<PAGE>
SEI INSTITUTIONAL MANAGED TRUST
MARCH 4, 1998
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TAX-MANAGED LARGE CAP FUND
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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 March 4, 1998, has been filed with
the Securities and Exchange Commission (the "SEC") 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 Institutional Managed Trust (the "Trust") is an open-end management
investment company, certain classes of which offer financial institutions a
convenient means of investing their own funds or funds for which they act in a
fiduciary, agency or custodial capacity in professionally managed diversified
portfolios of securities. A portfolio may offer separate classes of shares that
differ from each other primarily in the allocation of certain distribution
expenses, sales charges and minimum investment amounts. This Prospectus offers
the Class A shares of the Tax-Managed Large Cap Fund (the "Portfolio").
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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
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<TABLE>
<CAPTION>
TAX-MANAGED
LARGE CAP
FUND
------------
<S> <C>
Management/Advisory Fees (AFTER FEE WAIVER) .70%(1)
12b-1 Fees None
Total Other Expenses .15%
Shareholder Servicing Fees (2) .03%
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Total Operating Expenses (AFTER FEE WAIVER) (3) .85%
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</TABLE>
(1) SEI INVESTMENTS MANAGEMENT CORPORATION ("SIMC") HAS AGREED TO WAIVE, ON A
VOLUNTARY BASIS, A PORTION OF ITS FEES, AND THE MANAGEMENT/ADVISORY FEES
SHOWN REFLECT THIS VOLUNTARY WAIVER. SUCH FEE WAIVER MAY BE TERMINATED AT
ANY TIME IN ITS SOLE DISCRETION. ABSENT FEE WAIVERS, MANAGEMENT/ADVISORY
FEES WOULD BE .75%.
(2) REFLECTS THE CURRENT LEVEL OF SHAREHOLDER SERVICING FEES. PLEASE SEE
"DISTRIBUTION AND SHAREHOLDER SERVICING."
(3) ABSENT FEE WAIVERS, TOTAL OPERATING EXPENSES FOR THE CLASS A SHARES OF THE
PORTFOLIO WOULD BE .90%. ADDITIONAL INFORMATION MAY BE FOUND UNDER "THE
ADVISER," "THE SUB-ADVISERS" AND "THE MANAGER."
EXAMPLE CLASS A
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<TABLE>
<CAPTION>
1 YR. 3 YRS.
----------- -----------
<S> <C> <C>
An investor in the Portfolio would pay the following expenses on a $1,000
investment assuming (1) a 5% annual return and (2) redemption at the end of each time period:
Tax-Managed Large Cap Fund $ 9 $ 27
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</TABLE>
THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
THE PURPOSE OF THE EXPENSE TABLE AND EXAMPLE IS TO ASSIST THE INVESTOR IN
UNDERSTANDING THE VARIOUS COSTS AND EXPENSES THAT MAY BE DIRECTLY OR INDIRECTLY
BORNE BY INVESTORS IN CLASS A SHARES OF THE PORTFOLIO. 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," "THE SUB-ADVISERS" AND "DISTRIBUTION AND SHAREHOLDER SERVICING."
2
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THE TRUST
__________________________________________________________________________
SEI INSTITUTIONAL MANAGED TRUST (the "Trust") is an open-end investment
management company that offers units of beneficial interest ("shares") in
separate diversified portfolios. This prospectus offers Class A shares of the
Trust's Tax-Managed Large Cap Fund (the "Portfolio"). The investment adviser and
investment sub-advisers to the Portfolio are referred to collectively as the
"advisers." 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 OBJECTIVE
AND POLICIES
___________________________________________________________________________
TAX-MANAGED LARGE
CAP FUND
The Tax-Managed Large Cap Fund's investment objective is to
achieve high long-term, after-tax returns for its
shareholders. The investment objective of the Portfolio is
fundamental, and may not be changed unless authorized by a
vote of the Portfolio's shareholders.
Under normal market conditions, the Portfolio will
invest at least 80% of its total assets in equity
securities of large companies (I.E., companies with market
capitalizations of more than $1 billion at the time of
purchase). Any remaining assets may be invested in
investment grade fixed income securities, including
tax-exempt securities and variable and floating rate
securities, or in equity securities of smaller companies
that the Portfolio's advisers believe are appropriate in
light of the Portfolio's objective. The Portfolio may
acquire shares of other investment companies, when-issued
and delayed-delivery securities and zero coupon
obligations, and may invest in securities that are
illiquid. The Portfolio may also borrow money and lend its
securities to qualified borrowers.
THE TAX-MANAGED LARGE
CAP FUND'S INVESTMENT
APPROACH
The Portfolio is designed for long-term taxable investors,
including high net worth individuals. While the Portfolio
seeks to minimize taxes associated with the Portfolio's
investment income and realized capital gains, the Portfolio
is very likely to have taxable investment income and will
likely realize taxable gains from time to time.
The Portfolio seeks to achieve favorable after-tax
returns for its shareholders in part by minimizing the
taxes they incur in connection with the Portfolio's
realization of investment income and capital gains. Taxable
investment income will be minimized by investing primarily
in lower yielding securities. If this strategy is carried
out, the Portfolio can be expected to distribute relatively
low levels of taxable investment income.
Realized capital gains will be minimized in part by
investing primarily in established companies with the
expectation of holding these securities for a period of
years. The Portfolio's advisers will generally seek to
avoid realizing short-term capital gains, thereby
minimizing portfolio turnover. When a decision is made to
sell a particular appreciated security, the Portfolio will
attempt to select for sale those share lots with holding
periods sufficient to qualify for long-term capital gains
treatment and among those, the share lots
3
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with the highest cost basis. The Portfolio may, when
prudent, sell securities to realize capital losses that can
be used to offset realized capital gains.
To protect against price declines affecting
securities with large unrealized gains, the Portfolio may
use hedging techniques such as the purchase of put options,
short sales "against the box," the sale of stock index
futures contracts, and equity swaps. By using these
techniques rather than selling such securities, the
Portfolio will attempt to reduce its exposure to price
declines without realizing substantial capital gains under
the current tax law. Although the Portfolio may utilize
certain hedging strategies in lieu of selling appreciated
securities, the Portfolio's exposure to losses during stock
market declines may nonetheless be higher than that of
other funds that do not follow a general policy of avoiding
sales of highly-appreciated securities.
There can be no assurance that the Portfolio will
achieve its investment objective.
GENERAL INVESTMENT
POLICIES AND RISK
FACTORS
____________________________________________________________________________
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 and convertible securities. Equity securities
also include structured securities whose risk and return
characteristics are similar to those of traditional equity
securities. Changes in the value of portfolio securities
will not necessarily affect cash income derived from these
securities, but will affect the Portfolio's net asset
value.
Investments in small or middle capitalization
companies involve greater risk than is customarily
associated with larger, more established companies due to
the greater business risks of small size, limited markets
and financial resources, narrow product lines and the
frequent lack of depth of management. The securities of
small or medium-sized companies are often traded
over-the-counter, and may not be traded in volumes typical
of securities traded on a national securities exchange.
Consequently, the securities of smaller companies may have
limited market stability and may be subject to more abrupt
or erratic market movements than securities of larger, more
established companies or the market averages in general.
FIXED INCOME SECURITIES
Fixed income securities consist primarily of debt
obligations issued by governments, corporations,
municipalities and other borrowers, but may also include
structured securities that provide for participation
interests in debt obligations. The market value of 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.
4
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Fixed income securities are considered investment
grade if they are rated in one of the four highest rating
categories by a nationally recognized statistical rating
organization ("NRSRO"), or, if not rated, are determined to
be of comparable quality by the Portfolio's advisers. Fixed
income securities rated BBB or Baa lack outstanding
investment characteristics, and have speculative
characteristics as well.
MONEY MARKET
SECURITIES
The Portfolio may hold cash reserves and invest in money
market instruments (including securities issued or
guaranteed by the U.S. Government, its agencies or
instrumentalities, repurchase agreements, certificates of
deposit and bankers' acceptances issued by banks or savings
and loan associations having net assets of at least $500
million as of the end of their most recent fiscal year,
shares of tax-exempt money market mutual funds, high-grade
commercial paper and other short-term debt securities)
rated at the time of purchase in the top two categories by
an NRSRO, or, if not rated, determined by the advisers to
be of comparable quality at the time of purchase.
OPTIONS AND FUTURES
The Portfolio may purchase or write options, futures and
options on futures. Risks associated with investing in
options and futures may include lack of a liquid secondary
market, trading restrictions which may be imposed by an
exchange and government regulations which may restrict
trading.
TAX-EXEMPT SECURITIES
The Portfolio may purchase tax-exempt securities issued by
state and local government issuers to obtain funds to
finance a variety of activities and public facilities,
including municipal bonds and notes. Tax-exempt securities
are obligations of the municipality that issued the
securities and may be subject to the issuer's financial
condition or ability to collect taxes.
TEMPORARY DEFENSIVE
INVESTMENTS
In order to meet liquidity needs, or for temporary
defensive purposes, the Portfolio may invest up to 100% of
its assets in cash and money market securities. To the
extent the Portfolio is engaged in temporary defensive
investing, it will not be pursuing its investment
objective.
For additional information regarding the Portfolio's
permitted investments, see "Description of Permitted
Investments and Risk Factors" in this Prospectus and
"Description of Permitted Investments" in the Statement of
Additional Information. For a description of the above
ratings, see "Description of Ratings" 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 the Portfolio without the consent of the holders
of a majority of the Trust's or the Portfolio's outstanding
shares.
5
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THE PORTFOLIO MAY NOT:
1. With respect to 75% of its assets, (i) purchase the
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
its total assets would be invested in the securities of
such issuer; or (ii) acquire more than 10% of the
outstanding voting securities of any one issuer.
2. Purchase any securities which would cause more than 25%
of the total assets of the Portfolio 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, its agencies or
instrumentalities.
3. Borrow money in an amount exceeding 33 1/3 of the value
of its total assets, provided that, for purposes of this
limitation, investment strategies which either obligate
the Portfolio to purchase securities or require the
Portfolio to segregate assets are not considered to be
borrowings. To the extent that its borrowings exceed 5%
of its assets, (i) all borrowings will be repaid before
making additional investments and any interest paid on
such borrowings will reduce income; and (ii) asset
coverage of at least 300% is required.
The foregoing percentage limitations will apply at the time
of the purchase of a security. Additional fundamental and
non-fundamental investment limitations are set forth in the
Trust's 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. In
addition, SEI Management also serves as transfer agent (the
"Transfer Agent") for the Class A shares 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 .35% of the average daily net
assets of the Portfolio. SEI Management may waive all or a
portion of its fee in order to limit the operating expenses
of the Portfolio. Any such waivers are voluntary and may be
terminated at any time in SEI Management's sole discretion.
THE ADVISER
_______________________________________________________________________
SEI INVESTMENTS
MANAGEMENT
CORPORATION
SEI Investments Management Corporation ("SIMC") serves as
investment adviser to the Portfolio. SIMC is a wholly-owned
subsidiary of SEI Investments Company ("SEI Investments"),
a financial services company. The principal business
address of SEI Investments and SIMC is Oaks, Pennsylvania
19456. SEI Investments was founded in 1968, and is a
leading provider of investment solutions to banks,
institutional investors, investment advisers, and insurance
companies. Affiliates of SIMC have provided consulting
6
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advice to institutional investors for more than 20 years,
including advice regarding selection and evaluation of
investment advisers. SIMC currently serves as manager or
administrator to more than 46 investment companies,
including more than 345 portfolios, which investment
companies have more than $99.9 billion in assets as of
September 30, 1997.
SIMC acts as the investment adviser to the Portfolio
and operates as a "manager of managers." As Adviser, SIMC
oversees the investment advisory services provided to the
Portfolio and manages the cash portion of the Portfolio's
assets. Pursuant to separate sub-advisory agreements with
SIMC, and under the supervision of SIMC and the Board of
Trustees, the sub-advisers are responsible for the
day-to-day investment management of all or a discrete
portion of the assets of the Portfolio. The sub-advisers
are selected based primarily upon the research and
recommendations of SIMC, which evaluates quantitatively and
qualitatively each sub-adviser's skills and investment
results in managing assets for specific asset classes,
investment styles and strategies. Subject to Board review,
SIMC allocates and, when appropriate, reallocates the
Portfolio's assets among sub-advisers, monitors and
evaluates sub-adviser performance, and oversees sub-adviser
compliance with the Portfolio's investment objectives,
policies and restrictions. SIMC HAS THE ULTIMATE
RESPONSIBILITY FOR THE INVESTMENT PERFORMANCE OF THE
PORTFOLIO DUE TO ITS RESPONSIBILITY TO OVERSEE SUB-ADVISERS
AND RECOMMEND THEIR HIRING, TERMINATION AND REPLACEMENT.
For these advisory services, SIMC is entitled to a
fee, which is calculated daily and paid monthly, at an
annual rate of .40% of the Tax-Managed Large Cap Fund's
average daily net assets. SIMC pays the sub-advisers a fee
out of its investment advisory fees, which fee is based on
a percentage of the average monthly market value of the
assets managed by each sub-adviser.
SIMC and the Trust have obtained an exemptive order
from the SEC that permits SIMC, with the approval of the
Trust's Board of Trustees, to retain sub-advisers
unaffiliated with SIMC for the Portfolio without submitting
the sub-advisory agreements to a vote of the Portfolio's
shareholders. The exemptive relief permits the disclosure
of only the aggregate amount payable by SIMC under all such
sub-advisory agreements. The Portfolio will notify
shareholders in the event of any addition or change in the
identity of its sub-advisers.
THE SUB-ADVISERS
_________________________________________________________________
ALLIANCE CAPITAL
MANAGEMENT L.P.
Alliance Capital Management L.P. ("Alliance"), serves as a
Sub-Adviser for a portion of the assets of the Portfolio.
Alliance is a registered investment adviser organized as a
Delaware limited partnership, which originated as Alliance
Capital Management Corporation in 1971. Alliance Capital
Management Corporation, an indirect wholly-owned subsidiary
of The Equitable Life Assurance Society of the United
States, is the general partner of Alliance. As of September
30, 1997, Alliance managed over $217.3 billion in assets.
The principal business address of Alliance is 1345 Avenue
of the Americas, New York, New York 10105.
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A committee of investment professionals at Alliance
manages the portion of the Portfolio's assets allocated to
Alliance. Mr. Christopher Toub has primary portfolio
management responsibility. For the past five years, Mr.
Toub has been a portfolio manager in Alliance's Disciplined
Growth team.
MELLON EQUITY
ASSOCIATES, LLP
Mellon Equity Associates, LLP ("Mellon Equity"), serves as
a Sub-Adviser for a portion of the assets of the Portfolio.
Mellon Equity is a Pennsylvania limited liability
partnership whose predecessor was founded in 1987. Mellon
Bank, N.A. is the 99% limited partner and MMIP, Inc. is the
1% general partner. MMIP, Inc. is a wholly-owned subsidiary
of Mellon Bank, N.A., which itself is a wholly-owned
subsidiary of the Mellon Bank Corporation. Mellon Equity is
a professional investment counseling firm that provides
investment management services to the equity and balanced
pension, public fund and profit-sharing investment
management markets, and is an investment adviser registered
under the Investment Advisers Act of 1940. Mellon Equity
had discretionary management authority with respect to
approximately $15.6 billion of assets as of September 30,
1997. The business address for Mellon Equity is 500 Grant
Street, Suite 3700, Pittsburgh, Pennsylvania 15258.
William P. Rydell and Robert A. Wilk manage the
portion of the Portfolio's assets allocated to Mellon
Equity. Mr. Rydell is the President and Chief Executive
Officer of Mellon Equity, and has been managing individual
and collective portfolios at Mellon Equity since 1982. Mr.
Wilk is a Senior Vice President and Portfolio Manager of
Mellon Equity, and has been involved with securities
analysis, quantitative research, asset allocation, trading
and client services at Mellon Equity since April 1990.
SANFORD C. BERNSTEIN
& CO., INC.
Sanford C. Bernstein & Co., Inc. ("Bernstein"), serves as a
Sub-Adviser for a portion of the assets of the Portfolio.
Founded in 1967, Bernstein is a registered investment
adviser that managed approximately $69.3 billion in assets
as of September 30, 1997. Bernstein is controlled by the
members of its Board of Directors and its principal
business address is 767 Fifth Avenue, New York, New York
10153.
Lewis A. Sanders, and Marilyn Goldstein Fedak are
primarily responsible for the day-to-day management and
investment decisions with respect to the assets of the
Portfolio. Mr. Sanders has been employed by Bernstein since
1969, and is currently Chairman of the Board, Chief
Executive Officer, and Director of Bernstein. Ms. Fedak,
Chief Investment Officer-Large Capitalization Domestic
Equities and a Director of Bernstein, has been employed by
Bernstein since 1984.
8
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DISTRIBUTION AND
SHAREHOLDER
SERVICING
__________________________________________________________________________
SEI Investments Distribution Co. (the "Distributor"), a
wholly-owned subsidiary of SEI Investments, serves as the
Portfolio's distributor pursuant to a distribution
agreement with the Trust.
The Portfolio has adopted a shareholder service plan
for Class A shares (the "Class A Service Plan") under which
firms, including the Distributor, that provide shareholder
and administrative services may receive compensation
therefor. Under the Class A Service Plan, the Distributor
may provide those services itself, or may enter into
arrangements under which third parties provide such
services and are compensated by the Distributor. Under such
arrangements, the Distributor may retain as profit any
difference between the fee it receives and the amount it
pays such third parties. In addition, the Portfolio may
enter into such arrangements directly. Under the Class A
Service Plan, the Portfolio may pay the Distributor a
negotiated fee at a rate of up to .25% annually of the
average daily net assets of the Portfolio attributable to
Class A shares that are subject to the arrangement in
return for provision of a broad range of shareholder and
administrative services, including: maintaining client
accounts; arranging for bank wires; responding to client
inquiries concerning services provided for investments;
changing dividend options; account designations and
addresses; providing sub-accounting; providing information
on share positions to clients; forwarding shareholder
communications to clients; processing purchase, exchange
and redemption orders; and processing dividend payments.
It is possible that an institution may offer
different classes of shares to its customers and 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 Class A shares of the
Portfolio for their own accounts or as 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
9
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allow for processing and transmittal of these orders to the
Transfer Agent for effectiveness the same day. Financial
institutions that 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"). The minimum initial investment
in the 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 the determination of net asset
value on any Business Day for the order to be accepted on
that Business Day. Purchase orders received by a fund after
the determination of net asset value will be effected at
the next Business Day's net asset value. Generally, payment
for portfolio shares must be transmitted on the next
Business Day following the day the order is placed. Payment
for such shares may only be transmitted or delivered in
federal funds to the wire agent. 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 its shareholders to accept such purchase order. In
addition, because excessive trading (including short-term
"market timing" trading) can hurt the Portfolio's
performance, the Portfolio may refuse purchase orders from
any shareholder account if the accountholder has been
advised that previous purchase and redemption transactions
were considered excessive in number or amount. Accounts
under common control or ownership, including those with the
same taxpayer identification number and those administered
so as to redeem or purchase shares based upon certain
predetermined market indicators, will be considered one
account for this purpose.
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 investments and other
assets, less any liabilities, by the total number of
outstanding shares of the Portfolio. Net asset value per
share is determined as of the regularly-scheduled close of
normal trading on the New York Stock Exchange (normally,
4:00 p.m. Eastern time) on each Business Day.
If there is no readily ascertainable market value for
a security, SEI Management will make a good faith
determination as to the "fair value" of the security.
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).
Shareholders who desire to redeem shares of the
Portfolio must place their redemption orders with the
Transfer Agent (or its authorized agent) prior to the
determination of net asset value on any Business Day.
Redemption orders received after the determination of net
asset value will be effected at the next Business Day's net
asset
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value. The redemption price is the net asset value per
share of the Portfolio next determined after receipt by the
Transfer Agent of the redemption order. Payment on
redemption will be made as promptly as possible and, in any
event, within seven days after the redemption order is
received.
Shares of the Portfolio may be purchased in exchange
for securities included in the Portfolio subject to SIMC'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.
SIMC and SEI Management will not accept securities
for the Portfolio unless (1) such securities are
appropriate for 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.
Purchase and redemption orders may be placed by
telephone. Neither the Trust nor the Transfer Agent will be
responsible for any loss, liability, cost or expense for
acting upon wire instructions or upon telephone
instructions that it reasonably believes to be genuine. The
Trust and the Transfer Agent will each employ reasonable
procedures to confirm that instructions communicated by
telephone are genuine, including requiring a form of
personal identification, prior to acting upon instructions
received by telephone and recording telephone instructions.
If market conditions are extraordinarily active, or
other extraordinary circumstances exist, and shareholders
experience difficulties placing redemption orders by
telephone, shareholders may wish to consider placing their
order by other means.
IN-KIND REDEMPTIONS
The Portfolio may follow the practice of distributing
selected appreciated securities to meet redemptions of
certain shareholders and may, within certain limits, use
the selection of securities distributed to meet such
redemptions as a management tool. By distributing
appreciated securities the Portfolio can reduce its
position in such securities without realizing capital
gains. During periods of net withdrawals by shareholders of
the Portfolio, using distributions of securities also
enables the Portfolio to avoid the forced sales of
securities to raise cash for meeting redemptions. The
Portfolio currently intends to meet redemptions solely in
cash, but may adopt in the future a policy of meeting
shareholder redemptions in whole or in part through the
distribution of readily marketable securities.
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Such a policy would only be adopted after giving notice to
the shareholders. A redeeming shareholder of the Portfolio
who received securities would incur no more or less taxable
gain than if the redemption had been paid in cash.
The Portfolio will only distribute readily marketable
securities, which would be valued pursuant to the
Portfolio's valuation procedures. The practice of
distributing appreciated securities to meet redemptions can
be a useful tool for the tax-efficient management of the
Portfolio. This election would need to be made in a letter
of instruction, which would be provided to shareholders
before the policy was implemented. Such shareholders could
incur brokerage charges and other costs (including taxes)
and may be exposed to market risk in selling the
distributed securities.
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. The yield of the Portfolio refers to the
annualized income generated by an investment in the
Portfolio over a specified 30-day period. The yield is
calculated by assuming that the same amount of income
generated by the investment during that period is generated
in each 30-day period 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 to a hypothetical
investment redeemed at the end of the specified period
covered by the total return figure, 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 and assuming the
reinvestment of all dividend and capital gain
distributions. The total return of the Portfolio may also
be quoted as a dollar amount or on an aggregate basis.
The Portfolio may periodically compare its
performance to that of: (i) other mutual funds tracked by
mutual fund rating services (such as Lipper Analytical),
financial and business publications and periodicals; (ii)
broad groups of comparable mutual funds; (iii) unmanaged
indices which may assume investment of dividends but
generally do not reflect deductions for administrative and
management costs; or (iv) other investment alternatives.
The Portfolio may quote Morningstar, Inc., a service that
ranks mutual funds on the basis of risk-adjusted or
after-tax performance, and Ibbotson Associates of Chicago,
Illinois, which provides historical returns of the capital
markets in the U.S. 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
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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 Portfolio may also use total
return figures showing after-tax returns, including
comparisons to tax-deferred vehicles such as Individual
Retirement Accounts ("IRAs") and variable annuities.
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 STRATEGY OF THE
PORTFOLIO
Taxes are a major influence on the net returns that
investors receive on their taxable investments. Today,
dividends and short-term capital gains distributed by
mutual funds are taxed at federal income tax rates as high
as 39.6%, and distributions of mid-term capital gains are
taxed at a rate of 28% and long-term capital gains are
taxed at a federal tax rate of 20%. Including state taxes
and the federal itemized deduction phaseout, the top tax
rates in high-tax states such as California, New York,
Massachusetts are in a range of 45-48% on dividend income
and short-term gains and 33-36% on mid- or long-term
capital gains.
Most equity mutual funds are managed to maximize
PRE-TAX returns, largely ignoring the considerable impact
on returns of taxes incurred by investors in connection
with distributions of income and capital gains. In
contrast, the Portfolio seeks to achieve high long-term
AFTER-TAX returns for its shareholders by managing its
investments so as to minimize and defer the taxes incurred
by shareholders as a consequence of their investment in the
Portfolio. The Portfolio seeks to achieve returns primarily
in the form of unrealized capital appreciation, which
currently does not give rise to tax obligations for
shareholders.
TAX STATUS
OF THE PORTFOLIO
The Portfolio is treated as a separate entity for federal
income tax purposes and is not combined with the Trust's
other portfolios. The Portfolio intends to continue to
qualify for the special tax treatment afforded regulated
investment companies ("RICs") under Subchapter M of the
Internal Revenue Code of 1986, as amended, so as to be
relieved of federal income tax on net investment company
taxable income (including the excess, if any, of net
short-term capital gains over net long-term capital losses)
and net capital gains (the excess of net long-term capital
gains over net short-term capital losses) distributed to
shareholders.
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TAX STATUS
OF DISTRIBUTIONS
The Portfolio distributes substantially all of its net
investment company taxable income to shareholders.
Dividends from the Portfolio's net investment company
taxable income are taxable to its shareholders as ordinary
income (whether received in cash or in additional shares),
and generally will qualify for the dividends-received
deduction for corporate shareholders to the extent that
such dividends are derived from dividends received by the
portfolio from domestic corporations. Distributions to
shareholders of net capital gains of the Portfolio also
will not qualify for the dividends-received deduction and
will be taxable to shareholders as long-term capital gain,
taxable at the rate of 20% for property held for more than
18 months and at the rate of 28% for property held for more
than 1 year but not for more than 18 months, whether
received in cash or additional shares, and regardless of
how long a shareholder has held the shares. The Portfolio
will provide annual reports to shareholders of the federal
income tax status of all distributions.
Dividends declared by the Portfolio in October,
November or December of any year and payable to
shareholders of record on a date in such a month will be
deemed to have been paid by the Portfolio and received by
the shareholders on December 31 of the year declared if
paid by the Portfolio at any time during the following
January.
The Portfolio intends to make sufficient
distributions to avoid liability for the federal excise tax
applicable to RICs.
The sale, exchange or redemption of the Portfolio's
shares generally 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 October 20, 1986. The
Declaration of Trust permits the Trust to offer separate
series ("portfolios") of shares and different classes of
each portfolio. All consideration received by the Trust for
shares of any class of any portfolio and all assets of such
portfolio or class belong to that portfolio or class,
respectively, and would be subject to the liabilities
related thereto.
The Trust pays its expenses, including fees of its
service providers, audit and legal expenses, expenses of
preparing prospectuses, proxy solicitation materials and
reports to shareholders, costs of custodial services and
registering the shares under federal and state securities
laws, pricing, insurance expenses, litigation and other
extraordinary expenses, brokerage costs, interest charges,
taxes and organization expenses.
Certain shareholders in one or more of the portfolios
may obtain asset allocation services from the Adviser and
other financial intermediaries with respect to their
investments in such portfolios. If a sufficient amount of
the Portfolio's assets are subject to such asset allocation
services, the Portfolio may incur higher transaction costs
and a higher portfolio turnover rate than would otherwise
be anticipated as a result of redemptions and purchases of
Portfolio shares pursuant to such services. Further, to the
extent that the
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Adviser is providing asset allocation services and
providing investment advice to the Portfolio, it may face
conflicts of interest in fulfilling its responsibilities
because of the possible differences between the interests
of its asset allocation clients and the interest of the
Portfolio.
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. The shareholders of the Portfolio or class will vote
separately on matters pertaining solely to the Portfolio or
class, such as any distribution plan. As a Massachusetts
business trust, the Trust is not required to hold annual
meetings of shareholders, but approval will be sought for
certain changes in the operation of the Trust and for the
election of Trustees under certain circumstances. In
addition, a Trustee may be removed by the remaining
Trustees or by shareholders at a special meeting called
upon written request of shareholders owning at least 10% of
the outstanding shares of the Trust. In the event that such
a meeting is requested, the Trust will provide appropriate
assistance and information to the shareholders requesting
the meeting.
REPORTING
The Trust issues unaudited financial statements
semi-annually and audited financial statements annually.
The Trust furnishes proxy statements and other reports to
shareholders of record.
SHAREHOLDER INQUIRIES
Shareholder inquiries should be directed to the Manager,
SEI Fund Management, Oaks, Pennsylvania 19456.
DIVIDENDS AND
DISTRIBUTIONS
The Portfolio will be managed toward an objective of
achieving long-term, after-tax returns in part by
minimizing shareholders taxes. Because distributions of net
investment income and realized capital gains give rise to
shareholder taxes, the Portfolio will generally seek to
select and manage its investments so as to minimize net
investment income and net realized gains and associated
distributions. The Portfolio can be expected to generally
distribute a lesser percentage of returns each year than
other equity mutual funds. There can be no assurance,
however, that the Portfolio can be managed to avoid taxable
distributions. The Portfolio's ability to utilize or the
desirability of various tax management techniques and
securities lending may be reduced or eliminated by future
tax and other legislation, regulations, administrative
interpretations, or court decisions.
Substantially all of the net investment income
(exclusive of capital gains) of the Portfolio is
periodically declared and paid as a dividend. Dividends
currently are paid on a quarterly basis for the Portfolio.
To the extent that the Portfolio has net investment
income and net realized capital gains in any year, the
Portfolio's present policy is to make (A) at least one
distribution annually (normally in December) of all or
substantially all of the investment income (if
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any), less the Portfolio's direct expenses, and (B) at
least one distribution annually of all or substantially all
of the net realized capital gains (if any), reduced by any
available capital loss carryforwards from prior years.
Shareholders may reinvest all distributions in shares of
the Portfolio at the net asset value per share as of the
close of business on the record date.
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 distribution, a shareholder will pay the full
price for the share and receive some portion of the price
back as a taxable dividend or distribution.
COUNSEL AND INDEPENDENT
ACCOUNTANTS
Morgan, Lewis & Bockius LLP serves as counsel to the Trust.
Price Waterhouse LLP serves as the independent accountants
of the Trust.
CUSTODIAN AND WIRE AGENT
CoreStates Bank, N.A., Broad and Chestnut Streets, P.O. Box
7618, Philadelphia, Pennsylvania 19101 (the "Custodian"),
acts as custodian and wire agent of the Trust's assets. The
Custodian holds cash, securities and other assets of the
Trust as required by the 1940 Act.
DESCRIPTION OF
PERMITTED
INVESTMENTS AND RISK
FACTORS ______________________________________________________________________
The following is a description of the permitted investment
practices for the Portfolio, and the associated risk
factors:
AMERICAN DEPOSITARY
RECEIPTS ("ADRS")
ADRs are securities, typically issued by a U.S. financial
institution (a "depositary"), that evidence ownership
interests in a security or a pool of securities issued by a
foreign issuer and deposited with the depositary. ADRs may
be available through "sponsored" or "unsponsored"
facilities. A sponsored facility is established jointly by
the issuer of the security underlying the receipt and a
depositary, whereas an unsponsored facility may be
established by a depositary without participation by the
issuer of the underlying security.
CONVERTIBLE SECURITIES
Convertible securities are corporate securities that are
exchangeable for a set number of another security at a
prestated price. Convertible securities typically have
characteristics similar to both fixed-income and equity
securities. Because of the conversion feature, the market
value of a convertible security tends to move with the
market value of the
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underlying stock. The value of a convertible security is
also affected by prevailing interest rates, the credit
quality of the issuer, and any call provisions.
DERIVATIVES
Derivatives are securities that derive their value from
other securities, assets, or indices. The following are
considered derivative securities: options on futures,
futures, options (E.G., puts and calls), swap agreements,
mortgage-backed securities (E.G., CMOs, REMICs, IOs and
POs), when-issued securities and forward commitments,
floating and variable rate securities, convertible
securities, "stripped" U.S. Treasury securities (E.G.,
Receipts and STRIPs), privately issued stripped securities
(E.G., TGRs, TRs and CATS). See elsewhere in this
"Description of Permitted Investments and Risk Factors" for
discussions of certain of these instruments.
FUTURES AND OPTIONS ON
FUTURES
Futures contracts provide for the future sale by one party
and purchase by another party of a specified amount of a
specific security at a specified future time and at a
specified price. An option on a futures contract gives the
purchaser the right, in exchange for a premium, to assume a
position in a futures contract at a specified exercise
price during the term of the option. The Portfolio may use
futures contracts and related options for BONA FIDE hedging
purposes, to offset changes in the value of securities held
or expected to be acquired or be disposed of, to minimize
fluctuations in foreign currencies, or to gain exposure to
a particular market or instrument. The Portfolio will
minimize the risk that it will be unable to close out a
futures contract by only entering into futures contracts
that are traded on national futures exchanges.
An 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 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 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 invests in futures contracts, it will cover
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. That amount will be marked to market on a daily
basis.
There are risks associated with these activities,
including the following: (1) the success of a hedging
strategy may depend on an ability to predict movements in
the prices of individual securities, fluctuations in
markets and movements in interest rates; (2) there may be
an imperfect or no correlation between the changes in
market value of the securities held by the Portfolio and
the prices of futures and options on futures; (3) there may
not be a liquid secondary market for a futures contract or
option; (4) trading restrictions or limitations may be
imposed by an exchange; and (5) government regulations may
restrict trading in futures contracts and options on
futures.
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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 maturities over seven days in length.
MONEY MARKET SECURITIES
Money market securities are high-quality, dollar- and
nondollar-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 and governments that
issue high-quality commercial paper or similar securities;
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, and 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.
OPTIONS
The Portfolio may purchase and write put and call options
on indices and enter in related closing transactions. A put
option on a security gives the purchaser of the option the
right to sell, and the writer of the option the obligation
to buy, the underlying security at any time during the
option period. A call option on a security gives the
purchaser of the option the right to buy, and the writer of
the option the obligation to sell, the underlying security
at any time during the option period. The premium paid to
the writer is the consideration for undertaking the
obligations under the option contract.
Put and call options on indices are similar to
options on securities, except that options on an index give
the holder the right to receive, upon exercise of the
option, an amount of cash if the closing level of the
underlying index is greater than (or less than, in the case
of puts) the exercise price of the option. This amount of
cash is equal to the difference between the closing price
of the index and the exercise price of the option,
expressed in dollars multiplied by a specified number.
Thus, unlike options on individual securities, all
settlements are in cash, and gain or loss depends on price
movements in the
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particular market represented by the index generally,
rather than the price movements in individual securities.
All options written on indices or securities must be
covered. When the Portfolio writes an option on an index or
a security, it will establish a segregated account
containing cash or liquid securities in an amount at least
equal to the market value of the option and will maintain
the account while the option is open or will otherwise
cover the transaction.
RISK FACTORS: Risks associated with options
transactions include: (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
correlation between the movement in prices of options and
the securities underlying them; (3) there may not be a
liquid secondary market for options; and (4) while the
Portfolio will receive a premium when it writes covered
call options, it may not participate fully in a rise in the
market value of the underlying security.
RECEIPTS
Receipts are sold as zero coupon securities, which means
that they are sold at a substantial discount and redeemed
at face value at their maturity date without interim cash
payments of interest or principal. This discount is
accreted over the life of the security, and such accretion
will constitute the income earned on the security for both
accounting and tax purposes. Because of these features,
such securities may be subject to greater interest rate
volatility than interest paying securities.
REITS
REITs are trusts that invest primarily in commercial real
estate or real estate-related loans. A real estate
investment trust ("REIT") is not taxed on income
distributed to its shareholders or unitholders if it
complies with regulatory requirements relating to its
organization, ownership, assets and income, and with a
regulatory requirement that it distribute to its
shareholders or unitholders at least 95% of its taxable
income for each taxable year. Generally, REITs can be
classified as Equity REITs, Mortgage REITs and Hybrid
REITs. Equity REITs invest the majority of their assets
directly in real property and derive their income primarily
from rents and capital gains from appreciation realized
through property sales. Mortgage REITs invest the majority
of their assets in real estate mortgages and derive their
income primarily from interest payments. Hybrid REITs
combine the characteristics of both Equity and Mortgage
REITs. By investing in REITs indirectly through the
Portfolio, shareholders will bear not only the
proportionate share of the expenses of the Portfolio, but
also, indirectly, similar expenses of underlying REITs.
A Portfolio may be subject to certain risks
associated with the direct investments of the REITs. REITs
may be affected by changes in the value of their underlying
properties and by defaults by borrowers or tenants.
Mortgage REITs may be affected by the quality of the credit
extended. Furthermore, REITs are dependent on specialized
management skills. Some REITs may have limited
diversification and may be subject to risks inherent in
financing a limited number of properties. REITs depend
generally on their ability to generate cash flow to make
distributions to shareholders or unitholders, and may be
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subject to defaults by borrowers and to self-liquidations.
In addition, a REIT may be affected by its failure to
qualify for tax-free pass-through of income under the Code
or its failure to maintain exemption from registration
under the 1940 Act.
REPURCHASE AGREEMENTS
Arrangements 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.
SECURITIES LENDING
In order to generate additional income, the Portfolio may
lend its securities pursuant to agreements that require
that the loan be continuously secured by collateral
consisting of cash or securities of the U.S. Government or
its agencies equal to at least 100% of the market value of
the loaned securities. The Portfolio continues to receive
interest on the loaned securities while simultaneously
earning interest on the investment of cash collateral.
Collateral is marked to market daily. There may be risks of
delay in recovery of the securities or even loss of rights
in the collateral should the borrower of the securities
fail financially or become insolvent.
TAX-EXEMPT SECURITIES
Tax-exempt securities consist of (i) debt obligations
issued by or on behalf of state or local public authorities
to obtain funds to be used for various public facilities,
for refunding outstanding obligations, for general
operating expenses and for lending such funds to other
public institutions and facilities, and (ii) certain
private activity and industrial development bonds issued by
or on behalf of public authorities to obtain funds to
provide for the construction, equipment, repair or
improvement of privately operated facilities.
General obligation bonds are backed by the taxing
power of the issuing municipality. Revenue bonds are backed
by the revenues of a project or facility, tolls from a toll
bridge, for example. Certificates of participation
represent an interest in an underlying obligation or
commitment such as an obligation issued in connection with
a leasing arrangement. The payment of principal and
interest on private activity and industrial development
bonds generally is dependent solely on the ability of the
facility's user to meet its financial obligations and the
pledge, if any, of real and personal property so financed
as security for such payment. Municipal notes include
general obligation notes, tax anticipation notes, revenue
anticipation notes, bond anticipation notes, certificates
of indebtedness, demand notes and construction loan notes
and participation interests in municipal notes. Municipal
bonds include general obligation bonds, revenue or special
obligation bonds, private activity and industrial
development bonds and participation interests in municipal
bonds.
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
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by the full faith and credit of the U.S. Treasury, and
others are supported by the right of the issuer to borrow
from the Treasury, while still others are supported only by
the credit of the instrumentality.
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.
U.S. TREASURY RECEIPTS
U.S. Treasury receipts are interests in separately traded
interest and principal component parts of U.S. Treasury
obligations that are issued by banks or brokerage firms and
are created by depositing U.S. Treasury notes and
obligations into a special account at a custodian bank. The
custodian holds the interest and principal payments for the
benefit of the registered owners of the certificates of
receipts. The custodian arranges for the issuance of the
certificates or receipts evidencing ownership and maintains
the register.
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
some other reset period, and may have a floor or ceiling on
interest rate changes.
WARRANTS
Warrants are instruments giving holders the right, but not
the obligation, to buy equity or fixed income securities of
a company at a given price during a specified period.
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 permitted investments and risk
factors can be found in the Statement of Additional
Information.
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TABLE OF CONTENTS
_________________________________________________________________
<TABLE>
<S> <C>
Annual Operating Expenses........................ 2
The Trust........................................ 3
Investment Objective and Policies................ 3
General Investment Policies and Risk Factors..... 4
Investment Limitations........................... 5
The Manager...................................... 6
The Adviser...................................... 6
The Sub-Advisers................................. 7
Distribution and Shareholder Servicing........... 9
Purchase and Redemption of Shares................ 9
Performance...................................... 12
Taxes............................................ 13
General Information.............................. 14
Description of Permitted Investments and Risk
Factors......................................... 16
</TABLE>
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SEI INSTITUTIONAL MANAGED TRUST
Manager:
SEI Fund Management
Distributor:
SEI Investments Distribution Co.
Investment Adviser and Sub-Advisers:
Alliance Capital Management L.P.
Sanford C. Bernstein & Co., Inc.
Mellon Equity Associates, LLP
SEI Investments Management Corporation
This STATEMENT OF ADDITIONAL INFORMATION is not a Prospectus. It is intended
to provide additional information regarding the activities and operations of the
Tax-Managed Large Cap Fund (the "Portfolio") and should be read in conjunction
with the Portfolio's Prospectus dated March 4, 1998. The Prospectus may be
obtained by writing the Trust's distributor, SEI Investments Distribution Co.,
at Oaks, Pennsylvania 19456, or by calling 1-800-342-5734.
TABLE OF CONTENTS
<TABLE>
<S> <C>
The Trust............................................................................. S-2
Description of Permitted Investments.................................................. S-2
Investment Limitations................................................................ S-9
Description of Ratings................................................................ S-10
The Manager........................................................................... S-14
The Adviser and Sub-Advisers.......................................................... S-14
Distribution and Shareholder Servicing................................................ S-15
Trustees and Officers of the Trust.................................................... S-15
Performance........................................................................... S-17
Purchase and Redemption of Shares..................................................... S-18
Taxes................................................................................. S-19
Portfolio Transactions................................................................ S-21
Description of Shares................................................................. S-22
Limitation of Trustees' Liability..................................................... S-22
Voting................................................................................ S-22
Shareholder Liability................................................................. S-22
March 4, 1998
</TABLE>
<PAGE>
THE TRUST
SEI Institutional Managed Trust (the "Trust") is an open-end management
investment company that offers shares of diversified portfolios. The Trust was
established as a Massachusetts business trust pursuant to a Declaration of Trust
dated October 20, 1986. The Declaration of Trust permits the Trust to offer
separate series ("portfolios") of units of beneficial interest ("shares") and
separate classes of portfolios. Shareholders may purchase shares in certain
portfolios through two separate classes, Class A and Class D, which provide for
variations in sales charges, distribution costs, transfer agent fees, voting
rights and dividends. Except for differences between the Class A shares and/or
Class D shares pertaining to sales charges, distribution and shareholder
servicing, voting rights, dividends and transfer agent expenses, 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 only to Class A shares of
the Tax-Managed Large Cap Fund (the "Portfolio").
DESCRIPTION OF PERMITTED INVESTMENTS
THE PORTFOLIO MAY INVEST IN THE FOLLOWING INVESTMENTS UNLESS SPECIFICALLY
NOTED OTHERWISE.
AMERICAN DEPOSITORY RECEIPTS ("ADRS")--The Portfolio may invest in ADRs
traded on registered exchanges or on NASDAQ. The Portfolio may also invest in
ADRs not traded on an established exchange. While the Portfolio typically
invests in sponsored ADRs, joint arrangements between the issuer and the
depositary, some ADRs may be unsponsored. Unlike sponsored ADRs, the holders of
unsponsored ADRs bear all expenses and the depositary may not be obligated to
distribute shareholder communications or to pass through the voting rights on
the deposited securities.
BANKERS' ACCEPTANCES--A bankers' acceptance is a bill of exchange or time
draft drawn on and accepted by a commercial bank. It is used by corporations to
finance the shipment and storage of goods and to furnish dollar exchange.
Maturities are generally six months or less.
CERTIFICATES OF DEPOSIT--A certificate of deposit is a negotiable,
interest-bearing instrument with a specific maturity. Certificates of deposit
are issued by banks and savings and loan institutions in exchange for the
deposit of funds, and normally can be traded in the secondary market prior to
maturity. Certificates of deposit have penalties for early withdrawal.
COMMERCIAL PAPER--Commercial paper is the term used to designate unsecured,
short-term promissory notes issued by corporations and other entities.
Maturities on these issues vary from a day to nine months.
CONVERTIBLE SECURITIES--Convertible securities have characteristics similar
to both fixed income and equity securities. Because of the conversion feature,
the market value of convertible securities tends to move together with the
market value of the underlying stock. As a result, the Portfolio's selection of
convertible securities is based, to a great extent, on the potential for capital
appreciation that may exist in the underlying stock. The value of convertible
securities is also affected by prevailing interest rates, the credit quality of
the issuer and any call provisions.
FOREIGN SECURITIES--The Portfolio may invest in U.S. dollar denominated
obligations or securities of foreign issuers. In addition, the Portfolio may
invest in Yankee Obligations. Permissible investments may consist of obligations
of foreign branches of U.S. banks and foreign banks, including European
Certificates of Deposit, European Time Deposits, Canadian Time Deposits, Yankee
Certificates of Deposit and investments in Canadian Commercial Paper, foreign
securities and Europaper. These instruments may subject the Portfolio to
investment risks that differ in some respects from those related to investments
in obligations of U.S. issuers. Such risks include future adverse political and
economic developments, the possible imposition of withholding taxes on interest
or other income, possible seizure, nationalization, or expropriation of foreign
deposits, the possible establishment of exchange controls or
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taxation at the source, greater fluctuations in value due to changes in the
exchange rates, or the adoption of other foreign governmental restrictions which
might adversely affect the payment of principal and interest on such
obligations. Such investments may also entail higher custodial fees and sales
commissions than domestic investments. Foreign issuers of securities or
obligations are often subject to accounting treatment and engage in business
practices different from those respecting domestic issuers of similar securities
or obligations. Foreign branches of U.S. banks and foreign banks may be subject
to less stringent reserve requirements than those applicable to domestic
branches of U.S. banks.
FORWARD FOREIGN CURRENCY CONTRACTS--At the maturity of a forward contract,
the Portfolio may either sell a portfolio security and make delivery of the
foreign currency, or it may retain the security and terminate its contractual
obligation to deliver the foreign currency by purchasing an "offsetting"
contract with the same currency trader, obligating it to purchase, on the same
maturity date, the same amount of the foreign currency. The Portfolio may
realize a gain or loss from currency transactions. The Portfolio will place
assets in a segregated account to assure that its obligations under forward
foreign currency contracts are covered.
FUTURES AND OPTIONS ON FUTURES--The 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 "bone 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.
The Portfolio may buy and sell futures contracts and related options to manage
its exposure to changing interest rates and securities prices. Some strategies
reduce the 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 the
Portfolio's return.
MORTGAGE-BACKED SECURITIES--The Portfolio may, consistent with its
investment objective and policies, invest in mortgage-backed securities.
Mortgage-backed securities in which the Portfolio may invest represent pools
of mortgage loans assembled for sale to investors by various governmental
agencies such as the Government National Mortgage Association ("GNMA"), and
government-related organizations such as Fannie Mae and the Federal Home Loan
Mortgage Corporation ("FHLMC"), as well as by non-governmental issuers such as
commercial banks, savings and loan institutions, mortgage bankers, and private
mortgage insurance companies. Although certain mortgage-backed securities are
guaranteed by a third party or otherwise similarly secured, the market value of
the security, which may fluctuate, is not so secured. If the Portfolio purchases
a mortgage-backed security at a premium, that portion may be lost if there is a
decline in the market value of the security whether resulting from changes in
interest rates or prepayments in the underlying mortgage collateral. As with
other interest-bearing securities, the prices of such securities are inversely
affected by changes in interest rates. However, though the value of a
mortgage-backed security may decline when interest rates rise, the converse is
not necessarily true since in periods of declining interest rates the mortgages
underlying the securities are prone to prepayment. When the mortgage-backed
securities held by the Portfolio are prepaid, the Portfolio must reinvest the
proceeds in securities the yield of which reflects prevailing interest rates,
which may be lower than the prepaid security. For this and other reasons, a
mortgage-backed security's stated maturity may be shortened by unscheduled
prepayments on the underlying mortgages and, therefore, it is not possible to
predict accurately the security's return to the Portfolio. In addition, regular
payments received in respect of mortgage-backed securities include both interest
and principal. No assurance can be given as to the return the Portfolio will
receive when these amounts are reinvested.
The Portfolio may also invest in mortgage-backed securities that are
collateralized mortgage obligations structured on pools of mortgage pass-through
certificates or mortgage loans. For purposes of determining the average maturity
of a mortgage-backed security in its investment portfolio, the Portfolio will
utilize the expected average life of the security, as estimated in good faith by
the Portfolio's advisers.
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Unlike most single family residential mortgages, commercial real estate property
loans often contain provisions which substantially reduce the likelihood that
such securities will be prepaid. The provisions generally impose significant
prepayment penalties on loans and, in some cases there may be prohibitions on
principal prepayments for several years following origination.
There are a number of important differences among the agencies and
instrumentalities of the U.S. Government that issue mortgage-backed securities
and among the securities that they issue. Mortgage-backed securities issued by
the GNMA include GNMA Mortgage Pass-Through Certificates (also known as "Ginnie
Maes") that are guaranteed as to the timely payment of principal and interest by
GNMA and are backed by the full faith and credit of the United States. GNMA is a
wholly-owned U.S. Government corporation within the Department of Housing and
Urban Development. GNMA certificates also are supported by the authority of GNMA
to borrow funds from the U.S. Treasury to make payments under its guarantee.
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. Fannie Mae
REMIC Certificates are issued and guaranteed as to timely distribution of
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. 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.
MUNICIPAL SECURITIES--The Portfolio may invest in municipal securities. The
two principal classifications of Municipal Securities are "general obligation"
and "revenue" issues. General obligation issues are issues involving the credit
of an issuer possessing taxing power and are payable from the issuer's general
unrestricted revenues, although the characteristics and method of enforcement of
general obligation issues may vary according to the law applicable to the
particular issuer. Revenue issues are payable only from the revenues derived
from a particular facility or class of facilities or other specific revenue
source. The Portfolio may also invest in "moral obligation" issues, which are
normally issued by special purpose authorities. Moral obligation issues are not
backed by the full faith and credit of the state and are generally backed by the
agreement of the issuing authority to request appropriations from the state
legislative body. Municipal Securities include debt obligations issued by
governmental entities to obtain funds for various public purposes, such as the
construction of a wide range of public facilities, the refunding of outstanding
obligations, the payment of general operating expenses, and the extension of
loans to other public institutions and facilities. Certain private activity
bonds that are issued by or on behalf of public authorities to finance various
privately-owned or operated facilities are included within the term "Municipal
Securities." Private activity bonds and industrial development bonds are
generally revenue bonds, the credit and quality of which are directly related to
the credit of the private user of the facilities.
Municipal Securities may also include general obligation notes, tax
anticipation notes, bond anticipation notes, revenue anticipation notes, project
notes, certificates of indebtedness, demand notes, tax-exempt commercial paper,
construction loan notes and other forms of short-term, tax-exempt loans. Such
instruments are issued with a short-term maturity in anticipation of the receipt
of tax funds, the proceeds
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of bond placements or other revenues. Project notes are issued by a state or
local housing agency and are sold by the Department of Housing and Urban
Development. While the issuing agency has the primary obligation with respect to
its project notes, they are also secured by the full faith and credit of the
United States through agreements with the issuing authority which provide that,
if required, the federal government will lend the issuer an amount equal to the
principal of and interest on the project notes.
The quality of Municipal Securities, both within a particular classification
and between classifications, will vary, and the yields on Municipal Securities
depend upon a variety of factors, including general money market conditions, the
financial condition of the issuer (or other entity whose financial resources are
supporting the securities), general conditions of the municipal bond market, the
size of a particular offering, the maturity of the obligation and the rating(s)
of the issue. In this regard, it should be emphasized that the ratings of any
NRSRO are general and are not absolute standards of quality. Municipal
Securities with the same maturity, interest rate and rating(s) may have
different yields, while Municipal Securities of the same maturity and interest
rate with different rating(s) may have the same yield.
An issuer's obligations under its Municipal Securities are subject to the
provisions of bankruptcy, insolvency, and other laws affecting the rights and
remedies of creditors, such as the Federal Bankruptcy Code, and laws, if any,
which may be enacted by Congress or state legislatures extending the time for
payment of principal or interest, or both, or imposing other constraints upon
the enforcement of such obligations or upon the ability of municipalities to
levy taxes. The power or ability of an issuer to meet its obligations for the
payment of interest on and principal of its Municipal Securities may be
materially adversely affected by litigation or other conditions.
MUNICIPAL LEASES--The Portfolio may invest in instruments, or participations
in instruments, issued in connection with lease obligations or installment
purchase contract obligations of municipalities ("municipal lease obligations").
Although municipal lease obligations do not constitute general obligations of
the issuing municipality, a lease obligation is ordinarily backed by the
municipality's covenant to budget for, appropriate funds for, and make the
payments due under the lease obligation. However, certain lease obligations
contain "non-appropriation" clauses, which provide that the municipality has no
obligation to make lease or installment purchase payments in future years unless
money is appropriated for such purpose in the relevant years. Municipal lease
obligations are a relatively new form of financing, and the market for such
obligations is still developing. Municipal leases will be treated as liquid only
if they satisfy criteria set forth in guidelines established by the Board of
Trustees, and there can be no assurance that a market will exist or continue to
exist for any municipal lease obligation.
PAY-IN-KIND BONDS--Investments of the Portfolio in fixed-income securities
may include pay-in-kind bonds. These are securities which, at the issuer's
option, pay interest in either cash or additional securities for a specified
period. Pay-in-kind bonds, like zero coupon bonds, are designed to give an
issuer flexibility in managing cash flow. Pay-in-kind bonds are expected to
reflect the market value of the underlying debt plus an amount representing
accrued interest since the last payment. Pay-in-kind bonds are usually less
volatile than zero coupon bonds, but more volatile than cash pay securities.
OPTIONS--Options are contracts that give one of the parties to the contract
the right to buy or sell the security that is subject to the option at a stated
price during the option period, and obligates the other party to the contract to
buy or sell such security at the stated price during the option period.
The Portfolio may trade put and call options on securities and securities
indices, as the Advisers determine is appropriate in seeking the Portfolio's
investment objective, and except as restricted by the Portfolio's investment
limitations as set forth below. See "Investment Limitations."
The initial purchase (sale) of an option contract is an "opening
transaction." In order to close out an option position, the Portfolio may enter
into a "closing transaction," which is simply the sale (purchase) of an option
contract on the same security with the same exercise price and expiration date
as the option contract originally opened. If the Portfolio is unable to effect a
closing purchase transaction with respect to
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an option it has written, it will not be able to sell the underlying security
until the option expires or the Portfolio delivers the security upon exercise.
The Portfolio may purchase put and call options on securities to protect
against a decline in the market value of the securities in its portfolio or to
anticipate an increase in the market value of securities that the Portfolio may
seek to purchase in the future. The Portfolio pays a premium for purchasing put
and call options. If price movements in the underlying securities are such that
exercise of the options would not be profitable for the Portfolio loss of the
premium paid may be offset by an increase in the value of the Portfolio's
securities or by a decrease in the cost of acquisition of securities by the
Portfolio.
The Portfolio may write covered call options on securities as a means of
increasing the yield on its fund and as a means of providing limited protection
against decreases in its market value. When the Portfolio writes an option, if
the underlying securities do not increase or decrease to a price level that
would make the exercise of the option profitable to the holder thereof, the
option generally will expire without being exercised and the Portfolio will
realize as profit the premium received for such option. When a call option of
which the Portfolio is the writer is exercised, the Portfolio will be required
to sell the underlying securities to the option holder at the strike price, and
will not participate in any increase in the price of such securities above the
strike price. When a put option of which the Portfolio is the writer is
exercised, the Portfolio will be required to purchase the underlying securities
at a price in excess of the market value of such securities.
A segregated account is maintained to cover the difference between the
closing price of the index and the exercise price of the index option, expressed
in dollars multiplied by a specified number. Thus, unlike options on individual
securities, the ability of the Portfolio to enter into closing transactions
depends upon the existence of liquid secondary market for such transactions.
The Portfolio may purchase and write options on an exchange or
over-the-counter. Over-the-counter options ("OTC options") differ from
exchange-traded options in several respects. They are transacted directly with
dealers and not with a clearing corporation, and therefore entail the risk of
non-performance by the dealer. OTC options are available for a greater variety
of securities and for a wider range of expiration dates and exercise prices than
are available for exchange-traded options. Because OTC options are not traded on
an exchange, pricing is done normally by reference to information from a market
maker. It is the position of the Securities and Exchange Commission that OTC
options are generally illiquid.
The market value of an option generally reflects the market price of an
underlying security. Other principal factors affecting market value include
supply and demand, interest rates, the pricing volatility of the underlying
security and the time remaining until the expiration date.
RECEIPTS--Receipts are interests in separately traded interest and principal
component parts of U.S. Government obligations that are issued by banks or
brokerage firms and are created by depositing U.S. Government obligations into a
special account at a custodian bank. The custodian holds the interest and
principal payments for the benefit of the registered owners of the certificates
or receipts. The custodian arranges for the issuance of the certificates or
receipts evidencing ownership and maintains the register. Receipts include
"Treasury Receipts" ("TRs"), "Treasury Investment Growth Receipts" ("TIGRs"),
"Liquid Yield Option Notes" ("LYONs") and "Certificates of Accrual on Treasury
Securities" ("CATS"). LYONs, TIGRs and CATS are interests in private proprietary
accounts while TRs and STRIPS (See "U.S. Treasury Obligations") are interests in
accounts sponsored by the U.S. Treasury. Receipts are sold as zero coupon
securities; see "Zero Coupon Securities." The Portfolio may invest in receipts.
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. The 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. An Adviser enters into repurchase agreements only with financial
institutions that it deems to present minimal risk of bankruptcy during the term
of the
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agreement, based on guidelines that are periodically reviewed by the Board of
Trustees. These guidelines currently permit the 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 the 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. The Advisers will monitor compliance with this
requirement. Under all repurchase agreements entered into by the Portfolio, the
Custodian or its agent must take possession of the underlying collateral.
However, if the seller defaults, the 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, the Portfolio may incur delay and costs in
selling the security and may suffer a loss of principal and interest if the
Portfolio is treated as an unsecured creditor.
RESTRICTED SECURITIES--Restricted securities are securities that may not be
sold freely to the public absent registration under the Securities Act of 1933,
as amended (the "1933 Act"), or an exemption from registration. Section 4(2)
commercial paper is issued in reliance on an exemption from registration under
Section 4(2) of the 1933 Act, and is generally sold to institutional investors
who purchase for investment. Any resale of such commercial paper must be in an
exempt transaction, usually to an institutional investor through the issuer or
investment dealers who make a market on such commercial paper. Rule 144A
securities are securities re-sold in reliance on an exemption from registration
provided by Rule 144A under the 1933 Act.
SECURITIES LENDING--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. The Portfolio may use the Distributor as a broker in
these transactions.
TIME DEPOSITS--Time deposits are non-negotiable receipts issued by a bank in
exchange for the deposit of funds. Like a certificate of deposit, it earns a
specified rate of interest over a definite period of time; however, it cannot be
traded in the secondary market. Time deposits with a withdrawal penalty are
considered to be illiquid securities.
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
Portfolio's shares.
VARIABLE OR FLOATING RATE INSTRUMENTS--Variable or floating rate instruments
may involve a demand feature and may include variable amount master demand notes
available through the Custodian. Variable or floating rate instruments bear
interest at a rate which varies with changes in market rates. The holder of an
instrument with a demand feature may tender the instrument back to the issuer at
par prior to maturity. A variable amount master demand note is issued pursuant
to a written agreement between the issuer and the holder, its amount may be
increased by the holder or decreased by the holder or issuer, it is payable on
demand, and the rate of interest varies based upon an agreed formula. The
quality of the underlying credit must, in the opinion of the Portfolio's
Advisers, be equivalent to the long-term bond or commercial paper ratings
applicable to permitted investments for the Portfolio. The Portfolio's Advisers
will monitor on an ongoing basis the earning power, cash flow, and liquidity
ratios of the issuers of such instruments and will similarly monitor the ability
of an issuer of a demand instrument to pay principal and interest on demand.
There is a risk that the current interest rate on such obligations may
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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.
In case of obligations which include a put feature at the option of the debt
holder, the date of the put may be used as an effective maturity date for the
purpose of determining weighted average portfolio maturity.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES--When-Issued securities are
securities that involve the purchase of debt obligations on a when-issued basis,
in which case delivery and payment normally take place within 45 days after the
date of commitment to purchase. 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 when-issued obligations results in
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 that 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.
YANKEE OBLIGATIONS--Some securities issued by foreign governments or their
subdivisions, agencies and instrumentalities may not be backed by the full faith
and credit of the foreign government. Yankee obligations as obligations of
foreign issuers, are subject to the same types of risks discussed in "Securities
of Foreign Issuers," above.
The yankee obligations selected for the Portfolio will adhere to the same
quality standards as those utilized for the selection of domestic debt
obligations.
ZERO COUPON SECURITIES--STRIPS and Receipts (TRs, TIGRs, LYONs and CATS) are
sold as zero coupon securities, that is, fixed income securities that have been
stripped of their unmatured interest coupons. Zero coupon securities are sold at
a (usually substantial) discount and redeemed at face value at their maturity
date without interim cash payments of interest or principal. The amount of this
discount is accreted over the life of the security, and the accretion
constitutes the income earned on the security for both accounting and tax
purposes. Because of these features, the market prices of zero coupon securities
are generally more volatile than the market prices of securities that have
similar maturity but that pay interest periodically. Zero coupon securities are
likely to respond to a greater degree to interest rate changes than are non-zero
coupon securities with similar maturity and credit qualities. The Portfolio may
have to dispose of its portfolio securities under disadvantageous circumstances
to generate cash, or may have to leverage itself by borrowing cash to satisfy
income distribution requirements. The Portfolio accrues income with respect to
the securities prior to the receipt of cash payments. Pay-in-kind securities are
securities that have interest payable by delivery of additional securities.
Deferred payment securities are securities that remain zero coupon securities
until a predetermined date, at which time the stated coupon rate becomes
effective and interest becomes payable at regular intervals.
CORPORATE ZERO COUPON SECURITIES--Corporate zero coupon securities are: (i)
notes or debentures which do not pay current interest and are issued at
substantial discounts from par value, or (ii) notes or debentures that pay no
current interest until a stated date one or more years into the future, after
which date the issuer is obligated to pay interest until maturity, usually at a
higher rate than if interest were payable from the date of issuance, and may
also make interest payments in kind (E.G., with identical zero coupon
securities). Such corporate zero coupon securities, in addition to the risks
identified above, are subject to the risk of the issuer's failure to pay
interest and repay principal in accordance with the terms of the obligation.
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INVESTMENT LIMITATIONS
FUNDAMENTAL POLICIES
The Portfolio may not:
1. Make loans if, as a result, more than 33 1/3% of its total assets would be
loaned to other parties, except that the Portfolio may (i) purchase or hold
debt instruments in accordance with its investment objective and policies;
(ii) enter into repurchase agreements; and (iii) lend its securities.
2. Purchase or sell real estate, physical commodities, or commodities
contracts, except that the Portfolio may purchase (i) marketable securities
issued by companies which own or invest in real estate (including real
estate investment trusts), commodities, or commodities contracts; and (ii)
commodities contracts relating to financial instruments, such as financial
futures contracts and options on such contracts.
3. Issue senior securities (as defined in the 1940 Act) except as permitted by
rule, regulation or order of the Securities and Exchange Commission (the
"SEC").
4. Act as an underwriter of securities of other issuers except as it may be
deemed an underwriter in selling a portfolio security.
5. Invest in interests in oil, gas, or other mineral exploration or development
programs and oil, gas or mineral leases.
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 immediately after or 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.
NON-FUNDAMENTAL POLICIES
The Portfolio may not:
1. Pledge, mortgage or hypothecate assets except to secure borrowings permitted
by the Portfolio's fundamental limitation on borrowing.
2. Invest in companies for the purpose of exercising control.
3. Purchase securities on margin or effect short sales, except that the
Portfolio may (i) obtain short-term credits as necessary for the clearance
of security transactions; (ii) provide initial and variation margin payments
in connection with transactions involving futures contracts and options on
such contracts; and (iii) make short sales "against the box" or in
compliance with the SEC's position regarding the asset segregation
requirements imposed by Section 18 of the 1940 Act.
4. Invest its assets in securities of any investment company, except as
permitted by the 1940 Act or an order of exemption therefrom.
5. Purchase or hold illiquid securities, I.E., securities that cannot be
disposed of for their approximate carrying value in seven days or less
(which term includes repurchase agreements and time deposits maturing in
more than seven days) if, in the aggregate, more than 15% of its net assets
would be invested in illiquid securities.
6. Purchase securities which are not readily marketable, if, in the aggregate,
more than 15% of its total assets would be invested in such securities.
Under rules and regulations established by the SEC, the Portfolio is
typically prohibited from acquiring the securities of other investment companies
if, as a result of such acquisition, the Portfolio owns more than 3% of the
total voting stock of the company; securities issued by any one investment
company
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represent more than 5% of the Portfolio's total assets; or securities (other
than treasury stock) issued by all investment companies represent more than 10%
of the total assets of the Portfolio. However, the Portfolio may rely upon SEC
exemptive orders issued to the Trust which permit the Portfolio to invest in
other investment companies beyond these percentage limitations. The Portfolio's
purchase of such investment company securities results in the bearing of
expenses such that shareholders would indirectly bear a proportionate share of
the operating expenses of such investment companies, including advisory fees.
Each of the foregoing percentage limitations (except with respect to the
limitation on investing in illiquid securities) are based on total assets and
apply at the time of purchase. These limitations are non-fundamental and may be
changed by the Trust's Board of Trustees without a vote of shareholders.
DESCRIPTION OF RATINGS
DESCRIPTION OF CORPORATE BOND RATINGS
The following descriptions of corporate bond ratings have been published by
Moody's Investor's Service, Inc. ("Moody's"), Standard and Poor's Corporation
("S&P"), Duff and Phelps, Inc. ("Duff"), Fitch Investor's Services, Inc.
("Fitch"), IBCA Limited ("IBCA") and Thomson BankWatch ("Thomson"),
respectively.
DESCRIPTION OF MOODY'S LONG-TERM RATINGS
Aaa Bonds rated Aaa are judged to be of the best quality.They carry the
smallest degree of investment risk and are generally referred to as "gilt
edged". Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective
elements are likely to change, such changes as can be visualized are most
unlikely to impair the fundamentally strong position of such issues.
Aa Bonds rated Aa are judged to be of high quality by all standards. Together
with the Aaa group they comprise what are generally known as high-grade
bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other
elements present which make the long-term risk appear somewhat larger than
the Aaa securities.
A Bonds rated A possess many favorable investment attributes and are to be
considered as upper-medium grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment some time in the future.
Baa Bonds rated Baa are considered as medium-grade obligations (I.E., they are
neither highly protected nor poorly secured). Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any
great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
DESCRIPTION OF S&P'S LONG-TERM RATINGS
INVESTMENT GRADE
AAA Debt rated "AAA" has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
AA Debt rated "AA" has a very strong capacity to pay interest and repay
principal and differs from the highest rated debt only in small degree.
S-10
<PAGE>
A Debt rated "A" has a strong capacity to pay interest and repay principal,
although it is somewhat more susceptible to adverse effects of changes in
circumstances and economic conditions than debt in higher-rated categories.
BBB Debt rated "BBB" is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal
for debt in this category than in higher rated categories.
DESCRIPTION OF DUFF'S LONG-TERM RATINGS
AAA Highest credit quality. The risk factors are negligible, being only
slightly more than for risk-free U.S. Treasury debt.
AA+ High credit quality. Protection factors are strong.
AA- Risk is modest but may vary slightly from time to time because of economic
conditions.
A+ Protection factors are average but adequate. However,
A- risk factors are more variable and greater in periods of economic stress.
BBB+ Below average protection factors but still considered
BBB- sufficient for prudent investment. Considerable variability in risk during
economic cycles.
DESCRIPTION OF FITCH'S LONG-TERM RATINGS
INVESTMENT GRADE BOND
AAA Bonds rated AAA are judged to be strictly high grade, broadly marketable,
suitable for investment by trustees and fiduciary institutions liable to
slight market fluctuation other than through changes in the money rate. The
prime feature of an AAA bond is a showing of earnings several times or many
times greater than interest requirements, with such stability of applicable
earnings that safety is beyond reasonable question whatever changes occur
in conditions.
AA Bonds rated AA are judged to be of safety virtually beyond question and are
readily salable, whose merits are not unlike those of the AAA class, but
whose margin of safety is less strikingly broad. The issue may be the
obligation of a small company, strongly secured but influenced as to rating
by the lesser financial power of the enterprise and more local type market.
A Bonds rated A are considered to be investment grade and of high credit
quality. The obligor's ability to pay interest and repay principal is
considered to be strong, but may be more vulnerable to adverse changes in
economic conditions and circumstances than bonds with higher ratings.
BBB Bonds rated BBB are considered to be investment grade and of satisfactory
credit quality. The obligor's ability to pay interest and repay principal
is considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have adverse impact on these
bonds, and therefore impair timely payment. The likelihood that the ratings
of these bonds will fall below investment grade is higher than for bonds
with higher ratings.
DESCRIPTION OF IBCA'S LONG-TERM RATINGS
AAA Obligations rated AAA have the lowest expectation of investment risk.
Capacity for timely repayment of principal and interest is substantial,
such that adverse changes in business, economic or financial conditions are
unlikely to increase investment risk significantly.
S-11
<PAGE>
AA Obligations for which there is a very low expectation of investment risk
are rated AA. Capacity for timely repayment of principal and interest is
substantial. Adverse changes in business, economic or financial conditions
may increase investment risk albeit not very significantly.
A Bonds rated A are obligations for which there is a low expectation of
investment risk. Capacity for timely repayment of principal and interest is
strong, although adverse changes in business, economic or financial
conditions may lead to increased investment risk.
BBB Bonds rated BBB are obligations for which there is currently a low
expectation of investment risk. Capacity for timely repayment of principal
and interest is adequate, although adverse changes in business, economic or
financial conditions are more likely to lead to increased investment risk
than for obligations in other categories.
DESCRIPTION OF THOMSON'S LONG-TERM DEBT RATINGS
INVESTMENT GRADE
AAA Bonds rated AAA indicate that the ability to repay principal and interest
on a timely basis is very high.
AA Bonds rated AA indicate a superior ability to repay principal and interest
on a timely basis, with limited incremental risk compared to issues rated
in the highest category.
A Bonds rated A indicate the ability to repay principal and interest is
strong. Issues rated A could be more vulnerable to adverse developments
(both internal and external) than obligations with higher ratings.
BBB Bonds rated BBB indicate an acceptable capacity to repay principal and
interest. Issues rated BBB are, however, more vulnerable to adverse
developments (both internal and external) than obligations with higher
ratings.
DESCRIPTION OF COMMERCIAL PAPER RATINGS
The following descriptions of commercial paper ratings have been published
by Moody's, Standard and Poor's, Duff and Phelps, Fitch, IBCA and Thomson
BankWatch, respectively.
DESCRIPTION OF MOODY'S SHORT-TERM RATINGS
PRIME-1 Issuers rated Prime-1 (or supporting institutions) have a superior
ability for repayment of senior short-term debt obligations. Prime-1
repayment ability will often be evidenced by many of the following
characteristics:
- Leading market positions in well-established industries.
- High rates of return on funds employed.
- Conservative capitalization structure with moderate reliance on debt and
ample asset protection.
- Broad margins in earnings coverage of fixed financial charges and high
internal cash generation.
- Well-established access to a range of financial markets and assured
sources of alternate liquidity.
PRIME-2 Issuers rated Prime-2 (or supporting institutions) have a strong
ability for repayment of senior short-term debt obligations. This will
normally be evidenced by many of the characteristics cited above but to a
lesser degree. Earnings trends and coverage ratios, while sound, may be more
subject to variation. Capitalization characteristics, while still
appropriate, may be more affected by external conditions. Ample alternate
liquidity is maintained.
S-12
<PAGE>
S&P'S SHORT-TERM RATINGS
<TABLE>
<S> <C>
A-1 This highest category indicates that the degree of safety regarding timely payment
is strong. Debt determined to possess extremely strong safety characteristics is
denoted with a plus sign (+) designation.
A-2 Capacity for timely payment on issues with this designation is satisfactory.
However, the relative degree of safety is not as high as for issues designated
'A-1'.
DESCRIPTION OF DUFF'S SHORT-TERM RATINGS
Duff 1+ Highest certainty of timely payment. Short-term liquidity, including internal
operating factors and/or access to alternative sources of funds, is outstanding,
and safety is just below risk-free U.S. Treasury short-term obligations.
Duff 1 Very high certainty of timely payment. Liquidity factors are excellent and
supported by good fundamental protection factors. Risk factors are minor.
Duff 1- High certainty of timely payment. Liquidity factors are strong and supported by
good fundamental protection factors. Risk factors are very small.
GOOD GRADE
Duff 2 Good certainty of timely payment. Liquidity factors and company fundamentals are
sound. Although ongoing funding needs may enlarge total financing requirements,
access to capital markets is good. Risk factors are small.
DESCRIPTION OF FITCH'S SHORT-TERM RATINGS
F-1+ Exceptionally Strong Credit Quality. Issues assigned this rating are regarded as
having the strongest degree of assurance for timely payment.
F-1 Very Strong Credit Quality. Issues assigned this rating reflect an assurance of
timely payment only slightly less in degree than issues rated 'F-1+'
F-2 Good Credit Quality. Issues assigned this rating have a satisfactory degree of
assurance for timely payment, but the margin of safety is not as great as for
issues assigned 'F-1+' and 'F-1' ratings.
LOC The symbol LOC indicates that the rating is based on a letter of credit issued by
a commercial bank.
DESCRIPTION OF IBCA'S SHORT-TERM RATINGS (UP TO 12 MONTHS)
A1+ Obligations supported by the highest capacity for timely repayment.
A1 Obligations supported by a strong capacity for timely repayment.
A2 Obligations supported by a satisfactory capacity for timely repayment, although
such capacity may be susceptible to adverse changes in business, economic, or
financial conditions.
DESCRIPTION OF THOMSON'S SHORT-TERM RATINGS
TBW-1 The highest category; indicates a very high likelihood that principal and interest
will be paid on a timely basis.
TBW-2 The second-highest category; while the degree of safety regarding timely repayment
of principal and interest is strong, the relative degree of safety is not as high
as for issues rated "TBW-1".
</TABLE>
S-13
<PAGE>
THE MANAGER
The Management Agreement provides that SEI Fund Management ("SEI Management"
or the "Manager") 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
1940 Act) 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 as to the Portfolio without penalty by the Trustees of the Trust, by a
vote of a majority of the outstanding shares of the Portfolio or by SEI
Management on not less than 30 days' nor more than 60 days' written notice.
The Manager, 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, the
Investment Adviser to the Portfolio. 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 or
sub-administrator to the following other mutual funds: 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., PBHG Insurance Series Fund,
Inc., The Pillar Funds, Santa Barbara Group of Mutual Funds, Inc., SEI Asset
Allocation Trust, SEI Daily Income Trust, SEI Index Funds, SEI Institutional
Investments Trust, SEI International Trust, SEI Liquid Asset Trust, SEI Tax
Exempt Trust, STI Classic Funds, STI Classic Variable Trust, TIP Funds and TIP
Institutional Funds.
If operating expenses of the Portfolio exceed applicable limitations, SEI
Management will pay such excess. SEI Management will not be required to bear
expenses of the Portfolio 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.
THE ADVISER AND SUB-ADVISERS
The Advisory Agreement and certain of the Sub-Advisory Agreements provide
that SEI Investments Management Corporation ("SIMC" or the "Adviser") (or any
Sub-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. In addition, certain of the Sub-Advisory
Agreements provide that the Sub-Adviser shall not be protected against any
liability to the Trust or its shareholders by reason of willful misfeasance, bad
faith or
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<PAGE>
negligence on its part in the performance of its duties, or from reckless
disregard of its obligations or duties thereunder.
The continuance of each Advisory and Sub-Advisory Agreement must be
specifically approved at least annually (i) by the vote of a majority of the
outstanding shares of the Portfolio or by the Trustees, and (ii) by the vote of
a majority of the Trustees who are not parties to such Agreement or "interested
persons" of any party thereto, cast in person at a meeting called for the
purpose of voting on such approval. Each Advisory or Sub-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
Sub-Adviser) or by the Adviser (or Sub-Adviser) on 90 days' written notice to
the Trust.
SIMC and the Trust have obtained an exemptive order from the SEC that
permits SIMC, with the approval of the Trust's Board of Trustees, to retain
unaffiliated sub-advisers for the Portfolio without submitting the sub-advisory
agreement to a vote of the Portfolio's shareholders. The exemptive relief
permits the non-disclosure of amounts payable by SIMC under such sub-advisory
agreements. The Trust will notify shareholders in the event of any change in the
identity of the sub-adviser for the Portfolio.
DISTRIBUTION AND SHAREHOLDER SERVICING
The Portfolio has adopted a shareholder servicing plan for its Class A
shares (the "Service Plan"). Under the Service Plan, the Distributor may
perform, or may compensate other service providers for performing, the following
shareholder 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.
Although banking laws and regulations prohibit banks from distributing
shares of open-end investment companies such as the Trust, according to an
opinion issued to the staff of the SEC by the Office of the Comptroller of the
Currency, financial institutions are not prohibited from acting in other
capacities for investment companies, such as providing shareholder services.
Should future legislative, judicial or administrative action prohibit or
restrict the activities of financial institutions in connection with providing
shareholder services, the Trust may be required to alter materially or
discontinue its arrangements with such financial institutions.
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, 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., PBHG
Insurance Series Fund, Inc., The Pillar Funds, Santa Barbara Group of Mutual
Funds, Inc., SEI Asset Allocation Trust, SEI Daily Income Trust, SEI Index
Funds, SEI Institutional Investments Trust, SEI International Trust, SEI Liquid
Asset Trust, SEI Tax Exempt Trust, Stepstone Funds, STI Classic Funds, STI
Classic Variable Trust, TIP Funds and TIP Institutional Funds, each of which is
an open-end management investment company
S-15
<PAGE>
managed by SEI Fund Management or its affiliates and, except for 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*--Currently performs various services on behalf of SEI Investments for
which Mr. Nesher is compensated. Executive Vice President of SEI Investments,
1986-1994. Director and Executive Vice President of the Manager and the
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
Index Funds, SEI Asset Allocation Trust, SEI Institutional Investments Trust,
SEI International 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, Manager, Adviser and Distributor, Director and Secretary of SEI
Investments and Secretary of the Manager, Adviser 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 Index Funds, SEI Asset Allocation Trust, SEI Institutional
Investments Trust and SEI International Trust.
F. WENDELL GOOCH (DOB 12/03/37)--Trustee**--P.O. Box 190, Paoli, IN 47454.
President, Orange County Publishing Co., Inc.; Publisher, Paoli News and Paoli
Republican; and Editor, Paoli Republican, October 1981-January 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, SEI Liquid Asset Trust, SEI Daily Income Trust, SEI Tax Exempt
Trust, SEI Index Funds, SEI Asset Allocation Trust, SEI Institutional Managed
Trust, SEI Institutional Investments Trust and SEI International Trust.
FRANK E. MORRIS (DOB 12/30/23)--Trustee**--105 Walpole Street, Dover, MA
02030. 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, SEI Liquid
Asset Trust, SEI Daily Income Trust, SEI Tax Exempt Trust, SEI Index Funds, SEI
Asset Allocation Trust, SEI Institutional Managed Trust, SEI Institutional
Investments Trust and SEI International Trust.
JAMES M. STOREY (DOB 04/12/31)--Trustee**--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
Index Funds, SEI Asset Allocation Trust, SEI Institutional Investments Trust,
and SEI International Trust.
GEORGE J. SULLIVAN, JR. (DOB 11/13/42)--Trustee**--Chief Executive Officer,
Newfound Consultants Inc. since April 1997. General Partner, Teton Partners,
L.P., June 1991-December 1996; Chief Financial Officer, Noble Partners, L.P.,
March 1991-December 1996; Treasurer and Clerk, Peak Asset Management, Inc.,
since 1991; Trustee, Navigator Securities Lending Trust, since 1995. Trustee of
SEI Liquid Asset Trust, SEI Daily Income Trust, SEI Tax Exempt Trust, SEI Index
Funds, SEI Asset Allocation Trust, SEI Institutional Investments Trust, and SEI
International Trust.
SANDRA K. ORLOW (DOB 10/18/53)--Vice President and Assistant Secretary--Vice
President and Assistant Secretary of the Manager, Adviser and Distributor since
1988.
KEVIN P. ROBINS (DOB 04/15/61)--Vice President and Assistant
Secretary--Senior Vice President and General Counsel of SEI Investments, the
Manager, Adviser and Distributor since 1994. Assistant Secretary of SEI
Investments since 1992; Secretary of the Manager, Adviser and Distributor,
1992-1994. Associate, Morgan, Lewis & Bockius LLP (law firm), 1988-1992.
RICHARD W. GRANT (DOB 10/25/45)--Secretary--2000 One Logan Square,
Philadelphia, PA 19103, Partner, Morgan, Lewis & Bockius LLP (law firm), counsel
to the Trust, Manager, Adviser and Distributor.
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<PAGE>
KATHRYN L. STANTON (DOB 11/19/58)--Vice President and Assistant
Secretary--Vice President, Deputy General Counsel and Assistant Secretary of SEI
Investments, the Manager, Adviser and Distributor since 1994. 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 B. CIPPERMAN (DOB 02/14/66)--Vice President and Assistant
Secretary--Vice President and Assistant Secretary of SEI Investments, the
Manager, Adviser and the Distributor since 1995. Associate, Dewey Ballantine
(law firm) (1994-1995). Associate, Winston & Strawn (law firm) (1991-1994).
- ------------------------
*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. The Trust pays the fees for unaffiliated Trustees.
Compensation of officers and affiliated Trustees of the Trust is paid by the
Manager. For the fiscal year ended September 30, 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 9/30/97 FUND EXPENSES RETIREMENT FOR FYE 9/30/97
- --------------------------------- ------------------ ------------------- ---------------- -----------------------------------
<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........ $25,367 $0 $0 $96,750 for services on 8 boards
Frank E. Morris, Trustee......... $25,367 $0 $0 $96,750 for services on 8 boards
James M. Storey, Trustee......... $25,367 $0 $0 $96,750 for services on 8 boards
George J. Sullivan, Trustee...... $25,367 $0 $0 $96,750 for services on 8 boards
</TABLE>
- ------------------------------
Mr. Edward W. 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, the Portfolio may advertise yield and/or total return.
These figures will be based on historical earnings and are not intended to
indicate future performance. The yield of the 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 each period over one year and is
shown as a percentage of the investment. In particular, yield will be calculated
according to the following formula:
Yield = 2[((a-b)/cd) + 1)(6)-1], where a = dividends and interest
earned during the period; b = expenses accrued for the period (net
of reimbursement); c = the 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.
The total return of the 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
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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.
The Portfolio may, from time to time, compare its performance to other
mutual funds tracked by mutual fund rating services, to broad groups of
comparable mutual funds or to unmanaged indices which may assume investment of
dividends but generally do not reflect deductions for administrative and
management costs. Moreover, the Portfolio may use total return figures showing
after-tax returns, including comparisons to tax-deferred vehicles such as
individual Retirement Accounts ("IRAs") and variable annuities. In calculating
after-tax returns, the Portfolio will, in general, assume that its shareholders
are U.S. individual taxpayers subject to federal income taxes at the highest
marginal rate then applicable to ordinary income and long-term capital gains.
After-tax returns may also be calculated using different tax rate assumptions
and taking into account state and local income taxes as well as federal taxes.
In calculating after-tax returns, distributions made by the Portfolio are
assumed to be reduced by the amount of taxes payable on the distribution, and
the after-tax proceeds of the distribution are reinvested in the Portfolio at
net asset value on the reinvestment date.
PURCHASE AND REDEMPTION OF SHARES
The purchase and redemption price of shares is the net asset value of each
share. The 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.
Information about the market value of each portfolio security may be
obtained by SEI Management from an independent pricing service. The pricing
service relies primarily on prices of actual market transactions as well as
trader quotations. However, the pricing service may use a matrix system to
determine valuations of 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
procedures used by the pricing service and its valuations are reviewed by the
officers of the Trust under the general supervision of the Trustees.
Securities with remaining maturities of 60 days or less will be valued by
the amortized cost method, which involves valuing a security at its cost on the
date of purchase and thereafter (absent unusual circumstances) assuming a
constant amortization to maturity of any discount or premium, regardless of the
impact of fluctuations in general market rates of interest on the value of the
instrument. While this method provides certainty in valuation, it may result in
periods during which value, as determined by this method, is higher or lower
than the price the Trust would receive if it sold the instrument. During periods
of declining interest rates, the daily yield of a Portfolio may tend to be
higher than a like computation made by a company with identical investments
utilizing a method of valuation based upon market prices and
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<PAGE>
estimates of market prices for all of its portfolio securities. Thus, if the use
of amortized cost by a Portfolio resulted in a lower aggregate portfolio value
on a particular day, a prospective investor in a Portfolio would be able to
obtain a somewhat higher yield that would result from investment in a company
utilizing solely market values, and existing shareholders in the Portfolio would
experience a lower yield. The converse would apply during a period of rising
interest rates.
It is currently the Trust's policy to pay all redemptions in cash. The Trust
retains the right, however, to alter this policy to provide for redemptions in
whole or in part by a distribution in kind of readily marketable securities held
by the 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
all Portfolios of the Trust during any 90-day period of up to the lesser of
$250,000 or 1% of the Trust's net assets.
Shareholders in the Portfolio may redeem interests in the Portfolio at net
asset value on a daily basis. Redemptions by the Portfolio's shareholders
currently are met entirely in cash, but distributions of securities generally
are used to meet redemptions by other investors in the Portfolio and may in the
future be used to meet redemptions by the Portfolio's shareholders. See
"Purchase and Redemption of Shares" in the Portfolio's prospectus. Shareholders
in the Portfolio can request a diversified basket of securities, which may be
distributed in the Adviser's discretion. This redemption practice constrains the
selection of securities distributed to meet redemptions and, consequently, may
adversely affect the performance of the Portfolio. The Trustees of the Portfolio
believe that the potential advantages for the Portfolio of this practice
outweigh the potential disadvantages of reduced flexibility to select securities
to meet redemptions. It is impossible to predict whether the net result will be
beneficial or detrimental to the Portfolio's performance.
A gain or loss for federal income tax purposes may be realized by a taxable
shareholder upon an in-kind redemption depending upon the shareholder's basis in
the shares of the Trust redeemed.
Purchases and redemptions of shares of the Portfolio may be made on any day
the New York Stock Exchange is open for business. Currently, the following
holidays are observed by the Trust: New Year's Day, Martin Luther King, Jr. Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day. The Trust reserves the right to suspend the
right of redemption and/or to postpone the date of payment upon redemption for
any period during which trading on the New York Stock Exchange is restricted, or
during the existence of an emergency (as determined by the SEC by rule or
regulation) as a result of which disposal or evaluation of the portfolio
securities is not reasonably practicable, or for such other periods as the SEC
may by order permit. The Trust also reserves the right to suspend sales of
shares of the Portfolio for any period during which the New York Stock Exchange,
the Manager, the Adviser, the Distributor, and/or the Custodian are not open for
business.
TAXES
The following is only a summary of certain additional federal tax
considerations generally affecting the Portfolio and its shareholders that are
not described in the Portfolio's prospectuses. No attempt is made to present a
detailed explanation of the federal, state or local tax treatment of the
Portfolio or its shareholders and the discussion here and in the Portfolio's
prospectus is not intended as a substitute for careful tax planning.
This discussion of federal income tax consequences is based on the Code, and
the regulations issued thereunder, in effect on the date of this Statement of
Additional Information. New legislation, as well as administrative changes or
court decisions, may significantly change the conclusions expressed herein, and
may have a retroactive effect with respect to the transactions contemplated
herein.
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 as a regulated investment company ("RIC") under Subchapter M
of the Code so that it will be relieved of federal income tax on that part of
its income that is distributed to shareholders. In order to qualify for
treatment as a RIC, the Portfolio must distribute
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annually to its shareholders at least 90% of its investment company taxable
income (generally, net investment income plus the excess, if any, of net
short-term capital gain over net long-term capital losses) ("Distribution
Requirement") and also must meet several additional requirements. Among these
requirements are the following: (i) at least 90% of the Portfolio's gross income
each taxable year must be derived from dividends, interest, payments with
respect to securities loans, and gains from the sale or other disposition of
stock or securities, or other income derived with respect to its business of
investing in such stock or securities; (ii) at the close of each quarter of the
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 assets and that does not represent more than 10% of the outstanding
voting securities of such issuer; and (iii) at the close of each quarter of the
Portfolio's taxable year, not more than 25% of the value of its assets may be
invested in securities (other than U.S. Government securities or the securities
of other RICs) of any one issuer or of two or more issuers engaged in the same,
similar, or related trades or businesses if the Portfolio owns at least 20% of
the voting power of such issuers.
Notwithstanding the Distribution Requirement described above, which only
requires the Portfolio to distribute at least 90% of its annual investment
company taxable income and does not require any minimum distribution of net
capital gain, the Portfolio will be subject to a nondeductible 4% federal excise
tax to the extent it fails to distribute by the end of any calendar year at
least 98% of its ordinary income for that year and 98% of its capital gain net
income (the excess of short- and long-term capital gain over short-and long-term
capital loss) for the one-year period ending on October 31 of that year, plus
certain other amounts. The Portfolio intends to make sufficient distributions to
avoid liability for the federal excise tax. The Portfolio may in certain
circumstances be required to liquidate portfolio investments in order to make
sufficient distributions to avoid federal excise tax liability when the
investment advisor might not otherwise have chosen to do so, and liquidation of
investments in such circumstances may affect the ability of the Portfolio to
satisfy the requirements for qualification as a RIC.
If capital gain distributions have been made with respect to shares that are
sold at a loss after being held for six months or less, then the loss is treated
as a long-term capital loss to the extent of the capital gain distributions. If
the Portfolio fails to qualify as a RIC for any year, all of its income will be
subject to tax at corporate rates, and its distributions (including capital gain
distributions) generally will be taxable as ordinary income dividends to its
shareholders, subject to the dividends received deduction for corporate
shareholders who have held shares for more than 45 days.
Long-term capital gains (gains on the sale of capital assets held for more
than 18 months) are currently taxed at a maximum rate of 20%, mid-term capital
gains (gains on the sale of capital assets held for more than 12 months but less
than 18 months) are currently taxed at a maximum rate of 28%, and short-term
capital gains (gains on the sale of capital assets held for less than 12 months)
are currently taxed at ordinary income tax rates.
The Portfolio will be required in certain cases to withhold and remit to the
United States Treasury 31% of amounts payable to any shareholder who (1) has
provided the Portfolio 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.
With respect to investments in STRIPS, TR's, TIGR's, LYONs, CATS and other
Zero Coupon securities which are sold at original issue discount and thus do not
make periodic cash interest payments, the 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 that period. Because the Portfolio distributes all of its net investment
income to its shareholders, the Portfolio may have to sell Portfolio securities
to distribute such imputed income which may occur at a time when the advisers
would not have chosen to sell such securities and which may result in taxable
gain or loss.
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STATE TAXES
The Portfolio is not liable for any income or franchise tax in Massachusetts
if it qualifies as a RIC for federal income tax purposes. Distributions by the
Portfolio to shareholders and the ownership of shares may be subject to state
and local taxes. Shareholders should consult their own tax advisers regarding
the affect of federal, state and local taxes in their own individual
circumstances.
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, the Advisers are 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 the Advisers
generally seek reasonably competitive spreads or commissions, the Trust will not
necessarily be paying the lowest spread or commission available. The Trust will
not purchase portfolio securities from any affiliated person acting as principal
except in conformity with the regulations of the SEC.
It is expected that the Portfolio may execute brokerage or other agency
transactions through the Distributor, a registered broker-dealer, for a
commission in conformity with the 1940 Act, the Securities Exchange Act of 1934,
as amended, and rules and regulations of the SEC. Under these provisions, the
Distributor is permitted to receive and retain compensation for effecting
transactions for the 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." In addition, the Portfolio may direct commission business to
one or more designated broker-dealers, including the Distributor, in connection
with such broker-dealer's payment of certain of the Portfolio's expenses. 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.
In connection with transactions effected for Portfolios operating within the
"Manager of Managers" structure, SIMC and the various firms that serve as
sub-advisers to the Portfolio, in the exercise of joint investment discretion
over the assets of the Portfolio, may direct a substantial portion of the
Portfolio's brokerage to the Distributor. All such transactions directed to the
Distributor must be accomplished in a manner that is consistent with the Trust's
policy to achieve best net results, and must comply with the Trust's procedures
regarding the execution of transactions through affiliated brokers.
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 brokers or
dealers. However, the Portfolio's Advisers 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.
The Trust does not expect to use one particular dealer, but the Portfolio's
Advisers may, consistent with the interests of the Portfolio, select brokers on
the basis of the research services they provide to the Portfolio's Advisers.
Such services may include analysis of the business or prospects of a company,
industry or economic sector or statistical and pricing services. Information so
received by the Advisers will be in addition to and not in lieu of the services
required to be performed by the Portfolio's Advisers under the Advisory and
Sub-Advisory Agreements. If in the judgement of the Portfolio's Advisers, the
Portfolio, or other accounts managed by the Portfolio's Advisers, will be
benefitted by supplemental research services,
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the Portfolio's Advisers are authorized to pay brokerage commissions to a broker
furnishing such services that are in excess of commissions which another broker
may have charged for effecting the same transaction. The expenses of the
Portfolio's Advisers will not necessarily be reduced as a result of the receipt
of such supplemental information.
From time to time the Trustees will review whether the recapture for the
benefit of the Fund of some portion of the brokerage commissions or similar fees
paid by the Fund on portfolio transactions is legally permissible and advisable.
The Trustees intend to continue to review whether recapture opportunities are
available and are legally permissible and, if so, to determine in the exercise
of their business judgment whether it would be advisable for the Fund to seek
such recapture.
DESCRIPTION OF SHARES
The Declaration of Trust authorizes the issuance of an unlimited number of
shares of the Portfolio, each of which represents an equal proportionate
interest in the 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 series of shares or separate classes of portfolios.
Share certificates representing the shares will not be issued.
LIMITATION OF TRUSTEES' LIABILITY
The Declaration of Trust provides that a Trustee shall be liable only for
his or her 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 or her wilful misfeasance, bad faith, gross negligence or reckless
disregard of his or her duties.
VOTING
Where the Trust's Prospectus or Statement of Additional Information state
that an investment limitation or a fundamental policy may not be changed without
shareholder approval, such approval means the vote of (i) 67% or more of the
Portfolio's shares present at a meeting if the holders of more than 50% of the
outstanding shares of the Portfolio are present or represented by Proxy, or (ii)
more than 50% of the Portfolio's outstanding shares, whichever is less.
SHAREHOLDER LIABILITY
The Trust is an entity of the type commonly known as a "Massachusetts
business trust." Under Massachusetts law, shareholders of such a business trust
could, under certain circumstances, be held personally liable as partners for
the obligations of the Trust. Even if, however, the Trust were held to be a
partnership, the possibility of the shareholders incurring financial loss for
that reason appears remote because the Trust's Declaration of Trust contains an
express disclaimer of shareholder liability for obligations of the Trust and
requires that notice of such disclaimer be given in each agreement, obligation
or instrument entered into or executed by or on behalf of the Trust or the
Trustees, and because the Declaration of Trust provides for indemnification out
of the Trust property for any shareholders held personally liable for the
obligations of the Trust.
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