (0.41) (0.26) --
1991 12.45 0.43 1.24 1.67 (0.43) (0.26) --
1990 10.88 0.42 1.64 2.06 (0.43) (0.06) --
1989 9.63 0.39 1.26 1.65 (0.40) -- --
1988 12.68 0.43 (1.65) (1.22) (0.45) (1.38) --
1987 12.45 0.42 2.63 3.05 (0.38) (2.44) --
1986(1) 10.00 0.29 2.37 2.66 (0.21) -- --
<CAPTION>
NET ASSET
TOTAL VALUE, END
DISTRIBUTIONS OF PERIOD
<S> <C>
- -----------------------------------
- --------------------------
S&P 500 INDEX PORTFOLIO**
- --------------------------
For the periods ended March 31,
1997 $(0.78) $ 24.10
1996 (0.68) 20.88
1995 (0.88) 16.40
1994 (0.94) 15.07
1993 (0.46) 15.80
1992 (0.67) 14.17
1991 (0.69) 13.43
1990 (0.49) 12.45
1989 (0.40) 10.88
1988 (1.83) 9.63
1987 (2.82) 12.68
1986(1) (0.21) 12.45
<CAPTION>
RATIOS AND SUPPLEMENTAL DATA
FOR A CLASS E SHARE OUTSTANDING THR --------------------------------------------------------------------
RATIO OF RATIO OF NET
EXPENSES INVESTMENT
TO AVERAGE NET INCOME TO
RATIO OF NET ASSETS INVESTMENT AVERAGE NET
NET ASSETS EXPENSES (EXCLUDING INCOME TO ASSETS PORTFOLIO
TOTAL END OF TO AVERAGE FEE AVERAGE NET (EXCLUDING TURNOVER
RETURN PERIOD (000) NET ASSETS WAIVERS) ASSETS FEE WAIVERS) RATE
- -----------------------------------
- --------------------------
S&P 500 INDEX PORTFOLIO**
- --------------------------
For the periods ended March 31,
1997 19.46% $ 835,889 0.25% 0.54% 2.03% 1.74% 2%
1996 31.88 630,566 0.25 0.35 2.31 2.21 3
1995 15.26 458,012 0.25 0.35 2.69 2.59 4
1994 1.19 424,647 0.25 0.33 2.57 2.49 23
1993 14.97 675,484 0.25 0.35 2.75 2.65 1
1992 10.71 470,847 0.25 0.34 2.99 2.90 1
1991 14.18 261,165 0.25 0.32 3.56 3.49 40
1990 19.02 192,154 0.25 0.36 3.58 3.47 10
1989 17.60 125,714 0.25 0.39 4.03 3.89 47
1988 (9.35) 105,473 0.25 0.43 3.74 3.56 77
1987 25.96 103,468 0.23 0.44 3.29 3.08 145
1986(1) 40.43* 94,224 0.20* 0.44* 4.10* 3.86* 66
<CAPTION>
FOR A CLASS E SHARE OUTSTANDING THR
AVERAGE
COMMISSION
RATE+
- -----------------------------------
- --------------------------
S&P 500 INDEX PORTFOLIO**
- --------------------------
For the periods ended March 31,
1997 $.0197
1996 n/a
1995 n/a
1994 n/a
1993 n/a
1992 n/a
1991 n/a
1990 n/a
1989 n/a
1988 n/a
1987 n/a
1986(1) n/a
</TABLE>
* ANNUALIZED
** EFFECTIVE JULY 31, 1997, THE FORMER CLASS A SHARES WERE RENAMED CLASS E
SHARES.
+ AVERAGE COMMISSION RATE PAID PER SHARE FOR SECURITY PURCHASES AND SALES
DURING THE PERIOD. PRESENTATION OF THE RATE IS ONLY REQUIRED FOR THE FISCAL
YEARS BEGINNING AFTER SEPTEMBER 1, 1995.
(1) CLASS E SHARES (FORMERLY CLASS A SHARES) COMMENCED OPERATIONS ON 8/1/85.
3
<PAGE>
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. 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 Investments Distribution
Co., Oaks, Pennsylvania 19456, 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 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 S&P 500 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.
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. Accordingly, 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 S&P 500 Index.
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.
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
4
<PAGE>
result in the elimination of a stock from the Portfolio.
However, an investment may be removed 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 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 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 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 S&P 500 Index, provided that the value of these
contracts does not exceed 20% of the Portfolio's total
assets. The Portfolio may only purchase those stock index
futures contracts--such as futures contracts on the S&P 500
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.
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.
5
<PAGE>
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. 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.
6
<PAGE>
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, 1997, the
Portfolio paid management fees, after fee waivers, of .16%
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, 1996 total assets
under management of World were $11.0 billion and assets
under management of MCM were $37.0 billion. The principal
business address for World is 255 Brown Street Centre, 2nd
Floor, Birmingham, Michigan 48009.
Under the terms of this Advisory Agreement, World
provides 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
7
<PAGE>
March 31, 1997, the Portfolio paid World an advisory fee of
.03% of its average daily net assets.
DISTRIBUTION
AND SHAREHOLDER
SERVICING
__________________________________________________________________________
SEI Investments Distribution Co. (the "Distributor"), a
wholly-owned subsidiary of SEI Investments Company ("SEI
Investments"), 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 Portfolio has adopted a shareholder servicing
plan for Class E shares (the "Service Plan") under which
the Distributor is entitled to receive a shareholder
servicing fee of up to .25% of average daily net assets
attributable to Class E shares. 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 and at its own
expense, provide promotional incentives, in the form of
cash or other compensation, to certain financial
institutions whose representatives have sold or are
expected to sell significant amounts of the Portfolio's
shares.
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 (or its authorized agent).
Institutions that use certain SEI proprietary systems may
place orders electronically through those systems.
Financial institutions may
8
<PAGE>
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 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. The minimum initial investment
for the Class E shares of the Portfolio is $5,000,000;
however, the minimum investment may be waived at the
Distributor's discretion. All subsequent purchases must be
at least $1,000.
Shareholders who desire to purchase shares for cash
must place their orders with the Transfer Agent (or its
authorized 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.
Information about the market value of each Portfolio
security may be obtained by SEI Management from an
independent pricing service. Fixed Income securities having
maturities of 60 days or less at the time of purchase will
be valued using the amortized cost method (described in the
Statement of Additional Information), which approximates
the securities' market value. The pricing service may use a
matrix system to determine valuations of 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. Portfolio
securities 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.
Shareholders who desire to redeem shares of the
Portfolio must place their redemption orders with the
Transfer Agent (or its authorized agent) prior to 4:00 p.m.
Eastern time on any Business Day. The redemption price is
the net asset value per share of
9
<PAGE>
the Portfolio next determined after receipt by the Transfer
Agent (or its authorized 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.
Purchase and redemption orders may be placed by
telephone. Neither the Trust nor the Transfer Agent (or its
authorized 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
Transfer Agent (or its authorized agent) will each employ
reasonable procedures to confirm that instructions
communicated by telephone are genuine, including requiring
a form of personal identification prior to acting upon
instructions received by telephone and recording telephone
instructions.
If market conditions are extraordinarily active, or
other extraordinary circumstances exist, shareholders may
experience difficulties placing redemption orders by
telephone, and may wish to consider placing orders by other
means.
PERFORMANCE
______________________________________________________________________
From time to time, the Portfolio 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
10
<PAGE>
benchmark might be. Measures of volatility and correlation
are calculated using averages of historical data and cannot
be calculated precisely.
The performance of Class E shares will normally be
higher than that of the Class A shares of the S&P 500 Index
Portfolio because of the different shareholder servicing
expenses actually charged to Class A 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 the Portfolio's shareholders.
TAX STATUS
OF DISTRIBUTIONS
The Portfolio will distribute substantially all of its net
investment income (including net short-term capital gains)
to its 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. Long-term capital gains realized by the
Portfolio will be distributed by the Portfolio to its
shareholders at least annually and will be taxable to the
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 the Portfolio's
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.
11
<PAGE>
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 its 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 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.
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 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.
12
<PAGE>
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 SEI Fund
Management, Oaks, Pennsylvania 19456.
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 SEI Management 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 E shares of the Portfolio are
normally higher than those on the Class A shares because of
the different shareholder servicing expenses actually
charged to Class A 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
(the "Custodian"), acts as custodian of the Trust's assets.
The Custodian holds cash, securities and other assets of
the Trust as required by the Investment Company Act of 1940
(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 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
13
<PAGE>
security underlying the receipt and a depositary, whereas
an unsponsored facility may be established by a depositary
without participation by the issuer of the receipts
underlying security.
EQUITY SECURITIES
Equity securities represent ownership interests in a
company or corporation, and include common stock, preferred
stock, and warrants and other rights to acquire such
instruments.
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, securities for which
there is no active secondary market, and repurchase
agreements with durations (or maturities) over seven days
in length.
MONEY MARKET
INSTRUMENTS
Money market instruments 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 issued by the 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.
REPURCHASE AGREEMENTS
Agreements by which the Portfolio obtains a security and
simultaneously commits to return the security to the seller
at an agreed upon price (including principal and interest)
on an agreed upon date within a number of days from the
date of purchase. Repurchase agreements are considered
loans under the 1940 Act.
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 securities comprising the index is
made; generally contracts are closed out prior to the
expiration date of the 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 securities equal to the market value of the
futures positions held, less margin deposits, in a
segregated account. Collateral equal to the current market
value of the futures position will be marked to market on a
daily basis.
A Portfolio may enter into futures contracts and
options on futures contracts traded on an exchange
regulated by the Commodities Futures Trading Commission
("CFTC"), so long as, to the extent that such transactions
are not for "bona fide hedging
14
<PAGE>
purposes," the aggregate initial margin and premiums on
such positions (excluding the amount by which such options
are in the money) do not exceed 5% of the Portfolio's net
assets. A Portfolio may buy and sell futures contracts and
related options to manage its exposure to changing interest
rates and securities prices. Some strategies reduce a
Portfolio's exposure to price fluctuations, while others
tend to increase its market exposure. Futures and options
on futures can be volatile instruments and involve certain
risks that could negatively impact a Portfolio's return.
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), and others are
supported by the right of the issuer to borrow from the
Treasury (e.g., Federal Farm Credit Bank securities), while
still others are supported only by the credit of the
instrumentality (e.g., Fannie Mae securities).
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.
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 a separate
account with liquid 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.
Additional information on other permitted investments can
be found in the Statement of Additional Information.
15
<PAGE>
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 and Redemption of Shares................ 8
Performance...................................... 10
Taxes............................................ 11
General Information.............................. 12
Description of Permitted Investments and Risk
Factors......................................... 13
</TABLE>
16
<PAGE>
(This page intentionally left blank.)
<PAGE>
SEI INDEX FUNDS
JULY 31, 1997
- --------------------------------------------------------------------------------
S&P 500 INDEX PORTFOLIO
BOND INDEX PORTFOLIO
- --------------------------------------------------------------------------------
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, 1997, has been filed with
the Securities and Exchange Commission, and is available upon request and
without charge by writing the Distributor, SEI Investments Distribution Co.,
Oaks, Pennsylvania 19456, 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.
- --------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
THE TRUST'S SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK. THE 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>
ANNUAL OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS) CLASS A
SHARES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
S&P 500
INDEX BOND INDEX
---------- ----------
<S> <C> <C>
Management/Advisory Fees (AFTER FEE WAIVER) (1) .19% .32%
12b-1 Fees None None
Total Other Expenses .21% .06%
Shareholder Servicing Expenses (AFTER FEE WAIVERS, IF APPLICABLE) .15% .00%(2)
- ------------------------------------------------------------------------------------------------------------------------
Total Operating Expenses (AFTER FEE WAIVERS) (3) .40% .38%
- ------------------------------------------------------------------------------------------------------------------------
</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.
(2) THE DISTRIBUTOR HAS WAIVED, ON A VOLUNTARY BASIS, ALL OF ITS SHAREHOLDER
SERVICING FEE FOR THE BOND INDEX PORTFOLIO, AND THE SHAREHOLDER SERVICING
EXPENSES SHOWN FOR THE BOND INDEX PORTFOLIO REFLECT THIS WAIVER. THE
DISTRIBUTOR RESERVES THE RIGHT TO TERMINATE ITS WAIVER AT ANY TIME IN ITS
SOLE DISCRETION. ABSENT SUCH WAIVER, SHAREHOLDER SERVICING EXPENSES WOULD BE
.25% FOR THE BOND INDEX PORTFOLIO.
(3) ABSENT THESE FEE WAIVERS, TOTAL OPERATING EXPENSES WOULD BE .45% 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
- --------------------------------------------------------------------------------
<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 $ 4 $ 13 $ 22 $ 51
Bond Index $ 4 $ 12 $ 21 $ 48
- -----------------------------------------------------------------------------------------------------------------------------------
</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>
FINANCIAL HIGHLIGHTS
______________________________________________________________
The following information has been audited by Arthur Andersen LLP, the Trust's
independent accountants, as indicated in their report dated May 2, 1997, on the
Trust's financial statements as of March 31, 1997, which are incorporated by
reference into the Trust's Statement of Additional Information. The Trust's
financial statements and additional performance information are set forth in the
1997 Annual Report to Shareholders, which is available upon request and without
charge by calling 1-800-342-5734. This table should be read in conjunction with
the Trust's financial statements and notes thereto.
<TABLE>
<CAPTION>
INCOME FROM INVESTMENT
OPERATIONS
-------------------------
NET REALIZED LESS DISTRIBUTIONS
AND -----------------------------------------
NET ASSET UNREALIZED DIVIDENDS
VALUE NET GAIN (LOSS) TOTAL FROM FROM NET DISTRIBUTIONS
BEGINNING INVESTMENT ON INVESTMENT INVESTMENT FROM CAPITAL RETURNS OF TOTAL
OF PERIOD INCOME INVESTMENTS OPERATIONS INCOME GAINS CAPITAL DISTRIBUTIONS
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------
FOR A CLASS A SHARE OUTSTANDING THROUGHOUT THE PERIOD
- --------------
S&P 500 INDEX
PORTFOLIO+
- --------------
For the
periods ended
March 31,
1997 $ 20.87 $ 0.48 $ 3.47 $ 3.95 $ (0.43) $ (0.33) -- $ (0.76)
1996(1) 20.82 -- 0.05 0.05 -- -- -- --
<CAPTION>
----------------------------------------------------------
RATIO OF NET
RATIO OF INVESTMENT
EXPENSES TO RATIO OF NET INCOME TO
RATIO OF AVERAGE NET INVESTMENT AVERAGE NET
NET ASSET NET ASSETS EXPENSES TO ASSETS INCOME TO ASSETS
VALUE, END END OF AVERAGE NET (EXCLUDING AVERAGE NET (EXCLUDING
OF PERIOD TOTAL RETURN PERIOD (000) ASSETS FEE WAIVERS) ASSETS FEE WAIVERS)
<S> <C> <C>
- --------------
FOR A CLASS A
- --------------
S&P 500 INDEX
PORTFOLIO+
- --------------
For the
periods ended
March 31,
1997 $ 24.06 19.22% $ 108,770 0.40% 0.46% 1.84% 1.78%
1996(1) 20.87 0.24* 3,077 0.46 0.58 0.97 0.85
<CAPTION>
PORTFOLIO AVERAGE
TURNOVER COMMISSION
RATE RATE**
- --------------
FOR A CLASS A
- --------------
S&P 500 INDEX
PORTFOLIO+
- --------------
For the
periods ended
March 31,
1997 2% $ 0.197
1996(1) 3 n/a
</TABLE>
+ EFFECTIVE JULY 31, 1997, THE FORMER CLASS E SHARES WERE RENAMED CLASS A
SHARES.
* TOTAL RETURN HAS NOT BEEN ANNUALIZED.
** AVERAGE COMMISSION RATE PAID PER SHARE FOR SECURITY PURCHASES AND SALES
DURING THE PERIOD. PRESENTATION OF THE RATE IS ONLY REQUIRED FOR THE FISCAL
YEARS BEGINNING AFTER SEPTEMBER 1, 1995.
(1) S&P 500 INDEX CLASS A SHARES (FORMERLY CLASS E SHARES) WERE OFFERED
BEGINNING FEBRUARY 28, 1996. ALL RATIOS FOR THAT PERIOD HAVE BEEN
ANNUALIZED.
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- ---------
BOND
INDEX
PORT-
FOLIO
- ---------
For the
periods
ended
March 31,
1997 $ 10.26 $ 0.64 $ (0.21) $ 0.43 $ (0.68) $ -- -- $ (0.68) $ 10.01
1996 (2) 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>
- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BOND
INDEX
PORT-
FOLIO
- ---------
For the
periods
ended
March 31,
1997 4.36% $ 35,691 0.38% 0.71% 6.26% 5.93% 46% n/a
1996 (2) 10.31 51,185 0.38 0.48 6.20 6.10 59 n/a
1995 4.54 45,643 0.38 0.48 6.33 6.23 21 n/a
1994 2.10 56,161 0.38 0.47 5.35 5.26 55 n/a
1993 12.73 56,032 0.38 0.45 6.49 6.42 115 n/a
1992 9.48 38,449 0.38 0.51 7.45 7.32 99 n/a
1991 11.92 22,602 0.38 0.61 8.52 8.29 26 n/a
1990 12.04 12,106 0.38 0.72 8.43 8.09 56 n/a
1989 4.21 11,457 0.38 0.80 8.62 8.20 31 n/a
1988 3.39 14,413 0.38 0.68 8.48 8.18 138 n/a
1987 (1) 9.69* 34,157 0.38* 0.80* 7.98 7.56 96 n/a
</TABLE>
* ANNUALIZED
(1) COMMENCED OPERATIONS ON 5/19/86.
(2) THE INVESTMENT ADVISER WAS CHANGED FROM WORLD ASSET MANAGEMENT TO MELLON
BOND ASSOCIATES EFFECTIVE 10/2/95.
3
<PAGE>
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. 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 Investments Distribution Co., Oaks,
Pennsylvania 19456, 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 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 S&P 500 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.
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. Accordingly, 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 S&P 500 Index.
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>
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, an
investment may be removed 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 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 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 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 S&P 500 Index, provided that the value of these
contracts does not exceed 20% of the Portfolio's total
assets. The Portfolio may only purchase those stock index
futures contracts-- such as futures contracts on the S&P
500 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.
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
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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. 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 other issues that are included in the Lehman
Index.
Fixed income securities in which the 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 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
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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 Lehman 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 generally will not 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 Lehman
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 MBA 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.
The Portfolio may invest in restricted securities,
including Rule 144A securities, included in the Lehman
Index.
There can be no assurance that the Portfolios will
achieve their respective investment objectives.
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
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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.
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.
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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, 1997, the S&P 500
Index and Bond Index Portfolios paid management fees, after
fee waivers, of .16% 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, 1996 total assets
under management of World were $11.0 billion and assets
under management of MCM were $37.0 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 certain record keeping and management services in
connection with the S&P 500 Index Portfolio, including
monitoring the indexing systems and determining which
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, 1997, the
S&P 500 Index Portfolio paid World 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 May 31, 1997, total assets under
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management of MBA were $42 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 fiscal year ended March 31, 1997, the
Bond Index Portfolio paid MBA an advisory fee of .07% of
its average daily net assets.
DISTRIBUTION AND
SHAREHOLDER SERVICING
__________________________________________________________________________
SEI Investments Distribution Co. (the "Distributor"), a
wholly-owned subsidiary of SEI Investments Company ("SEI
Investments"), 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
the Distributor is entitled to receive a shareholder
servicing fee of up to .25% of average daily net assets
attributable to Class A shares of the Bond Index Portfolio
and up to 15% of average daily net assets attributable to
Class A shares of the S&P 500 Index Portfolio. 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 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
and at its own expense, provide promotional incentives, in
the form of cash or other compensation, to certain
financial institutions whose representatives have sold or
are expected to sell significant amounts of the Portfolios'
shares.
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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 (or its authorized agent).
Institutions that use certain SEI proprietary systems may
place orders electronically through those systems.
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 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. The minimum initial investment
in the Class A shares of each Portfolio is $100,000;
however, the minimum investment may be waived at the
Distributor's discretion. All subsequent purchases must be
at least $1,000.
Shareholders who desire to purchase shares for cash
must place their orders with the Transfer Agent (or its
authorized 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 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 the 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.
Information about the market value of each portfolio
security may be obtained by SEI Management from an
independent pricing service. Fixed Income securities having
maturities of 60 days or less at the time of purchase will
be valued using the amortized cost method (described in the
Statement of Additional Information), which approximates
the securities' market value. The pricing service may use a
matrix system to determine valuations of 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
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<PAGE>
procedures of the pricing service and its valuations are
reviewed by the officers of the Trust under the general
supervision of the Trustees. Portfolio securities 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.
Shareholders who desire to redeem shares of the
Portfolios must place their redemption orders with the
Transfer Agent (or its authorized 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 (or its
authorized 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.
Purchase and redemption orders may be placed by
telephone. Neither the Trust nor the Transfer Agent (or its
authorized 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
Transfer Agent (or its authorized agent) will each employ
reasonable procedures to confirm that instructions
communicated by telephone are genuine, including requiring
a form of personal identification prior to acting upon
instructions received by telephone and recording telephone
instructions.
If market conditions are extraordinarily active, or
other extraordinary circumstances exist, shareholders may
experience difficulties placing redemption orders by
telephone, and may wish to consider placing orders by other
means.
PERFORMANCE
______________________________________________________________________
From time to time, 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 Portfolio may use
long-term performance of these capital
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<PAGE>
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 E shares of the S&P 500
Index Portfolio will normally be higher than that of the
Class A shares of the S&P 500 Index Portfolio because of
the different shareholder servicing expenses actually
charged to Class A 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 extent attributable to
dividends received by a Portfolio from domestic
corporations. Dividends paid by the Bond Index Portfolio
will not qualify for the dividends-received deduction.
Long-term capital gains realized by a Portfolio will
be distributed to shareholders at least annually and will
be taxable to shareholders of such Portfolio as long-term
capital
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<PAGE>
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. Each Portfolio will provide annual
reports to the Portfolio's 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--U.S. Treasury Obligations") 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 the Portfolio's
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.
Investment income received by the Bond Index
Portfolio from sources within foreign countries may be
subject to foreign income taxes withheld at the source. The
Bond Index Portfolio will not be able to elect to treat its
shareholders as having paid their proportionate share of
such taxes for foreign tax credit purposes.
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 each Portfolio.
All consideration received by the Trust for
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<PAGE>
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.
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 SEI Fund
Management, Oaks, Pennsylvania 19456.
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.
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 SEI Management 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.
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The dividends on Class E shares of the S&P 500 Index
Portfolio are normally higher than those on the Class A
shares because of the different shareholder servicing
expenses actually charged to Class A 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
(the "Custodian"), acts as custodian of the Portfolios'
assets. The Custodian holds cash, securities and other
assets of the Trust as required by the Investment Company
Act of 1940 (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 receipts underlying security.
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 or corporation,
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 include common stock, preferred
stock, and warrants and other rights to acquire such
instruments.
FIXED INCOME SECURITIES
Fixed income securities are debt obligations issued by
corporations, municipalities and other borrowers. While
securities with longer maturities tend to produce higher
yields, the
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prices of longer maturity securities are also subject to
greater market fluctuations as a result of changes in
interest rates.
ILLIQUID SECURITIES
Illiquid securities are securities that cannot be disposed
of within seven business days at approximately the price at
which they are being carried on the Portfolio's books.
Illiquid securities include demand instruments with demand
notice periods exceeding seven days, securities for which
there is no active secondary market, and repurchase
agreements with durations (or maturities) over seven 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 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 instruments 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 issued by the 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, adjustable rate mortgages and balloon mortgages.
During periods of declining interest rates, prepayment of
mortgages underlying mortgage-backed securities can be
expected to accelerate. 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, Fannie Mae and FHLMC.
GNMA, Fannie Mae and FHLMC guarantee timely distributions
of
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<PAGE>
interest to certificate holders. GNMA and Fannie Mae also
guarantee timely distributions of scheduled principal.
FHLMC generally guarantees only the ultimate collection of
principal of the underlying mortage loan. Fannie Mae and
FHLMC obligations are not backed by the full faith and
credit of the U.S. Government as GNMA certificates are, but
Fannie Mae and FHLMC securities are supported by the
instrumentalities' right to borrow from the U.S. Treasury.
Government and private guarantees do not extend to the
securities' value, which is likely to vary inversely with
fluctuations in interest rates.
PRIVATE PASS-THROUGH SECURITIES These are
mortgage-backed securities issued by a non-governmental
entity, such as a trust or corporate entity. These
securities include collateralized mortgage obligations
("CMOs") and real estate mortgage investment conduits
("REMICs"). 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.
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. 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 Fannie Mae or
FHLMC represent beneficial ownership interests in a REMIC
trust consisting principally of mortgage loans or Fannie
Mae, FHLMC or GNMA-guaranteed mortgage pass-through
certificates.
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. During times when interest rates
are experiencing fluctuations, such securities can be
difficult to price on a consistent basis. The market for
SMBs is not as fully developed as other markets; SMBs,
therefore, may be illiquid.
REPURCHASE AGREEMENTS
Agreements by which a Portfolio obtains a security and
simultaneously commits to return the security to the seller
at an agreed upon price (including principal and interest)
on an agreed upon date within a number of days from the
date of purchase. Repurchase agreements are considered
loans under the 1940 Act.
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<PAGE>
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 securities comprising the index is
made; generally contracts are closed out prior to the
expiration date of the 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 securities equal to the market value of the
futures positions held, less margin deposits, in a
segregated account. Collateral equal to the current market
value of the futures position will be marked to market on a
daily basis.
A Portfolio may enter into futures contracts and
options on futures contracts traded on an exchange
regulated by the Commodities Futures Trading Commission
("CFTC"), so long as, to the extent that such transactions
are not for "bona fide hedging purposes," the aggregate
initial margin and premiums on such positions (excluding
the amount by which such options are in the money) do not
exceed 5% of the Portfolio's net assets. A Portfolio may
buy and sell futures contracts and related options to
manage its exposure to changing interest rates and
securities prices. Some strategies reduce a Portfolio's
exposure to price fluctuations, while others tend to
increase its market exposure. Futures and options on
futures can be volatile instruments and involve certain
risks that could negatively impact a Portfolio's return.
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., GNMA
securities), and others are supported by the right of the
issuer to borrow from the Treasury (e.g., Federal Farm
Credit Bank securities), while still others are supported
only by the credit of the instrumentality (e.g., Fannie Mae
securities).
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,
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<PAGE>
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. 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.
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 a separate
account with liquid 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.
Additional information on other permitted investments can
be found in the Statement of Additional Information.
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<PAGE>
TABLE OF CONTENTS
_________________________________________________________________
<TABLE>
<S> <C>
Annual Operating Expenses........................ 2
Financial Highlights............................. 3
The Trust........................................ 4
Investment Objectives and Policies............... 4
General Investment Policies...................... 7
Investment Limitations........................... 8
The Manager...................................... 9
The Advisers..................................... 9
Distribution and Shareholder Servicing........... 10
Purchase & Redemption of Shares.................. 11
Performance...................................... 12
Taxes............................................ 13
General Information.............................. 14
Description of Permitted Investments and Risk
Factors......................................... 16
</TABLE>
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<PAGE>
SEI INDEX FUNDS
Manager:
SEI Fund Management
Distributor:
SEI Investments Distribution Co.
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, 1997. Prospectuses may be obtained without charge by writing the Trust's
distributor, SEI Investments Distribution Co., Oaks, Pennsylvania 19456, 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................................................................. S-2
Description of Certain Permitted Investments.............................. S-2
Investment Limitations.................................................... S-6
The Manager and Transfer Agent............................................ S-7
The Advisers.............................................................. S-8
Distribution and Shareholder Servicing.................................... S-9
Trustees and Officers of the Trust........................................ S-10
Performance............................................................... S-12
Purchase and Redemption of Shares......................................... S-13
Taxes..................................................................... S-14
Portfolio Transactions.................................................... S-16
Description of Shares..................................................... S-17
Limitation of Trustees' Liability......................................... S-18
Shareholder Liability..................................................... S-18
5% Shareholders........................................................... S-18
Custodian................................................................. S-19
Experts................................................................... S-19
Financial Statements...................................................... S-19
</TABLE>
July 31, 1997
<PAGE>
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.
AMERICAN DEPOSITARY RECEIPTS--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.
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
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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.
EQUITY SECURITIES--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--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.
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.
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"), Fannie Mae and Federal Home Loan Mortgage Corporation
("FHLMC"), conventional mortgage-pass through obligations, and Federal Housing
Administration-insured mortgage pools.
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 Fannie Mae include Fannie Mae
Guaranteed Mortgage Pass-Through Certificates (also known as "Fannie Maes") that
are solely the obligations of Fannie Mae and are not backed by or entitled to
the full faith and credit of the United States. Fannie Mae is a government-
sponsored organization owned entirely by private stockholders. Fannie Maes are
guaranteed as to timely payment of the principal and interest by Fannie Mae.
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.
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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.
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.
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.
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 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.
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
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
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<PAGE>
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.
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 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.
U.S. GOVERNMENT AGENCY OBLIGATIONS--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. 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,
S-5
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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, Fannie Mae 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., Fannie Mae 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 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.
VARIABLE AND FLOATING RATE INSTRUMENTS--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--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 and maintain liquid 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.
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 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.
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
S-6
<PAGE>
(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 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
("SEI 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 SEI Management 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
SEI Management 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.
S-7
<PAGE>
SEI Management, a Delaware business trust, has its principal business
offices at Oaks, Pennsylvania 19456. SEI Investments Management Corporation
("SIMC"), a wholly-owned subsidiary of SEI Investments Company ("SEI
Investments"), is the owner of all beneficial interest in SEI Management. Alfred
P. West, Jr., Carmen V. Romeo, and Henry H. Greer constitute the Board of
Directors of SIMC. Mr. West serves as Chairman of the Board of Directors and
Chief Executive Officer of SIMC and SEI Investments, Mr. Greer serves as
President and Chief Operating Officer of SIMC and SEI Investments, and Chief
Financial Officer of SEI Investments, and Mr. Romeo serves as Executive Vice
President and Treasurer of SEI Investments. SEI Investments and its subsidiaries
and affiliates, including SEI Management, are leading providers of funds
evaluation services, trust accounting systems, and brokerage and information
services to financial institutions, institutional investors, and money managers.
SEI Management 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, The Expedition Funds, FMB Funds, Inc., First American
Funds, Inc., First American Investment Funds, Inc., First American Strategy
Funds, Inc., HighMark Funds, Marquis Funds-Registered Trademark-, Monitor Funds,
Morgan Grenfell Investment Trust, The PBHG Funds, Inc., The Pillar Funds, Profit
Funds Investment Trust, Rembrandt Funds-Registered Trademark-, Santa Barbara
Group of Mutual Funds, Inc., Boston 1784 Funds-Registered Trademark-, SEI Asset
Allocation Trust, SEI Daily Income Trust, SEI International Trust, SEI
Institutional Investments Trust, SEI Institutional Managed Trust, SEI Liquid
Asset Trust, SEI Tax Exempt Trust, STI Classic Funds, STI Classic Variable
Trust, and TIP Funds.
If operating expenses of either Portfolio exceed applicable limitations, SEI
Management will pay such excess. SEI Management will not be required to bear
expenses of the Portfolios to an extent which would result in the Portfolio's
inability to qualify as a regulated investment company under provisions of the
Internal Revenue Code of 1986, as amended (the "Code"). The term "expenses" is
defined in such laws or regulations, and generally excludes brokerage
commissions, distribution expenses, taxes, interest and extraordinary expenses.
For the fiscal years ended March 31, 1995, 1996 and 1997, the Portfolios
paid fees to SEI Management as follows:
<TABLE>
<CAPTION>
MANAGEMENT FEES PAID MANAGEMENT FEES
(REIMBURSED) (000) WAIVED (000)
---------------------- ------------------
PORTFOLIO 1995 1996 1997 1995 1996 1997
- ------------------------------------------ ------ ------ ------ ---- ---- ------
<S> <C> <C> <C> <C> <C> <C>
S&P 500 Index Portfolio................... $ 934 $ 658 $1,271 $404 $524 $ 446
Bond Index Portfolio...................... $ 175 $ 111 $ 114 $ 50 $ 45 $ 46
</TABLE>
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.
S-8
<PAGE>
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 SEI Management pursuant to the current Management
Agreement between SEI Management and the Trust.
For the fiscal years ended March 31, 1995, 1996 and 1997, World received
fees of $127,331, $161,179 and $234,127, respectively, from the S&P 500 Index
Portfolio, and for the fiscal years ended March 31, 1995, World received fees of
$14,969 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.
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 and
for the fiscal year ended March 31, 1997, MBA received a fee of $12,342 and
$32,040, respectively, from the Bond Index Portfolio.
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 Investments Distribution Co.,
is a wholly-owned subsidiary of SEI Investments.
The Portfolios have adopted shareholder servicing plans for the 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.
For the fiscal year ended March 31, 1995, the S&P 500 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 (formerly Class E) S&P
500 Index Portfolio, Class E (formerly Class A) S&P 500 Index Portfolio and the
Class A Bond Index Portfolio incurred distribution expenses of $70, $283,605 and
$22,472 under the Plan or .20%, .05% and .05% of net assets, respectively,
during such period. These expenditures included $12, $184,195 and $10,681,
respectively, for
S-9
<PAGE>
sales expenses; $6, $63,981 and $7,784, respectively, for printing and mailing
costs; and $2, $35,429 and $4,007, respectively, for costs associated with
registration fees. In addition, for the Class E S&P 500 Index Portfolio, SEI
Investments Distribution Co. paid $50 to 3rd parties for distribution-related
services.
For the fiscal year ended March 31, 1997, the Class A (formerly Class E) S&P
500 Index Portfolio, Class E (formerly Class A) S&P 500 Index Portfolio and the
Class A Bond Index Portfolio incurred distribution expenses of $9,455, $147,498
and $10,637 under the Plan or .0038%, .03% or .03% of net assets, respectively,
during such period. These expenditures included $6,596, $90,404 and $5,623,
respectively, for printing and mailing costs; $2,690, $43,114 and $4,014,
respectively, for costs associated with registration fees; and $169, $14,799 and
$1,021, respectively, paid to third parties by SEI Investments Distribution Co.
for distribution-related services.
TRUSTEES AND OFFICERS OF THE TRUST
The Trustees and Executive Officers of the Trust, their respective dates of
birth, and their principal occupations for the last five years are set forth
below. Each may have held other positions with the named companies during that
period. Unless otherwise noted, the business address of each Trustee and each
Executive Officer is SEI Investments Company, Oaks, Pennsylvania 19456. Certain
officers of the Trust also serve as officers of some or all of the following:
The Achievement Funds Trust, The Advisors' Inner Circle Fund, The Arbor Fund,
ARK Funds, Bishop Street Funds, Boston 1784 Funds-Registered Trademark-,
CoreFunds, Inc., CrestFunds, Inc., CUFUND, The Expedition Funds, FMB Funds,
Inc., First American Funds, Inc., First American Investment Funds, Inc., First
American Strategy Funds, Inc., HighMark Funds, Marquis
Funds-Registered Trademark-, Monitor Funds, Morgan Grenfell Investment Trust,
The PBHG Funds, Inc., The Pillar Funds, Profit Funds Investment Trust, Rembrandt
Funds-Registered Trademark-, Santa Barbara Group of Mutual Funds, Inc., SEI
Asset Allocation Trust, SEI Daily Income Trust, SEI International Trust, SEI
Institutional Investments Trust, SEI Institutional Managed Trust, SEI Liquid
Asset Trust, SEI Tax Exempt Trust, STI Classic Funds, STI Classic Variable Trust
and TIP Funds, each of which is an open-end management investment company
managed by SEI Fund Management or its affiliates and, except for Profit Funds
Investment Trust, Rembrandt Funds-Registered Trademark-, and Santa Barbara Group
of Mutual Funds, Inc., are distributed by SEI Investments Distribution Co.
ROBERT A. NESHER (DOB 08/17/46)--Chairman of the Board of Trustees*--Retired
since 1994. Executive Vice President of SEI Investments, 1986-1994. Director and
Executive Vice President of the Manager and Distributor, 1981-1994. Trustee of
the Arbor Fund, Marquis Funds-Registered Trademark-, The Advisors' Inner Circle
Fund, The Expedition Funds, SEI Liquid Asset Trust, SEI Daily Income Trust, SEI
Tax Exempt Trust, SEI International Trust, SEI Asset Allocation Trust, SEI
Institutional Investments Trust, SEI Institutional Managed Trust, Boston 1784
Funds-Registered Trademark-, Pillar Funds, and Rembrandt
Funds-Registered Trademark-.
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, the Manager and Distributor, Director and Secretary of SEI
Investments and Secretary of the Manager and Distributor. Trustee of The Arbor
Fund, Marquis Funds-Registered Trademark-, The Advisors' Inner Circle Fund, The
Expedition Funds, SEI Liquid Asset Trust, SEI Daily Income Trust, SEI Tax Exempt
Trust, SEI International Trust, SEI Asset Allocation Trust, SEI Institutional
Investments Trust, and SEI Institutional Managed Trust.
F. WENDELL GOOCH (DOB 12/03/32)--Trustee**--P.O. Box 190, Paoli, IN 47454.
Retired; President, Orange County Publishing Co., Inc. since October 1981;
Publisher of the Paoli News and the Paoli Republican and Editor of the Paoli
Republican from January 1981 to 1997. 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, STI Classic Variable
Trust, SEI Liquid Asset Trust, SEI Daily Income Trust, SEI Tax Exempt Trust, SEI
International Trust, SEI Asset Allocation Trust, SEI Institutional Managed Trust
and SEI Institutional Investments Trust.
S-10
<PAGE>
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-Registered Trademark-, The Advisors'
Inner Circle Fund, The Expedition Funds, SEI Liquid Asset Trust, SEI Daily
Income Trust, SEI Tax Exempt Trust, SEI International Trust, SEI Asset
Allocation Trust, SEI Institutional Managed Trust and SEI Institutional
Investments Trust.
JAMES M. STOREY (DOB 04/12/31)--Trustee**--Retired; Partner, Dechert Price &
Rhoads, from September 1987-December 1993; Trustee of The Arbor Fund, Marquis
Funds-Registered Trademark-, The Advisors' Inner Circle Fund, The Expedition
Funds, SEI Liquid Asset Trust, SEI Daily Income Trust, SEI Tax Exempt Trust, SEI
International Trust, SEI Asset Allocation Trust, SEI Institutional Investments
Trust, and SEI Institutional Managed Trust.
GEORGE J. SULLIVAN, JR. (DOB 11/13/42)--Trustee**--General Partner, Teton
Partners, L.P., since 1991; Chief Financial Officer, Noble Partners, L.P., since
1991; Treasurer and Clerk, Peak Asset Management, Inc., since 1991; Trustee,
Navigator Securities Lending Trust, since 1995. Trustee of SEI Liquid Asset
Trust, SEI Daily Income Trust, SEI Tax Exempt Trust, SEI International Trust,
SEI Asset Allocation Trust, SEI Institutional Investments Trust, and SEI
Institutional Managed Trust.
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, General Counsel and Assistant Secretary of SEI
Investments, Senior Vice President, General Counsel and Secretary of the Manager
and Distributor since 1994. Vice President and Assistant Secretary of SEI
Investments, the Manager 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, SEI Investments, the Manager and Distributor.
KATHRYN L. STANTON (DOB 11/19/58)--Vice President and Assistant
Secretary--Vice President, Deputy General Counsel, Vice President and Assistant
Secretary of SEI Investments, the Manager and Distributor since 1994. General
Counsel, Investment Systems and Services, since 1997. Associate, Morgan, Lewis &
Bockius LLP (law firm), 1989-1994.
MARK E. NAGLE (DOB 10/20/59)--Controller and Chief Financial Officer--Vice
President of Fund Accounting and Administration for SEI Fund Resources and the
Manager since 1996. Vice President of Fund Accounting, BISYS Fund Services
1995-1996. Senior Vice President and Site Manager, Fidelity Investments
(1981-1995).
TODD CIPPERMAN (DOB 02/14/66)--Vice President and Assistant Secretary--Vice
President and Assistant Secretary of SEI Investments, the Manager and
Distributor since 1995. Associate, Dewey Ballantine (law firm) (1994-1995).
Associate, Winston & Strawn (law firm) (1991-1994).
BARBARA A. NUGENT (DOB 06/18/56)--Vice President and Assistant
Secretary--Vice President and Assistant Secretary of SEI Investments, the
Manager and Distributor since 1996. Associate, Drinker, Biddle & Reath (law
firm). Assistant Vice President/Administration, Delaware Service Company, Inc.
(1992-1993), Assistant Vice President--Operations, Delaware Service Company,
Inc. (1988-1992).
S-11
<PAGE>
MARC H. CAHN (DOB 06/19/57)--Vice President and Assistant Secretary--Vice
President and Assistant Secretary of SEI Investments, the Manager and
Distributor since 1996. Associate General Counsel, Barclays Bank PLC
(1995-1996). ERISA counsel, First Fidelity Bancorporation (1994-1995),
Associate, Morgan, Lewis & Bockius LLP (1989-1994).
- ------------------------
*Messrs. Nesher and Doran are Trustees who may be deemed to be "interested
persons" of the Trust as the term is defined in the 1940 Act.
**Messrs. Gooch, Storey, Morris and Sullivan 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.
Compensation of officers and affiliated Trustees of the Trust is paid by SEI
Management. The Trust pays the fees for unaffiliated Trustees. For the fiscal
year ended March 31, 1997, the Trust paid the following amounts to the Trustees.
<TABLE>
<CAPTION>
AGGREGATE PENSION OR
COMPENSATION FROM RETIREMENT BENEFITS ESTIMATED ANNUAL TOTAL COMPENSATION FROM REGISTRANT
REGISTRANT FOR FYE ACCRUED AS PART OF BENEFITS UPON AND FUND COMPLEX PAID TO DIRECTORS
NAME OF PERSON AND POSITION 3/31/97 FUND EXPENSES RETIREMENT FOR FYE 3/31/97
- --------------------------------- ------------------ ------------------- ---------------- -----------------------------------
<S> <C> <C> <C> <C>
Robert A. Nesher, Trustee........ $ 0 $0 $0 $0 for services on 8 boards
William M. Doran, Trustee........ $ 0 $0 $0 $0 for services on 8 boards
F. Wendell Gooch, Trustee........ $ 4,723 $0 $0 $92,250 for services on 8 boards
Frank E. Morris, Trustee......... $ 4,723 $0 $0 $92,250 for services on 8 boards
James M. Storey, Trustee*........ $ 4,723 $0 $0 $92,250 for services on 8 boards
George J. Sullivan, Trustee...... $ 3,430 $0 $0 $69,750 for services on 8 boards
</TABLE>
- ------------------------
* Mr. Storey received a portion of such amount as compensation for service as
an Honorary Trustee for the Trust prior to being elected as a Trustee on
August 14, 1996.
Mr. Edward W. Binshadler is a Trustee Emeritus of the Trust. Mr. Binshadler
serves as a consultant to the Audit Committee and receives as compensation,
$5,000 per Audit Committee meeting attended.
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:
Yield = 2[(a-b/cd + 1)(6) - 1], where a = dividends and interest earned
during the period; b = expenses accrued for the period (net of
reimbursement); c = the 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.
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%.
S-12
<PAGE>
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:
P(1 + T)(n) = ERV, where P = a hypothetical initial payment of $1,000; T
= average annual total return; n = number of years; and ERV = ending
redeemable value of a hypothetical $1,000 payment made at the beginning of
the designated time period as of the end of such period.
Based on the foregoing, the average annual total return for the Portfolios
from inception through March 31, 1997, and for the one, five and ten year
periods ended March 31, 1997 were as follows:
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN
---------------------------------------------------
SINCE
PORTFOLIO CLASS ONE YEAR FIVE YEAR TEN YEAR INCEPTION
- ----------------------------------------- --------------------------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
S&P 500 Index Portfolio A (formerly Class E)....... 19.22% N/A N/A 17.80%
E (formerly Class A)....... 19.46% 16.14% 12.99% 15.55%
Bond Index Portfolio A.......................... 4.36% 6.73% 7.44% 7.62%
</TABLE>
PURCHASE AND REDEMPTION OF SHARES
The purchase and redemption price of shares is the net asset value of each
share. A Portfolio's securities are valued by SEI Management pursuant to
valuations provided by an independent pricing service (generally the last quoted
sale price). 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 (defined as days on which the New York Stock Exchange is open for
business ("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. This 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.
Shares of a Portfolio may be purchased in exchange for securities included
in the Portfolio subject to SEI Management's determination that the securities
are acceptable. Securities accepted in an exchange will be valued at the 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.
SEI Management will not accept securities for a Portfolio unless: (1) such
securities are appropriate in the Portfolio at the time of the exchange; (2)
such securities are acquired for investment and not for resale; (3) the
Shareholder represents and agrees 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; (4) 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 (5) the securities may be acquired under the
investment restrictions applicable to the Portfolio.
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
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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, Martin Luther King, Jr.
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.
TAXES
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.
QUALIFICATION AS A RIC
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
income taxes to which such Portfolio may be subject. In order to qualify for
treatment as a RIC under the Code, a 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 a 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 a 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.
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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 to its shareholders 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, 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 a Portfolio distributes its net capital gains to shareholders, such
gains 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, such Portfolio 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 will
elect to have its shareholders treated as having received a distribution of such
gains, with the result that they will be required to report such gains on their
federal income tax 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
long-term capital gains or losses 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 the shareholder 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.
A 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.
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<PAGE>
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 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. Since state and local tax consequences may differ from the
federal income tax consequences discussed above, shareholders are urged to
consult their tax advisers on state and local tax matters.
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 Adviser 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 Adviser
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 Adviser 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 an Adviser under its Advisory Agreement,
and the expenses of an Adviser will not necessarily be reduced as a result of
the receipt of such supplemental information.
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<PAGE>
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 Adviser
will deal directly with the dealers who make a market in the securities involved
except in those circumstances where better prices and execution are available
elsewhere. Such dealers usually are acting as principal for their own account.
On occasion, securities may be purchased directly from the issuer. 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.
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, each Adviser 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, 1995, 1996 and 1997 were 4%, 3% and 2%, respectively. The
portfolio turnover rate for the Bond Index Portfolio for the fiscal years ending
March 31, 1995, 1996 and 1997 were 21%, 59% and 46%, respectively.
For the fiscal years ended March 31, 1995, 1996 and 1997, the S&P 500 Index
Portfolio paid $33,285, $36,384 and $99,663, respectively, for brokerage
commissions. For the fiscal years ended March 31, 1995, 1996 and 1997, 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.
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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.
5% SHAREHOLDERS
As of July 1, 1997, 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:
SEI Trust Company........................................................ 6,177,997.8090 14.51%
Attn: Jacqueline Esposito
Oaks, PA 19456
BOND INDEX PORTFOLIO:
Pershing Division of DLJ................................................. 185,331.1470 5.14%
Attn: Rich Boulanger
P.O. Box 2052
Jersey City, NJ 07303-2052
RRO & Co................................................................. 186,828.3460 5.18%
c/o First State Bank of Denton
Attn: Karen Atchinson
P.O. Box 100
Denton, TX 76202-0100
</TABLE>
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<TABLE>
<CAPTION>
ADDRESS NUMBER OF SHARES PERCENTAGE
- ------------------------------------------------------------------------- ----------------- -----------
<S> <C> <C>
Nabank & Co.............................................................. 297,604.4770 8.25%
Attn: Record Keeping
P.O. Box 2180
Tulsa, OK 74101-2180
The Fulton Company....................................................... 190,220.4470 5.27%
c/o Fulton Bank Trust Dept
Attn: Dennis Patrick
One Penn Square
Lancaster, PA 17602-2853
New Haven Savings Bank................................................... 428,381.8410 11.87%
Attn: Laura Vitelli
195 Church Street
New Haven, CT 06510-2009
Transco & Company........................................................ 326,084.5470 9.04%
c/o Intrust Bank, N.A.
Attn: Pat Wills
P..O. Box 48698
Wichita, KS 67201-8698
SEI Trust Company........................................................ 387,971.9990 10.75%
Attn: Jacqueline Esposito
Oaks, PA 19456
</TABLE>
CUSTODIAN
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.
EXPERTS
The financial statements incorporated by reference into this Statement of
Additional Information have been audited by Arthur Andersen LLP, independent
public accountants, as indicated in their reports with respect thereto, and are
included herein in reliance upon the authority of said firm as experts in
accounting and auditing in giving said reports.
FINANCIAL STATEMENTS
The Trust's financial statements for the fiscal year ended March 31, 1997,
including notes thereto and the report of Arthur Andersen LLP thereon, are
herein incorporated by reference to the Trust's 1997 Annual Report. A copy of
the 1997 Annual Report must accompany the delivery of this Statement of
Additional Information.
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