<PAGE>
SEI INSTITUTIONAL INTERNATIONAL TRUST
PROSPECTUS
JUNE 30, 1998
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INTERNATIONAL EQUITY PORTFOLIO
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Please read this Prospectus carefully before investing, and keep it on file for
future reference. It concisely sets forth information that can help you decide
if the Portfolio's investment goals match your own.
A Statement of Additional Information ("SAI") dated June 30, 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 1-800-437-6016. The
Statement of Additional Information is incorporated by reference into this
Prospectus.
SEI Institutional International Trust (the "Trust") is an open-end management
investment company that offers shareholders a convenient means of investing
their funds in one or more professionally managed diversified and non-
diversified portfolios of securities. The International Equity Portfolio, an
investment portfolio of the Trust, offers two classes of shares, Class A shares
and Class D shares. Class D shares differ from Class A shares primarily in the
imposition of sales charges and the allocation of certain distribution expenses
and transfer agent fees. Class D shares are available through SEI Investments
Distribution Co. (the Trust's distributor) and through participating
broker-dealers, financial institutions and other organizations. This Prospectus
relates to the Class D shares of the International Equity Portfolio (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.
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HOW TO READ THIS PROSPECTUS ____________________________________________________
This Prospectus gives you information that you should know about the Portfolio
before investing. Brief descriptions are also provided throughout the Prospectus
to better explain certain key points. To find these helpful guides, look for
this symbol.
FUND HIGHLIGHTS
___________________________________________________________________
The following summary provides basic information about the Class D shares of the
Trust's International Equity Portfolio. This summary is qualified in its
entirety by reference to the more detailed information provided elsewhere in
this Prospectus and in the Statement of Additional Information.
INVESTMENT OBJECTIVE AND POLICIES
Below is the investment objective and policies for the
Portfolio. For more information, see "Investment Objective
and Policies," "General Investment Policies and Risk
Factors" and "Description of Permitted Investments and Risk
Factors."
INTERNATIONAL EQUITY PORTFOLIO
The International Equity
Portfolio seeks to provide
long-term capital appreciation
by investing primarily in a
diversified portfolio of equity
securities of non-U.S. issuers.
UNDERSTANDING RISK
Shares of the Portfolio, like
shares of any mutual fund, will
fluctuate in value, and when you
sell your shares, they may be
worth more or less than what you
paid for them. The Portfolio may
invest in equity securities that
are affected by market and
economic factors, and in fixed
income securities that tend to
vary inversely with interest
rates and may be affected by
other market and economic
factors as well, which may cause
these securities to fluctuate in
value. Investing in the
securities of foreign companies
involves special risks and
considerations not typically
associated with investing in
U.S. companies. In addition,
there can be no assurance that
any Portfolio will achieve its
investment objective. See
"Investment Objectives and
Policies," "General Investment
Policies and Risk Factors" and
"Description of Permitted
Investments and Risk Factors."
TABLE OF
CONTENTS
<TABLE>
<S> <C>
FUND HIGHLIGHTS................................... 2
PORTFOLIO EXPENSES................................ 4
FINANCIAL HIGHLIGHTS.............................. 5
YOUR ACCOUNT AND DOING BUSINESS WITH US........... 6
INVESTMENT OBJECTIVE AND POLICIES................. 9
GENERAL INVESTMENT POLICIES AND RISK FACTORS...... 10
INVESTMENT LIMITATIONS............................ 11
THE MANAGER AND SHAREHOLDER SERVICING AGENT AND
THE TRANSFER AGENT............................... 12
THE ADVISER....................................... 12
THE SUB-ADVISERS.................................. 13
DISTRIBUTION...................................... 15
PERFORMANCE....................................... 16
TAXES............................................. 16
ADDITIONAL INFORMATION ABOUT DOING BUSINESS WITH
US............................................... 18
GENERAL INFORMATION............................... 22
DESCRIPTION OF PERMITTED INVESTMENTS AND RISK
FACTORS.......................................... 25
</TABLE>
2
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MANAGEMENT PROFILE
SEI INVESTMENTS MANAGEMENT
CORPORATION ("SIMC") serves as
the investment adviser for the
International Equity Portfolio.
SEI Investments Fund Management
serves as the manager and
shareholder servicing agent of
the Trust. DST Systems, Inc.
acts as the transfer agent (the
"Transfer Agent") of the Class D
shares of the Trust. SEI
Investments Distribution Co.
acts as distributor
("Distributor") of the Trust's
shares. See "The Manager,
Shareholder Servicing Agent and
Transfer Agent," "The Adviser,"
"The Sub-Advisers" and
"Distribution."
INVESTMENT
PHILOSOPHY
BELIEVING THAT NO SINGLE INVESTMENT ADVISER CAN DELIVER OUTSTANDING PERFORMANCE
IN EVERY INVESTMENT CATEGORY, ONLY THOSE ADVISERS WHO HAVE DISTINGUISHED
THEMSELVES WITHIN THEIR AREAS OF SPECIALIZATION ARE SELECTED TO ADVISE OUR
MUTUAL FUNDS.
YOUR ACCOUNT AND DOING BUSINESS WITH US
You may open an account with just $1,000 and make
additional investments with as little as $100. Class D
shares of the Portfolio are offered at net asset value per
share plus a maximum sales charge at the time of purchase
of 5.00%. Shareholders who purchase higher amounts may
qualify for a reduced sales charge. Redemptions of the
Portfolio's shares are made at net asset value per share.
See "Your Account and Doing Business with Us" and
"Additional Information About Doing Business With Us."
DIVIDENDS
Substantially all of the net investment income (exclusive
of capital gains) of the Portfolio is periodically declared
and paid as a dividend. Any realized net capital gain is
distributed at least annually. Distributions are paid in
additional shares unless you elect to take the payment in
cash. See "Dividends."
INFORMATION/SERVICE CONTACTS
For more information about Class D shares call
1-800-437-6016.
3
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PORTFOLIO EXPENSES
_______________________________________________________________
The purpose of the following table is to help you understand the various costs
and expenses that you, as a shareholder, will bear directly or indirectly in
connection with an investment in the Class D shares.
SHAREHOLDER TRANSACTION EXPENSES (AS A PERCENTAGE OF OFFERING PRICE)
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<TABLE>
<CAPTION>
INTERNATIONAL
EQUITY PORTFOLIO
----------------
<S> <C>
Maximum Sales Charge Imposed on Purchases 5.00%
Maximum Sales Charge Imposed on Reinvested
Dividends None
Redemption Fees (1) None
</TABLE>
ANNUAL OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS)
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<TABLE>
<S> <C>
Management/Advisory Fees (after fee waiver) .93%
12b-1 Fees (AFTER FEE WAIVER)(3) .25%
Other Expenses .25%
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Total Operating Expenses (AFTER FEE WAIVER)
(4) 1.43%
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</TABLE>
(1) A CHARGE, CURRENTLY $10.00, IS IMPOSED ON WIRES OF REDEMPTION PROCEEDS OF
THE PORTFOLIO'S CLASS D SHARES.
(2) CERTAIN OF THE ADVISERS HAVE AGREED TO WAIVE A PORTION OF THEIR FEES, AND
THE MANAGEMENT/ADVISORY FEES SHOWN REFLECT THESE WAIVERS. SUCH FEE WAIVERS
ARE VOLUNTARY AND MAY BE TERMINATED AT ANY TIME IN THE SOLE DISCRETION OF
EACH ENTITY THAT HAS AGREED TO WAIVE A PORTION OF ITS FEE. ABSENT SUCH FEE
WAIVERS, MANAGEMENT/ADVISORY FEES WOULD BE .96% FOR THE PORTFOLIO.
(3) THE DISTRIBUTOR HAS WAIVED, ON A VOLUNTARY BASIS, A PORTION OF ITS 12b-1
FEE, AND THE 12b-1 FEES SHOWN REFLECT THIS. THE DISTRIBUTOR RESERVES THE
RIGHT TO TERMINATE ITS WAIVER AT ANY TIME IN ITS SOLE DISCRETION. ABSENT
SUCH WAIVER 12b-1 FEES WOULD BE .30% FOR THE PORTFOLIO.
(4) ABSENT THESE FEE WAIVERS, THE TOTAL OPERATING EXPENSES WOULD BE 1.51% FOR
THE PORTFOLIO. ADDITIONAL INFORMATION MAY BE FOUND UNDER "THE ADVISER," "THE
SUB-ADVISERS" AND "THE MANAGER AND SHAREHOLDER SERVICING AGENT AND TRANSFER
AGENT."
EXAMPLE
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<TABLE>
<CAPTION>
1 YR. 3 YRS. 5 YRS. 10 YRS.
------- ------- ------- --------
<S> <C> <C> <C> <C>
An investor in the Portfolio would pay the
following expenses on a $1000 investment
assuming (1) imposition of the maximum sales
charge, (2) a 5% annual return and (3)
redemption at the end of each time period:
International Equity $ 64 $ 93 $ 124 $ 213
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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 D SHARES OF THE PORTFOLIO. THE PORTFOLIO ALSO OFFERS
CLASS A SHARES, WHICH ARE SUBJECT TO THE SAME EXPENSES, EXCEPT THAT THERE ARE NO
SALES CHARGES, DIFFERENT DISTRIBUTION COSTS AND NO TRANSFER AGENT COSTS.
ADDITIONAL INFORMATION MAY BE FOUND UNDER "THE MANAGER AND SHAREHOLDER SERVICING
AGENT AND TRANSFER AGENT," "THE ADVISER," "THE SUB-ADVISERS" AND "DISTRIBUTION."
THE RULES OF THE SECURITIES AND EXCHANGE COMMISSION REQUIRE THAT THE MAXIMUM
SALES CHARGE BE REFLECTED IN THE ABOVE TABLE. HOWEVER, CERTAIN INVESTORS MAY
QUALIFY FOR REDUCED SALES CHARGES. SEE "PURCHASE OF SHARES." LONG-TERM
SHAREHOLDERS MAY PAY MORE THAN THE ECONOMIC EQUIVALENT OF THE MAXIMUM FRONT-END
SALES CHARGES OTHERWISE PERMITTED BY THE CONDUCT RULES OF THE NATIONAL
ASSOCIATION OF SECURITIES DEALERS, INC.
4
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FINANCIAL HIGHLIGHTS
______________________________________________________________
The following information has been derived from the financial statements audited
by Price Waterhouse LLP, the Trust's independent accountants. Price Waterhouse
LLP's report dated April 24, 1998 on the Trust's financial statements as of
February 28, 1998, is incorporated by reference into the Trust's Statement of
Additional Information. The Trust's financial statements and additional
performance information are set forth in the 1998 Annual Report to Shareholders,
which is available upon request and without charge by calling 1-800-437-6016.
This table should be read in conjunction with the Trust's financial statements
and notes thereto.
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
FOR THE PERIODS ENDED FEBRUARY 28,
<TABLE>
<CAPTION>
NET ASSET NET DISTRIBUTIONS NET
VALUE INVESTMENT NET REALIZED AND FROM NET DISTRIBUTIONS ASSETS
BEGINNING INCOME/ UNREALIZED INVESTMENT FROM RETAINED RETURN OF END OF TOTAL
OF PERIOD (LOSS) GAINS/(LOSSES) INCOME(2) CAPITAL GAINS CAPITAL PERIOD RETURN
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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INTERNATIONAL
EQUITY PORTFOLIO
- ------------------
CLASS D
1998 (3) $ 9.58 $0.15 $ 0.77 $(0.16) $(0.28) $ -- $ 10.06 9.92%
1997 9.93 0.05 0.47 (0.05) (0.82) -- 9.58 5.39
1996 9.56 0.04 1.50 (0.18) (0.99) -- 9.93 16.77
1995 (1) 10.81 0.01 (0.67) -- (0.59) -- 9.56 (6.33)*
<CAPTION>
RATIO OF
END OF EXPENSES TO (LOSS) TO NET ASSETS ASSETS PORTFOLIO AVERAGE
PERIOD AVERAGE NET AVERAGE (EXCLUDING (EXCLUDING TURNOVER COMMISSION
(000) ASSETS NET ASSETS WAIVERS) WAIVERS) RATE RATE+
<S> <C> <C> <C> <C> <C> <C> <C>
- ------------------
- ------------------
INTERNATIONAL
EQUITY PORTFOLIO
- ------------------
CLASS D
1998 (3) $ 302 1.36% 1.16% 1.45% 1.07% 75% $0.0122
1997 177 1.55 0.71 1.65 0.61 117 0.0172
1996 199 1.65 0.58 1.90 0.33 102 n/a
1995 (1) 51 1.47 0.42 1.48 0.41 64 n/a
</TABLE>
* RETURNS ARE FOR THE PERIOD INDICATED AND HAVE NOT BEEN ANNUALIZED.
(1) INTERNATIONAL EQUITY CLASS D SHARES WERE OFFERED BEGINNING MAY 1, 1994. ALL
RATIOS FOR THAT PERIOD HAVE BEEN ANNUALIZED.
(2) DISTRIBUTIONS FROM NET INVESTMENT INCOME INCLUDE DISTRIBUTIONS OF CERTAIN
FOREIGN CURRENCY GAINS AND LOSSES.
(3) PER SHARE NET INVESTMENT INCOME AND NET REALIZED AND UNREALIZED
GAINS/(LOSSES) CALCULATED USING AVERAGE SHARES.
+ AVERAGE COMMISSION RATE PAID PER SHARE FOR SECURITY PURCHASES AND SALES
DURING THE PERIOD. PRESENTATION OF THE RATE IS REQUIRED FOR FISCAL YEARS
BEGINNING AFTER SEPTEMBER 1, 1995. GENERALLY, NON-U.S. COMMISSIONS ARE LOWER
THAN U.S. COMMISSIONS WHEN EXPRESSED AS CENTS PER SHARE, BUT HIGHER WHEN
EXPRESSED AS A PERCENTAGE OF TRANSACTIONS BECAUSE OF THE LOWER PER-SHARE
PRICES OF MANY NON-U.S. SECURITIES.
5
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YOUR ACCOUNT AND DOING BUSINESS WITH US ______________________________________
Class D shares of the Portfolio are sold on a continuous basis and may be
purchased directly from the Trust's Transfer Agent, DST Systems, Inc. Shares may
also be purchased through financial institutions, broker-dealers, or other
organizations ("Intermediaries") which have established a dealer agreement or
other arrangement with SEI Investments Distribution Co. For more information
about the following topics, see "Additional Information About Doing Business
with Us."
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HOW TO BUY, SELL AND EXCHANGE SHARES THROUGH INTERMEDIARIES
Class D shares of the Portfolio may be purchased through
Intermediaries which provide various levels of shareholder
services to their customers. Contact your Intermediary for
information about the services
available to you and for
specific instructions on how to
buy, sell and exchange shares.
To allow for processing and
transmittal of orders to the
Transfer Agent (or its
authorized agent) on the same
day, Intermediaries may impose
earlier cut-off times for
receipt of purchase orders.
Certain Intermediaries may
charge customer account fees.
Information concerning
shareholder services and any
charges will be provided to the
customer by the Intermediary.
WHAT IS AN
INTERMEDIARY?
ANY ENTITY, SUCH AS A BANK, BROKER-DEALER, OTHER FINANCIAL INSTITUTION,
ASSOCIATION OR ORGANIZATION THAT HAS ENTERED INTO AN AGREEMENT WITH THE
DISTRIBUTOR TO SELL CLASS D SHARES OF THE PORTFOLIO TO THEIR CUSTOMERS.
The shares you purchase through an Intermediary may
be held "of record" by that Intermediary. If you want to
transfer the registration of shares beneficially owned by
you, but held "of record" by an Intermediary, you should
call the Intermediary to request this change.
HOW TO BUY SHARES FROM THE TRANSFER AGENT
Account Application forms can be obtained by calling
1-800-437-6016.
OPENING AN ACCOUNT BY CHECK
You may buy Class D shares by mailing a completed
application and a check (or other negotiable bank
instrument or money order) to the Transfer Agent. All
purchases made by check should be in U.S. dollars and made
payable to "Class D shares (Portfolio Name)." Third party
checks, credit cards, credit card checks and cash will not
be accepted. When purchases are made by check, (including
certified or cashier's check), redemption proceeds will not
be forwarded until the check providing for the investment
being redeemed has cleared (which may take up to 15 days).
Subsequent investments may also be mailed directly to the
Transfer Agent.
BY FED WIRE
To buy shares by Fed Wire, call toll-free at
1-800-437-6016.
AUTOMATIC INVESTMENT PLAN ("AIP")
You may systematically buy Class D shares through
deductions from your checking or savings accounts, provided
these accounts are maintained through banks which are part
of the Automated Clearing House ("ACH") system. You may
purchase shares on a fixed schedule (semi-monthly or
monthly) with amounts as low as $25, or as high as
$100,000.
6
<PAGE>
Upon notice, the amount you commit to the AIP may be
changed or canceled at any time. The AIP is subject to
account minimum initial purchase amounts and minimum
maintained balance requirements.
OTHER INFORMATION ABOUT BUYING SHARES SALES CHARGES
Your purchase is subject to a sales charge which varies
depending on the size of your purchase. The following table
shows the regular sales charges on Class D shares of the
Portfolio to a "single purchaser," together with the
reallowance paid to dealers and the agency commission paid
to brokers (collectively the "commission"):
INTERNATIONAL EQUITY PORTFOLIO
<TABLE>
<CAPTION>
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<S> <C> <C> <C>
SALES CHARGE AS REALLOWANCE AND
SALES CHARGE AS APPROPRIATE BROKERAGE COMMISSION
A PERCENTAGE OF PERCENTAGE OF NET AS PERCENTAGE OF
AMOUNT OF PURCHASE OFFERING PRICE AMOUNT INVESTED OFFERING PRICE
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< $50,000 5.00% 5.26% 4.50%
$50,000 but < $100,000 4.50% 4.71% 4.00%
$100,000 but < $250,000 3.50% 3.63% 3.00%
$250,000 but < $500,000 2.50% 2.56% 2.00%
$500,000 but < $1,000,000 2.00% 2.04% 1.75%
$1,000,000 but < $2,000,000 1.00% 1.01% 1.00%
$2,000,000 but < $4,000,000 .50% .50% .50%
Over $4,000,000 none none none
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</TABLE>
The commissions shown in the table above apply to
sales through Intermediaries. Under certain circumstances,
commissions up to the amount of the entire sales charge may
be re-allowed to certain Intermediaries, who might then be
deemed to be "underwriters" under the Securities Act of
1933.
RIGHT OF ACCUMULATION
A Right of Accumulation allows you, under certain
circumstances, to combine your current purchase with the
current market value of previously purchased shares of the
Portfolio and Class D shares of other portfolios in order
to obtain a reduced sales charge.
LETTER OF INTENT
A Letter of Intent allows you, under certain circumstances,
to aggregate anticipated purchases over a 13-month period
to obtain a reduced sales charge.
SALES CHARGE WAIVER
Certain shareholders may qualify for a sales charge waiver.
To determine whether or not you qualify for a sales charge
waiver see "Additional Information About Doing Business
with Us." Shareholders who qualify for a sales charge
waiver must notify the Transfer Agent before purchasing
shares.
7
<PAGE>
EXCHANGING SHARES_______________________________________________________________
WHEN CAN YOU EXCHANGE SHARES?
Once good payment for your shares has been received and
accepted (I.E., an account has been established), you may
exchange some or all of your shares for Class D shares of
SEI Tax Exempt Trust, SEI Liquid Asset Trust and SEI
Institutional Managed Trust ("SEI Funds"). Exchanges are
made at net asset value plus any applicable sales charge.
WHEN DO SALES CHARGES APPLY TO AN EXCHANGE?
Portfolios that are not money market portfolios currently
impose a sales charge on Class D shares. If you exchange
into one of these "non-money market" portfolios, you will
have to pay a sales charge on
any portion of your exchanged
Class D shares for which you
have not previously paid a sales
charge.
If you previously paid a
sales charge on your Class D
shares, no additional sales
charge will be assessed when you
exchange those Class D shares
for other Class D shares.
If you buy Class D shares
of a "non-money market" fund and
you receive a sales charge
waiver, you will be deemed to
have paid the sales charge for
purposes of this exchange
privilege. In calculating any
sales charge payable on your
exchange, the Trust will assume
that the first shares you
exchange are those on which you have already paid a sales
charge. Sales charge waivers may also be available under
certain circumstances described in the SEI Funds'
prospectuses.
HOW DOES AN
EXCHANGE TAKE
PLACE?
WHEN MAKING AN EXCHANGE, YOU AUTHORIZE THE SALE OF YOUR SHARES OF THE PORTFOLIO
IN ORDER TO PURCHASE THE SHARES OF ANOTHER PORTFOLIO. IN OTHER WORDS, YOU ARE
EXECUTING A SELL ORDER AND THEN A BUY ORDER. THIS SALE OF YOUR SHARES IS A
TAXABLE EVENT WHICH COULD RESULT IN A TAXABLE GAIN OR LOSS.
The Trust reserves the right to change the terms and
conditions of the exchange privilege discussed herein, or
to terminate the exchange privilege, upon 60 days' notice.
The Trust also reserves the right to deny an exchange
request made within 60 days of the purchase of a non-money
market portfolio.
REQUESTING AN EXCHANGE OF SHARES
To request an exchange, you must provide proper
instructions in writing to the Transfer Agent. Telephone
exchanges will also be accepted if you previously elected
this option on your account application.
In the case of shares held "of record" by an
Intermediary but beneficially owned by you, you should
contact the Intermediary who will contact the Transfer
Agent and effect the exchange on your behalf.
HOW TO SELL SHARES THROUGH THE TRANSFER AGENT
To sell your shares, a written request for redemption in
good order must be received by the Transfer Agent. Valid
written redemption requests will be effective on receipt.
All shareholders of record must sign the redemption
request.
BY MAIL
For information about the proper form of redemption
requests, call 1-800-437-6016. You may also have the
proceeds mailed to an address of record or mailed (or sent
by ACH) to
8
<PAGE>
a commercial bank account previously designated on the
Account Application or specified by written instruction to
the Transfer Agent. There is no charge for having
redemption requests mailed to a designated bank account.
BY TELEPHONE
You may sell your shares by telephone if you previously
elected that option on the Account Application. You may
have the proceeds mailed to the address of record, wired or
sent by ACH to a commercial bank
account previously designated on
the Account Application. Under
most circumstances, payments
will be transmitted on the next
Business Day following receipt
of a valid telephone request for
redemption. Wire redemption
requests may be made by calling
the Transfer Agent at
1-800-437-6016, who will
subtract a wire redemption
charge (presently $10.00) from
the amount of the redemption.
SYSTEMATIC WITHDRAWAL PLAN ("SWP")
You may establish a systematic
withdrawal plan for an account
with a $10,000 minimum balance.
Under the plan, redemptions can
be automatically processed from accounts (monthly,
quarterly, semi-annually or annually) by check or by ACH
with a minimum redemption amount of $50.
WHAT IS A
SIGNATURE
GUARANTEE?
A SIGNATURE GUARANTEE VERIFIES THE AUTHENTICITY OF YOUR SIGNATURE AND MAY BE
OBTAINED FROM ANY OF THE FOLLOWING: BANKS, BROKERS, DEALERS, CERTAIN CREDIT
UNIONS, SECURITIES EXCHANGE OR ASSOCIATION, CLEARING AGENCY OR SAVINGS
ASSOCIATION. A NOTARY PUBLIC CANNOT PROVIDE A SIGNATURE GUARANTEE.
INVESTMENT OBJECTIVE
AND POLICIES
_______________________________________________________________________
INTERNATIONAL EQUITY PORTFOLIO
The International Equity
Portfolio seeks to provide
long-term capital appreciation
by investing primarily in a
diversified portfolio of equity
securities of non-U.S. issuers.
Under normal
circumstances, at least 65% of
the International Equity
Portfolio's assets will be
invested in equity securities of
non-U.S. issuers located in at
least three countries other than
the United States.
There can be no assurance
that the Portfolio will achieve
its objective.
WHAT ARE
INVESTMENT
OBJECTIVES AND
POLICIES?
THE PORTFOLIO'S INVESTMENT OBJECTIVE IS A STATEMENT OF WHAT IT SEEKS TO ACHIEVE.
IT IS IMPORTANT TO MAKE SURE THAT THE INVESTMENT OBJECTIVE MATCHES YOUR OWN
FINANCIAL NEEDS AND CIRCUMSTANCES. THE INVESTMENT POLICIES SECTION SPELLS OUT
THE TYPES OF SECURITIES IN WHICH THE PORTFOLIO INVESTS.
9
<PAGE>
GENERAL INVESTMENT
POLICIES AND
RISK FACTORS
______________________________________________________________________
INTERNATIONAL EQUITY PORTFOLIO
Securities of non-U.S. issuers purchased by the Portfolio
will typically be listed on recognized foreign exchanges,
but also may be purchased in over-the-counter markets, on
U.S. registered exchanges, or in the form of sponsored or
unsponsored American Depositary Receipts ("ADRs") traded on
registered exchanges or NASDAQ, or sponsored or unsponsored
European Depositary Receipts ("EDRs"), Continental
Depositary Receipts ("CDRs") or Global Depositary Receipts
("GDRs"). The Portfolio expects its investments to
emphasize both large and intermediate capitalization
companies.
The International Equity Portfolio may enter into
forward foreign currency contracts as a hedge against
possible variations in foreign exchange rates. The
Portfolio may enter into forward foreign currency contracts
to hedge a specific security transaction or to hedge a
portfolio position. These contracts may be bought or sold
to protect the Portfolio, to some degree, against a
possible loss resulting from an adverse change in the
relationship between foreign currencies and the U.S.
dollar. The Portfolio may also invest in foreign currency
futures and in options on currencies. The Portfolio expects
to be fully invested in its primary investments described
above, but may invest up to 35% of its total assets in U.S.
or non-U.S. cash reserves; money market instruments; swaps;
options on securities and non-U.S. indices; futures
contracts, including stock index futures contracts; and
options on futures contracts.
The Portfolio is permitted to acquire floating and
variable rate securities, purchase securities on a
when-issued or delayed delivery basis, and invest up to 15%
of its total assets in illiquid securities. Although
permitted to do so, the Portfolio does not currently intend
to invest in securities issued by passive foreign
investment companies or to engage in securities lending.
For temporary defensive purposes, when the advisers
determine that market conditions warrant, the Portfolio may
invest up to 50% of its assets in the U.S. and non-U.S.
money market instruments described above and in other U.S.
and non-U.S. long- and short-term debt instruments which
are rated BBB or higher by S&P or Baa or higher by Moody's
at the time of purchase, or which are determined by the
advisers to be of comparable quality; maintain a portion of
its assets in cash; and invest in obligations of
supranational entities which are rated A or higher by S&P
or Moody's at the time of purchase or which are determined
by the advisers to be of comparable quality. Fixed income
securities rated BBB or Baa lack outstanding investment
characteristics, and have speculative characteristics as
well.
In addition, for temporary defensive purposes, when
the advisers determine that market conditions warrant, the
Portfolio may invest up to 100% of its assets in U.S.
dollar-denominated fixed income securities or debt
obligations and the following domestic and
10
<PAGE>
foreign money market instruments: government obligations,
certificates of deposit, bankers' acceptances, time
deposits, commercial paper, short-term corporate debt
issues and repurchase agreements, and may hold a portion of
their assets in cash for liquidity purposes.
For additional information regarding the permitted
investments of the Portfolio, see the "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 the Statement of Additional Information.
INVESTMENT
LIMITATIONS
________________________________________________________________________
The investment objective and certain of the investment
limitations (including those listed below) 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.
THE INTERNATIONAL EQUITY PORTFOLIO MAY NOT:
1. With respect to 75% of its total assets, (i) purchase
securities of any issuer (except securities issued or
guaranteed by the United States Government, its agencies
or instrumentalities) if, as a result, more than 5% of
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 its total assets to be invested in the securities of
one or more issuers conducting their principal business
activities in the same industry, provided that this
limitation does not apply to investments in securities
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 (except the limitation
on borrowing) will apply at the time of the purchase of a
security. Additional fundamental and non-fundamental
investment limitations are set forth in the Statement of
Additional Information.
11
<PAGE>
THE MANAGER AND
SHAREHOLDER SERVICING
AGENT AND THE TRANSFER
AGENT ________________________________________________________________
SEI Investments Fund Management ("SEI Management") provides
the Trust with overall management services, regulatory
reporting, all necessary office space, equipment,
personnel, and facilities, and acts as shareholder
servicing agent.
For its management services, SEI Management is
entitled to a fee, which is calculated daily and paid
monthly, at an annual rate of .45% of the average daily net
assets of the International Equity Portfolio. SEI
Management has voluntarily agreed to waive all or a portion
of its fees and, if necessary, reimburse other operating
expenses in order to limit the total operating expenses of
the Portfolio. SEI Management reserves the right to
terminate this voluntary fee waivers and expense
reimbursement at any time in its sole discretion.
For the fiscal year ended February 28, 1998, the
International Equity Portfolio paid a management fee of
.45% of its average daily net assets.
The Trust and DST Systems, Inc., 330 W. 9th Street,
Kansas City, Missouri, 64105 ("DST") have entered into a
separate transfer agent agreement with respect to the Class
D shares of the Portfolio. Under this agreement, DST acts
as the transfer agent (the "Transfer Agent") and dividend
disbursing agent for the Class D Shares of the Trust.
THE ADVISER
_______________________________________________________________________
SEI INVESTMENTS MANAGEMENT CORPORATION
SEI Investments Management Corporation ("SIMC") is a
wholly-owned subsidiary of SEI Investments Company ("SEI
Investments"), a financial services company. The principal
business address of SIMC and SEI Investments 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
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 387 portfolios, which investment
companies had more than $128 billion in assets as of May
31, 1998.
In its role as the adviser to the Portfolio, SIMC
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
12
<PAGE>
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 .505% of the International Equity
Portfolio's average daily net assets.
For the fiscal year ended
February 28, 1998, the
International Equity Portfolio
paid an advisory fee, after fee
waivers, of .41% of its average
daily net assets. SIMC paid the
sub-advisers a fee based on a
percentage of the average
monthly market value of the
assets managed by each
sub-adviser out of its advisory
fee.
SIMC and the Trust have
obtained an exemptive order from
the Securities and Exchange
Commission (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.
INVESTMENT
ADVISER
A PORTFOLIO'S INVESTMENT ADVISER MANAGES THE INVESTMENT ACTIVITIES AND IS
RESPONSIBLE FOR THE PERFORMANCE OF THE PORTFOLIO. THE ADVISER CONDUCTS
INVESTMENT RESEARCH, EXECUTES INVESTMENT STRATEGIES BASED ON AN ASSESSMENT OF
ECONOMIC AND MARKET CONDITIONS, AND DETERMINES WHICH SECURITIES TO BUY, HOLD OR
SELL.
THE SUB-ADVISERS
_________________________________________________________________
ACADIAN ASSET MANAGEMENT, INC.
Acadian Asset Management, Inc. ("Acadian") serves as a
sub-adviser for a portion of the assets of the
International Equity Portfolio. Acadian, a wholly-owned
subsidiary of United Asset Management Corporation ("UAM"),
was founded in 1977 and managed approximately $4.9 billion
in assets invested globally as of May 31, 1998. Acadian's
business address is Two International Place, 26th floor,
Boston, Massachusetts 02110.
An investment committee has been responsible for
managing the Portfolio's assets allocated to Acadian since
the Portfolio's inception.
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<PAGE>
CAPITAL GUARDIAN TRUST COMPANY
Capital Guardian Trust Company ("CGTC"), a California trust
company founded in 1968, serves as a sub-adviser for a
portion of the assets of the International Equity
Portfolio. CGTC, a wholly-owned subsidiary of The Capital
Group Companies, Inc. has managed international portfolios
since 1978, and as of March 31, 1998, managed a total of
over $77 billion primarily for institutional clients. The
principal business address of CGTC and The Capital Group
Companies, Inc. is 333 South Hope Street, Los Angeles,
California 90071.
CGTC utilizes a multiple portfolio management system
under which a group of portfolio managers each will have
investment discretion over a portion of a client's account.
CGTC utilizes a research driven, value-oriented investment
philosophy.
SCOTTISH WIDOWS INVESTMENT MANAGEMENT LIMITED
Scottish Widows Investment Management Limited ("Scottish
Widows") acts as a Sub-Adviser for a portion of the assets
of the International Equity Portfolio. Scottish Widows is a
wholly-owned subsidiary of the Scottish Widows Group, a
mutual insurance company founded in 1815 and based in
Edinburgh, Scotland. Scottish Widows was established to
provide fund management across a board client base which
includes both individual and institutional accounts.
Scottish Widows employs a concentrated growth investment
process and specializes in the European market. Scottish
Widows is a registered investment adviser that managed
approximately $43 billion among 67 accounts as of December
31, 1997. The principal business address of Scottish Widows
is P.O. Box 17036, 69 Morrison Street, Edinburgh EH3 8YF,
Scotland.
Albert Morillo, a Director of Scottish Widows, is
primarily responsible for the day-to-day management and
investment decisions made with respect to the assets of
Scottish Widows' portion of the Portfolio. Mr. Morillo
joined Scottish Widows as a UK analyst in 1985, and became
the head of the European Team in 1991. Mr. Morillo sits on
the Investment Policy Committee and has asset allocation
responsibilities for the firm's global equity accounts. Mr.
Morillo has been a member of the European Team since 1986.
SG PACIFIC ASSET MANAGEMENT, INC., SGY ASSET MANAGEMENT (SINGAPORE) LIMITED AND
SG YAMAICHI ASSET MANAGEMENT CO., LTD.
SG Pacific Asset Management, Inc. (formerly, Yamaichi
Capital Management, Inc.) ("SG Pacific"), SGY Asset
Management (Singapore) Ltd. (formerly, Yamaichi Capital
Management (Singapore) Limited) ("SGY") and SG Yamaichi
Asset Management Co., Ltd. (formerly, Yamaichi
International Capital Management Co., Ltd.) ("SG Yamaichi")
jointly serve as Sub-Adviser for a portion of the assets of
the International Equity Portfolio. Societe Generale Asset
Management (North Pacific), a French financial services
conglomerate, has a controlling interest in SG Yamaichi,
the parent of SG Pacific and SGY. SG Yamaichi also serves
as a sub-adviser for a portion of the assets of the
International Equity Portfolio. SG Yamaichi was established
in 1971 as a global asset management firm. SG Pacific and
SGY are wholly-owned subsidiaries of SG Yamaichi. SG
Yamaichi specializes in Japan and Pacific Basin equity
management with both active and quantitative strategies.
The principal address of SG Pacific is 30 Wall Street, 8th
Floor, New York, New York 10005. The principal address of
SGY is 138 Robinson Road, #13-01/05, Hong Leong Centre,
14
<PAGE>
Singapore 068906. The principal address of SG Yamaichi is
5-1, Nihombashi Kabutocho, Chuo-ku, Tokyo 103, Japan. SG
Yamaichi and its affiliates currently manage over $19
billion in assets worldwide.
Mr. Marco Wong leads the management team for the
assets of the International Equity Portfolio allocated to
SG Pacific, SGY and SG Yamaichi. Mr. Wong has been with SG
Yamaichi since 1986. Mr. Hiroyoshi Nakagawa oversees the
Japan investment team in Tokyo, and also serves as a
portfolio manager for the International Equity Portfolio.
Mr. Nakagawa joined SG Yamaichi in 1977.
DISTRIBUTION
_______________________________________________________________________
SEI Investments Distribution Co. (the "Distributor"), a
wholly-owned subsidiary of SEI Investments, serves as each
Portfolio's distributor pursuant to a distribution
agreement (the "Distribution Agreement") with the Trust.
The Portfolio has adopted a distribution plan (the "Class D
Plan") pursuant to Rule 12b-1 under the Investment Company
Act of 1940, as amended (the "1940 Act"). The Portfolio has
adopted a shareholder servicing plan for its Class A shares
(the "Class A Service Plan").
The Class D Plan provides for payments to the
Distributor at an annual rate of .30% of the Portfolio's
average daily net assets attributable to Class D shares.
These payments are characterized as "compensation," and are
not directly tied to expenses incurred by the Distributor;
the payments the Distributor receives during any year may,
therefore, be higher or lower than its actual expenses.
These payments may be used to compensate the Distributor
for its services in connection with distribution assistance
or provision of shareholder services, and some or all of it
may be used to pay financial institutions and
intermediaries such as banks, savings and loan
associations, insurance companies, and investment
counselors, broker-dealers and the Distributor's affiliates
and subsidiaries for services or reimbursement of expenses
incurred in connection with distribution assistance or
provision of shareholder services. If the Distributor's
expenses are less than its fees under the Class D Plan, the
Trust will still pay the full fee and the Distributor will
realize a profit, but the Trust will not be obligated to
pay in excess of the full fee, even if the Distributor's
actual expenses are higher.
It is possible that a financial 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 the 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.
15
<PAGE>
PERFORMANCE
______________________________________________________________________
From time to time, the Portfolio may advertise yield and
total return. These figures are based on historical
earnings and are not intended to indicate future
performance. No representation can be made concerning
actual yield or future returns. The yield of the Portfolio
refers to the income generated by a hypothetical
investment, net of any sales charge imposed in the case of
some Class D shares, in the Portfolio over a thirty day
period. This income is then "annualized" (i.e., the income
received over thirty days is assumed to be generated over
one year and is shown as a percentage of the investment).
The total return of the Portfolio refers to the average
compounded rate of return on a hypothetical investment for
designated time periods (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 performance of the Class D shares of the
Portfolio will normally be lower than that of Class A
shares of the Portfolio because of the additional
distribution expenses, transfer agent expenses and sales
charges (when applicable) charged to Class D shares.
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
performance. A Portfolio may use long-term performance of
these capital markets to demonstrate general long-term risk
versus reward scenarios and could include the value of a
hypothetical investment in any of the capital markets. The
Portfolio may also quote financial and business
publications and periodicals as they relate to fund
management, investment philosophy and investment
techniques.
The Portfolio may quote various measures of
volatility and benchmark correlation in advertising and may
compare these measures to those of other funds. Measures of
volatility attempt to compare historical share price
fluctuations or total returns to a benchmark while measures
of benchmark correlation indicate how valid a comparative
benchmark might be. Measures of volatility and correlation
are calculated using averages of historical data and cannot
be calculated precisely.
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 tax treatment of the
Portfolios or its shareholders. In addition, state and
local tax consequences of an investment in the Portfolio
may differ from the federal income tax
16
<PAGE>
consequences described below. Accordingly, shareholders are
urged to consult their tax advisers regarding specific
questions as to federal, state, and local taxes. Additional
information concerning taxes is set forth in the Statement
of Additional Information.
TAX STATUS
OF THE PORTFOLIO
The Portfolio is treated as a
separate entity for federal
income tax purposes and is not
combined with the Trust's other
portfolios. The Portfolio
intends to 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
(the "Code"), so as to be
relieved of federal income tax
on net investment income and net capital gains (the excess
of net long-term capital gain over net short-term capital
losses) distributed to shareholders.
TAXES
YOU MUST PAY TAXES ON THE PORTFOLIO'S EARNINGS WHETHER YOU TAKE YOUR PAYMENTS IN
CASH OR ADDITIONAL SHARES.
TAX STATUS
OF DISTRIBUTIONS
The Portfolio will distribute
substantially all of its net
investment income (including net
short-term capital gains) and
net capital gain to
shareholders. Dividends from the
Portfolio's net investment
income will be taxable to its
shareholders as ordinary income,
whether received in cash or in
additional shares, to the extent
of the Portfolio's earnings and
profits and generally do not
qualify for the corporate
dividends-received deduction
unless derived from dividends
received by the Portfolio from
domestic (U.S.) 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 one 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. The Portfolio intends to make sufficient
distributions to avoid liability for the federal excise tax
applicable to RICs. 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 that year if paid by the
Portfolio at any time during the following January.
DISTRIBUTIONS
THE PORTFOLIO DISTRIBUTES INCOME DIVIDENDS AND CAPITAL GAINS. INCOME DIVIDENDS
REPRESENT THE EARNINGS FROM THE PORTFOLIO'S INVESTMENTS; CAPITAL GAINS
DISTRIBUTIONS OCCUR WHEN INVESTMENTS IN THE PORTFOLIO ARE SOLD FOR MORE THAN THE
ORIGINAL PURCHASE PRICE.
Investment income received by the Portfolio from
sources within foreign countries may be subject to foreign
income taxes withheld at the source. To the extent that the
Portfolio is liable for foreign income taxes so withheld,
the Portfolio intends to operate so
17
<PAGE>
as to meet the requirement of the Code to pass through to
the shareholders credit for foreign income taxes paid.
Although the Portfolio intends to meet Code requirements to
pass through credit for such taxes, there can be no
assurance that the Portfolio will be able to do so.
Each sale, exchange, or redemption of the Portfolio's
shares is a taxable transaction to the shareholder.
ADDITIONAL
INFORMATION ABOUT
DOING BUSINESS
WITH US
____________________________________________________________________________
BUSINESS DAYS
You may buy, sell or exchange
shares on days on which the New
York Stock Exchange is open for
business (a "Business Day"). All
purchase, exchange and
redemption requests received in
"good order" will be effective
as of the Business Day received
by the Transfer Agent (or its
authorized agent) as long as the
Transfer Agent (or its
authorized agent) receives the
order and, in the case of a
purchase request, payment,
before the Portfolio's net asset
value has been determined.
Otherwise the purchase will be
effective when payment is
received. Broker-dealers may
have separate arrangements with Class D shares of the
Portfolio.
If an exchange request is
for shares of a portfolio whose
net asset value is calculated as
of a time earlier than that of
the Portfolio, the exchange request will not be effective
until the next Business Day. Anyone who wishes to make an
exchange must have received a current prospectus of the
portfolio into which the exchange is being made before the
exchange will be effected.
BUY, EXCHANGE AND
SELL REQUESTS ARE IN
"GOOD ORDER" WHEN:
- - THE ACCOUNT NUMBER AND PORTFOLIO NAME ARE SHOWN
- THE AMOUNT OF THE TRANSACTION IS SPECIFIED IN DOLLARS OR SHARES
- SIGNATURES OF ALL OWNERS APPEAR EXACTLY AS THEY ARE REGISTERED ON THE
ACCOUNT
- ANY REQUIRED SIGNATURE GUARANTEES (IF APPLICABLE) ARE INCLUDED
- OTHER SUPPORTING LEGAL DOCUMENTS (AS NECESSARY) ARE PRESENT
MINIMUM INVESTMENTS
The minimum initial investment in the Portfolio's Class D
shares is $1,000; however, the minimum investment may be
waived at the Distributor's discretion. All subsequent
purchases must be at least $100 ($25 for payroll deductions
authorized pursuant to preapproved payroll deduction
plans). 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 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.
18
<PAGE>
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.
MAINTAINING A MINIMUM
ACCOUNT BALANCE
Due to the relatively high cost of handling small
investments, the Portfolio reserves the right to redeem, at
net asset value, the shares of any shareholder if, because
of redemptions of shares by or on behalf of the
shareholder, the account of such shareholder in the
Portfolio has a value of less than $1,000, the minimum
initial purchase amount. Accordingly, an investor
purchasing shares of the Portfolio in only the minimum
investment amount may be subject to such involuntary
redemption if he or she thereafter redeems any of these
shares. Before the Portfolio exercises its right to redeem
such shares and to send the proceeds to the shareholder,
the shareholder will be given notice that the value of the
shares in his or her account is less than the minimum
amount and will be allowed 60 days to make an additional
investment in the Portfolio in an amount that will increase
the value of the account to at least $1,000. See "Purchase
and Redemption of Shares" in the Statement of Additional
Information for examples of when the right of redemption
may be suspended.
At various times, the Portfolio may be requested to
redeem shares for which it has not yet received good
payment. In such circumstances, redemption proceeds will be
forwarded upon collection of payment for the shares;
collection of payment may take up to 15 days. The Portfolio
intends to pay cash for all shares redeemed, but under
abnormal conditions that make payment in cash unwise,
payment may be made wholly or partly in portfolio
securities with a market value equal to the redemption
price. In such cases, an investor may incur brokerage costs
in converting such securities to cash.
NET ASSET VALUE
An order to buy shares will be executed at a per share
price equal to the net asset value next determined after
the receipt of the purchase order by the Transfer Agent
plus any applicable sales charge (the "offering price"). No
certificates representing shares will be issued. An order
to sell shares will be executed at the net asset value per
share next determined after receipt and effectiveness of a
request for redemption in good order. 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 any Business Day. Payment to
shareholders for shares redeemed will be made within 7 days
after receipt by the Transfer Agent of the redemption
order.
HOW THE
NET ASSET VALUE
IS DETERMINED
The net asset value per share of the Portfolio is
determined by dividing the total market value of its
investments and other assets, less any liabilities, by the
total number of outstanding shares of the Portfolio. 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
19
<PAGE>
Information). Purchases will be made in full and fractional
shares of the Portfolio calculated to three decimal places.
RIGHTS OF ACCUMULATION
In calculating the sales charge rates applicable to current
purchases of the Portfolio's shares, a "single purchaser"
(defined below) is entitled to combine current purchases
with the current market value of previously purchased
shares of the Portfolio and Class D shares of other
portfolios ("Eligible Portfolios") which are sold subject
to a comparable sales charge.
The term "single purchaser" refers to (i) an
individual, (ii) an individual and spouse purchasing shares
of a Portfolio for their own account or for trust or
custodial accounts of their minor children, or (iii) a
fiduciary purchasing for any one trust, estate or fiduciary
account, including employee benefit plans created under
Sections 401 or 457 of the Code, including related plans of
the same employer. Furthermore, under this provision,
purchases by a single purchaser shall include purchases by
an individual for his/her own account in combination with
(i) purchases of that individual and spouse for their joint
accounts or for trust and custodial accounts for their
minor children and (ii) purchases of that individual's
spouse for his/her own account. To be entitled to a reduced
sales charge based upon shares already owned, the investor
must ask the Transfer Agent for such reduction at the time
of purchase and provide the account number(s) of the
investor, the investor and spouse, and their children
(under age 21). The Portfolio may amend or terminate this
right of accumulation at any time as to subsequent
purchases.
LETTER OF INTENT
By submitting a Letter of Intent (the "Letter") to the
Transfer Agent, a single purchaser may purchase shares of
the Portfolio and the other Eligible Portfolios during a
13-month period at the reduced sales charge rates applying
to the aggregate amount of the intended purchases stated in
the Letter. The Letter may apply to purchases made up to 90
days before the date of the Letter. It is the shareholder's
responsibility to notify the Transfer Agent at the time the
Letter is submitted that there are prior purchases that may
apply.
Five percent (5%) of the total amount intended to be
purchased will be held in escrow by the Transfer Agent
until such purchase is completed within the 13-month
period. The 13-month period begins on the date of the
earliest purchase. If the intended investment is not
completed, the Transfer Agent will surrender an appropriate
number of the escrowed shares for redemption in order to
realize the difference between the sales charge on the
shares purchased at the reduced rate and the sales charge
otherwise applicable to the total shares purchased. Such
purchasers may include the value of all their shares of the
Portfolio and of any of the other Eligible Portfolios in
the Trust towards the completion of such Letter.
SALES CHARGE WAIVERS
No sales charge is imposed on shares of the Portfolio: (i)
issued in plans of reorganization, such as mergers, asset
acquisitions and exchange offers, to which the Trust is a
party; (ii) sold to dealers or brokers that have a sales
agreement with the Distributor ("participating
broker-dealers"), for their own account or for retirement
plans for
20
<PAGE>
employees or sold to present employees of dealers or
brokers that certify to the Distributor at the time of
purchase that such purchase is for their own account; (iii)
sold to present employees of SEI or one of its affiliates,
or of any entity which is a current service provider to the
Trust; (iv) sold to tax-exempt organizations enumerated in
Section 501(c) of the Code or qualified employee benefit
plans created under Sections 401, 403(b)(7) or 457 of the
Code (but not IRAs or SEPs); (v) sold to fee-based clients
of banks, financial planners and investment advisers; (vi)
sold to clients of trust companies and bank trust
departments; (vii) sold to trustees and officers of the
Trust; (viii) purchased with proceeds from the recent
redemption of Class D shares of another Portfolio of the
Trust or another class of shares of a portfolio of the
Trust, SEI Tax Exempt Trust, SEI Institutional Managed
Trust, or SEI Liquid Asset Trust; (ix) purchased with the
proceeds from the recent redemption of shares of a mutual
fund with similar investment objectives and policies (other
than Class D shares of the Trust listed in (viii) above)
for which a front-end sales charge was paid (this offer
will be extended, to cover shares on which a deferred sales
charge was paid, if permitted under regulatory authorities'
interpretation of applicable law); (x) sold to participants
or members of certain affinity groups, such as trade
associations or membership organizations, which have
entered into arrangements with the Distributor; or (xi)
sold to persons participating in certain financial services
programs offered by the bank affiliates of First Security
Corporation.
An investor relying upon any of the categories of
waivers of the sales charge must qualify such waiver in
advance of the purchase with the Distributor or the
financial institution or intermediary through which shares
are purchased by the investor.
The waiver of the sales charge under circumstances
(viii) and (ix) above applies only if the following
conditions are met: the purchase must be made within 60
days of the redemption; the Transfer Agent must be notified
in writing by the investor, or his or her agent, at the
time a purchase is made; and a copy of the investor's
account statement showing such redemption must accompany
such notice. The waiver policy with respect to the purchase
of shares through the use of proceeds from a recent
redemption as described in clauses (viii) and (ix) above
will not be continued indefinitely and may be discontinued
at any time without notice. Investors should call the
Distributor at 1-800-437-6016 to confirm availability prior
to initiating the procedures described in clauses (viii)
and (ix) above.
Members of affinity groups such as trade associations
or membership organizations which have entered into
arrangements relating to waivers of sales charges with the
Distributor should contact the Distributor at
1-800-437-6016 for more information.
The Distributor has also entered into arrangements
with certain affinity groups and broker dealers wherein
their members or clients are entitled to percentage-based
discounts from the otherwise applicable sales charge for
purchase of Class D shares. Currently, the percentage-based
discount is either 10% or 50%.
21
<PAGE>
SIGNATURE GUARANTEES
The Transfer Agent may require that the signatures on the
written request be guaranteed. You should be able to obtain
a signature guarantee from a bank, broker, dealer, certain
credit unions, securities exchange or association, clearing
agency or savings association. Notaries public cannot
guarantee signatures. The signature guarantee requirement
will be waived if all of the following conditions apply:
(1) the redemption is for not more than $5,000 worth of
shares, (2) the redemption check is payable to the
shareholder(s) of record, and (3) the redemption check is
mailed to the shareholder(s) at his or her address of
record. The Trust and the Transfer Agent reserve the right
to amend these requirements without notice.
TELEPHONE/WIRE INSTRUCTIONS
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 you experience
difficulties placing redemption orders by telephone, you
may wish to consider placing your order by other means.
SYSTEMATIC
WITHDRAWAL
PLAN ("SWP")
Please note that if withdrawals exceed income dividends,
your invested principal in the account will be depleted.
Thus, depending upon the frequency and amounts of the
withdrawal payments and/or any fluctuations in the net
asset value per share, your original investment could be
exhausted entirely. To participate in the SWP, you must
have your dividends automatically reinvested. You may
change or cancel the SWP at any time, upon written notice
to the Transfer Agent.
HOW TO
CLOSE YOUR ACCOUNT
An account may be closed by providing written notice to the
Transfer Agent. You may also close your account by
telephone if you have previously elected telephone options
on your account application.
GENERAL INFORMATION
______________________________________________________________
THE TRUST
The Trust was organized as a Massachusetts business trust
under a Declaration of Trust dated June 30, 1988. The
Declaration of Trust permits the Trust to offer separate
portfolios of shares and different classes of each
portfolio. Shareholders may purchase shares in the
International Equity Portfolio through two separate
classes: Class A and Class D, which provide for variations
in distribution, shareholder servicing and transfer agent
costs, voting rights, dividends, and the imposition of a
sales charge on Class D Shares. This Prospectus offers the
Class D shares of the Trust's International Equity
Portfolio.
Additional information pertaining to the Trust may be
obtained by writing to SEI Investments Fund Management,
Oaks, Pennsylvania 19456, or by calling 1-800-437-6016.
22
<PAGE>
All consideration received by the Trust for shares of any
portfolio and all assets of such portfolio belong to that
portfolio and would be subject to liabilities related
thereto.
The Trust 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, including litigation and
other extraordinary expenses, brokerage costs, interest
charges, taxes and organization expenses.
Certain shareholders of the Portfolio may obtain
asset allocation services from the Adviser and other
financial intermediaries with respect to their investments
in the Portfolio. 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 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. Each portfolio of the Trust will vote separately on
matters relating solely to that portfolio. Shareholders of
each class will vote separately on matters pertaining to
its distribution plan. As a Massachusetts business trust,
the Trust is not required to hold annual meetings of
shareholders, but approval will be sought for certain
changes in the operation of the Trust and for the election
of Trustees under certain circumstances. In addition, a
Trustee may be removed by the remaining Trustees or by
shareholders at a special meeting called upon written
request of shareholders owning at least 10% of the
outstanding shares of the Trust. In the event that such a
meeting is requested, the Trust will provide appropriate
assistance and information to the shareholders requesting
the meeting.
REPORTING
The Trust issues an unaudited report semiannually and
audited financial statements annually. The Trust furnishes
proxy statements and other reports to shareholders of
record.
SHAREHOLDER INQUIRIES
Shareholder inquires should be directed to the SEI
Institutional International Trust, P.O. Box 419448, Kansas
City, Missouri 64141-6448.
DIVIDENDS
Substantially all of the net investment income (exclusive
of capital gains) of the Portfolio is periodically declared
and paid as a dividend. Currently, capital gains, if any,
are distributed at least annually.
Shareholders automatically receive all income
dividends and capital gain distributions in additional
shares at the net asset value next determined following the
23
<PAGE>
record date, unless the shareholder has elected to take
such payment in cash. Shareholders may change their
election by providing written notice to SIMC 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 dividend or
capital gains distributions, a shareholder will pay the
full price for the shares and receive some portion of the
price back as a taxable dividend or distribution.
The dividends on Class D shares will normally be
lower than those on Class A shares of the Portfolio because
of the additional distribution and transfer agent expenses
charged to Class D shares.
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
State Street Bank and Trust Company, 225 Franklin Street,
Boston, Massachusetts 02110, serves as Custodian for the
assets of International Equity Portfolio (the "Custodian").
The Custodian holds cash, securities and other assets of
the Trust as required by the 1940 Act. First Union National
Bank, Broad and Chestnut Streets, P.O. Box 7618,
Philadelphia, Pennsylvania 19101, acts as wire agent of the
Trust's assets.
24
<PAGE>
DESCRIPTION
OF PERMITTED
INVESTMENTS AND
RISK FACTORS
______________________________________________________________________
The following is a description of certain of the permitted
investment practices for the Portfolio, and the associated
risk factors:
AMERICAN DEPOSITARY
RECEIPTS ("ADRs"),
CONTINENTAL DEPOSITARY
RECEIPTS ("CDRs"),
EUROPEAN DEPOSITARY
RECEIPTS ("EDRs") AND
GLOBAL DEPOSITARY RECEIPTS
("GDRs")
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. EDRs,
which are sometimes referred to as Continental Depositary
Receipts ("CDRs"), are securities, typically issued by a
non-U.S. financial institution, that evidence ownership
interests in a security or a pool of securities issued by
either a U.S. or foreign issuer. GDRs are issued globally
and evidence similar ownership management. Generally, ADRs
are designed for trading in the U.S. securities market,
EDRs are designed for trading in European securities
markets and GDRs are designed for trading in non-U.S.
securities markets. ADRs, EDRs, CDRs and GDRs may be
available for investment 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 receipt's
underlying security.
CONVERTIBLE SECURITIES
Convertible securities are 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 underlying stock.
EQUITY SECURITIES
Equity securities represent ownership interests in a
company or corporation and consist of common stock,
preferred stock and warrants and other rights to acquire
such instruments. Changes in the value of Portfolio
securities will not necessarily affect cash income derived
from these securities, but will affect a Portfolio's net
asset value.
FIXED INCOME SECURITIES
Fixed income securities are debt obligations issued by
governments, corporations, municipalities and other
borrowers. 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. Moreover, while securities with longer maturities
tend to produce higher yields, the prices of longer
maturity securities are also subject to greater market
fluctuations as a result of changes in interest rates.
Changes by recognized agencies in the rating of any fixed
income security and in the ability of an issuer to make
payments of interest and principal will also affect the
value of these investments. Changes in the value of
portfolio
25
<PAGE>
securities will not affect cash income derived from these
securities, but will affect a Portfolio's net asset value.
FORWARD FOREIGN CURRENCY CONTRACTS
A forward contract involves an obligation to purchase or
sell a specific currency amount at a future date, agreed
upon by the parties, at a price set at the time of the
contract. A Portfolio may also enter into a contract to
sell, for a fixed amount of U.S. dollars or other
appropriate currency, the amount of foreign currency
approximating the value of some or all of the Portfolio's
securities denominated in such foreign currency.
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.
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. A 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. A Portfolio will
minimize the risk that it will be unable to close out a
futures contract by only entering into futures contracts
which are traded on national futures exchanges. In
addition, a Portfolio will only sell covered futures
contracts and options on futures contracts.
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 the securities comprising the Index is made; generally
contracts are closed out prior to the expiration date of
the contract.
In order to avoid leveraging and related risks, when
a Portfolio 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 and 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
26
<PAGE>
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.
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 of over seven days in length.
INVESTMENT COMPANIES
Because of restrictions on direct investment by U.S.
entities in certain countries, investment in other
investment companies may be the most practical or only
manner in which an international and global fund can invest
in the securities markets of those countries. A Portfolio
does not intend to invest in other investment companies
unless, in the judgment of its advisers, the potential
benefits of such investments exceed the associated costs
(which includes any investment advisory fees charged by the
investment companies) relative to the benefits and costs
associated with direct investments in the underlying
securities.
Investments in closed-end investment companies may
involve the payment of substantial premiums above the net
asset value of such issuer's portfolio securities, and are
subject to limitations under the 1940 Act. A Portfolio may
also incur tax liability to the extent it invests in the
stock of a foreign issuer that constitutes a "passive
foreign investment company."
MONEY MARKET
INSTRUMENTS
Money market securities are high-quality, dollar and
non-dollar denominated, short-term debt instruments. They
consist of: (i) bankers' acceptances, certificates of
deposits, notes and time deposits of highly-rated U.S.
banks and U.S. branches of foreign banks; (ii) U.S.
Treasury obligations and obligations of agencies and
instrumentalities of the U.S. Government; (iii)
high-quality commercial paper issued by U.S. and foreign
corporations; (iv) debt obligations with a maturity of one
year or less issued by corporations 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.
OBLIGATIONS OF
SUPRANATIONAL ENTITIES
Supranational entities are entities established through the
joint participation of several governments, including the
Asian Development Bank, the Inter-American Development
Bank, International Bank for Reconstruction and Development
(World Bank), African Development Bank, European Economic
Community, European Investment Bank and the Nordic
Investment Bank. The governmental members, or "stock
holders," usually make initial capital contributions to the
supranational entity and, in many cases, are committed to
make additional capital contributions if the supranational
entity is unable to repay its borrowings.
27
<PAGE>
OPTIONS
A Portfolio may purchase and write put and call options on
indices and enter into 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 particular market represented by the index
generally, rather than the price movements in individual
securities.
A Portfolio may purchase and write put and call
options on foreign currencies (traded on U.S. and foreign
exchanges or over-the-counter markets) to manage its
exposure to exchange rates. Call options on foreign
currency written by a Portfolio will be "covered," which
means that the Portfolio will own an equal amount of the
underlying foreign currency. With respect to put options on
foreign currency written by a Portfolio, the Portfolio will
establish a segregated account with its custodian
consisting of cash or liquid securities in an amount equal
to the amount the Portfolio would be required to pay upon
exercise of the put.
All options written on indices or securities must be
covered. When a Portfolio writes an option on an index or
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 a
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.
REPURCHASE AGREEMENTS
Repurchase agreements are agreements by which a Portfolio
obtains a security and simultaneously commits to return the
security to the seller at an agreed upon price (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.
28
<PAGE>
SECURITIES OF FOREIGN ISSUERS
There are certain risks connected with investing in foreign
securities. These include risks of adverse political and
economic developments (including possible governmental
seizure or nationalization of assets), the possible
imposition of exchange controls or other governmental
restrictions, less uniformity in accounting and reporting
requirements, the possibility that there will be less
information on such securities and their issuers available
to the public, the difficulty of obtaining or enforcing
court judgments abroad, restrictions on foreign investments
in other jurisdictions, difficulties in effecting
repatriation of capital invested abroad and difficulties in
transaction settlements and the effect of delay on
shareholder equity. Foreign securities may be subject to
foreign taxes, and may be less marketable than comparable
U.S. securities. The value of a Portfolio's investments
denominated in foreign currencies will depend on the
relative strengths of those currencies and the U.S.
dollars, and a Portfolio may be affected favorably or
unfavorably by changes in the exchange rates or exchange
control regulations between foreign currencies and the U.S.
dollar. Changes in foreign currency exchange rates also may
affect the value of dividends and interest earned, gains
and losses realized on the sale of securities and net
investment income and gains if any, to be distributed to
shareholders by a Portfolio. Furthermore, emerging market
countries may have less stable political environments than
more developed countries.
SWAPS, CAPS, FLOORS AND COLLARS
Interest rate swaps, mortgage swaps, currency swaps and
other types of swap agreements such as caps, floors and
collars are designed to permit the purchaser to preserve a
return or spread on a particular investment or portion of
its portfolio, and to protect against any increase in the
price of securities a Portfolio anticipates purchasing at a
later date.
Swap agreements will tend to shift a Portfolio's
investment exposure from one type of investment to another.
Depending on how they are used, swap agreements may
increase or decrease the overall volatility of a
Portfolio's investment and their share price and yield.
U.S. GOVERNMENT AGENCY SECURITIES
Obligations issued or guaranteed by agencies of the U.S.
Government, including, among others, the Federal Farm
Credit Bank, the Federal Housing Administration and the
Small Business Administration and obligations issued or
guaranteed by instrumentalities of the U.S. Government,
including, among others, the Federal Home Loan Mortgage
Corporation, the Federal Land Banks and the U.S. Postal
Service. Some of these securities are supported by the full
faith and credit of the U.S. Treasury (e.g., Government
National Mortgage Association Securities), and others are
supported by the right of the issuer to borrow from the
Treasury (e.g., Federal Farm Credit Bank Securities), while
still others are supported only by the credit of the
instrumentality (e.g., Fannie Mae Securities)
U.S. TREASURY OBLIGATIONS
U.S. Treasury obligations consist of bills, notes and bonds
issued by the U.S. Treasury, as well as separately traded
interest and principal component parts of such obligations,
known as Separately Traded Registered Interest and
Principal Securities ("STRIPS") that are transferable
through the Federal book-entry system.
29
<PAGE>
VARIABLE AND FLOATING RATE INSTRUMENTS
Certain obligations may carry variable or floating rates of
interest and may involve a conditional or unconditional
demand feature. Such instruments bear interest at rates
which are not fixed, but which vary with changes in
specified market rates or indices. The interest rates on
these securities may be reset daily, weekly, quarterly or
at some other interval, and may have a floor or ceiling on
interest rate changes.
YANKEE OBLIGATIONS
Yankee obligations ("Yankees") are U.S. dollar-denominated
instruments of foreign issuers who either register with the
SEC or issue under Rule 144A under the Securities Act of
1933. These obligations consist of debt securities
(including preferred or preference stock of
non-governmental issuers), certificates of deposit, fixed
time deposits and bankers' acceptances issued by foreign
banks, and debt obligations of foreign governments or their
subdivisions, agencies and instrumentalities, international
agencies and supranational entities. 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.
The Yankee obligations selected for a Fund will
adhere to the same quality standards as those utilized for
the selection of domestic debt obligations.
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. A Portfolio will maintain a separate
account with liquid securities or cash in an amount at
least equal to these commitments. The interest rate
realized on these securities is fixed as of the purchase
date and, no interest accrues to a Portfolio before
settlement.
Additional information on other permitted investments can
be found in the Statement of Additional Information.
30
<PAGE>
SEI INSTITUTIONAL INTERNATIONAL TRUST
JUNE 30, 1998
- --------------------------------------------------------------------------------
INTERNATIONAL EQUITY PORTFOLIO
EMERGING MARKETS EQUITY PORTFOLIO
INTERNATIONAL FIXED INCOME PORTFOLIO
EMERGING MARKETS DEBT PORTFOLIO
- --------------------------------------------------------------------------------
This Prospectus concisely sets forth information about the above-referenced
Portfolios that an investor needs to know before investing. Please read this
Prospectus carefully, and keep it on file for future reference.
A Statement of Additional Information dated June 30, 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 International 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
and non-diversified portfolios of securities. A portfolio may offer separate
classes of shares that differ from each other primarily in the allocation of
certain distribution expenses and minimum investments. This Prospectus offers
the Class A shares of each of the Trust's equity and fixed income portfolios
(each a "Portfolio" and, together, the "Portfolios") listed above.
- --------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
THE TRUST'S SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK. THE TRUST'S SHARES ARE NOT FEDERALLY INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER
GOVERNMENT AGENCY. INVESTMENT IN THE SHARES INVOLVES RISK, INCLUDING POSSIBLE
LOSS OF THE PRINCIPAL AMOUNT INVESTED.
<PAGE>
ANNUAL OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
EMERGING EMERGING
INTERNATIONAL MARKETS INTERNATIONAL MARKETS
EQUITY EQUITY FIXED INCOME DEBT
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------ --------- ------------ ---------
<S> <C> <C> <C> <C>
Management/Advisory Fees (AFTER FEE WAIVER AND REIMBURSEMENT) (1) .93% 1.35% .85% 1.12%
12b-1 Fees none none none none
Total Other Expenses .35% .60% .15% .23%
Shareholder Servicing Fees (2) .25% .19% .07% .02%
- --------------------------------------------------------------------------------------------------------------------------
Total Operating Expenses (AFTER FEE WAIVER) (3) 1.28% 1.95% 1.00% 1.35%
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) CERTAIN OF THE ADVISERS HAVE AGREED TO WAIVE A PORTION OF THEIR FEES, AND
THE MANAGEMENT/ADVISORY FEES SHOWN REFLECT THESE WAIVERS. SUCH FEE WAIVERS
ARE VOLUNTARY AND MAY BE TERMINATED AT ANY TIME IN THE SOLE DISCRETION OF
EACH ENTITY THAT HAS AGREED TO WAIVE A PORTION OF ITS FEE. ABSENT SUCH FEE
WAIVERS, MANAGEMENT/ADVISORY FEES WOULD BE .96% FOR THE INTERNATIONAL EQUITY
PORTFOLIO, 1.70% FOR THE EMERGING MARKETS EQUITY PORTFOLIO, .90% FOR THE
INTERNATIONAL FIXED INCOME PORTFOLIO AND 1.50% FOR THE EMERGING MARKETS DEBT
PORTFOLIO. MANAGEMENT/ADVISORY FEES HAVE BEEN RESTATED TO REFLECT CURRENT
EXPENSES.
(2) REFLECTS THE CURRENT LEVEL OF SHAREHOLDER SERVICING FEES. PLEASE SEE
"DISTRIBUTION AND SHAREHOLDER SERVICING."
(3) ABSENT THIS FEE WAIVER, TOTAL OPERATING EXPENSES WOULD BE: 1.31% FOR THE
INTERNATIONAL EQUITY PORTFOLIO, 2.30% FOR THE EMERGING MARKETS EQUITY
PORTFOLIO, 1.05% FOR THE INTERNATIONAL FIXED INCOME PORTFOLIO, AND 1.73% FOR
THE EMERGING MARKETS DEBT PORTFOLIO. ADDITIONAL INFORMATION MAY BE FOUND
UNDER "THE ADVISERS," "THE SUB-ADVISERS" AND "THE MANAGER."
EXAMPLE
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1 YR. 3 YRS. 5 YRS. 10 YRS.
----- ------ ------ -------
<S> <C> <C> <C> <C>
An investor in a Portfolio would pay the following
expenses on a $1,000 investment assuming (1) a 5%
annual return and (2) redemption at the end of
each time period:
International Equity $13 $41 $ 70 $155
Emerging Markets Equity $20 $61 $105 $227
International Fixed Income $10 $32 $ 55 $123
Emerging Markets Debt $14 $43 $ 74 $162
- -------------------------------------------------------------------------------------
</TABLE>
THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
THE PURPOSE OF THE EXPENSE TABLE AND EXAMPLE IS TO ASSIST THE INVESTOR IN
UNDERSTANDING THE VARIOUS COSTS AND EXPENSES THAT MAY BE DIRECTLY OR INDIRECTLY
BORNE BY INVESTORS IN CLASS A SHARES OF THE PORTFOLIOS. THE INTERNATIONAL EQUITY
PORTFOLIO ALSO OFFERS CLASS D SHARES, WHICH ARE SUBJECT TO THE SAME EXPENSES,
EXCEPT THAT CLASS D SHARES BEAR SALES CHARGES, DIFFERENT DISTRIBUTION COSTS AND
ADDITIONAL TRANSFER AGENT COSTS. A PERSON WHO PURCHASES SHARES THROUGH A
FINANCIAL INSTITUTION MAY BE CHARGED SEPARATE FEES BY THAT INSTITUTION.
ADDITIONAL INFORMATION MAY BE FOUND UNDER "THE MANAGER," "THE ADVISERS," "THE
SUB-ADVISERS" AND "DISTRIBUTION AND SHAREHOLDER SERVICING."
2
<PAGE>
FINANCIAL HIGHLIGHTS
______________________________________________________________
The following information has been derived from the financial statements audited
by Price Waterhouse LLP, the Trust's independent accountants. Price Waterhouse
LLP's report dated April 24, 1998 on the Trust's financial statements as of
February 28, 1998, is incorporated by reference into the Trust's Statement of
Additional Information. The Trust's financial statements and additional
performance information are set forth in the 1998 Annual Report to Shareholders,
which is available upon request and without charge by calling 1-800-342-5734.
This table should be read in conjunction with the Trust's financial statements
and notes thereto.
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
FOR THE PERIODS ENDED FEBRUARY 28,
<TABLE>
<CAPTION>
NET
REALIZED DISTRIBUTIONS
NET ASSET NET AND DISTRIBUTIONS FROM NET
VALUE INVESTMENT UNREALIZED FROM NET REALIZED RETURN ASSETS
BEGINNING INCOME/ GAINS/ INVESTMENT CAPITAL OF VALUE END TOTAL
OF PERIOD (LOSS) (LOSSES) INCOME(5) GAINS CAPITAL OF PERIOD RETURN
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
------------------------------
INTERNATIONAL EQUITY PORTFOLIO
------------------------------
CLASS A
1998(6) $ 9.67 $ 0.17 $ 0.77 $(0.18) $ (0.28) $ -- $ 10.15 10.21%
1997 10.00 0.09 0.47 (0.07) (0.82) -- 9.67 5.70
1996 9.59 0.14 1.45 (0.19) (0.99) -- 10.00 17.30
1995 11.00 0.15 (0.97) -- (0.59) -- 9.59 (7.67)
1994 8.93 0.13 2.05 (0.11) -- -- 11.00 24.44
1993 9.09 0.16 0.04 (0.36) -- -- 8.93 2.17
1992 9.56 0.19 (0.36) (0.30) -- -- 9.09 (1.63)
1991 9.62 0.18 (0.14) -- (0.01) (0.09) 9.56 0.36
1990(1) 10.00 0.04 (0.42) -- -- -- 9.62 (3.70)*
------------------------------------
EMERGING MARKETS EQUITY PORTFOLIO
------------------------------------
CLASS A
1998 $12.87 $(0.03) $(2.25) $(0.03) $ (0.01) $ -- $ 10.55 (17.72)%
1997 10.93 0.01 1.96 (0.02) (0.01) -- 12.87 18.02
1996 10.27 (0.02) 0.72 -- (0.04) -- 10.93 6.83
1995(2) 10.00 0.01 0.26 -- -- -- 10.27 2.70*
-------------------------------------
INTERNATIONAL FIXED INCOME PORTFOLIO
-------------------------------------
CLASS A
1998 $10.53 $ 0.23 $ 0.11 $(0.10) $ (0.09) $ -- $ 10.68 3.23%
1997 10.77 0.71 (0.49) (0.38) (0.08) -- 10.53 1.85
1996 10.42 0.58 0.89 (1.02) (0.10) -- 10.77 13.96
1995 10.23 0.43 0.40 (0.62) (0.02) -- 10.42 8.43
1994(3) 10.00 0.14 0.18 (0.09) -- -- 10.23 6.41*
-------------------------
EMERGING MARKETS DEBT
-------------------------
CLASS A
1998(4) $10.00 $ 0.56 $-- $(0.25) $-- $ -- $ 10.31 5.64%*
<CAPTION>
RATIO OF
NET
RATIO OF RATIO OF INVESTMENT
RATIO OF NET EXPENSES INCOME/
EXPENSES INVESTMENT TO (LOSS) TO
NET ASSETS TO INCOME/ AVERAGE AVERAGE NET
END OF AVERAGE (LOSS) TO NET ASSETS ASSETS PORTFOLIO AVERAGE
PERIOD NET AVERAGE (EXCLUDING (EXCLUDING TURNOVER COMMISSION
(000) ASSETS NET ASSETS WAIVERS) WAIVERS) RATE RATE+
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
-----------------------------
INTERNATIONAL EQUITY PORTFOLIO
-----------------------------
CLASS A
1998(6) $ 851,542 1.21% 1.31% 1.30% 1.22% 75% $0.0122
1997 524,062 1.28 1.11 1.42 0.97 117 0.0172
1996 347,646 1.25 1.29 1.29 1.25 102 --
1995 328,503 1.19 1.30 1.21 1.28 64 --
1994 503,498 1.10 1.46 1.24 1.32 19 --
1993 178,287 1.10 1.80 1.53 1.37 23 --
1992 92,456 1.10 2.07 1.52 1.65 79 --
1991 35,829 1.10 3.52 1.64 2.98 14 --
1990(1) 8,661 1.10 3.13 5.67 (1.44) -- --
-----------------------------------
EMERGING MARKETS EQUITY PORTFOLIO
-----------------------------------
CLASS A
1998 $ 509,748 1.95% (0.12)% 2.36% (0.53)% 76% $0.0019
1997 221,474 1.95 (0.04) 2.55 (0.64) 100 0.0004
1996 67,181 1.95 (0.23) 2.72 (1.00) 104 --
1995(2) 5,300 1.95 1.79 4.98 (1.24) -- --
------------------------------------
INTERNATIONAL FIXED INCOME PORTFOLIO
------------------------------------
CLASS A
1998 $ 408,974 1.00% 3.92% 1.24% 3.68% 280% n/a
1997 204,219 1.00 3.99 1.39 3.60 352 n/a
1996 84,318 1.00 4.70 1.27 4.43 269 --
1995 42,580 1.00 4.68 1.30 4.38 303 --
1994(3) 23,678 1.00 3.81 1.61 3.20 126 --
------------------------
EMERGING MARKETS DEBT
------------------------
CLASS A
1998(4) $ 154,284 1.35% 8.05% 1.94% 7.46% 269% n/a
</TABLE>
* RETURNS ARE FOR THE PERIOD INDICATED AND HAVE NOT BEEN ANNUALIZED.
(1) INTERNATIONAL EQUITY CLASS A SHARES WERE OFFERED BEGINNING DECEMBER 20,
1989. ALL RATIOS FOR THAT PERIOD HAVE BEEN ANNUALIZED.
(2) EMERGING MARKETS EQUITY CLASS A SHARES WERE OFFERED BEGINNING JANUARY 17,
1995. ALL RATIOS FOR THAT PERIOD HAVE BEEN ANNUALIZED.
(3) INTERNATIONAL FIXED INCOME CLASS A SHARES WERE OFFERED BEGINNING SEPTEMBER
1, 1993. ALL RATIOS FOR THAT PERIOD HAVE BEEN ANNUALIZED.
(4) EMERGING MARKETS DEBT CLASS A SHARES WERE OFFERED BEGINNING JUNE 29, 1997.
ALL RATIOS FOR THAT PERIOD HAVE BEEN ANNUALIZED.
(5) DISTRIBUTIONS FROM NET INVESTMENT INCOME INCLUDE DISTRIBUTIONS OF CERTAIN
FOREIGN CURRENCY GAINS AND LOSSES.
(6) PER SHARE NET INVESTMENT INCOME AND NET REALIZED AND UNREALIZED
GAINS/(LOSSES) CALCULATED USING AVERAGE SHARES.
+ AVERAGE COMMISSION RATE PAID PER SHARE FOR SECURITY PURCHASES AND SALES
DURING THE PERIOD. PRESENTATION OF THE RATE IS REQUIRED FOR FISCAL YEARS
BEGINNING AFTER SEPTEMBER 1, 1995. GENERALLY, NON-U.S. COMMISSIONS ARE LOWER
THAN U.S. COMMISSIONS WHEN EXPRESSED AS CENTS PER SHARE, BUT HIGHER WHEN
EXPRESSED AS A PERCENTAGE OF TRANSACTIONS BECAUSE OF THE LOWER PER-SHARE
PRICES OF MANY NON-U.S. SECURITIES.
3
<PAGE>
THE TRUST
__________________________________________________________________________
SEI INSTITUTIONAL INTERNATIONAL TRUST (the "Trust") is an open-end management
investment company that offers units of beneficial interest ("shares") in
separate diversified and non-diversified investment portfolios. This Prospectus
offers Class A shares of the Trust's International Equity, Emerging Markets
Equity, International Fixed Income and Emerging Markets Debt Portfolios (each a
"Portfolio" and, together, the "Portfolios"). The International Equity Portfolio
has two separate classes of shares, Class A and Class D, which provide for
variations in distribution, shareholder servicing and transfer agent costs,
sales charges, voting rights and dividends. The investment advisers and
sub-advisers to the Portfolios are referred to collectively as the "advisers."
Additional information pertaining to the Trust may be obtained by writing to SEI
Investments Distribution Co., Oaks, Pennsylvania 19456, or by calling
1-800-342-5734.
INVESTMENT
OBJECTIVES AND
POLICIES
___________________________________________________________________________
INTERNATIONAL EQUITY
The International Equity Portfolio seeks to provide
long-term capital appreciation by investing primarily in a
diversified portfolio of equity securities of non-U.S.
issuers.
Under normal circumstances, at least 65% of the
International Equity Portfolio's assets will be invested in
equity securities of non-U.S. issuers located in at least
three countries other than the United States.
Securities of non-U.S. issuers purchased by the
Portfolio will typically be listed on recognized foreign
exchanges, but also may be purchased in over-the-counter
markets, on U.S. registered exchanges, or in the form of
sponsored or unsponsored American Depositary Receipts
("ADRs") traded on registered exchanges or NASDAQ, or
sponsored or unsponsored European Depositary Receipts
("EDRs"), Continental Depositary Receipts ("CDRs") or
Global Depositary Receipts ("GDRs"). The Portfolio expects
its investments to emphasize both large, intermediate and
small capitalization companies.
The Portfolio expects to be fully invested in the
primary investments described above, but may invest up to
35% of its total assets in U.S. or non-U.S. cash reserves;
money market instruments; swaps; options on securities and
non-U.S. indices; futures contracts, including stock index
futures contracts; and options on futures contracts. The
Portfolio is permitted to acquire floating and variable
rate securities, purchase securities on a when-issued or
delayed delivery basis, and invest up to 15% of its total
assets in illiquid securities. Although permitted to do so,
the Portfolio does not currently intend to invest in
securities issued by passive foreign investment companies
or to engage in securities lending.
In addition to the policy on Temporary Defensive
Investments set forth in the "General Investment Policies"
section, for temporary defensive purposes when the advisers
determine that market conditions warrant, the Portfolio may
invest up to 50% of its assets in U.S. and non-U.S. money
market instruments and in other U.S. and non-U.S. long- and
short-term debt instruments which are rated BBB or higher
by S&P or Baa or higher by Moody's at the time of purchase,
or which are determined by the advisers to be of
4
<PAGE>
comparable quality; maintain a portion of such assets in
cash; and invest such assets in obligations of
supranational entities which are rated A or higher by S&P
or Moody's at the time of purchase or which are determined
by the advisers to be of comparable quality.
EMERGING MARKETS
EQUITY
The Emerging Markets Equity Portfolio seeks to provide
capital appreciation by investing primarily in a
diversified portfolio of equity securities of emerging
market issuers.
Under normal circumstances, at least 65% of the
Emerging Markets Equity Portfolio's assets will be invested
in equity securities of emerging market issuers. Under
normal conditions, the Portfolio maintains investments in
at least six emerging market countries and does not invest
more than 35% of its total assets in any one emerging
market country. The Portfolio defines an emerging market
country as any country the economy and market of which the
World Bank or the United Nations considers to be emerging
or developing. The Portfolio's advisers consider emerging
market issuers to include companies the securities of which
are principally traded in the capital markets of emerging
market countries; that derive at least 50% of their total
revenue from either goods produced or services rendered in
emerging market countries, regardless of where the
securities of such companies are principally traded; or
that are organized under the laws of and have a principal
office in an emerging market country.
The Portfolio expects to be fully invested in the
primary investments described above, but may invest up to
35% of its total assets in debt securities, including up to
5% of its total assets in debt securities rated below
investment grade. These debt securities will include debt
securities of governmental and private issuers in emerging
market countries. Bonds rated below investment grade are
often referred to as "junk bonds." Such securities involve
greater risk of default or price volatility than investment
grade securities. The Portfolio may invest in certain debt
securities issued by the governments of emerging market
countries that are or may be eligible for conversion into
investments in emerging market companies under debt
conversion programs sponsored by such governments.
The Portfolio may invest up to 15% of its total
assets in illiquid securities. The Portfolio's advisers
believe that carefully selected investments in joint
ventures, cooperatives, partnerships, private placements,
unlisted securities and other similar situations
(collectively, "special situations") could enhance the
Portfolio's capital appreciation potential. Investments in
special situations may be liquid, as determined by the
Portfolio's advisers based on criteria approved by the
Board of Trustees. To the extent these investments are
deemed illiquid, the Portfolio's investment in them will be
subject to its 15% restriction on investment in illiquid
securities.
The Portfolio may invest up to 10% of its total
assets in shares of other investment companies. The
Portfolio may invest in futures contracts and purchase
securities on a when-issued or delayed delivery basis. The
Portfolio may also purchase and write options to buy or
sell futures contracts.
5
<PAGE>
In addition to the policy on Temporary Defensive
Investments in the "General Investment Policies" section,
for temporary defensive purposes when the advisers
determine that market conditions warrant, the Portfolio may
invest up to 20% of its total assets in the equity
securities of companies included in the Morgan Stanley
Capital International Europe, Australia, Far East Index
(the "EAFE Index"). These companies typically have larger
average market capitalizations than the emerging market
companies in which the Portfolio generally invests.
INTERNATIONAL FIXED
INCOME
The International Fixed Income Portfolio seeks to provide
capital appreciation and current income through investment
primarily in investment grade, non-U.S. dollar denominated
government, corporate, mortgage-backed and asset-backed
fixed income securities.
Under normal circumstances, at least 65% of the
International Fixed Income Portfolio's assets will be
invested in investment grade foreign government and foreign
corporate, mortgage, and/or asset-backed fixed income
securities of issuers located in at least three countries
other than the United States.
The International Fixed Income Portfolio will invest
primarily in: (i) fixed income securities issued or
guaranteed by a foreign government or one of its agencies,
authorities, instrumentalities or political subdivisions;
(ii) fixed income securities issued or guaranteed by
supranational entities; (iii) fixed income securities
issued by foreign corporations; (iv) convertible securities
issued by foreign corporations; (v) fixed income securities
issued by foreign banks or bank holding companies; (vi)
asset-backed securities; and (vii) mortgage-backed
securities. All such investments will be in investment
grade securities denominated in various currencies,
including the euro. Investment grade securities are rated
in one of the highest four rating categories by a
nationally recognized statistical rating agency ("NRSRO")
or determined by the adviser to be of comparable quality at
the time of purchase.
The Portfolio expects to be fully invested in the
primary investments described above, but may invest in
obligations issued or guaranteed as to principal and
interest by the United States Government, its agencies or
instrumentalities ("U.S. Government securities"), swaps,
options and futures. The Portfolio may also purchase and
write options to buy or sell futures contracts, purchase
securities on a when-issued or delayed delivery basis and
engage in short selling. The Portfolio may invest up to 10%
of its total assets in illiquid securities. Furthermore,
although the Portfolio will concentrate its investments in
relatively developed countries, the Portfolio may invest up
to 20% of its assets in fixed income securities of issuers
in, or denominated in the currencies of, developing
countries and that are investment-grade securities or
determined by the advisers to be of comparable quality to
such securities and debt obligations at the time of
purchase.
Under normal circumstances, the portfolio turnover
rate for this Portfolio is expected to exceed 200% per
year. Higher portfolio turnover rates can result in
corresponding increases in portfolio transaction costs and
taxes. The Portfolio will not
6
<PAGE>
consider portfolio turnover a limiting factor in
implementing investment decisions which are consistent with
the Portfolio's objectives and policies.
EMERGING MARKETS
DEBT
The investment objective of the Emerging Markets Debt
Portfolio is to maximize total return.
Under normal circumstances, at least 80% of the
Emerging Markets Debt Portfolio's total assets will be
invested in debt securities of government, government-
related and corporate issuers in emerging market countries
and of entities organized to restructure the outstanding
debt of such issuers. The Portfolio defines an emerging
market country as any country the economy and market of
which the World Bank or the United Nations considers to be
emerging or developing. The Portfolio's advisers consider
emerging market issuers to be companies the securities of
which are principally traded in the capital markets of
emerging market countries; that derive at least 50% of
their total revenue from either goods produced or services
rendered in emerging market countries, regardless of where
the securities of such companies are principally traded;
that are organized under the laws of and have a principal
office in an emerging market country; or that are
government issuers located in an emerging market country.
Emerging market country fixed income securities in
which the Emerging Markets Debt Portfolio may invest are
U.S. dollar-denominated and non-U.S. dollar-denominated
corporate and government debt securities, including bonds,
notes, bills, debentures, convertible securities, warrants,
bank debt obligations, short-term paper, mortgage and other
asset-backed securities, preferred stock, loan
participations and assignments and interests issued by
entities organized and operated for the purpose of
restructuring the investment characteristics of instruments
issued by emerging market country issuers. The Portfolio
may invest in Brady Bonds, which are debt securities issued
by debtor nations to restructure their outstanding external
indebtedness, and which comprise a significant portion of
the emerging debt market.
The Portfolio's investments in high yield government,
government-related and restructured debt securities will
consist of: (i) debt securities or obligations issued or
guaranteed by governments, governmental agencies or
instrumentalities and political subdivisions located in
emerging market countries (including participations in
loans between governments and financial institutions); (ii)
debt securities or obligations issued by government-owned,
controlled or sponsored entities located in emerging market
countries (including participations in loans between
governments and financial institutions); and (iii)
interests in structured securities of issuers organized and
operated for the purpose of restructuring the investment
characteristics of instruments issued by any of the
entities described above (collectively, "High Yield Foreign
Sovereign Debt Securities"). Even though many of these
securities are issued by governmental issuers, they may
still be considered junk bonds on account of the
governmental issuer's poor credit rating. The Portfolio may
also purchase investment grade obligations of the foregoing
governmental issuers.
7
<PAGE>
The Portfolio's investments in debt securities of
corporate issuers in emerging market countries may include
high yield or investment grade debt securities or other
obligations issued by: (i) banks located in emerging market
countries or by branches of emerging market country banks
located in other emerging market countries; or (ii)
companies organized under the laws of an emerging market
country.
The Portfolio expects to be fully invested in the
primary investments described above, but may invest up to
10% of its total assets in common stock, convertible
securities, warrants or other equity securities when
consistent with the Portfolio's objective. The Portfolio
will generally hold such equity investments as a result of
purchases of unit offerings of fixed-income securities
which include such securities or in connection with an
actual or proposed conversion or exchange of fixed income
securities. The Portfolio may also enter into repurchase
agreements and reverse repurchase agreements, may purchase
when-issued and delayed-delivery securities, lend portfolio
securities and invest in shares of other investment
companies. The Portfolio may purchase restricted securities
and may invest up to 15% of the value of its total assets
in illiquid securities. The Portfolio may invest in options
and futures for hedging purposes, and may enter into swaps
or related transactions. The Portfolio may invest in
receipts, zero coupon securities, pay-in-kind bonds,
Eurobonds, dollar rolls, and deferred payment securities.
The securities in which the Portfolio will invest
will not be required to meet a minimum rating standard and
may not be rated for creditworthiness by any
internationally recognized credit rating organization.
Generally, the Portfolio's investments are expected to be
in the lower and lowest rating categories established by
internationally recognized credit rating organizations or
determined to be of comparable quality. Such securities,
commonly known as "junk bonds," involve significantly
greater risks, including price volatility and the risk of
default of payment of interest and principal, than higher
rated securities.
There is no limit on the percentage of the
Portfolio's assets that may be invested in non-U.S. dollar
denominated securities. However, it is expected that the
majority of the Portfolio's assets will be denominated in
U.S. dollars.
There can be no assurance that the Portfolios will
achieve their respective objectives.
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. Investments in equity securities in general
are subject to market risks that may cause their prices to
fluctuate over time. The value of convertible equity
securities is also affected by prevailing interest rates,
the credit quality of the issuer and any call
8
<PAGE>
provisions. Fluctuations in the value of equity securities
in which a Portfolio invests will cause the net asset value
of the Portfolio to fluctuate.
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. Moreover, while securities
with longer maturities tend to produce higher yields, the
prices of longer maturity securities are also subject to
greater market fluctuations as a result of changes in
interest rates. Changes by recognized agencies in the
rating of any fixed income security and in the ability of
an issuer to make payments of interest and principal also
affect the value of these investments. Changes in the value
of these securities will not affect cash income derived
from these securities, but will affect a Portfolio's net
asset value.
There are no restrictions on the average maturity of
the International Fixed Income or the Emerging Markets Debt
Portfolios or the maturity of any single instrument held by
any Portfolio. Maturities may vary widely depending on the
adviser's assessment of interest rate trends and other
economic and market factors. In the event a security owned
by a Portfolio is downgraded, the adviser will review the
situation and take appropriate action with regard to the
security. Fixed income securities rated BBB or Baa lack
outstanding investment characteristics, and have
speculative characteristics as well. Fixed income
securities rated below investment grade are often referred
to as "junk bonds." Such securities involve greater risk of
default or price declines than investment grade securities.
FOREIGN CURRENCY
TRANSACTIONS
The Portfolios may enter into forward foreign currency
contracts to manage its foreign currency exposure and as a
hedge against possible variations in foreign exchange
rates. The Portfolios may enter into forward foreign
currency contracts to hedge a specific security transaction
or to hedge a portfolio position. These contracts may be
bought or sold to protect the Portfolios, to some degree,
against possible losses resulting from an adverse change in
the relationship between foreign currencies and the U.S.
dollar. The Portfolios also may invest in foreign currency
futures and in options on currencies.
9
<PAGE>
HIGH YIELD, LOWER RATED
BONDS
The Emerging Markets Debt Portfolio may invest in lower
rated securities. Lower rated or unrated (I.E., high yield)
securities are more likely to react to developments
affecting issuers than are more highly rated securities,
which primarily react to movements in the general level of
interest rates. The market values of fixed-income
securities tend to vary inversely with the level of
interest rates. Yields and market values of high yield
securities will fluctuate over time, reflecting not only
changing interest rates but the market's perception of
credit quality and the outlook for economic growth. When
economic conditions appear to be deteriorating, medium to
lower rated securities may decline in value due to
heightened concern over credit quality, regardless of
prevailing interest rates. Investors should carefully
consider the relative risks of investing in high yield
securities and understand that such securities are not
generally meant for short-term investing.
Adverse economic developments can disrupt the market
for high yield securities, and severely affect the ability
of issuers, especially highly leveraged issuers, to service
their debt obligations or to repay their obligations upon
maturity which may lead to a higher incidence of default on
such securities. In addition, the secondary market for high
yield securities, which is concentrated in relatively few
market makers, may not be as liquid as the secondary market
for more highly rated securities. As a result, the
Portfolio's advisers could find it more difficult to sell
these securities or may be able to sell the securities only
at prices lower than if such securities were widely traded.
Furthermore the Trust may experience difficulty in valuing
certain securities at certain times. Prices realized upon
the sale of such lower rated or unrated securities, under
these circumstances, may be less than the prices used in
calculating the Portfolio's net asset value.
Lower rated or unrated debt obligations also present
risks based on payment expectations. If an issuer calls the
obligations for redemption, the Portfolio may have to
replace the security with a lower yielding security,
resulting in a decreased return for investors. If the
Portfolio experiences unexpected net redemptions, it may be
forced to sell its higher rated securities, resulting in a
decline in the overall credit quality of the Portfolio's
investment portfolio and increasing the exposure of the
Portfolio to the risks of high yield securities.
NON-DIVERSIFICATION
The International Fixed Income and Emerging Markets Debt
Portfolios are non-diversified investment companies, as
defined in the Investment Company Act of 1940, as amended
(the "1940 Act"), which means that a relatively high
percentage of assets of the Portfolios may be invested in
the obligations of a limited number of issuers. Although
the advisers generally do not intend to invest more than 5%
of each Portfolio's assets in any single issuer (with the
exception of securities which are issued or guaranteed by a
national government), the value of shares of the Portfolios
may be more susceptible to any single economic, political
or regulatory occurrence than the shares of a diversified
investment company would be. The Portfolios intend to
satisfy the diversification requirements necessary to
qualify as a regulated investment company under the
Internal Revenue Code of 1986, as amended (the "Code"),
which requires that the Portfolios be diversified
10
<PAGE>
(I.E., not invest more than 5% of their assets in the
securities in any one issuer) as to 50% of their assets.
SECURITIES OF FOREIGN
AND EMERGING MARKET
ISSUERS
There are certain risks connected with investing in foreign
securities. These include risks of adverse political and
economic developments (including possible governmental
seizure or nationalization of assets), the possible
imposition of exchange or currency controls or other
governmental restrictions, less uniformity in accounting
and reporting requirements, the possibility that there will
be less information on such securities and their issuers
available to the public, the difficulty of obtaining or
enforcing court judgments abroad, restrictions on foreign
investments in other jurisdictions, difficulties in
effecting repatriation of capital invested abroad and
difficulties in transaction settlements and the effect of
delay on shareholder equity. Foreign securities may be
subject to foreign taxes, and may be less marketable than
comparable U.S. securities. The value of a Portfolio's
investments denominated in foreign currencies will depend
on the relative strengths of those currencies and the U.S.
dollar, and a Portfolio may be affected favorably or
unfavorably by changes in the exchange rates or exchange or
currency control regulations between foreign currencies and
the U.S. dollar. Changes in foreign currency exchange rates
also may affect the value of dividends and interest earned,
gains and losses realized on the sale of securities and net
investment income and gains if any, to be distributed to
shareholders by a Portfolio.
A Portfolio's investments in emerging markets can be
considered speculative, and therefore may offer higher
potential for gains and losses than investments in
developed markets of the world. With respect to any
emerging country, there may be a greater potential for
nationalization, expropriation or confiscatory taxation,
political changes, government regulation, social
instability or diplomatic developments (including war)
which could affect adversely the economies of such
countries or investments in such countries. The economies
of developing countries generally are heavily dependent
upon international trade and, accordingly, have been and
may continue to be adversely affected by trade barriers,
exchange or currency controls, managed adjustments in
relative currency values and other protectionist measures
imposed or negotiated by the countries with which they
trade.
In addition to the risks of investing in emerging
market country debt securities, a Portfolio's investment in
government, government-related and restructured debt
instruments are subject to special risks, including the
inability or unwillingness to repay principal and interest,
requests to reschedule or restructure outstanding debt, and
requests to extend additional loan amounts. A Portfolio may
have limited recourse in the event of default on such debt
instruments.
TEMPORARY DEFENSIVE
INVESTMENTS
For temporary defensive purposes, when the advisers
determine that market conditions warrant, the Portfolios
may invest up to 100% of their assets in U.S.
dollar-denominated fixed income securities or debt
obligations and the following domestic and foreign money
market instruments: government obligations, certificates of
deposit, bankers' acceptances,
11
<PAGE>
time deposits, commercial paper, short-term corporate debt
issues and repurchase agreements, and may hold a portion of
their assets in cash. In addition, the Portfolios may
invest in the foregoing instruments and hold cash for
liquidity purposes.
For additional information regarding the Portfolios'
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 the Statement of Additional Information.
INVESTMENT
LIMITATIONS
________________________________________________________________________
The investment objective and certain of the investment
limitations (including those listed below) are fundamental
policies of the Portfolios. Fundamental policies cannot be
changed with respect to the Trust or a Portfolio without
the consent of the holders of a majority of the Trust's or
that Portfolio's outstanding shares.
EACH OF THE INTERNATIONAL EQUITY, EMERGING MARKETS EQUITY
AND EMERGING MARKETS DEBT PORTFOLIOS MAY NOT (EXCEPT AS
NOTED BELOW):
1. With respect to 75% of its total assets, (i) purchase
securities of any issuer (except securities issued or
guaranteed by the United States Government, its agencies
or instrumentalities) if, as a result, more than 5% of
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. This
limitation does not apply to the Emerging Markets Debt
Portfolio.
2. Purchase any securities which would cause more than 25%
of its total assets to be invested in the securities of
one or more issuers conducting their principal business
activities in the same industry, provided that this
limitation does not apply to investments in securities
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
a Portfolio to purchase securities or require a
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 INTERNATIONAL FIXED INCOME PORTFOLIO MAY NOT:
1. 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 or its agencies and
instrumentalities.
12
<PAGE>
2. Borrow money except for temporary or emergency purposes
and then only in an amount not exceeding 10% of the
value of the total assets of the Portfolio. This
borrowing provision is included solely to facilitate the
orderly sale of portfolio securities to accommodate
substantial redemption requests if they should occur and
is not for investment purposes. All borrowings will be
repaid before making additional investments for the
Portfolio and any interest paid on such borrowings will
reduce the income of the Portfolio.
For purposes of the industry concentration
limitations discussed above, these definitions apply to
each Portfolio, and for purposes of the International Fixed
Income Portfolio, these limitations form part of the
fundamental limitation: (i) utility companies will be
divided according to their services, for example, gas, gas
transmission, electric and telephone will each be
considered a separate industry; (ii) financial service
companies will be classified according to end users of
their services, for example, automobile finance, bank
finance and diversified finance will each be considered a
separate industry; (iii) supranational agencies will be
deemed to be issuers conducting their principal business
activities in the same industry; and (iv) governmental
issuers within a particular country will be deemed to be
conducting their principal business in the same industry.
The foregoing percentage limitations (except the
limitation on borrowing) will apply at the time of the
purchase of a security. Additional fundamental and
non-fundamental investment limitations are set forth in the
Statement of Additional Information.
THE MANAGER
______________________________________________________________________
SEI Investments 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. SEI
Management also serves as transfer agent (the "Transfer
Agent") for the Trust's Class A shares.
For its management services, SEI Management is
entitled to a fee, which is calculated daily and paid
monthly, at an annual rate of .45% of the average daily net
assets of the International Equity Portfolio, .65% of the
average daily net assets of the Emerging Markets Equity and
Emerging Markets Debt Portfolios and .60% of the average
daily net assets of the International Fixed Income
Portfolio. SEI Management has voluntarily agreed to waive
all or a portion of its fees, and if necessary, reimburse
other operating expenses, in order to limit the total
operating expenses of each Portfolio. SEI Management
reserves the right to terminate these voluntary fee waivers
at any time in its sole discretion.
For the fiscal year ended February 28, 1998, the
International Equity, Emerging Markets Equity,
International Fixed Income and Emerging Markets Debt
Portfolios paid management fees of .45%, .65%, .60%, and
.54%, respectively, of their average daily net assets.
13
<PAGE>
THE ADVISERS
______________________________________________________________________
Under advisory agreements with the Trust (the "Advisory
Agreements"), SEI Investments Management Corporation
("SIMC") serves as the investment adviser for the
International Equity, Emerging Markets Equity and Emerging
Markets Debt Portfolios. Strategic Fixed Income, L.L.C.
serves as the investment adviser for the International
Fixed Income Portfolio. Under the Advisory Agreements, the
investment advisers are authorized to make investment
decisions for the assets of the Portfolios, and to
continuously review, supervise and administer the
Portfolios' investment program.
SEI INVESTMENTS
MANAGEMENT
CORPORATION
SIMC serves as the investment adviser for the International
Equity, Emerging Markets Equity and Emerging Markets Debt
Portfolios. SIMC is a wholly-owned subsidiary of SEI
Investments Company ("SEI Investments"), a financial
services company. The principal business address of SIMC
and SEI Investments 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 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 387
portfolios, which investment companies had more than $128
billion in assets as of May 31, 1998.
In its role as the investment adviser to the
International Equity, Emerging Markets Equity and Emerging
Markets Debt Portfolios, SIMC operates as a "manager of
managers." As adviser, SIMC oversees the investment
advisory services provided to the International Equity,
Emerging Markets Equity and Emerging Markets Debt
Portfolios and manages the cash portion of the
International Equity and Emerging Markets Equity
Portfolios' 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 International Equity, Emerging
Markets Equity and Emerging Markets Debt Portfolios. 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
Portfolios' assets among sub-advisers, monitors and
evaluates sub-adviser performance, and oversees sub-adviser
compliance with the Portfolios' investment objectives,
policies and restrictions. SIMC HAS THE ULTIMATE
RESPONSIBILITY FOR THE INVESTMENT PERFORMANCE OF THE
INTERNATIONAL EQUITY, EMERGING MARKETS EQUITY AND EMERGING
MARKETS DEBT PORTFOLIOS DUE TO ITS RESPONSIBILITY TO
OVERSEE SUB-ADVISERS AND RECOMMEND THEIR HIRING,
TERMINATION AND REPLACEMENT.
14
<PAGE>
For these advisory services, SIMC is entitled to a
fee, which is calculated daily and paid monthly, at an
annual rate of .505% of the International Equity
Portfolio's average daily net assets, 1.05% of the Emerging
Markets Equity Portfolio's average daily net assets, and
.85% of the Emerging Markets Debt Portfolio's average daily
net assets.
For the fiscal year ended February 28, 1998, the
International Equity, Emerging Markets Equity and Emerging
Markets Debt Portfolios paid advisory fees, after fee
waivers, of .41%, .70%, and .59% respectively, of their
average daily net assets. SIMC paid the sub-advisers a fee
based on a percentage of the average monthly market value
of the assets managed by each sub-adviser out of its
advisory fee.
SIMC and the Trust have obtained an exemptive order
from the Securities and Exchange Commission (the "SEC")
that permits SIMC, with the approval of the Trust's Board
of Trustees, to retain sub-advisers unaffiliated with SIMC
for the Portfolios without submitting the sub-advisory
agreements to a vote of the Portfolios' shareholders. The
exemptive relief permits the disclosure of only the
aggregate amount payable by SIMC under all such
sub-advisory agreements for each Portfolio. The Portfolios
will notify shareholders in the event of any addition or
change in the identity of its sub-advisers.
STRATEGIC FIXED
INCOME, L.L.C.
Strategic Fixed Income, L.L.C. ("Strategic") serves as the
investment adviser to the International Fixed Income
Portfolio. Strategic is a Delaware limited liability
company whose predecessor was formed in 1991 to manage
multi-currency fixed income portfolios. The managing member
of the firm is Gobi Investment Inc., of which Kenneth
Windheim is the sole shareholder, and the limited partner
is Strategic Investment Management ("SIM"). As of December
31, 1997, Strategic managed $5.7 billion of client assets.
The principal address of Strategic is 1001 Nineteenth
Street North, Suite 1720, Arlington, Virginia 22209.
Kenneth Windheim, President of Strategic, has been
the portfolio manager of the Portfolio since its inception
in 1993. Mr. Windheim is assisted by Gregory Barnett and
David Jallits, Directors of Strategic and portfolio
managers of the Portfolio since April 1994 and May 1995,
respectively. Prior to forming Strategic, Kenneth Windheim
was the Chief Investment Officer and Managing Director of
the group which managed global fixed income portfolios at
Prudential Asset Management. Prior to joining Strategic,
Gregory Barnett was portfolio manager for the Pilgrim
Multi-Market Income Fund. Prior to that he was vice
president and senior fixed income portfolio manager at
Lexington Management. Prior to joining Strategic, David
Jallits was Senior Portfolio Manager for a hedge fund at
Teton Partners. From 1992 to 1993, he was Vice President
and Global Fixed Income Portfolio Manager at The Putnam
Companies.
Strategic is entitled to a fee which is calculated
daily and paid monthly by the Portfolio, at an annual rate
of .30% of the average daily net assets of the
International Fixed Income Portfolio. For the fiscal year
ended February 28, 1997. Strategic received an advisory fee
(after fee waivers) from the Portfolio of .25% of its
average daily net assets.
15
<PAGE>
THE SUB-ADVISERS
_________________________________________________________________
ACADIAN ASSET
MANAGEMENT, INC.
Acadian Asset Management, Inc. ("Acadian") serves as a
sub-adviser for a portion of the assets of the
International Equity Portfolio. Acadian, a wholly-owned
subsidiary of United Asset Management Corporation ("UAM"),
was founded in 1977 and managed approximately $4.9 billion
in assets invested globally as of May 31, 1998. Acadian's
business address is Two International Place, 26th floor,
Boston, Massachusetts 02110.
An investment committee has been responsible for
managing the Portfolio's assets allocated to Acadian since
the Portfolio's inception.
CAPITAL GUARDIAN
TRUST COMPANY
Capital Guardian Trust Company ("CGTC"), a California trust
company founded in 1968, serves as a sub-adviser for a
portion of the assets of the International Equity
Portfolio. CGTC, a wholly-owned subsidiary of The Capital
Group Companies, Inc., managed international portfolios
since 1978, and as of March 31, 1998, managed a total of
over $77 billion primarily for institutional clients. The
principal business address of CGTC and The Capital Group
Companies, Inc. is 333 South Hope Street, Los Angeles,
California 90071.
CGTC utilizes a multiple portfolio management system
under which a group of portfolio managers each will have
investment discretion over a portion of a client's account.
CGTC utilizes a research driven, value-oriented investment
philosophy.
CORONATION ASSET
MANAGEMENT
(PROPRIETARY)
LIMITED
Coronation Asset Management (Proprietary) Limited
("Coronation") serves as a sub-adviser for a portion of the
assets of the Emerging Markets Equity Portfolio.
Coronation, a registered investment adviser organized under
the laws of the Republic of South Africa, was founded in
1993, and as of March 31, 1998, managed $4.7 billion in
assets. The principal business address of Coronation is 80
Strand Street, Cape Town, South Africa, 8001.
Investment decisions for Coronation's portion of the
Portfolio are made by Anthony Gibson and Louis Stassen.
Prior to joining Coronation in 1993, Mr. Gibson, the head
of Coronation's Investment Committee, and Mr. Stassen, the
head of Coronation's research department, worked at Syfrets
Managed Assets for seven years and one year, respectively.
Prior to joining Syfrets Managed Assets, Mr. Stassen worked
as an Investment Analyst for Allan Gray Investment Counsel.
CREDIT SUISSE ASSET
MANAGEMENT LIMITED
Credit Suisse Asset Management Limited ("Credit Suisse")
acts as a sub-adviser for a portion of the assets of the
Emerging Markets Equity Portfolio. Credit Suisse, a UK
limited liability company formed in 1982, is a registered
investment adviser that managed approximately $37.1 billion
as of March 31, 1998. Credit Suisse is a wholly-owned
subsidiary of the Credit Suisse Group, a financial services
conglomerate headquartered in Zurich, Switzerland. Credit
Suisse's principal business address is Beaufort House, 15
St. Botolph Street, London, EC3A 7JJ.
16
<PAGE>
Glenn Wellman, a Managing Director of Credit Suisse,
and Isabel Knight, a Director of Credit Suisse, are
primarily responsible for the day-to-day management and
investment decisions made with respect to the assets of the
Portfolio. Prior to joining Credit Suisse in 1993, Mr.
Wellman was a Director and Senior Vice President at
Alliance Capital Limited. Before joining Credit suisse in
1997, Ms. Knight was Senior Fund Manager at Foreign and
Colonial from 1995 to 1997. From 1992 to 1995, Ms. Knight
was a Portfolio Manager for Morgan Stanley Asset
Management.
MONTGOMERY ASSET
MANAGEMENT, LLC
Montgomery Asset Management, LLC ("MAM") serves as a
sub-adviser for a portion of the assets of the Emerging
Markets Equity Portfolio. MAM is a subsidiary of
Commerzbank A.G., a German financial institution. As of
March 31, 1998, MAM had approximately $10.9 billion in
assets under management. MAM has been providing investment
management services for over seven years. The principal
address of MAM is 101 California Street, San Francisco,
California 94111.
Josephine S. Jimenez and Bryan L. Sudweeks share
primary responsibility for the portion of the Emerging
Markets Equity Portfolio's assets allocated to MAM. Ms.
Jimenez has sixteen years experience in emerging markets
investment and Dr. Sudweeks has eleven years experience in
emerging markets investment. Both joined MAM in 1991.
PARAMETRIC PORTFOLIO
ASSOCIATES
Parametric Portfolio Associates ("Parametric") serves as a
sub-adviser for a portion of the assets of the Emerging
Markets Equity Portfolio. Parametric is a general
partnership whose general partners are PIMCO Advisors L.P.
("PIMCO"), the supervisory general partner, and Parametric
Management, Inc., the managing general partner (a
wholly-owned subsidiary of PIMCO). Parametric's predecessor
was founded in 1987, and as of May 31, 1998, Parametric
managed approximately $3.0 billion in client assets.
Parametric's business address is 701 Fifth Avenue, Suite
7310, Seattle, Washington 98104. PIMCO's address is 800
Newport Center Drive, Newport Beach, California 92660.
Clifford Quisenberry, CFA, Vice President and
Portfolio Manager, is responsible for managing the portion
of the Portfolio's assets allocated to Parametric. Mr.
Quisenberry has eleven years experience in portfolio
management. He joined Parametric in 1994.
SALOMON BROTHERS
ASSET MANAGEMENT INC
Salomon Brothers Asset Management Inc ("SBAM") serves as
the sub-adviser for the assets of the Emerging Markets Debt
Portfolio. SBAM, an indirect wholly-owned subsidiary of The
Traveler's Group, is a Delaware corporation that was
founded in 1987. SBAM is a registered investment adviser
that currently manages approximately $27.8 billion in
client assets. SBAM's principal business address is 7 World
Trade Center, New York, New York 10048.
SBAM employs a team approach in managing the
Portfolio; however, Peter J. Wilby has the primary
day-to-day responsibility for the Portfolio. Mr. Wilby, a
Managing Director, joined SBAM in 1989 and is responsible
for SBAM's investment company and institutional
17
<PAGE>
portfolios which invest in high yield non-U.S. and U.S.
corporate debt securities and high yield foreign sovereign
debt securities.
SCOTTISH WIDOWS
INVESTMENT
MANAGEMENT LIMITED
Scottish Widows Investment Management Limited ("Scottish
Widows") serves as a sub-adviser for a portion of the
assets of the International Equity Portfolio. Scottish
Widows is a wholly-owned subsidiary of the Scottish Widows
Group, a mutual insurance company founded in 1815 and based
in Edinburgh, Scotland. Scottish Widows was established to
provide fund management across a board client base which
includes both individual and institutional accounts.
Scottish Widows employs a concentrated growth investment
process and specializes in the European market. Scottish
Widows is a registered investment adviser that managed
approximately $50 billion among 95 accounts as of March 31,
1998. The principal business address of Scottish Widows is
P.O. Box 17036, 69 Morrison Street, Edinburgh EH3 8YF,
Scotland.
Albert Morillo, a Director of Scottish Widows, is
primarily responsible for the day-to-day management and
investment decisions made with respect to the assets of
Scottish Widows' portion of the Portfolio. Mr. Morillo
joined Scottish Widows as a UK analyst in 1985, and became
the head of the European Team in 1991. Mr. Morillo sits on
the Investment Policy Committee and has asset allocation
responsibilities for the firm's global equity accounts. Mr.
Morillo has been a member of the European Team since 1986.
SG PACIFIC ASSET
MANAGEMENT, INC.,
SGY ASSET MANAGEMENT
(SINGAPORE) LIMITED
AND SG YAMAICHI
ASSET MANAGEMENT
CO., LTD.
SG Pacific Asset Management, Inc. (formerly, Yamaichi
Capital Management, Inc .)("SG Pacific") and SGY Asset
Management (Singapore) Ltd. (formerly, Yamaichi Capital
Management (Singapore) Limited) ("SGY") jointly serve as
sub-adviser for a portion of the assets of the
International Equity and Emerging Markets Equity
Portfolios. Societe Generale Asset Management (North
Pacific), a French financial services conglomerate, has a
controlling interest in SG Yamaichi Asset Management Co.,
Ltd. (formerly, Yamaichi International Capital Management
Co., Ltd.) ("SG Yamaichi"), the parent of SG Pacific and
SGY. SG Yamaichi serves as a sub-adviser for a portion of
the assets of the International Equity Portfolio. SG
Yamaichi was established in 1971 as a global asset
management firm. SG Pacific and SGY are wholly-owned
subsidiaries of SG Yamaichi. SG Yamaichi specializes in
Japan and Pacific Basin equity management with both active
and quantitative strategies. The principal address of SG
Pacific is 30 Wall Street, 8th Floor, New York, New York
10005. The principal address of SGY is 138 Robinson Road,
#13-01/05, Hong Leong Centre, Singapore 068906. The
principal address of SG Yamaichi is 5-1, Nihombashi
Kabutocho, Chuo-ku, Tokyo 103, Japan. SG Yamaichi and its
affiliates currently manage over $19 billion in assets
worldwide.
Mr. Marco Wong leads the management team for the
assets of the International Equity and Emerging Markets
Equity Portfolios allocated to SG Pacific, SGY and SG
Yamaichi. Mr. Wong has been with SG Yamaichi since 1986.
Mr. Hiroyoshi Nakagawa oversees the Japan investment team
in Tokyo, and also serves as a portfolio manager for the
International Equity Portfolio. Mr. Nakagawa joined SG
Yamaichi in 1977.
18
<PAGE>
DISTRIBUTION AND
SHAREHOLDER
SERVICING
__________________________________________________________________________
SEI Investments Distribution Co. (the "Distributor"), a
wholly-owned subsidiary of SEI Investments, serves as each
Portfolio's distributor pursuant to a distribution
agreement (the "Distribution Agreement") with the Trust.
The Portfolios have 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 Portfolios may
enter into such arrangements directly. Under the Class A
Service Plan, a Portfolio may pay the Distributor a fee at
a negotiated rate of up to .25% annually of the average
daily net assets of such 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.
In addition, the International Equity Portfolio has
adopted a distribution plan for its Class D shares (the
"Class D Plan") pursuant to Rule 12b-1 under the 1940 Act.
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 Portfolios'
shares.
PURCHASE AND
REDEMPTION OF SHARES
____________________________________________________________________________
Financial institutions may acquire Class A shares of the
Portfolios for their own account, or as a record owner on
behalf of fiduciary, agency or custody accounts, by placing
orders with the Transfer Agent (or its authorized agent).
Institutions that use certain SEI proprietary systems may
place orders electronically through those systems.
Financial institutions may impose an earlier cut-off time
for receipt of purchase orders directed
19
<PAGE>
through them to allow for processing and transmittal of
these orders to the Transfer Agent for effectiveness on the
same day. Financial institutions which purchase shares for
the accounts of their customers may impose separate charges
on these customers for account services.
Shares of each Portfolio may be purchased or redeemed
on days on which the New York Stock Exchange is open for
business ("Business Days"). The minimum initial investment
in a 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 fund 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 a Portfolio's performance, each
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 Portfolios calculated to three decimal places. The
Trust will send shareholders a statement of shares owned
after each transaction. The purchase price of shares is the
net asset value next determined after a purchase order is
received and accepted by the Trust. The net asset value per
share of each Portfolio is determined by dividing the total
market value of a Portfolio's investment and other assets,
less any liabilities, by the total number of outstanding
shares of that Portfolio. Net asset value per share is
determined as of the regularly-scheduled close of normal
trading on the New York Stock Exchange (normally, 4:00
p.m., Eastern time) on any 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
Portfolios 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
20
<PAGE>
the determination of net asset value will be effected at
the next Business Day's net asset 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.
The Trust intends to generally make redemptions in
cash. The Trust may, however, make redemptions in whole or
in part by a distribution in kind of readily marketable
securities in lieu of cash. Shareholders may incur
brokerage costs on the sale of any such securities so
received in payment of redemptions.
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, shareholders may
experience difficulties placing redemption orders by
telephone, and may wish to consider placing orders by other
means.
PERFORMANCE
______________________________________________________________________
From time to time, each Portfolio may advertise the yield
and total return. These figures will be based on historical
earnings and are not intended to indicate future
performance. No representation can be made concerning
actual yields or future returns. The yield of a Portfolio
refers to the income generated by a hypothetical
investment, net of any sales charge imposed in the case of
some of the Class D shares, in such Portfolio over a thirty
day period. This income is then "annualized" (I.E., the
income over thirty days is assumed to be generated over one
year and is shown as a percentage of the investment).
The total return of a Portfolio refers to the average
compounded rate of return on a hypothetical investment for
designated time periods, assuming that the entire
investment is redeemed at the end of each period and
assuming the reinvestment of all dividend and capital gain
distributions.
The performance of Class A shares will normally be
higher than for Class D shares because of the additional
distribution expenses, transfer agency expenses and sales
charge (when applicable) charged to Class D shares.
A 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
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alternatives. A Portfolio may quote Morningstar, Inc., a
service that ranks mutual funds on the basis of
risk-adjusted performance. A Portfolio may use long-term
performance of these capital markets to demonstrate general
long-term risk versus reward scenarios and could include
the value of a hypothetical investment in any of the
capital markets. A Portfolio may also quote financial and
business publications and periodicals as they relate to
fund management, investment philosophy and investment
techniques.
A Portfolio may quote various measures of volatility
and benchmark correlation in advertising and may compare
these measures to those of other funds. Measures of
volatility attempt to compare historical share price
fluctuations or total returns to a benchmark while measures
of benchmark correlation indicate how valid a comparative
benchmark might be. Measures of volatility and correlation
are calculated using averages of historical data and cannot
be calculated precisely.
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 tax treatment of the
Portfolios or their shareholders. In addition, state and
local tax consequences of an investment in a Portfolio may
differ from the federal income tax consequences described
below. Accordingly, shareholders are urged to consult their
tax advisers regarding specific questions as to federal,
state and local taxes. Additional information concerning
taxes is set forth in the Statement of Additional
Information.
TAX STATUS OF THE
PORTFOLIOS
Each Portfolio is treated as a separate entity for federal
income tax purposes and is not combined with the Trust's
other portfolios. The Portfolios intend to qualify for the
special tax treatment afforded regulated investment
companies ("RICs") under Subchapter M of the Code, so as to
be relieved of federal income tax on net investment income
and net capital gains (the excess of net long-term capital
gain over net short-term capital losses) distributed to
shareholders.
TAX STATUS OF
DISTRIBUTIONS
Each Portfolio distributes substantially all of its net
investment income (including net short-term capital gains)
to shareholders. Dividends from a Portfolio's net
investment income are taxable to its shareholders as
ordinary income (whether received in cash or in additional
shares) and generally will not qualify for the corporate
dividends-received deduction unless derived from dividends
received by a Portfolio from domestic (U.S.) 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 one 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 Portfolios provide annual reports to shareholders of
the federal income tax status of all distributions.
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Dividends declared by a Portfolio in October,
November or December of any year and payable to
shareholders of record on a date in such a month will be
deemed to have been paid by the Portfolio and received by
the Shareholders on December 31 of the year declared if
paid by the Portfolio at any time during the following
January.
Each Portfolio intends to make sufficient
distributions to avoid liability for the federal excise tax
applicable to RICs.
Investment income received by the Portfolios from
sources within foreign countries may be subject to foreign
income taxes withheld at the source. To the extent that a
Portfolio is liable for foreign income taxes so withheld,
the Portfolio intends to operate so as to meet the
requirements of the Code to pass through to the
shareholders credit for foreign income taxes paid. Although
the Portfolios intend to meet Code requirements to pass
through credit for such taxes, there can be no assurance
that the Portfolios will be able to do so.
Each sale, exchange or redemption of Portfolio shares
is a taxable transaction to the shareholder.
GENERAL INFORMATION
_______________________________________________________________________
THE TRUST
The Trust was organized as a Massachusetts business trust
under a Declaration of Trust dated June 30, 1988. The
Declaration of Trust permits the Trust to offer separate
series of shares and different classes of each portfolio.
All consideration received by the Trust for shares of any
class of any portfolio and all assets of such portfolio or
class belong to that portfolio or class, respectively, and
would be subject to the liabilities related thereto.
The Trust pays its expenses, including fees of its
service providers, audit and legal expenses, expenses of
preparing prospectuses, proxy solicitation materials and
reports to shareholders, costs of custodial services and
registering the shares under federal and state securities
laws, pricing, insurance expenses, litigation and other
extraordinary expenses, brokerage costs, interest charges,
taxes and organization expenses.
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 a
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 Adviser is providing asset allocation
services and providing investment advice to the Portfolios,
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 Portfolios.
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.
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VOTING RIGHTS
Each share held entitles the shareholder of record to one
vote. Shareholders of each Portfolio or class will vote
separately on matters pertaining solely to that Portfolio
or class, such as any distribution plan. As a Massachusetts
business trust, the Trust is not required to hold annual
meetings of shareholders, but approval will be sought for
certain changes in the operation of the Trust and for the
election of Trustees under certain circumstances. In
addition, a Trustee may be removed by the remaining
Trustees or by shareholders at a special meeting called
upon written request of shareholders owning at least 10% of
the outstanding shares of the Trust. In the event that such
a meeting is requested, the Trust will provide appropriate
assistance and information to the shareholders requesting
the meeting.
REPORTING
The Trust issues an unaudited report semi-annually and
audited financial statements annually. The Trust furnishes
proxy statements and other reports to shareholders of
record.
SHAREHOLDER INQUIRIES
Shareholder inquiries should be directed to the Manager,
SEI Investments Fund Management, Oaks, Pennsylvania 19456.
DIVIDENDS
Substantially all of the net investment income (exclusive
of capital gains) of each Portfolio is periodically
declared and paid as a dividend. Currently, net capital
gains (the excess of net long-term capital gain over net
short-term capital loss) realized, if any, will be
distributed at least annually.
Shareholders automatically receive all income
dividends and capital gain distributions in additional
shares at the net asset value next determined following the
record date, unless the shareholder has elected to take
such payment in cash. Shareholders may change their
election by providing written notice to SEI Management at
least 15 days prior to the distribution.
Dividends and capital gains of each Portfolio are
paid on a per-share basis. The value of each share will be
reduced by the amount of any such payment. If shares are
purchased shortly before the record date for a dividend or
capital gains distributions, a shareholder will pay the
full price for the share and receive some portion of the
price back as a taxable dividend or distribution.
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
State Street Bank and Trust Company, 225 Franklin Street,
Boston, Massachusetts 02110, acts as Custodian for the
assets of the International Equity, Emerging Markets
Equity, International Fixed Income and Emerging Markets
Debt Portfolios (the "Custodian"). The Custodian holds
cash, securities and other assets of the Trust as required
by the 1940 Act. First Union National Bank, Broad and
Chestnut Streets, P.O. Box 7618, Philadelphia, Pennsylvania
19101, acts as wire agent of the Trust's assets.
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DESCRIPTION OF
PERMITTED
INVESTMENTS AND RISK
FACTORS ______________________________________________________________________
The following is a description of certain of the permitted
investment practices for the Portfolios, and the associated
risk factors:
AMERICAN DEPOSITARY
RECEIPTS ("ADRs"),
CONTINENTAL DEPOSITARY
RECEIPTS ("CDRs"),
EUROPEAN DEPOSITARY
RECEIPTS ("EDRs") AND
GLOBAL DEPOSITARY
RECEIPTS ("GDRs")
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. EDRs,
which are sometimes referred to as Continental Depositary
Receipts ("CDRs"), are securities, typically issued by a
non-U.S. financial institution, that evidence ownership
interests in a security or a pool of securities issued by
either a U.S. or foreign issuer. GDRs are issued globally
and evidence a similar ownership arrangement. Generally,
ADRs are designed for trading in the U.S. securities
market, EDRs are designed for trading in European
securities markets and GDRs are designed for trading in
non-U.S. securities markets. ADRs, EDRs, CDRs and GDRs may
be available for investment 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 receipt's
underlying security.
ASSET-BACKED SECURITIES
Asset-backed securities are securities secured by
non-mortgage assets such as company receivables, truck and
auto loans, leases and credit card receivables. Such
securities are generally issued as pass-through
certificates, which represent undivided fractional
ownership interests in the underlying pools of assets. Such
securities also may be debt instruments, which are also
known as collateralized obligations and are generally
issued as the debt of a special purpose entity, such as a
trust, organized solely for the purpose of owning such
assets and issuing such debt.
BRADY BONDS
Certain debt obligations, customarily referred to as "Brady
Bonds," are created through the exchange of existing
commercial bank loans to foreign entities for new
obligations in connection with a debt restructuring (the
"Brady Plan"). Brady Bonds have only been issued since
1989, and, accordingly, do not have a long payment history.
In addition, they are issued by governments that may have
previously defaulted on the loans being restructured by the
Brady Bonds, so are subject to the risk of default by the
issuer. They may be fully or partially collateralized or
uncollateralized and issued in various currencies (although
most are U.S. dollar denominated) and they are actively
traded in the over-the-counter secondary market. U.S.
dollar-denominated, collateralized Brady Bonds, which may
be fixed rate par bonds or floating rate discount bonds,
are generally collateralized in full as to principal due at
maturity by U.S. Treasury zero coupon obligations which
have the same maturity as the Brady Bonds. Certain interest
payments on these Brady Bonds may be collateralized by cash
or securities in an amount that, in the case of fixed rate
bonds, is typically equal to between
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12 and 18 months of rolling interest payments or, in the
case of floating rate bonds, initially is typically equal
to between 12 and 18 months rolling interest payments based
on the applicable interest rate at that time and is
adjusted at regular intervals thereafter with the balance
of interest accruals in each case being uncollateralized.
Payment of interest and (except in the case of principal
collateralized Brady Bonds) principal on Brady Bonds with
no or limited collateral depends on the willingness and
ability of the foreign government to make payment. In the
event of a default on collateralized Brady Bonds for which
obligations are accelerated, the collateral for the payment
of principal will not be distributed to investors, nor will
such obligations be sold and the proceeds distributed. The
collateral will be held by the collateral agent to the
scheduled maturity of the defaulted Brady Bonds, which will
continue to be outstanding, at which time the face amount
of the collateral will equal the principal payments which
would have then been due on the Brady Bonds in the normal
course.
CONVERTIBLE SECURITIES
Convertible securities are 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 underlying stock.
DOLLAR ROLLS
"Dollar rolls" are transactions in which securities are
sold for delivery in the current month and the seller
simultaneously contracts to repurchase substantially
similar securities on a specified future date. The
difference between the sale price and the purchase price
(plus any interest earned on the cash proceeds of the sale)
is netted against the interest income foregone on the
securities sold to arrive at an implied borrowing rate.
Alternatively, the sale and purchase transactions can be
executed at the same price, with the Portfolio being paid a
fee as consideration for entering into the commitment to
purchase.
EUROBONDS
A Eurobond is a bond denominated in U.S. dollars or another
currency and sold to investors outside of the country whose
currency is used. Eurobonds may be issued by government or
corporate issuers, and are typically underwritten by banks
and brokerage firms from numerous countries. While
Eurobonds typically pay principal and interest in
Eurodollars, U.S. dollars held in banks outside of the
United States, they may pay principal and interest in other
currencies.
FORWARD FOREIGN CURRENCY
CONTRACTS
A forward contract involves an obligation to purchase or
sell a specific currency amount at a future date, agreed
upon by the parties, at a price set at the time of the
contract. A Portfolio may also enter into a contract to
sell, for a fixed amount of U.S. dollars or other
appropriate currency, the amount of foreign currency
approximating the value of some or all of the Portfolio's
securities denominated in such foreign currency.
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
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maturity date, the same amount of the foreign currency. The
Portfolio may realize a gain or loss from currency
transactions.
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. A 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. A Portfolio will
minimize the risk that it will be unable to close out a
futures contract by only entering into futures contracts
which 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 the securities comprising the Index is made; generally
contracts are closed out prior to the expiration date of
the contract.
In order to avoid leveraging and related risks, when
a Portfolio 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 and 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.
HIGH YIELD FOREIGN
SOVEREIGN DEBT
SECURITIES
Investing in fixed and floating rate high yield foreign
sovereign debt securities will expose a Portfolio to the
direct or indirect consequences of political, social or
economic changes in the countries that issue the
securities. The ability and willingness of sovereign
obligors in developing and emerging market countries or the
governmental authorities that control repayment of their
external debt to pay principal and interest on such debt
when due may depend on general economic and political
conditions within the relevant country. Countries such as
those in which a Portfolio may invest have historically
experienced, and may continue to experience, high rates of
inflation, high interest rates, exchange rate or trade
difficulties and extreme poverty and unemployment. Many of
these countries are also characterized by political
uncertainty or instability. Additional factors which may
influence the ability or willingness to service debt
include, but are not limited to, a country's cash flow
situation, the
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availability of sufficient foreign exchange on the date a
payment is due, the relative size of its debt service
burden to the economy as a whole, and its government's
policy towards the International Monetary Fund, the World
Bank and other international agencies.
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 a 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 of over seven days in length.
The Portfolios may invest in securities that are neither
listed on a stock exchange nor traded over-the-counter,
including privately placed securities. Investing in such
unlisted emerging country equity securities, including
investments in new and early stage companies, may involve a
high degree of business and financial risk that can result
in substantial losses. As a result of the absence of a
public trading market for these securities, they may be
less liquid than publicly traded securities. Although these
securities may be resold in privately negotiated
transactions, the prices realized from these sales could be
less than those originally paid by the Portfolio, or less
than what may be considered the fair value of such
securities. Further, companies whose securities are not
publicly traded may not be subject to the disclosure and
other investor protection requirements which might be
applicable if their securities were publicly traded. If
such securities are required to be registered under the
securities laws of one or more jurisdictions before being
resold, the Portfolio may be required to bear the expenses
of registration.
In addition, the Emerging Markets Equity Portfolio
believes that carefully selected investments in joint
ventures, cooperatives, partnerships, private placements,
unlisted securities and other similar situations
(collectively, "special situations") could enhance the
Portfolio's capital appreciation potential. To the extent
these investments are deemed illiquid, the Emerging Markets
Equity Portfolio's investment in them will be consistent
with its 15% restriction on investment in illiquid
securities. Investments in special situations and certain
other instruments may be liquid, as determined by the
Portfolio's advisers based on criteria approved by the
Board of Trustees.
INVESTMENT COMPANIES
Because of restrictions on direct investment by U.S.
entities in certain countries, investment in other
investment companies may be the most practical or only
manner in which an international and global fund can invest
in the securities markets of those countries. A Portfolio
does not intend to invest in other investment companies
unless, in the judgment of its advisers, the potential
benefits of such investments exceed the associated costs
(which includes any investment advisory fees charged by the
investment companies) relative to the benefits and costs
associated with direct investments in the underlying
securities.
Investments in closed-end investment companies may
involve the payment of substantial premiums above the net
asset value of such issuer's portfolio securities and are
subject to limitations under the 1940 Act. A Portfolio also
may incur tax liability to the extent it invests in the
stock of a foreign issuer that constitutes a "passive
foreign investment company."
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JUNK BONDS
Bonds rated below investment grade are often referred to as
"junk bonds." Such securities involve greater risk of
default or price declines than investment grade securities
due to changes in the issuer's creditworthiness and the
outlook for economic growth. The market for these
securities may be less active, causing market price
volatility and limited liquidity in the secondary market.
This may limit a Portfolio's ability to sell such
securities at their market value. In addition, the market
for these securities may also be adversely affected by
legislative and regulatory developments. Credit quality in
the junk bond market can change suddenly and unexpectedly,
and even recently issued credit ratings may not fully
reflect the actual risks imposed by a particular security.
LOAN PARTICIPATIONS AND
ASSIGNMENTS
Loan participations are interests in loans to corporations
or governments which are administered by the lending bank
or agent for a syndicate of lending banks, and sold by the
lending bank, financial institution or syndicate member
("intermediary bank"). In a loan participation, the
borrower will be deemed to be the issuer of the
participation interest, except to the extent the Portfolio
derives its rights from the intermediary bank. Because the
intermediary bank does not guarantee a loan participation
in any way, a loan participation is subject to the credit
risks generally associated with the underlying borrower. In
the event of the bankruptcy or insolvency of the borrower,
a loan participation may be subject to certain defenses
that can be asserted by such borrower as a result of
improper conduct by the intermediary bank. In addition, in
the event the underlying borrower fails to pay principal
and interest when due, the Portfolio may be subject to
delays, expenses and risks that are greater than those that
would have been involved if the Portfolio had purchased a
direct obligation of such borrower. Under the terms of a
loan participation, the Portfolio may be regarded as a
creditor of the intermediary bank, (rather than of the
underlying borrower), so that the Portfolio may also be
subject to the risk that the intermediary bank may become
insolvent.
Loan assignments are investments in assignments of
all or a portion of certain loans from third parties. When
a Portfolio purchases assignments from lenders it will
acquire direct rights against the borrower on the loan.
Since assignments are arranged through private negotiations
between potential assignees and assignors, however, the
rights and obligations acquired by the Portfolio may differ
from, and be more limited than, those held by the assigning
lender. Loan participations and assignments may be
considered liquid, as determined by the Portfolios'
advisers based on criteria approved by the Board of
Trustees.
MONEY MARKET INSTRUMENTS
Money market securities are high-quality, dollar and non
dollar-denominated, short-term debt instruments. They
consist of: (i) bankers' acceptances, certificates of
deposits, notes and time deposits of highly-rated U.S.
banks and U.S. branches of foreign banks; (ii) U.S.
Treasury obligations and obligations of agencies and
instrumentalities of the U.S. Government; (iii)
high-quality commercial paper issued by U.S. and foreign
corporations; (iv) debt obligations with a maturity of one
year or less issued by corporations and
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<PAGE>
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, adjustable rate mortgages and balloon mortgages.
During periods of declining interest rates, prepayment of
mortgages underlying mortgage-backed securities can be
expected to accelerate. Prepayment of mortgages which
underlie securities purchased at a premium often results in
capital losses, while prepayment of mortgages purchased at
a discount often results in capital gains. Because of these
unpredictable prepayment characteristics, it is often not
possible to predict accurately the average life or realized
yield of a particular issue.
GOVERNMENT PASS-THROUGH SECURITIES: These are
securities that are issued or guaranteed by a U.S.
Government agency representing an interest in a pool of
mortgage loans. The primary issuers or guarantors of these
mortgage-backed securities in the United States are
Government National Mortgage Association ("GNMA"), Fannie
Mae and the Federal Home Loan Mortgage Corporation
("FHLMC"). GNMA, Fannie Mae and FHLMC guarantee timely
distributions of interest to certificate holders. GNMA and
Fannie Mae also guarantee timely distributions of scheduled
principal. FHLMC generally guarantees only the ultimate
collection of principal of the underlying mortgage loan.
Fannie Mae and FHLMC obligations are not backed by the full
faith and credit of the U.S. Government as GNMA
certificates are, but Fannie Mae and FHLMC securities are
supported by the instrumentalities' right to borrow from
the U.S. Treasury. Government and private guarantees do not
extend to the securities' value, which is likely to vary
inversely with fluctuations in interest rates.
PRIVATE PASS-THROUGH SECURITIES: These are
mortgage-backed securities issued by a non-governmental
entity, such as a trust. While they are generally
structured with one or more types of credit enhancement,
private pass-through securities typically lack a guarantee
by an entity having the credit status of a governmental
agency or instrumentality.
COMMERCIAL MORTGAGE-BACKED SECURITIES ("CMBS"): CMBS
are generally multi-class or pass-through securities backed
by a mortgage loan or a pool of mortgage loans secured by
commercial property, such as industrial and warehouse
properties office buildings, retail space and shopping
malls, multifamily properties and cooperative apartments.
The commercial mortgage loans that underlie CMBS are
generally not amortizing or not fully amortizing. That is,
at their maturity date, repayment of the remaining
principal balance or "balloon" is due and is repaid through
the attainment of an additional loan of sale of the
property.
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COLLATERALIZED MORTGAGE OBLIGATIONS ("CMOS"): CMOs
are debt obligations of multiclass pass-through
certificates issued by agencies or instrumentalities of the
U.S. Government or by private originators or investors in
mortgage loans. Principal payments on the underlying
mortgage assets may cause CMOs to be retired substantially
earlier than their stated maturities or final distribution
dates, resulting in a loss of all or part of any premium
paid. Each class of a CMO is issued with a specific fixed
or floating coupon rate and has a stated maturity or final
distribution date.
REMICS: A REMIC is a CMO that qualifies for special
tax treatment under the Internal Revenue Code and invests
in certain mortgages principally secured by interests in
real property. Investors may purchase beneficial interests
in REMICs, which are known as "regular" interests, or
"residual" interests. Guaranteed REMIC pass-through
certificates ("REMIC Certificates") issued by Fannie Mae,
GNMA or FHLMC represent beneficial ownership interests in a
REMIC trust consisting principally of mortgage loans or
Fannie Mae, FHLMC or GNMA-guaranteed mortgage pass-through
certificates. 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. Fannie Mae REMIC Certificates
are issued and guaranteed as to timely distribution of
principal and interest by Fannie Mae. GNMA REMIC
Certificates are backed by the full faith and credit of the
U.S. Government.
PARALLEL PAY SECURITIES; PAC BONDS: Parallel pay
CMOs and REMICs are structured to provide payments of
principal on each payment date to more than one class.
These simultaneous payments are taken into account in
calculating the stated maturity date or final distribution
date of each class, which must be retired by its stated
maturity date or final distribution date, but may be
retired earlier. Planned Amortization Class CMOs ("PAC
Bonds") generally require payments of a specified amount of
principal on each payment date. PAC Bonds are always
parallel pay CMOs with the required principal payment on
such securities having the highest priority after interest
has been paid to all classes.
PFANDBRIEFE: A PFANDBRIEFE IS A FIXED-TERM,
FIXED-RATE BOND ISSUED BY A GERMAN MORTGAGE BANK OR A
PUBLIC-SECTOR BANK TO FINANCE SECURED REAL ESTATE LOANS OR
PUBLIC SECTOR LOANS. ALTHOUGH PFANDBRIEFE ARE
COLLATERALIZED SECURITIES, THE ISSUER ASSUMES ALL OF THE
PREPAYMENT RISK.
OBLIGATIONS OF
SUPRANATIONAL ENTITIES
Supranational entities are entities established through the
joint participation of several governments, including the
Asian Development Bank, the Inter-American Development
Bank, International Bank for Reconstruction and Development
(World Bank), African Development Bank, European Economic
Community, European Investment Bank and the Nordic
Investment Bank. The governmental members, or "stock
holders," usually make initial capital contributions to the
supranational entity and, in many cases, are committed to
make additional capital contributions if the supranational
entity is unable to repay its borrowings.
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OPTIONS
A Portfolio may purchase and write put and call options on
indices or securities and enter into 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 particular market represented by the index
generally, rather than the price movements in individual
securities.
A Portfolio may purchase and write put and call
options on foreign currencies (traded on U.S. and foreign
exchanges or over-the-counter markets), to manage its
exposure to exchange rates. Call options on foreign
currency written by a Portfolio will be "covered," which
means that the Portfolio will own an equal amount of the
underlying foreign currency. With respect to put options on
foreign currency written by a Portfolio, the Portfolio will
establish a segregated account with its custodian
consisting of cash or liquid securities in an amount equal
to the amount the Portfolio would be required to pay upon
exercise of the put.
All options written on indices or securities must be
covered. When a Portfolio writes an option on an index or
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 a
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.
PRIVATIZATIONS
Privatizations are foreign government programs for selling
all or part of the interests in government owned or
controlled enterprises. The ability of a U.S. entity to
participate in privatizations in certain foreign countries
may be limited by local law, or the terms on which a
Portfolio may be permitted to participate may be less
advantageous than those applicable for local investors.
There can be no assurance that foreign governments will
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continue to sell their interests in companies currently
owned or controlled by them or that privatization programs
will be successful.
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 investments.
REPURCHASE AGREEMENTS
Repurchase agreements are agreements by which a Portfolio
obtains a security and simultaneously commits to return the
security to the seller at an agreed upon price (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.
REVERSE REPURCHASE
AGREEMENTS
Certain Portfolios may borrow funds for temporary purposes
by entering into reverse repurchase agreements. Pursuant to
such agreements, a Portfolio would sell portfolio
securities to financial institutions such as banks and
broker-dealers, and agree to repurchase them at a mutually
agreed-upon date and price. A Portfolio enters into reverse
repurchase agreements only to avoid otherwise selling
securities during unfavorable market conditions to meet
redemptions. At the time the Portfolio enters into a
reverse repurchase agreement, it places in a segregated
account cash or liquid securities having a value equal to
the repurchase price (including accrued interest), and will
subsequently monitor the account to ensure that such
equivalent value is maintained. Reverse repurchase
agreements involve the risk that the market value of the
securities sold by a Portfolio may decline below the price
at which it is obligated to repurchase the securities.
Reverse repurchase agreements are considered to be
borrowings by a Portfolio under the 1940 Act.
SECURITIES LENDING
In order to generate additional income, a Portfolio may
lend securities which it owns pursuant to agreements
requiring 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. A 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.
SHORT SALES
A short sale involves the sale by a Portfolio of a security
which it does not own. A Portfolio may only sell securities
short "against the box." A short sale is "against the box"
if at all times during which the short position is open,
the Portfolio owns (or has the right to acquire) at least
an equal amount of the securities or securities convertible
into, or exchangeable without further consideration for,
securities of the same issue as the securities that are
sold short.
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STRUCTURED SECURITIES
The Emerging Markets Debt Portfolio may invest a portion of
its assets in entities organized and operated solely for
the purpose of restructuring the investment characteristics
of sovereign debt obligations of emerging market issuers.
This type of restructuring involves the deposit with, or
purchase by, an entity, such as a corporation or trust, of
specified instruments (such as commercial bank loans or
Brady Bonds) and the issuance by that entity of one or more
classes of securities ("Structured Securities") backed by,
or representing interests in, the underlying instruments.
The cash flow on the underlying instruments may be
apportioned among the newly issued Structured Securities to
create securities with different investment
characteristics, such as varying maturities, payment
priorities and interest rate provisions, and the extent of
the payments made with respect to Structured Securities is
dependent on the extent of the cash flow on the underlying
instruments. Because Structured Securities of the type in
which the Portfolio anticipates it will invest typically
involve no credit enhancement, their credit risk generally
will be equivalent to that of the underlying instruments.
The Portfolio is permitted to invest in a class of
Structured Securities that is either subordinated or
unsubordinated to the right of payment of another class.
Subordinated Structured Securities typically have higher
yields and present greater risks than unsubordinated
Structured Securities. Structured Securities are typically
sold in private placement transactions, and there currently
is no active trading market for Structured Securities.
Certain issuers of such structured securities may be deemed
to be "investment companies" as defined in the 1940 Act. As
a result, the Portfolio's investment in such securities may
be limited by certain investment restrictions contained in
the 1940 Act.
SWAPS, CAPS, FLOORS AND
COLLARS
Interest rate swaps, mortgage swaps, currency swaps and
other types of swap agreements such as caps, floors and
collars are designed to permit the purchaser to preserve a
return or spread on a particular investment or portion of
its portfolio, and to protect against any increase in the
price of securities a Portfolio anticipates purchasing at a
later date.
Swap agreements will tend to shift a Portfolio's
investment exposure from one type of investment to another.
Depending on how they are used, swap agreements may
increase or decrease the overall volatility of a
Portfolio's investment and their share price and yield.
U.S. GOVERNMENT AGENCY
SECURITIES
Obligations issued or guaranteed by agencies of the U.S.
Government, including, among others, the Federal Farm
Credit Bank, the Federal Housing Administration and the
Small Business Administration and obligations issued or
guaranteed by instrumentalities of the U.S. Government,
including, among others, the Federal Home Loan Mortgage
Corporation, the Federal Land Banks and the U.S. Postal
Service. Some of these securities are supported by the full
faith and credit of the U.S. Treasury (E.G., Government
National Mortgage Association Securities), and others are
supported by the right of the issuer to borrow from the
Treasury (E.G., Federal Farm Credit Bank Securities), while
still others are supported only by the credit of the
instrumentality (E.G., Fannie Mae Securities).
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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
at some other interval, 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. A Portfolio will maintain a separate
account with liquid securities or cash in an amount at
least equal to these commitments. The interest rate
realized on these securities is fixed as of the purchase
date, and no interest accrues to a Portfolio before
settlement.
YANKEE OBLIGATIONS
Yankee obligations ("Yankees") are U.S. dollar-denominated
instruments of foreign issuers who either register with the
SEC or issue under Rule 144A under the Securities Act of
1933. These obligations consist of debt securities
(including preferred or preference stock of
non-governmental issuers), certificates of deposit, fixed
time deposits and bankers' acceptances issued by foreign
banks, and debt obligations of foreign governments or their
subdivisions, agencies and instrumentalities, international
agencies and supranational entities. 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.
The Yankee obligations selected for a Fund will
adhere to the same quality standards as those utilized for
the selection of domestic debt obligations.
ZERO COUPON, PAY IN-KIND
AND DEFERRED PAYMENT
SECURITIES
Zero coupon securities are securities that are sold at a
discount to par value and securities on which interest
payments are not made during the life of the security. Upon
maturity, the holder is entitled to receive the par value
of the security. While interest payments are not made on
such securities, holders of such securities are deemed to
have received "phantom income" annually. Because a
Portfolio will distribute its "phantom income" to
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shareholders, to the extent that shareholders elect to
receive dividends in cash rather than reinvesting such
dividends in additional shares, a Portfolio will have fewer
assets with which to purchase income producing securities.
Zero coupon, pay-in-kind and deferred payment securities
may be subject to greater fluctuation in value and lesser
liquidity in the event of adverse market conditions than
comparably rated securities paying cash interest at regular
interest payment periods.
Additional information on other permitted investments can
be found in the Statement of Additional Information.
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TABLE OF CONTENTS
_________________________________________________________________
<TABLE>
<S> <C>
Annual Operating Expenses........................ 2
Financial Highlights............................. 3
The Trust........................................ 4
Investment Objectives and Policies............... 4
General Investment Policies and Risk Factors..... 8
Investment Limitations........................... 12
The Manager...................................... 13
The Advisers..................................... 14
The Sub-Advisers................................. 16
Distribution and Shareholder Servicing........... 19
Purchase and Redemption of Shares................ 19
Performance...................................... 21
Taxes............................................ 22
General Information.............................. 23
Description of Permitted Investments and Risk
Factors......................................... 25
</TABLE>
37
<PAGE>
SEI INSTITUTIONAL INTERNATIONAL TRUST
Manager:
SEI Investments Fund Management
Distributor:
SEI Investments Distribution Co.
Investment Advisers and Sub-Advisers:
Acadian Asset Management, Inc.
Capital Guardian Trust Company
Coronation Asset Management
(Proprietary) Limited
Credit Suisse Asset Management Limited
Montgomery Asset Management, LLC
Parametric Portfolio Associates
Salomon Brothers Asset Management Inc
Scottish Widows Investment Management
Limited
SEI Investments Management Corporation
SG Pacific Asset Management, Inc.
SG Yamaichi Asset Management Co., Ltd.
SGY Asset Management (Singapore) Limited
Strategic Fixed Income, L.L.C.
This STATEMENT OF ADDITIONAL INFORMATION is not a Prospectus. It is intended
to provide additional information regarding the activities and operations of SEI
Institutional International Trust (the "Trust"), and should be read in
conjunction with the Trust's Prospectuses dated June 30, 1998. Prospectuses may
be obtained without charge by writing the Trust's distributor, SEI Investments
Distribution Co., Oaks, Pennsylvania 19456, or by calling 1-800-342-5734.
TABLE OF CONTENTS
<TABLE>
<S> <C>
The Trust............................................................................. S-2
Risk Factors.......................................................................... S-2
Description of Permitted Investments.................................................. S-3
Description of Ratings................................................................ S-10
Investment Limitations................................................................ S-14
Non-Fundamental Policies.............................................................. S-15
The Manager........................................................................... S-16
The Advisers and Sub-Advisers......................................................... S-17
Distribution and Shareholder Servicing................................................ S-18
Trustees and Officers of the Trust.................................................... S-19
Performance........................................................................... S-22
Purchase and Redemption of Shares..................................................... S-23
Shareholder Services (Class D shares)................................................. S-24
Taxes................................................................................. S-26
Portfolio Transactions................................................................ S-27
Description of Shares................................................................. S-30
Limitation of Trustees' Liability..................................................... S-30
Voting................................................................................ S-30
Shareholder Liability................................................................. S-30
Control Persons and Principal Holders of Securities................................... S-31
Experts............................................................................... S-31
Counsel............................................................................... S-31
Financial Statements.................................................................. S-31
June 30, 1998
</TABLE>
<PAGE>
THE TRUST
SEI Institutional International Trust (formerly, "SEI International Trust")
(the "Trust") is an open-end management investment company established as a
Massachusetts business trust pursuant to a Declaration of Trust dated June 30,
1988, and which has diversified and non-diversified portfolios. The Declaration
of Trust permits the Trust to offer separate series ("portfolios") of units of
beneficial interest ("shares") and separate classes of portfolios. Except for
differences between a Portfolio's Class A shares and Class D shares pertaining
to distribution and shareholder servicing plans, 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 to the following
portfolios: International Equity, Emerging Markets Equity, International Fixed
Income and Emerging Markets Debt Portfolios (each a "Portfolio" and, together,
the "Portfolios"), and any different classes of the Portfolios.
RISK FACTORS
YEAR 2000
The Trust depends on the smooth functioning of computer systems in almost
every aspect of its business. Like other mutual funds, business and individuals
around the world, the Trust could be adversely affected if the computer systems
used by its service providers do not properly process dates on and after January
1, 2000 and distinguish between the year 2000 and the year 1900. The Trust has
asked its service providers whether they expect to have their computer systems
adjusted for the year 2000 transition, and received assurances from each that
its system is expected to accommodate the year 2000 without material adverse
consequences to the Trust. The Trust and its shareholders may experience losses
if these assurances prove to be incorrect or as a result of year 2000 computer
difficulties experienced by issuers of portfolio securities or third parties,
such as custodians, banks, broker-dealers or others with which the Trust does
business.
THE EURO
On January 1, 1999, the European Monetary Union (EMU) plans to implement a
new currency unit, the Euro, which is expected to reshape financial markets,
banking systems and monetary policies in Europe and other parts of the world.
The countries initially expected to convert or tie their currencies to the Euro
include Austria, Belgium, France, Germany, Luxembourg, the Netherlands, Ireland,
Finland, Italy, Portugal and Spain. Implementation of this plan will mean that
financial transactions and market information, including share quotations and
company accounts, in participating countries will be denominated in Euros.
Approximately 46% of the stock exchange capitalization of the total European
market may be reflected in Euros, and participating governments will issue their
bonds in Euros. Monetary policy for participating countries will be uniformly
managed by a new central bank, the European Central Bank (ECB).
Although it is not possible to predict the impact of the Euro implementation
plan on the Portfolios, the transition to the Euro may change the economic
environment and behavior of investors, particularly in European markets. For
example, investors may begin to view those countries participating in the EMU as
a single entity, and the Adviser may need to adapt its investment strategy
accordingly. The process of implementing the Euro also may adversely affect
financial markets world-wide and may result in changes in the relative strength
and value of the U.S. dollar or other major currencies, as well as possible
adverse tax consequences. The transition to the Euro is likely to have a
significant impact on fiscal and monetary policy in the participating countries
and may produce unpredictable effects on trade and commerce generally. These
resulting uncertainties could create increased volatility in financial markets
world-wide.
S-2
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DESCRIPTION OF PERMITTED INVESTMENTS
AMERICAN DEPOSITORY RECEIPTS ("ADRS")--Holders of an unsponsored depositary
receipt generally bear all the costs of the unsponsored facility. The depositary
of an unsponsored facility frequently is under no obligation to distribute
shareholder communications received from the issuer of the deposited security or
to pass through to the holders of the receipts voting rights with respect to the
deposited securities.
ASSET-BACKED SECURITIES--Certain Portfolios may invest in securities backed
by automobile, credit-card or other types of receivables in securities backed by
other types of assets. Credit support for asset-backed securities may be based
on the underlying assets and/or provided by a third party through credit
enhancements. Credit enhancements techniques include letters of credit,
insurance bonds, limited guarantees (which are generally provided by the
issuer), senior-subordinated structures and overcollateralization.
Asset-backed securities are not issued or guaranteed by the United States
Government or its agencies or instrumentalities; however, the payment of
principal and interest on such obligations may be guaranteed up to certain
amounts for a certain period by a letter of credit issued by a financial
institution (such as a bank or insurance company) unaffiliated with the issuers
of such securities. The purchase of asset-backed securities raises risk
considerations peculiar to the financing of the instruments underlying such
securities. For example, there is a risk that another party could acquire an
interest in the obligations superior to that of the holders of the asset-backed
securities. There also is the possibility that recoveries on repossessed
securities entail prepayment risk, which may vary depending on the type of
asset, but is generally less than the prepayment risk associated with
mortgage-backed securities. In addition, credit card receivables are unsecured
obligations of the card holders.
The market for asset-backed securities is at a relatively early stage of
development. Accordingly, there may be a limited secondary market for such
securities.
BANK OBLIGATIONS--Bank obligations of United States and foreign commercial
banks or savings and loan institutions which the Portfolios may buy include
certificates of deposit, time deposits and bankers' acceptances. A certificate
of deposit is an interest-bearing instrument with a specific maturity issued by
a bank or savings and loan institution in exchange for the deposit of funds that
normally can be traded in the secondary market prior to maturity. A time deposit
is an account containing a currency balance pledged to remain at a particular
bank for a specified period in return for payment of interest. A bankers'
acceptance is a bill of exchange guaranteed by a bank or trust company for
payment within one to six months. Bankers' acceptances are used to provide
manufacturers and exporters with capital to operate between the time of
manufacture or export and payment by the purchaser.
BRADY BONDS--Based upon current market conditions, a Portfolio would not
intend to purchase Brady Bonds which, at the time of investment, are in default
as to payment. However, in light of the residual risk of Brady Bonds and, among
other factors, the history of default with respect to commercial bank loans by
public and private entities of countries issuing Brady Bonds, investments in
Brady Bonds are to be viewed as speculative. A substantial portion of the Brady
Bonds and other sovereign debt securities in which the Emerging Markets Debt
Portfolio invests are likely to be acquired at a discount, which involves
certain additional considerations.
Sovereign obligors in developing and emerging market countries are among the
world's largest debtors to commercial banks, other governments, international
financial organizations and other financial institutions. These obligors have in
the past experienced substantial difficulties in servicing their external debt
obligations, which led to defaults on certain obligations and the restructuring
of certain indebtedness. Restructuring arrangements have included, among other
things, reducing and rescheduling interest and principal payments by negotiating
new or amended credit agreements or converting outstanding principal and unpaid
interest to Brady Bonds, and obtaining new credit to finance interest payments.
Holders of
S-3
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certain foreign sovereign debt securities may be requested to participate in the
restructuring of such obligations and to extend further loans to their issuers.
There can be no assurance that the Brady Bonds and other foreign sovereign debt
securities in which the Portfolios may invest will not be subject to similar
restructuring arrangements or to requests for new credit which may adversely
affect a Portfolio's holdings. Furthermore, certain participants in the
secondary market for such debt may be directly involved in negotiating the terms
of these arrangements and may therefore have access to information not available
to other market participants.
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 which the Portfolios may purchase
includes variable amount master demand notes, which may or may not be backed by
bank letters of credit. These notes permit the investment of fluctuating amounts
at varying market rates of interest pursuant to direct arrangements between a
Portfolio, as lender, and the borrower. Such notes provide that the interest
rate on the amount outstanding varies on a daily, weekly or monthly basis
depending upon a stated short-term interest rate index. There is no secondary
market for the notes.
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, a 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.
FORWARD FOREIGN CURRENCY CONTRACTS--Forward foreign currency contracts
involve an obligation to purchase or sell a specified currency at a future date
at a price set at the time of the contract. Forward currency contracts do not
eliminate fluctuations in the values of portfolio securities but rather allow a
Portfolio to establish a rate of exchange for a future point in time.
When entering into a contract for the purchase or sale of a security in a
foreign currency, a Portfolio may enter into a forward foreign currency contract
for the amount of the purchase or sale price to protect against variations,
between the date the security is purchased or sold and the date on which payment
is made or received, in the value of the foreign currency relative to the United
States dollar or other foreign currency.
Also, when an adviser anticipates that a particular foreign currency may
decline substantially relative to the United States dollar or other leading
currencies, in order to reduce risk, a Portfolio may enter into a forward
contract to sell, for a fixed amount, the amount of foreign currency
approximating the value of its securities denominated in such foreign currency.
With respect to any such forward foreign currency contract, it will not
generally be possible to match precisely the amount covered by that contract and
the value of the securities involved due to changes in the values of such
securities resulting from market movements between the date the forward contract
is entered into and the date it matures. In addition, while forward currency
contracts may offer protection from losses resulting from declines in value of a
particular foreign currency, they also limit potential gains which might result
from increases in the value of such currency. A Portfolio will also incur costs
in connection with forward foreign currency contracts and conversions of foreign
currencies into United States dollars. A Portfolio will place assets in a
segregated account to assure that its obligations under forward foreign currency
contracts are covered.
FUTURES AND OPTIONS OF FUTURES--A Portfolio may buy and sell futures
contracts and related options to manage its exposure to changing interest rates
and securities prices. Some strategies reduce a Portfolio's exposure to price
fluctuations, while others tend to increase its market exposure. Futures and
options on futures can be volatile instruments and involve certain risks that
could negatively impact a
S-4
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Portfolio's return. No price is paid upon entering into futures contracts.
Instead, a Portfolio would be required to deposit an amount of cash or U.S.
Treasury securities known as "initial margin." Subsequent payments, called
"variation margin," to and from the broker, would be made on a daily basis as
the value of the futures position varies (a process known as "market to
market"). The margin is in the nature of a performance bond or good-faith
deposit on a futures contract.
A Portfolio may enter into futures contracts and options on futures
contracts traded on an exchange regulated by the Commodities Futures Trading
Commission ("CFTC"), as long as, to the extent that such transactions are not
for "bona fide hedging purposes," the aggregate initial margin and premiums on
such positions (excluding the amount by which such options are in the money) do
not exceed 5% of a Portfolio's net assets.
HIGH YIELD FOREIGN SOVEREIGN DEBT SECURITIES--The ability of a foreign
sovereign obligor to make timely payments on its external debt obligations will
also be strongly influenced by the obligor's balance of payments, including
export performance, its access to international credits and investments,
fluctuations in interest rates and the extent of its foreign reserves. A country
whose exports are concentrated in a few commodities or whose economy depends on
certain strategic imports could be vulnerable to fluctuations in international
prices of these commodities or imports. To the extent that a country receives
payment for its exports in currencies other than dollars, its ability to make
debt payments denominated in dollars could be adversely affected. If a foreign
sovereign obligor cannot generate sufficient earnings from foreign trade to
service its external debt, it may need to depend on continuing loans and aid
from foreign governments, commercial banks and multilateral organizations, and
inflows of foreign investment. The commitment on the part of these foreign
governments, multilateral organizations and others to make such disbursements
may be conditioned on the government's implementation of economic reforms and/or
economic performance and the timely service of its obligations. Failure to
implement such reforms, achieve such levels of economic performance or repay
principal or interest when due may result in the cancellation of such third
parties' commitments to lend funds, which may further impair the obligor's
ability or willingness to timely service its debts.
INVESTMENT COMPANIES--As a shareholder in an investment company, a Portfolio
would bear its ratable share of that investment company's expenses, including
its advisory and administration fees. The Portfolio continues to pay its own
management fees and other expenses with respect to their investments in shares
of closed-end investment companies.
LOWER RATED SECURITIES--Certain Portfolios may invest in lower-rated bonds
commonly referred to as "junk bonds" or high-yield/high-risk securities. Lower
rated securities are defined as securities rated below the fourth highest rating
category by a nationally recognized statistical rating organization ("NRSRO").
Such obligations are speculative and may be in default. There may be no bottom
limit on the ratings of high-yield securities that may be purchased or held by a
Portfolio. In addition, a Portfolio may invest in unrated securities subject to
the restrictions stated in the Prospectus.
GROWTH OF HIGH-YIELD, HIGH-RISK BOND MARKET. The widespread expansion of
government, consumer and corporate debt within the U.S. economy has made the
corporate sector more vulnerable to economic downturns or increased interest
rates. Further, an economic downturn could severly disrupt the market for lower
rated bonds and adversely affect the value of outstanding bonds and the ability
of the issuers to repay principal and interest. The market for lower-rated
securities may be less active, causing market price volatility and limited
liquidity in the secondary market. This may limit the Portfolios' ability to
sell such securities at their market value. In addition, the market for these
securities may be adversely affected by legislative and regulatory developments.
Credit quality in the junk bond market can change suddenly and unexpectedly, and
even recently issued credit ratings may not fully reflect the actual risks
imposed by a particular security.
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SENSITIVITY TO INTEREST RATE AND ECONOMIC CHANGES. Lower rated bonds are
very sensitive to adverse economic changes and corporate developments. During an
economic downturn or substantial period of rising interest rates, highly
leveraged issuers may experience financial stress that would aversely affect
their ability to service their principal and interest payment obligations, to
meet projected business goals, and to obtain additional financing. If the issuer
of a bond defaulted on its obligations to pay interest or principal or entered
into bankruptcy proceedings, the Portfolio may incur losses or expenses in
seeking recovery of amounts owed to it. In addition, periods of economic
uncertainty and change can be expected to result in increased volatility of
market prices of high-yield, high-risk bonds and the Portfolio's net asset
value.
PAYMENT EXPECTATIONS. High-yield, high-risk bonds may contain redemption or
call provisions. If an issuer exercised these provisions in a declining interest
rate market, the Portfolio would have to replace the security with a lower
yielding security, resulting in a decreased return for investors. Conversely, a
high-yield, high-risk bond's value will decrease in a rising interest rate
market, as will the value of the Portfolio's assets. If the Portfolio
experiences significant unexpected net redemptions, this may force it to sell
high-yield, high-risk bonds without regard to their investment merits, thereby
decreasing the asset base upon which expenses can be spread and possibly
reducing the Portfolio's rate of return.
LIQUIDITY AND VALUATION. There may be little trading in the secondary
market for particular bonds, which may affect adversely the Portfolio's ability
to value accurately or dispose of such bonds. Adverse publicity and investor
perception, whether or not based on fundamental analysis, may decrease the
values and liquidity of high-yield, high-risk bonds, especially in a thin
market.
LEGISLATION. Federal laws require the divestiture by federally insured
savings and loan associations of their investments in lower rated bonds and
limit the deductibility of interest by certain corporate issuers of high yield
bonds. These laws could adversely affect the Portfolio's net asset value and
investment practices, the secondary market for high-yield securities, the
financial condition of issuers of these securities and the value of outstanding
high-yield securities.
TAXES. The Portfolio may purchase debt securities (such as zero-coupon or
pay-in-kind securities) that contain original issue discount. Original issue
discount that accrues in a taxable year is treated as earned by a Portfolio and
therefore is subject to the distribution requirements of the tax code even
though the Portfolio has not received any interest payments on such obligations
during that period. Because the original issue discount earned by the Portfolio
in a taxable year may not be represented by cash income, the Portfolio may have
to dispose of other securities and use the proceeds to make distributions to
shareholders.
MORTGAGE-BACKED SECURITIES--Mortgage-backed securities in which a 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 a 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 a 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 of the underlying mortgages
and, therefore, it is not possible to predict accurately the
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security's return to a Portfolio. In addition, regular payments received in
respect to mortgage-backed securities include both interest and principal. No
assurance can be given as to the return a Portfolio will receive when these
amounts are reinvested.
A 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, a Portfolio will
utilize the expected average life of the security, as estimated in good faith by
the Portfolio's advisers. 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.
OPTIONS--A 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. A Portfolio purchasing put and
call options pays a premium therefor. 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.
A Portfolio may write call options as a means of increasing the yield on its
portfolio and as a means of providing limited protection against decreases in
its market value. A Portfolio will write only "covered" call options. When a
Portfolio sells 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 a 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 a
Portfolio is the writer is exercised, the Portfolio will be required to purchase
the underlying securities at the strike price, which may be in excess of the
market value of such securities.
The initial purchase (sale) of an option contract is an "opening
transaction." In order to close out an option position, a 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. The ability of a Portfolio to enter
into closing transactions depends upon the existence of a liquid secondary
market for such transactions.
A 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 (the "SEC")
that OTC options are generally illiquid.
PAY-IN-KIND-BONDS--Pay-in-kind bonds 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.
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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 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."
REPURCHASE AGREEMENTS--Repurchase agreements are agreements under which
securities are acquired from a securities dealer or bank subject to resale on an
agreed upon date and at an agreed upon price which includes principal and
interest. A Portfolio involved 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 or
if the Portfolio realizes a loss on the sale of the collateral. The Adviser and
Sub-Advisers (collectively, the "Advisers") enter into repurchase agreements
only with financial institutions which they deem to present minimal risk of
bankruptcy during the term of the agreement based on guidelines which are
periodically reviewed by the Board of Trustees. These guidelines currently
permit the Portfolios to enter into repurchase agreements only with approved
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. A Portfolio will have actual or
constructive possession of the security or collateral for the repurchase
agreement. Repurchase agreements entered into by the Portfolios 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. The underlying security will be
marked to market daily. The Advisers monitor compliance with this requirement.
Under all repurchase agreements entered into by a Portfolio, the Custodian or
its agent must take possession of the underlying collateral. However, if the
seller defaults, the Portfolio could realize a loss on the sale of the
underlying security to the extent that the proceeds of sale are less than the
resale price. In addition, even though the Bankruptcy Code provides protection
for most repurchase agreements, if the seller should be involved in bankruptcy
or insolvency proceedings, a Portfolio may incur delay and costs in selling the
security and may suffer a loss 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. Each of the Portfolios may use the Distributor as a
broker in these transactions.
SOVEREIGN DEBT--The cost of servicing external debt will also generally be
adversely affected by rising international interest rates, because many external
debt obligations bear interest at rates which are adjusted based upon
international interest rates. The ability to service external debt will also
depend on the
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level of the relevant government's international currency reserves and its
access to foreign exchange. Currency devaluations may affect the ability of a
sovereign obligor to obtain sufficient foreign exchange to service its external
debt.
As a result of the foregoing or other factors, a governmental obligor may
default on its obligations. If such an event occurs, a Portfolio may have
limited legal recourse against the issuer and/or guarantor. Remedies must, in
some cases, be pursued in the courts of the defaulting party itself, and the
ability of the holder of foreign sovereign debt securities to obtain recourse
may be subject to the political climate in the relevant country. In addition, no
assurance can be given that the holders of commercial bank debt will not contest
payments to the holders of other foreign sovereign debt obligations in the event
of default under their commercial bank loan agreements.
SWAP, CAPS, FLOORS AND COLLARS--In a typical interest rate swap, one party
agrees to make regular payments equal to a floating interest rate times a
"notional principal amount," in return for payments equal to a fixed rate times
the same amount, for a specific period of time. Swaps may also depend on other
prices or rates, such as the value of an index or mortgage prepayment rates. In
a typical cap or floor agreement, one party agrees to make payments only under
specified circumstances, usually in return for payment of a fee by the other
party. For example, the buyer of an interest rate cap obtains the right to
receive payments to the extent that a specific interest rate exceeds an
agreed-upon level, while the seller of an interest rate floor is obligated to
make payments to the extent that a specified interest rate falls below an
agreed-upon level. An interest rate collar combines elements of buying a cap and
selling a floor.
Swap agreements are sophisticated hedging instruments that typically involve
a small investment of cash relative to the magnitude of risk assumed. As a
result, swaps can be highly volatile and have a considerable impact on a
Portfolio's performance. Swap agreements are subject to risks related to the
counterparty's ability to perform, and may decline in value if the
counterparty's creditworthiness deteriorates. A Portfolio may also suffer losses
if it is unable to terminate outstanding swap agreements or reduce its exposure
through offsetting transactions. Any obligation a Portfolio may have under these
types of arrangements will covered by setting aside cash or liquid securities in
a segregated account. A Portfolio will enter into swaps only with counterparties
believed to be creditworthy.
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 or that
mature in more than 7 days, are considered to be illiquid.
U.S. GOVERNMENT AGENCY SECURITIES--Guarantees of principal by agencies or
instrumentalities of the United States Government may be a guarantee of payment
at the maturity of the obligation so that in the event of a default prior to
maturity there might not be a market and thus no means of realizing on the
market obligation prior to maturity. Guarantees as to the timely payment of
principal and interest do not extend to the value or yield of these securities
nor to the value of the Portfolio's shares.
VARIABLE AND FLOATING RATE INSTRUMENTS--There is a risk that the current
interest rate on such obligations may not accurately reflect existing market
interest rates. A demand instrument with a demand notice exceeding seven days
may be considered illiquid if there is no secondary market for such security.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES--These securities are subject to
market fluctuation due to changes in market interest rates, and it is possible
that the market value at the time of settlement could be higher or lower than
the purchase price if the general level of interest rates has changed. Although
a Portfolio generally purchases securities on a when-issued or forward
commitment basis with the intention of actually acquiring securities, a
Portfolio may dispose of a when-issued security on a forward commitment prior to
settlement if the Adviser deems it appropriate to do so. When investing
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in when-issued securities, a Portfolio will not accrue income until delivery of
the securities and will invest in such securities only for purposes of actually
acquiring the securities and not for purposes of leveraging.
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 that 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. A 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.
DESCRIPTION OF RATINGS
The following descriptions are summaries of published ratings.
DESCRIPTION OF COMMERCIAL PAPER RATINGS
Commercial paper rated A by Standard and Poor's Corporation ("S&P") is
regarded by S&P as having the greatest capacity for timely payment. Issues rated
A are further refined by use of the numbers 1+, 1 and 2, to indicate the
relative degree of safety. Issues rated A-1+ are those with an "overwhelming
degree" of credit protection. Those rated A-1, the highest rating category,
reflect a "very strong" degree of safety regarding timely payment. Those rated
A-2, the second highest rating category, reflect a "satisfactory" degree of
safety regarding timely payment.
Commercial paper issues rated Prime-1 or Prime-2 by Moody's Investor's
Service, Inc. ("Moody's") are judged by Moody's to be of the "superior" quality
and "strong" quality, respectively, on the basis of relative repayment capacity.
The rating Fitch-1 (Highest Grade) is the highest commercial rating assigned
by Fitch Investors Services, Inc. ("Fitch"). Paper rated Fitch-1 is regarded as
having the strongest degree of assurance for timely payment. The rating Fitch-2
(Very Good Grade) is the second highest commercial paper rating assigned by
Fitch which reflects an assurance of timely payment only slightly less in degree
than the strongest issues.
The rating Duff-1 is the highest commercial paper rating assigned by Duff
and Phelps, Inc. ("Duff"). Paper rated Duff-1 is regarded as having very high
certainty of timely payment with excellent liquidity factors which are supported
by ample asset protection. Risk factors are minor. Paper rated Duff-2 is
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regarded as having good certainty of timely payment, good access to capital
markets and sound liquidity factors and company fundamentals. Risk factors are
small.
The designation A1, the highest rating category established by IBCA Limited
("IBCA"), indicates that the obligation is supported by a very strong capacity
for timely repayment. Those obligations rated A1+ are supported by the highest
capacity for timely repayment are supported by a strong capacity for timely
repayment, although such capacity may be susceptible to adverse changes in
business, economic or financial conditions.
The rating TBW-1 by Thomson BankWatch ("Thomson") indicates a very high
likelihood that principal and interest will be paid on a timely basis.
DESCRIPTION OF CORPORATE BOND RATINGS
Bonds rated AAA have the highest rating S&P assigns to a debt obligation.
Such a rating indicates an extremely strong capacity to pay principal and
interest. Bonds rated AA also qualify as high-quality debt obligations. Capacity
to pay principal and interest is very strong, and in the majority of instances
they differ from AAA issues only in small degree. Debt rated A has a strong
capacity to pay interest and repay principal although it is somewhat more
susceptible to the adverse effects of changes in circumstances and economic
conditions than debt in higher rated categories. 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. Debt rated BB and B is regarded as having predominantly speculative
characteristics with respect to capacity to pay interest and repay principal. BB
indicates the least degree of speculation and C the highest degree of
speculation. While such debt will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposures to adverse conditions. Debt rated BB has less near-term vulnerability
to default than other speculative grade debt. However, it faces major ongoing
uncertainties or exposure to adverse business, financial, or economic conditions
that could lead to inadequate capacity to meet timely interest and principal
payments. The BB rating category is also used for debt subordinated to senior
debt that is assigned an actual or implied BBB- rating. Debt rated B has greater
vulnerability to default but presently has the capacity to meet interest
payments and principal repayments. Adverse business, financial, or economic
conditions would likely impair capacity or willingness to pay interest and repay
principal. The B rating category also is used for debt subordinated to senior
debt that is assigned an actual or implied BB or BB- rating.
Bonds which are rated Aaa by Moody's are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally referred to
as "gilt edge." Interest payments are protected by a large, or 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. Bonds rated Aa by
Moody's are judged by Moody's to be of high quality by all standards. Together
with bonds rated Aaa, 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 risks appear somewhat larger than in Aaa securities. Bonds which
are 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 sometime in the future.
Bonds which are 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
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as well. Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well-assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class. Bonds which are rated B generally lack
characteristics of the desirable investment. Assurance of interest and principal
payments or of maintenance of other terms of the contract over any long period
of time may be small.
Moody's bond ratings, where specified, are applied to senior bank
obligations and insurance company senior policyholder and claims obligations
with an original maturity in excess of one year. Obligations relying upon
support mechanisms such as letters-of-credit and bonds of indemnity are excluded
unless explicitly rated.
Obligations of a branch of a bank are considered to be domiciled in the
country in which the branch is located. Unless noted as an exception, Moody's
rating on a bank's ability to repay senior obligations extends only to branches
located in countries which carry a Moody's sovereign rating. Such branch
obligations are rated at the lower of the bank's rating or Moody's sovereign
rating for the bank deposits for the country in which the branch is located.
When the currency in which an obligation is denominated is not the same as
the currency of the country in which the obligation is domiciled, Moody's
ratings do not incorporate an opinion as to whether payment of the obligation
will be affected by the actions of the government controlling the currency of
denomination. In addition, risk associated with bilateral conflicts between an
investor's home country and either the issuer's home country or the country
where an issuer branch is located are not incorporated into Moody's ratings.
Moody's makes no representation that rated bank obligations or insurance
company obligations are exempt from registration under the U.S. Securities Act
of 1933 or issued in conformity with any other applicable law or regulation. Nor
does Moody's represent that any specific bank or insurance company obligation is
legally enforceable or is a valid senior obligation of a rated issuer.
Moody's ratings are opinions, not recommendations to buy or sell, and their
accuracy is not guaranteed. A rating should be weighed solely as one factor in
an investment decision and you should make your own study and evaluation of any
issuer whose securities or debt obligations you consider buying or selling.
Bonds rated AAA by Fitch are judged by Fitch 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 interest requirements, with such stability of
applicable earnings that safety is beyond reasonable question whatever changes
occur in conditions. Bonds rated AA by Fitch are judged by Fitch 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.
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.
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. Bonds rated BB are considered speculative. The obligor's ability to pay
interest and repay principal may be affected over time by adverse economic
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changes. However, business and financial alternatives can be identified which
could assist the obligor in satisfying its debt service requirements. Bonds
rated B are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of continued timely
payment of principal and interest reflects the obligor's limited margin of
safety and the need for reasonable business and economic activity throughout the
life of the issue.
Bonds rated Duff-1 are judged by Duff to be of the highest credit quality
with negligible risk factors; only slightly more than U.S. Treasury debt. Bonds
rated Duff-2, 3 and 4 are judged by Duff to be of high credit quality with
strong protection factors. Risk is modest but may vary slightly from time to
time because of economic conditions. Bonds rated BBB+, BBB, or BBB- are
considered below average protection factors but still considered sufficient for
prudent investment. Considerable BBB variability in risk during economic cycles.
Bonds rated BB+, BB or BB- are considered below investment grade but deemed
likely to meet obligations when due. Present or prospective financial protection
factors fluctuate according to industry conditions or company fortunes. Overall
quality may move up or down frequently within this category.
Bonds rated B+, B or B- are considered below investment grade and possessing
risk that obligations will not be met when due. Financial protection factors
will fluctuate widely according to economic cycles, industry conditions and/or
company fortunes. Potential exists for frequent changes in the rating within
this category or into a higher or lower rating grade.
Obligations rated AAA by IBCA 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. Obligations for which there
is a very low expectation of investment risk are rated AA by IBCA. 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. 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.
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. Bonds rated BB are obligations for which
there is a possibility of investment risk developing. Capacity for timely
repayment of principal and interest exists, but is susceptible over time to
adverse changes in business, economic or financial conditions. Bonds rated B are
obligations for which investment risk exists. Timely repayment of principal and
interest is not sufficiently protected against adverse changes in business,
economic or financial conditions.
Bonds rated AAA by Thomson BankWatch indicate that the ability to repay
principal and interest on a timely basis is very high. 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. 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.
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.
While not investment grade, the BB rating suggests that the likelihood of
default is considerably less than for lower-rated issues. However, there are
significant uncertainties that could affect the ability to adequately service
debt obligations. Issues rated B show a higher degree of uncertainty and
therefore greater likelihood of default than higher-rated issues. Adverse
developments could well negatively affect the payment of interest and principal
on a timely basis.
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INVESTMENT LIMITATIONS
The International Equity, Emerging Markets Equity and Emerging Markets Debt
Portfolios may not:
1. Make loans if, as a result, more than 33 1/3% of its total assets would be
lent to other parties, except that each 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 each 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. Act as an underwriter of securities of other issuers except as it may be
deemed an underwriter in selling a portfolio security.
4. Issue senior securities (as defined in the Investment Company Act of 1940,
as amended (the "1940 Act"), except as permitted by rule, regulation or
order of the SEC.
5. Invest in interests in oil, gas or other mineral exploration or development
programs and oil, gas or mineral leases.
The International Fixed Income Portfolio may not:
1. Pledge, mortgage or hypothecate assets except to secure temporary borrowings
as described in the Prospectuses in aggregate amounts not to exceed 10% of
the net assets of such Portfolio taken at current value at the time of the
incurrence of such loan.
2. Make loans, except that the Portfolio may (i) purchase or hold debt
securities in accordance with its investment objectives and policies; (ii)
engage in securities lending as described in this Prospectus and in the
Statement of Additional Information; and (iii) enter into repurchase
agreements, provided that repurchase agreements and time deposits maturing
in more than seven days, and other illiquid securities, including securities
which are not readily marketable or are restricted, are not to exceed, in
the aggregate, 10% of the total assets of the International Fixed Income
Portfolio.
3. Invest in companies for the purpose of exercising control.
4. Acquire more than 10% of the voting securities of any one issuer.
5. Purchase or sell real estate, real estate limited partnership interests,
commodities or commodities contracts. However, subject to its permitted
investments, the Portfolio may purchase obligations issued by companies
which invest in real estate, commodities or commodities contracts.
6. Make short sales of securities, maintain a short position or purchase
securities on margin, except as described in the Prospectus and except that
the Trust may obtain short-term credits as necessary for the clearance of
security transactions.
7. Act as an underwriter of securities of other issuers except as it may be
deemed an underwriter in selling a portfolio security.
8. Purchase securities of other investment companies except as permitted by the
1940 Act and the rules and regulations thereunder and may only purchase
securities of money market funds. Under these rules and regulations, the
Portfolio is prohibited from acquiring the securities of other investment
companies if, as a result of such acquisition, the Portfolio owns more then
3% of the total voting stock of the company; securities issued by any one
investment company represent more than 5% of the total Portfolio assets; or
securities (other than treasury stock) issued by all investment companies
represent more than 10% of the total assets of the Portfolio. A 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.
S-14
<PAGE>
9. Issue senior securities (as defined in the 1940 Act) except in connection
with permitted borrowing as described in the Prospectuses and this Statement
of Additional Information or as permitted by rule, regulation or order of
the SEC.
10. Purchase or retain securities of an issuer if, to the knowledge of the
Trust, an officer, trustee, partner or director of the Trust or any
investment adviser of the Trust owns beneficially more than 1/2 of 1% of the
shares or securities of such issuer and all such officers, trustees,
partners and directors owning more than 1/2 of 1% of such shares or
securities together own more than 5% of such shares or securities.
11. Purchase securities of any company which has (with predecessors) a record of
less than three years continuing operations if, as a result, more than 5% of
the total assets (taken at current value) would be invested in such
securities.
12. Invest in interests in oil, gas or other mineral exploration or development
programs and oil, gas or mineral leases.
13. Purchase restricted securities (securities which must be registered under
the Securities Act of 1933, as amended (the "1933 Act"), before they may be
offered or sold to the public) or other illiquid securities except as
described in the Prospectuses and this Statement of Additional Information.
The foregoing percentages will apply at the time of the purchase of a
security and shall not be 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 Prospectuses are
fundamental policies of the Trust and may not be changed without shareholder
approval.
NON-FUNDAMENTAL POLICIES
The following investment limitations are non-fundamental policies and may be
changed without shareholder approval.
The International Equity, Emerging Markets Equity and Emerging Market Debt
Portfolios 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 each
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 of Section 18 of the 1940 Act.
4. Purchase securities which are not readily marketable if, in the aggregate,
more than 15% of its total assets would be invested in such securities.
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 total
assets would be invested in illiquid securities.
6. Invest its assets in securities of any investment company, except as
permitted by the 1940 Act.
The foregoing percentages will apply at the time of the purchase of a
security and shall not be violated unless an excess or deficiency occurs,
immediately after or as a result of a purchase of such security.
S-15
<PAGE>
THE MANAGER
The Trust and SEI Investments Fund Management ("SEI Management" or the
"Manager") have entered into a Management Agreement (the "Management
Agreement"). Formerly, SEI Investments Management Corporation ("SIMC") served as
the manager to the Trust. The Management Agreement provides that 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 the Manager in the performance of its duties
or from reckless disregard of its duties and obligations thereunder.
The continuance of the Management Agreement must be specifically approved at
least annually (i) by the vote of a majority of the Trustees or by the vote of a
majority of the outstanding voting securities of the Portfolios, 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 without penalty by the Trustees of the Trust, by a vote of a majority
of the outstanding shares of the Portfolios or by the Manager on not less than
30 days' nor more than 60 days' written notice. This Agreement shall not be
assignable by either party without the written consent of the other party.
The Manager, a Delaware business trust, has its principal business offices
at Oaks, Pennsylvania 19456. SEI Investments Management Corporation ("SIMC"), a
wholly-owned subsidiary of SEI Investments Company ("SEI Investments"), is the
owner of all beneficial interest in the Manager. SEI Investments and its
subsidiaries and affiliates, including the Manager, are leading providers of
funds evaluation services, trust accounting systems, and brokerage and
information services to financial institutions, institutional investors, and
money managers. The Manager and its affiliates also serve as administrator or
sub-administrator to the following other mutual funds: The Achievement Funds
Trust, The Advisors' Inner Circle Fund, The Arbor Fund, ARK Funds, Armada 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, The Nevis Funds, Marquis Funds-Registered
Trademark-, Monitor Funds, Morgan Grenfell Investment Trust, Oak Associates
Funds, 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
Institutional Managed 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 any Portfolio exceed applicable limitations, the
Manager will pay such excess. The Manager will not be required to bear expenses
of any 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.
For the fiscal years ended February 29, 1996, February 28, 1997 and February
28, 1998, the Portfolios paid fees to the Manager as follows:
<TABLE>
<CAPTION>
MANAGEMENT FEES PAID MANAGEMENT FEES
(REIMBURSED) (000) WAIVED (000)
---------------------- -------------------
PORTFOLIO 1996 1997 1998 1996 1997 1998
- ------------------------------------------ ------ ------ ------ ---- ---- -------
<S> <C> <C> <C> <C> <C> <C>
International Equity Portfolio............ $1,312 $2,046 $2,975 $119 $ 41 $ 0
Emerging Markets Equity Portfolio......... $ (29) $ 725 $2,180 $230 $249 $ 0
International Fixed Income Portfolio...... $ 231 $ 714 $1,784 $140 $161 $ 11
Emerging Markets Debt Portfolio........... * * $ 311 * * $ 64
</TABLE>
- ------------------------
* Not in operation during such period.
S-16
<PAGE>
THE ADVISERS AND SUB-ADVISERS
The Advisory Agreements 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 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 that Portfolio or by the Trustees, and (ii) by the vote of
a majority of the Trustees who are not parties to such Advisory or Sub-Advisory
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 and
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 a Portfolio, by a majority of the outstanding shares
of that 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 has 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 a 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 a Portfolio.
For the fiscal years ended February 29, 1996, February 28, 1997 and February
28, 1998, the Portfolios paid advisory fees as follows:
<TABLE>
<CAPTION>
FEES PAID (000) FEE WAIVERS (000)
-------------------------- ---------------------
PORTFOLIO 1996 1997 1998 1996 1997 1998
- -------------------------------------------------- --------- ------ ------ ------ ---- ------
<S> <C> <C> <C> <C> <C> <C>
International Equity Portfolio.................... $1,524(1) $2,113 $2,719 $ 0(1) $223 $ 619
Emerging Markets Equity Portfolio................. $ 297(1) $1,262 $2,341 $ 0(1) $309 $1,180
International Fixed Income........................ $ 155 $ 362 $ 748 $31 $ 72 $ 150
Emerging Markets Debt Portfolio................... * * $ 340 * * $ 149
</TABLE>
- ------------------------
* Not in operation during such period.
(1) Includes amounts paid to the Portfolios' Sub-Advisers under the former
investment advisory agreements.
For the fiscal years ended February 29, 1996, February 28, 1997 and February
28, 1998, SIMC paid sub-advisory fees as follows:
<TABLE>
<CAPTION>
SUB-ADVISORY FEES SUB-ADVISORY FEES
PAID (000) WAIVED (000)
---------------------- ------------------
PORTFOLIO 1996 1997 1998 1996 1997 1998
- -------------------------------------------------- ------ ------ ------ ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
International Equity Portfolio.................... $ 0 $1,389 $1,727 $ 0 $ 0 $ 0
Emerging Markets Equity Portfolio................. $ 0 $ 949 $1,846 $ 0 $ 0 $ 0
Emerging Markets Debt Portfolio................... * * $ 254 * * $ 0
</TABLE>
- ------------------------
* Not in operation during such period.
S-17
<PAGE>
DISTRIBUTION AND SHAREHOLDER SERVICING
The Trust has adopted a Distribution Agreement for the Portfolios. The Trust
has also adopted a Distribution Plan (the "Class D Plan") for the shares of the
Class D shares of the International Equity Portfolio in accordance with the
provisions of Rule 12b-1 under the 1940 Act which regulates circumstances under
which an investment company may directly or indirectly bear expenses relating to
the distribution of its shares. In this connection, the Board of Trustees has
determined that the Class D Plan and Distribution Agreement are in the best
interests of the shareholders. Continuance of the Class D Plan must be approved
annually by a majority of the Trustees of the Trust and by a majority of the
Qualified Trustees, as defined in the Class D Plan. The Class D Plan requires
that quarterly written reports of amounts spent under the Class D Plan and the
purposes of such expenditures be furnished and reviewed by the Trustees. The
Class D Plan may not be amended to increase materially the amount which may be
spent thereunder without approval by a majority of the outstanding shares of the
Portfolio or class affected. All material amendments of the Class D Plan will
require approval by a majority of the Trustees of the Trust and of the Qualified
Trustees.
The Class D Plan provides that the Trust will pay a fee of up to .30% of the
average daily net assets of the International Equity Portfolio's Class D shares
that the Distributor can use to compensate broker-dealers and service providers,
including SEI Investments Distribution Co. and its affiliates, which provide
distribution-related services to the International Equity Portfolio's Class D
shareholders or their customers who beneficially own Class D shares. The Class D
Plan provides that, if there are more than one series of Trust securities having
a Class D class, expenses incurred pursuant to the Class D Plan will be
allocated among such several series of the Trust on the basis of their relative
net asset values, unless otherwise determined by a majority of the Qualified
Trustees. See "Distribution" in the Class D Prospectus.
The distribution related services that may be provided under the Plan
include establishing and maintaining customer accounts and records; aggregating
and processing purchase and redemption requests from customers; and placing net
purchase and redemption orders with the Distributor; and automatically investing
customer account cash balances.
Except to the extent that the Manager and Adviser benefitted through
increased fees from an increase in the net assets of the Trust which may have
resulted in part from the expenditures, no interested person of the Trust nor
any Trustee of the Trust who is not an interested person of the Trust had a
direct or indirect financial interest in the operation of the Class D Plan or
related agreements.
The Portfolios have also adopted a shareholder servicing plan for their
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 Securities and Exchange Commission ("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.
S-18
<PAGE>
For the fiscal year ended February 28, 1998, the International Equity
Portfolio incurred the following distribution expenses:
<TABLE>
<CAPTION>
AMOUNT PAID TO
3RD PARTIES BY
TOTAL DIST. SIDCO FOR
EXPENSES AS DISTRIBUTOR
TOTAL DIST. A % OF NET RELATED SALES PRINTING OTHER
PORTFOLIO CLASS EXPENSES ASSETS SERVICES EXPENSES COSTS COSTS*
- ------------------------------ ------ ----------- ----------- -------------- -------- -------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
International Equity
Portfolio................... D $ 545 .25% $0 $0 $0 $0
</TABLE>
- ------------------------
* Costs of complying with securities laws pertaining to the distribution of
shares.
TRUSTEES AND OFFICERS OF THE TRUST
The Trustees and Executive Officers of the Trust, their respective dates of
birth, and their principal occupations for the last five years are set forth
below. Each may have held other positions with the named companies during that
period. Unless otherwise noted, the business address of each Trustee and each
Executive Officer is SEI Investments Company, Oaks, Pennsylvania 19456. Certain
officers of the Trust also serve as officers of some or all of the following:
The Achievement Funds Trust, The Advisors' Inner Circle Fund, The Arbor Fund,
ARK Funds, Bishop Street Funds, Boston 1784 Funds-Registered Trademark-,
CoreFunds, Inc., CrestFunds, Inc., CUFUND, The Expedition Funds, FMB Funds,
Inc., First American Funds, Inc., First American Investment Funds, Inc., First
American Strategy Funds, Inc., HighMark Funds, The Nevis Funds, Marquis
Funds-Registered Trademark-, Monitor Funds, Morgan Grenfell Investment Trust,
Oak Associates Funds, 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 Institutional Managed Trust, SEI Liquid Asset Trust, SEI
Tax Exempt Trust, STI Classic Funds, STI Classic Variable Trust, TIP Funds and
TIP Institutional Funds, each of which is an open-end management investment
company managed by SEI Investments Fund Management or its affiliates and, except
for Santa Barbara Group of Mutual Funds, Inc., distributed by SEI Investments
Distribution Co.
ROBERT A. NESHER (DOB 08/17/46)--Chairman of the Board of
Trustees*--Currently performs various services on behalf of SEI Investments for
which Mr. Nesher is compensated. Executive Vice President of SEI Investments,
1986-1994. Director and Executive Vice President of the Adviser, the Manager and
the Distributor, 1981-1994. Trustee of The Advisors' Inner Circle Fund, The
Arbor Fund, Boston 1784 Funds-Registered Trademark-, The Expedition Funds,
Marquis Funds-Registered Trademark-, Oak Associates Funds, Pillar Funds, SEI
Asset Allocation Trust, SEI Daily Income Trust, SEI Index Funds, SEI
Institutional Investments Trust, SEI Institutional Managed Trust, SEI
Institutional International Trust, SEI Liquid Asset Trust and SEI Tax Exempt
Trust.
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, SEI Investments, the Adviser, the Manager and the Distributor,
Director and Secretary of SEI Investments and Secretary of the Adviser, the
Manager and the Distributor. Trustee of The Advisors' Inner Circle Fund, The
Arbor Fund, The Expedition Funds, Marquis Funds-Registered Trademark-, Oak
Associates Funds, SEI Asset Allocation Trust, SEI Daily Income Trust, SEI Index
Funds, SEI Institutional Investments Trust, SEI Institutional Managed Trust, SEI
Institutional International Trust, SEI Liquid Asset Trust and SEI Tax Exempt
Trust.
F. WENDELL GOOCH (DOB 12/03/32)--Trustee**--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 SEI Asset Allocation Trust, SEI Daily
Income Trust, SEI Index Funds, SEI
S-19
<PAGE>
Institutional Investments Trust, SEI Institutional Managed Trust, SEI
Institutional International Trust, SEI Liquid Asset Trust, SEI Tax Exempt Trust,
STI Classic Funds and STI Classic Variable Trust.
FRANK E. MORRIS (DOB 12/30/23)--Trustee**--Peter Drucker Professor of
Management, Boston College, 1989-1990. President, Federal Reserve Bank of
Boston, 1968-1988. Trustee of The Advisors' Inner Circle Fund, The Arbor Fund,
The Expedition Funds, Marquis Funds-Registered Trademark-, Oak Associates Funds,
SEI Asset Allocation Trust, SEI Daily Income Trust, SEI Index Funds, SEI
Institutional Investments Trust, SEI Institutional Managed Trust, SEI
Institutional International Trust, SEI Liquid Asset Trust, and SEI Tax Exempt
Trust.
JAMES M. STOREY (DOB 04/12/31)--Trustee**--Partner, Dechert Price & Rhoads,
from September 1987-December 1993. Trustee of The Advisors' Inner Circle Fund,
The Arbor Fund, The Expedition Funds, Marquis Funds-Registered Trademark-, Oak
Associates Funds, SEI Asset Allocation Trust, SEI Daily Income Trust, SEI Index
Funds, SEI Institutional Investments Trust, SEI Institutional Managed Trust, SEI
Institutional International Trust, SEI Liquid Asset Trust, and SEI Tax Exempt
Trust.
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 Asset Allocation Trust, SEI Daily Income Trust, SEI Index Funds, SEI Liquid
Asset Trust, SEI Institutional Investments Trust, SEI Institutional Managed
Trust, SEI Institutional International Trust, and SEI Tax Exempt Trust.
EDWARD D. LOUGHLIN (DOB 03/07/51)--President and Chief Executive
Officer--Executive Vice President and President--Asset Management Division of
SEI Investments, the Adviser and the Manager since 1994. Senior Vice President,
SEI Investments, 1986-1991; Vice President, SEI Investments, 1981-1986.
TODD B. CIPPERMAN (DOB 02/14/66)--Vice President and Assistant
Secretary--Vice President and Assistant Secretary of SEI Investments, the
Adviser, the Manager and the Distributor since 1995. Associate, Dewey Ballantine
(law firm), 1994-1995. Associate, Winston & Strawn (law firm), 1991-1994.
LYDIA A. GAVALIS (DOB 06/05/64)--Vice President and Assistant
Secretary--Vice President and Assistant Secretary of the Administrator and the
Distributor since 1998. Assistant General Counsel and Director of Arbitration,
Philadelphia Stock Exchange, 1989-1998.
KATHY HEILIG (DOB 12/21/58)--Vice President and Assistant
Secretary--Treasurer of SEI Investments Company since 1997; Assistant Controller
of SEI Investments Company since 1995; Vice President of SEI Investments Company
since 1991; Director of Taxes of SEI Investments Company 1987 to 1991. Tax
Manager, Arthur Anderson LLP prior to 1987.
JOSEPH M. O'DONNELL (DOB 11/13/54)--Vice President and Assistant
Secretary--Vice President and Assistant Secretary of the Adviser, the
Administrator and the Distributor since 1998. Vice President and General
Counsel, FPS Services, Inc., 1993-1997. Staff Counsel and Secretary, Provident
Mutual Family of Funds, 1990-1993.
SANDRA K. ORLOW (DOB 10/18/53)--Vice President and Assistant
Secretary--Secretary of the Distributor since 1998; Vice President of the
Distributor since 1988. Vice President and Assistant Secretary of the Adviser,
and the Manager since 1988. Assistant Secretary of the Distributor from 1988 to
1998.
CYNTHIA M. PARRISH (DOB 10/23/59)--Vice President and Assistant
Secretary--Vice President and Assistant Secretary of the SEI Investments, the
Adviser, the Manager and the Distributor since August 1997. Branch Chief,
Division of Enforcement, U.S. Securities and Exchange Commission, January
1995-August 1997. Senior Counsel--Division of Enforcement, U.S. Securities and
Exchange Commission,
S-20
<PAGE>
September 1992-January 1995. Staff Attorney--Division of Enforcement, U.S.
Securities and Exchange Commission, September 1990-August 1992.
KEVIN P. ROBINS (DOB 04/15/61)--Vice President and Assistant
Secretary--Senior Vice President and General Counsel of SEI Investments, the
Adviser, the Manager and the Distributor since 1994. Assistant Secretary of SEI
Investments since 1992; Secretary of the Adviser and the Manager since 1994.
Vice President, General Counsel and Assistant Secretary of the Adviser, the
Manager and the Distributor, 1992-1994. Associate, Morgan, Lewis & Bockius LLP
(law firm), 1988-1992.
KATHRYN L. STANTON (DOB 11/19/58)--Vice President and Assistant
Secretary--General Counsel, Investment Systems and Services since 1997. Deputy
General Counsel of SEI Investments since 1996. Vice President and Assistant
Secretary of SEI Investments, the Adviser, the Manager and the Distributor since
1994, Associate, Morgan, Lewis & Bockius LLP (law firm), 1989-1994.
LYNDA J. STRIEGEL (DOB 10/30/48)--Vice President and Assistant
Secretary--Vice President and Assistant Secretary of the Administrator and the
Distributor since 1998. Senior Asset Management Counsel, Barnett Banks, Inc.
(1997-1998). Partner, Groom and Nordberg, Chartered, 1996-1997. Associate
General Counsel, Riggs Bank, N.A., 1991-1995.
RICHARD W. GRANT (DOB 10/25/45)--Secretary--2000 One Logan Square,
Philadelphia, PA 19103. Partner, Morgan, Lewis & Bockius LLP (law firm), counsel
to the Trust, SEI Investments, the Adviser, the Manager and the Distributor.
MARK E. NAGLE (DOB 10/20/59)--Controller and Chief Financial Officer--Vice
President of Fund Accounting and Administration for SEI Fund Resources and Vice
President of the Manager since 1996. Vice President of the Distributor since
December 1997. Vice President, Fund Accounting, BISYS Fund Services, September
1995 to November 1996. Senior Vice President and Site Manager, Fidelity
Investments 1981 to September 1995.
- ------------------------
*Messrs. Nesher and Doran are Trustees who may be deemed to be "interested
persons" of the Trust as the term is defined in the 1940 Act.
**Messrs. Gooch, Storey, Morris and Sullivan serve as members of the Audit
Committee of the Trust.
The Trustees and officers of the Trust own less than 1% of the outstanding
shares of the Trust.
Compensation of officers and affiliated Trustees of the Trust is paid by the
Manager. The Trust pays the fees for unaffiliated Trustees. For the fiscal year
ended February 28, 1998, 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 2/28/97 FUND EXPENSES RETIREMENT FOR FYE 2/28/97
- --------------------------------- ------------------ ------------------- ---------------- -----------------------------------
<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........ $12,881 $0 $0 $100,000 for services on 8 boards
Frank E. Morris, Trustee......... $12,881 $0 $0 $100,000 for services on 8 boards
James M. Storey, Trustee......... $12,881 $0 $0 $100,000 for services on 8 boards
George J. Sullivan, Trustee...... $12,881 $0 $0 $100,000 for services on 8 boards
</TABLE>
Mr. Edward W. Binshadler is a Trustee Emeritus of the Trust. Mr. Binshadler
serves as a consultant to the Audit Committee and receives as compensation
$5,000 per Audit Committee meeting attended.
S-21
<PAGE>
PERFORMANCE
From time to time, the Trust may advertise yield and/or total return for one
or more of the Portfolios. These figures will be based on historical earnings
and are not intended to indicate future performance.
The total return of a Portfolio refers to the average compounded rate of
return to a hypothetical investment for designated time periods (including, but
not limited to, the period from which the Portfolio commenced operations through
the specified date), assuming that the entire investment is redeemed at the end
of each period. In particular, total return will be calculated according to the
following formula:
P(1 + T)n = ERV, where P = a hypothetical initial payment of $1,000; T =
average annual total return; n = number of years; and ERV = ending
redeemable value of a hypothetical $1,000 payment made at the beginning
of the designated time period as of the end of such period.
Based on the foregoing, the average annual total return for the Portfolios
from inception through February 28, 1998, and for the one, five and ten year
periods ended February 28, 1998 were as follows:
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN
-------------------------------------------------
ONE SINCE
PORTFOLIO CLASS YEAR FIVE YEAR TEN YEAR INCEPTION
- ----------------------------------------- ------------------------------ ----------- ----------- --------- ------------
<S> <C> <C> <C> <C> <C>
International Equity Portfolio A............................. 10.21% 9.44% * 52.48%
D (with load)................. 4.47% 8.04% * 42.92%
D (without load).............. 9.92% 9.15% * 50.50%
Emerging Markets Equity Portfolio A............................. (17.72)% * * 6.54%
International Fixed Income Portfolio A............................. 3.23% * * 34.05%
Emerging Markets Debt Portfolio A............................. 5.64% * * 5.64%
</TABLE>
- ------------------------
* Not in operation during such period.
From time to time, the Trust may advertise the yield of the International
Fixed Income Portfolio. 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 income generated by the
investment during that period is generated for each like 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
earning during the period; b = expenses accrued for the period (net of
reimbursement); c = the current daily number of shares outstanding
during the period that were entitled to receive dividends; and d = the
maximum offering price per share on the last day of the period.
Actual yields will depend on such variables as asset quality, average asset
maturity, the type of instruments a Portfolio invests in, changes in interest
rates on money market instruments, changes in the expenses of a Portfolio and
other factors.
Yields are one basis upon which investors may compare a Portfolio with other
mutual funds; however, yields of other mutual funds and other investment
vehicles may not be comparable because of the factors set forth above and
differences in the methods used in valuing portfolio instruments.
For the 30-day period ended February 28, 1998, the yield for the
International Fixed Income and Emerging Markets Debt Portfolios was 3.66% and
6.35%, respectively.
The Portfolios may, from time to time, compare their 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.
S-22
<PAGE>
PURCHASE AND REDEMPTION OF SHARES
The purchase and redemption price of shares is the net asset value of each
share. A Portfolio's securities are valued by SEI Management pursuant to
valuations provided by an independent pricing service (generally the last quoted
sale price). Portfolio securities listed on a securities exchange for which
market quotations are available are valued at the last quoted sale price on each
Business Day (defined as days on which the New York Stock Exchange is open for
business ("Business Day")) or, if there is no such reported sale, at the most
recently quoted bid price. Unlisted securities for which market quotations are
readily available are valued at the most recently quoted bid price. The pricing
service may also use a matrix system to determine valuations. This system
considers such factors as security prices, yields, maturities, call features,
ratings and developments relating to specific securities in arriving at
valuations. The procedures of the pricing service and its valuations are
reviewed by the officers of the Trust under the general supervision of the
Trustees.
Information about the market value of each portfolio security may be
obtained by SEI Management from an independent pricing service. Securities
having maturities of 60 days or less at the time of purchase will be valued
using the amortized cost method (described in the Statement of Additional
Information), which approximates the securities' market value. The pricing
service may use a matrix system to determine valuations of equity and fixed
income securities. This system considers such factors as security prices,
yields, maturities, call features, ratings and developments relating to specific
securities in arriving at valuations. The pricing service may also provide
market quotations. The procedures used by the pricing service and its valuations
are reviewed by the officers of the Trust under the general supervision of the
Trustees. Portfolio securities for which market quotations are available are
valued at the last quoted sale price on each Business Day or, if there is no
such reported sale, at the most recently quoted bid price.
Shares of a Portfolio may be purchased in exchange for securities included
in the Portfolio subject to SEI Management's determination that the securities
are acceptable. Securities accepted in an exchange will be valued at the market
value. All accrued interest and subscription of other rights which are reflected
in the market price of accepted securities at the time of valuation become the
property of the Trust and must be delivered by the Shareholder to the Trust upon
receipt from the issuer.
SEI Management will not accept securities for a Portfolio unless: (1) such
securities are appropriate in the Portfolio at the time of the exchange; (2)
such securities are acquired for investment and not for resale; (3) the
Shareholder represents and agrees that all securities offered to the Trust for
the Portfolio are not subject to any restrictions upon their sale by the
Portfolio under the Securities Act of 1933, or otherwise; (4) such securities
are traded on the American Stock Exchange, the New York Stock Exchange or on
NASDAQ in an unrelated transaction with a quoted sales price on the same day the
exchange valuation is made or,if not listed on such exchanges or on NASDAQ, have
prices available from an independent pricing service approved by the Trust's
Board of Trustees; and (5) the securities may be acquired under the investment
restrictions applicable to the Portfolio.
The Trust reserves the right to suspend the right of redemption and/or to
postpone the date of payment upon redemption for any period during which trading
on the New York Stock Exchange is restricted, or during the existence of an
emergency (as determined by the SEC by rule or regulation) as a result of which
disposal or evaluation of the portfolio securities is not reasonably
practicable, or for such other periods as the SEC may by order permit. The Trust
also reserves the right to suspend sales of shares of the Portfolios for any
period during which the New York Stock Exchange, the Manager, the Advisers, the
Distributor and/or the Custodians are not 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.
It is currently the Trust's policy to pay for all redemptions in cash. The
Trust retains the right, however, to alter this policy to provide for
redemptions in whole or in part by a distribution in kind of securities held by
a Portfolio in lieu of cash. Shareholders may incur brokerage charges in
connection with the sale of such
S-23
<PAGE>
securities. However, a shareholder will at all times be entitled to aggregate
cash redemptions from a Portfolio of the Trust during any 90-day period of up to
the lesser of $250,000 or 1% of the Trust's net assets in cash. A gain or loss
for federal income tax purposes would be realized by a shareholder subject to
taxation upon an in-kind redemption depending upon the shareholder's basis in
the shares of the Portfolio redeemed.
Portfolio securities may be traded on foreign markets on days other than
Business Days or the net asset value of a Portfolio may be computed on days when
such foreign markets are closed. In addition, foreign markets may close at times
other than 4:00 p.m. Eastern time. As a consequence, the net asset value of a
share of a Portfolio may not reflect all events that may affect the value of the
Portfolio's foreign securities unless the Adviser determines that such events
materially affect net asset value in which case net asset value will be
determined by consideration of other factors.
REDUCTIONS IN SALES CHARGES
In calculating the sales charge rates applicable to current purchases of
Class D shares, members of the following affinity groups and clients of the
following broker-dealers, each of which has entered into an agreement with the
Distributor, are entitled to the following percentage-based discounts from the
otherwise applicable sales charge:
<TABLE>
<CAPTION>
PERCENTAGE DATE OFFER DATE OFFER
NAME OF GROUP DISCOUNT STARTS TERMINATES
- --------------------------------------------------------- --------------- ---------- ----------
<S> <C> <C> <C>
BHC Securities, Inc. .................................... 10% 12/29/94 N/A
First Security Investor Services, Inc. .................. 10% 12/29/94 N/A
</TABLE>
Those members or clients who take advantage of a percentage-based reduction
in the sales charge during the offering period noted above may continue to
purchase shares at the reduced sales charge rate after the offering period
relating to each such purchaser's affinity group or broker-dealer relationship
has terminated.
Please contact the Distributor at 1-800-437-6016 for more information.
SHAREHOLDER SERVICES (CLASS D SHARES)
The following is a description of plans and privileges by which the sale
charges imposed on the Class D shares of the International Equity Portfolio may
be reduced.
RIGHT OF ACCUMULATION: A shareholder qualifies for cumulative quantity
discounts when his or her new investment, together with the current offering
price value of all holdings of that shareholder in certain eligible portfolios,
reaches a discount level. See "Purchase and Redemption of Shares" in the
Prospectus for the sales charge on quantity purchases.
LETTER OF INTENT: The reduced sales charges are also applicable to the
aggregate amount of purchases made by a purchaser within a 13-month period
pursuant to a written Letter of Intent provided to the Distributor that (i) does
not legally bind the signer to purchase any set number of shares and (ii)
provides for the holding in escrow by the Administrator of 5% of the amount
purchased until such purchase is completed within the 13-month period. A Letter
of Intent may be dated to include shares purchased up to 90 days prior to the
date the Letter is signed. The 13-month period begins on the date of the
earliest purchase. If the intended investment is not completed, the
Administrator will surrender an appropriate number of the escrowed shares for
redemption in order to recover the difference between the sales charge imposed
under the Letter of Intent and the sales charge that would have otherwise been
imposed.
DISTRIBUTION INVESTMENT OPTION: Distributions of dividends and capital
gains made by a Portfolio may be automatically invested in shares of another
Portfolio if shares of that Portfolio are available for sale. Such investments
will be subject to initial investment minimums, as well as additional purchase
minimums.
S-24
<PAGE>
A shareholder considering the Distribution Investment Option should obtain and
read the prospectus of the other Portfolios and consider the differences in
objectives and policies before making any investment.
REINSTATEMENT PRIVILEGE: A shareholder who has redeemed shares of the
Portfolio has a one-time right to reinvest the redemption proceeds in shares of
a Portfolio at their net asset value as of the time of reinvestment. Such a
reinvestment must be made within 30 days of the redemption and is limited to the
amount of the redemption proceeds. Although redemptions and repurchases of
shares are taxable events, a reinvestment within such 30-day period in the same
fund is considered a "wash sale" and results in the inability to recognize
currently all or a portion of a loss realized on the original redemption for
federal income tax purposes. The investor must notify the Transfer Agent at the
time the trade is placed that the transaction is a reinvestment.
EXCHANGE PRIVILEGE: Some or all of the Portfolio's Class D shares for which
payment has been received (I.E., an established account), may be exchanged for
Class D shares of other portfolios of SEI Liquid Asset Trust, SEI Tax Exempt
Trust, and SEI Institutional Managed Trust ("SEI Funds"). Exchanges are made at
net asset value plus any applicable sales charge. SEI Funds' portfolios that are
not money market portfolios currently impose a sales charge on Class D shares. A
shareholder who exchanges into one of these "non-money market" portfolios will
have to pay a sales charge on any portion of the exchanged Class D shares for
which he or she has not previously paid a sales charge. If a shareholder has
paid a sales charge on Class D shares, no additional sales charge will be
assessed when he or she exchanges those Class D shares for other Class D shares.
If a shareholder buys Class D shares of a "non-money market" fund and receives a
sales load waiver, he or she will be deemed to have paid the sales load for
purposes of this exchange privilege. In calculating any sales charge payable on
an exchange transaction, the SEI Funds will assume that the first shares a
shareholder exchanges are those on which he or she has already paid a sales
charge. Sales charge waivers may also be available under certain circumstances,
as described in the Prospectuses. The Trust reserves the right to change the
terms and conditions of the exchange privilege discussed herein, or to terminate
the exchange privilege, upon sixty days' notice. Exchanges will be made only
after proper instructions in writing or by telephone (an "Exchange Request") are
received for an established account by the Distributor.
A shareholder may exchange the shares of the Portfolio's Class D shares, for
which good payment has been received, in his or her account at any time,
regardless of how long he or she has held his or her shares.
Each Exchange Request must be in proper form (I.E., if in writing, signed by
the record owner(s) exactly as the shares are registered; if by telephone,
proper account identification is given by the dealer or shareholder of record),
and each exchange must involve either shares having an aggregate value of at
least $1,000 or all the shares in the account. Each exchange involves the
redemption of the shares of the Portfolio (the "Old Portfolio") to be exchanged
and the purchase at net asset value (I.E., without a sales charge) of the shares
of the other portfolios (the "New Portfolios"). Any gain or loss on the
redemption of the shares exchanged is reportable on the shareholder's federal
income tax return, unless such shares were held in a tax-deferred retirement
plan or other tax-exempt account. If the Exchange Request is received by the
Distributor in writing or by telephone on any business day prior to the
redemption cut-off time specified in each Prospectus, the exchange usually will
occur on that day if all the restrictions set forth above have been complied
with at that time. However, payment of the redemption proceeds by the Old
Portfolios, and thus the purchase of shares of the New Portfolios, may be
delayed for up to seven days if the Portfolio determines that such delay would
be in the best interest of all of its shareholders. Investment dealers which
have satisfied criteria established by the Portfolios may also communicate a
shareholder's Exchange Request to the Portfolio subject to the restrictions set
forth above. No more than five exchange requests may be made in any one
telephone Exchange Request.
S-25
<PAGE>
TAXES
QUALIFICATION AS A RIC
The following discussion of federal income tax consequences is based on the
Code and the regulations issued thereunder as in effect on the date of this
Statement. New legislation, as well as administrative or court decisions, may
significantly change the conclusions expressed herein and may have a retroactive
effect with respect to the transactions contemplated herein.
In order to qualify for treatment as a regulated investment company ("RIC")
under the Code, a Portfolio must distribute annually to its shareholders at
least the sum of 90% of its net interest income excludable from gross income
plus 90% of its investment company taxable income (generally, net investment
income, including net short-term capital gain) ("Distribution Requirement") and
must meet several additional requirements. Among these requirements are the
following: (i) at least 90% of a Portfolio's gross income each taxable year must
be derived from dividends, interest, payments with respect to securities loans
and gains from the sale or other disposition of stocks or securities or foreign
currencies or other income (including gains from forward contracts) derived with
respect to its business of investing in stocks or securities; (ii) at the close
of each quarter of a Portfolio's taxable year, at least 50% of the value of its
total assets must be represented by cash and cash items, United States
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 a Portfolio's total assets and that does not
represent more than 10% of the outstanding voting securities of the issuer; and
(iii) at the close of each quarter of a Portfolio's taxable year, not more than
25% of the value of its total assets may be invested in securities (other than
U.S. Government securities or the securities of other RICs) of any one issuer or
of two or more issuers of which the Portfolio owns at least 20% of the voting
power of such issuers.
Notwithstanding the Distribution Requirement described above, which only
requires a Portfolio to distribute at least 90% of its annual investment company
taxable income and does not require any minimum distribution of net capital
gain, a Portfolio will be subject to a nondeductible 4% federal excise tax to
the extent it fails to distribute by the end of any calendar year at least 98%
of its ordinary income for that year and 90% of its capital gain net income for
the one-year period ending on October 31, of that year, plus certain other
amounts. Each Portfolio intends to make sufficient distributions to avoid
liability for the federal excise tax applicable to RICs.
The use of hedging strategies, such as entering into forward foreign
currency contracts, involves complex rules that will determine for income tax
purposes the character and timing of recognition of the income received in
connection therewith by the Portfolio. Income from foreign currencies, and
income from transactions in forward contracts that are directly related to a
Portfolio's business of investing in securities or foreign currencies, will
qualify as permissible income under the Income Requirement. Income from the
disposition of foreign currencies, and forward foreign currency contracts on
foreign currencies, that are not directly related to a Portfolio's principal
business of investing in securities will be subject to the Short-Short
Limitation if they are held for less than three months and may by regulation be
excluded from qualifying income.
Any increase in value on a position that is part of a "designated hedge"
will be offset by any decrease in value (whether realized or not) of the
offsetting hedging position during the period of the hedge for purposes of
determining whether a Portfolio satisfies the Short-Short Limitation. Thus, only
the net gain (if any) from the designated hedge will be included in gross income
for purposes of that Limitation.
If a 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 gains distributions) will be taxable as ordinary income dividends to its
shareholders, subject to the dividends received deduction for corporate
shareholders.
A gain or loss realized by a shareholder on the sale or exchange of shares
of a Portfolio held as a capital asset will be long-term capital gain or loss if
the holding period for the shares exceeds one year, and
S-26
<PAGE>
otherwise will be short-term gain or loss. Any loss realized on a sale or
exchange of shares of a Portfolio will be disallowed to the extent the shares
disposed of are replaced within the 61-day period beginning 30 days before and
ending 30 days after the shares are disposed of. Any loss realized by a
shareholder on the disposition of shares held six months or less is treated as a
long-term capital loss to the extent of any distributions of net long-term
capital gains received by the shareholder with respect to such shares or any
inclusion or undistributed capital gain with respect to such shares.
A 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, a 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 each Portfolio distributes all of its net investment income
to its shareholders, a Portfolio may have to sell Portfolio securities to
distribute such imputed income which may occur at a time when the advisers would
not have chosen to sell such securities and which may result in taxable gain or
loss.
STATE TAXES
A 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 a
Portfolio to shareholders and the ownership of shares may be subject to state
and local taxes. Shareholders should consult their tax advisors regarding the
state and local tax consequences of investments in a Portfolio.
FOREIGN TAXES
Dividends and interest received by a Portfolio may be subject to income,
withholding or other taxes imposed by foreign countries and United States
possessions that would reduce the yield on a Portfolio's securities. Tax
conventions between certain countries and the United States may reduce or
eliminate these taxes. Foreign countries generally do not impose taxes on
capital gains with respect to investments by foreign investors. If more than 50%
of the value of a Portfolio's total assets at the close of its taxable year
consists of stock or securities of foreign corporations, a Portfolio will be
eligible to, and will, file an election with the Internal Revenue Service that
will enable shareholders, in effect, to receive the benefit of the foreign tax
credit with respect to any foreign and United States possessions income taxes
paid by a Portfolio. Pursuant to the election, a Portfolio will treat those
taxes as dividends paid to its shareholders. Each shareholder will be required
to include a proportionate share of those taxes in gross income as income
received from a foreign source and must treat the amount so included as if the
shareholder had paid the foreign tax directly. The shareholder may then either
deduct the taxes deemed paid by him or her in computing his or her taxable
income or, alternatively, use the foregoing information in calculating the
foreign tax credit (subject to significant limitations) against the
shareholder's federal income tax. If a Portfolio makes the election, it will
report annually to its shareholders the respective amounts per share of the
Portfolio's income from sources within, and taxes paid to, foreign countries and
United States possessions.
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
S-27
<PAGE>
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.
The Trust does not expect to use one particular dealer, but, subject to the
Trust's policy of seeking the best net results, dealers who provide supplemental
investment research to the Adviser or sub-advisers may receive orders for
transactions by the Trust. Information so received will be in addition to and
not in lieu of the services required to be performed by the Advisers or
sub-advisers under the Advisory Agreement and Sub-Advisory Agreements, and the
expenses of the Advisers and sub-advisers will not necessarily be reduced as a
result of the receipt of such supplemental information. These research services
include advice, either directly or through publications or writings, as to the
value of securities, the advisability of investing in, purchasing or selling
securities, and the availability of securities or purchasers or sellers of
securities; furnishing of analyses and reports concerning issuers, securities or
industries; providing information on economic factors and trends, assisting in
determining portfolio performance evaluation and technical market analyses. Such
services are used by the Advisers or sub-advisers in connection with their
investment decision-making process with respect to one or more funds and
accounts managed by them, and may not be used exclusively with respect to the
fund or account generating the brokerage.
The money market securities in which a Portfolio invests are traded
primarily in the over-the-counter market. Bonds and debentures are usually
traded over-the-counter, but may be traded on an exchange. Where possible, each
Adviser will deal directly with the dealers who make a market in the securities
involved except in those circumstances where better prices and execution are
available elsewhere. Such dealers usually are acting as principal for their own
account. On occasion, securities may be purchased directly from the issuer.
Money market securities are generally traded on a net basis and do not normally
involve either brokerage commissions or transfer taxes. The cost of executing
portfolio securities transactions of a Portfolio will primarily consist of
dealer spreads and underwriting commissions.
It is expected that the Portfolios 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 the rules and regulations thereunder. Under these
provisions, the Distributor is permitted to receive and retain compensation for
effecting portfolio transactions for a Portfolio on an exchange if a written
contract is in effect between the Distributor and the Trust expressly permitting
the Distributor to receive and retain such compensation. These provisions
further require that commissions paid to the Distributor by the Trust for
exchange transactions not exceed "usual and customary" brokerage commissions.
The rules define "usual and customary" commissions to include amounts which are
"reasonable and fair compared to the commission, fee or other renumeration
received or to be received by other brokers in connection with comparable
transactions involving similar securities being purchased or sold on a
securities exchange during a comparable period of time." The Trustees, including
those who are not "interested persons" of the Trust, have adopted procedures for
evaluating the reasonableness of commissions paid to the Distributor and will
review these procedures periodically.
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 certain Portfolios of the Trust, in the exercise of joint
investment discretion over the assets of a Portfolio, may direct a substantial
portion of a 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.
S-28
<PAGE>
For the fiscal year ended February 28, 1998, the Portfolios paid the
following brokerage fees:
<TABLE>
<CAPTION>
% TOTAL TOTAL $
TOTAL $ AMOUNT % OF TOTAL BROKERED TOTAL $ AMOUNT OF
TOTAL $ AMOUNT OF BROKERAGE BROKERAGE TRANSACTIONS AMOUNT OF BROKERAGE
OF BROKERAGE COMMISSIONS COMMISSIONS EFFECTED BROKERED COMMISSIONS
COMMISSION PAID TO PAID TO THROUGH TRANSACTIONS PAID FOR
PAID IN 1998 AFFILIATES IN AFFILIATES AFFILIATES FOR RESEARCH RESEARCH IN
PORTFOLIO (000) 1998 (000) IN 1998 IN 1998 IN 1998 1998
- ----------------------------------- -------------- -------------- ------------ ------------ ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
International Equity Portfolio..... $ 2,134 $ 783 36.69% 10.15% $30,341,057 $ 21,034
Emerging Markets Equity
Portfolio........................ $ 20,770 $ 18 0.01% 0.01% $14,039,974 $ 32,156
International Fixed Income
Portfolio........................ $ 0 $ 0 0% 0% $ 0 $ 0
Emerging Markets Debt
Portfolio........................ $ 0 $ 0 0% 0% $ 0 $ 0
</TABLE>
For the fiscal years ended February 29, 1996 and February 28, 1997, the
Portfolios paid the following brokerage fees:
<TABLE>
<CAPTION>
TOTAL $ AMOUNT TOTAL $ AMOUNT
TOTAL $ AMOUNT TOTAL $ AMOUNT OF BROKERAGE OF BROKERAGE
OF BROKERAGE OF BROKERAGE COMMISSIONS COMMISSIONS
COMMISSIONS COMMISSIONS PAID TO PAID TO
PAID IN 1996 PAID IN 1997 AFFILIATES IN AFFILIATES IN
PORTFOLIO (000) (000) 1996 (000) 1997 (000)
- ----------------------------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
International Equity Portfolio..... $ 1,604 $ 2,320 $ 577 $ 383
Emerging Markets Equity
Portfolio........................ $ 487 $ 1,812 $ 0 $ 86
International Fixed Income
Portfolio........................ $ 0 $ 0 $ 0 $ 0
Emerging Markets Debt Portfolio.... * * * *
</TABLE>
- ------------------------
* Not in operation during such period.
The principal reason for the increase in brokerage commissions paid by the
International Equity Portfolio in the last three fiscal years was the growth of
the assets in the International Equity Portfolio.
For the fiscal years ended February 29, 1996, February 28, 1997 and February
28, 1998, Class D Shareholders paid the following sales charges:
<TABLE>
<CAPTION>
DOLLAR AMOUNT OF
DOLLAR AMOUNT OF CHARGES RETAINED BY
CHARGES THE DISTRIBUTOR
------------------------------- -----------------------------
PORTFOLIO 1996 1997 1998 1996 1997 1998
- --------------------------------------------- ----- ------- ---------- --------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
International Equity Portfolio--Class D...... $ 0 $ 3,103 $ 461 $ 0 $ 342 $ 50
</TABLE>
Since the Trust does not market its shares through intermediary brokers or
dealers, it is not the Trust's practice to allocate brokerage or principal
business on the basis of sales of its shares which may be made through such
firms. However, the 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.
S-29
<PAGE>
The portfolio turnover rate for each Portfolio for the fiscal years ended
February 28, 1997 and February 28, 1998 was as follows:
<TABLE>
<CAPTION>
TURNOVER RATE
------------------------
PORTFOLIO 1997 1988
- ------------------------------------------------------------------------------------------------ ----------- -----------
<S> <C> <C>
International Equity Portfolio.................................................................. 117% 75%
Emerging Markets Equity Portfolio............................................................... 100% 76%
International Fixed Income Portfolio............................................................ 352% 280%
Emerging Markets Debt Portfolio................................................................. * 269%
</TABLE>
- ------------------------
* Not in operation during such period.
DESCRIPTION OF SHARES
The Declaration of Trust authorizes the issuance of an unlimited number of
shares of each Portfolio, each of which represents an equal proportionate
interest in that Portfolio. Each share upon liquidation entitles a shareholder
to a PRO RATA share in the net assets of that Portfolio. Shareholders have no
preemptive rights. The Declaration of Trust provides that the Trustees of the
Trust may create additional portfolios of shares or classes of portfolios. Share
certificates representing the shares will not be issued.
LIMITATION OF TRUSTEES' LIABILITY
The Declaration of Trust provides that a Trustee shall be liable only for
his own willful defaults and, if reasonable care has been exercised in the
selection of officers, agents, employees or administrators, shall not be liable
for any neglect or wrongdoing of any such person. The Declaration of Trust also
provides that the Trust will indemnify its Trustees and officers against
liabilities and expenses incurred in connection with actual or threatened
litigation in which they may be involved because of their offices with the Trust
unless it is determined in the manner provided in the Declaration of Trust that
they have not acted in good faith in the reasonable belief that their actions
were in the best interests of the Trust. However, nothing in the Declaration of
Trust shall protect or indemnify a Trustee against any liability for his wilful
misfeasance, bad faith, gross negligence or reckless disregard of his duties.
VOTING
Where the Prospectuses for the Portfolios 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 a 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 a 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 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.
S-30
<PAGE>
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As of June 1, 1998, the following persons were the only persons who were
record owners (or to the knowledge of the Trust, beneficial owners) of 5% or
more of the shares of the Portfolios. The Trust believes that most of the shares
referred to below were held by the below persons in accounts for their
fiduciary, agency or custodial customers.
INTERNATIONAL EQUITY PORTFOLIO:
<TABLE>
<CAPTION>
NAME AND ADDRESS NUMBER OF SHARES PERCENT OF FUNDS
- ----------------------------------------------------------------------------- ----------------- -----------------
<S> <C> <C>
SEI Trust Company ........................................................... 72,073,304.570 76.76%
Attn: Jacqueline Esposito
Oaks, PA 19456
</TABLE>
INTERNATIONAL FIXED INCOME:
<TABLE>
<CAPTION>
NAME AND ADDRESS NUMBER OF SHARES PERCENT OF FUNDS
- ----------------------------------------------------------------------------- ----------------- -----------------
<S> <C> <C>
SEI Trust Company ........................................................... 32,591,444.1150 78.15%
Attn: Jacqueline Esposito
Oaks, PA 19456
</TABLE>
EMERGING MARKETS EQUITY:
<TABLE>
<CAPTION>
NAME AND ADDRESS NUMBER OF SHARES PERCENT OF FUNDS
- ----------------------------------------------------------------------------- ----------------- -----------------
<S> <C> <C>
SEI Trust Company ........................................................... 46,022,896.1750 83.20%
Attn: Jacqueline Esposito
Oaks, PA 19456
</TABLE>
EMERGING MARKETS DEBT:
<TABLE>
<CAPTION>
NAME AND ADDRESS NUMBER OF SHARES PERCENT OF FUNDS
- ----------------------------------------------------------------------------- ----------------- -----------------
<S> <C> <C>
SEI Trust Company ........................................................... 16,239,979.7430 92.45%
Attn: Jacqueline Esposito
Oaks, PA 19456
</TABLE>
EXPERTS
The financial statements incorporated by reference into this Statement of
Additional Information have been incorporated by reference in reliance on the
report of Price Waterhouse LLP, independent accountants, given on the authority
of said firm as experts in auditing and accounting.
COUNSEL
Morgan, Lewis & Bockius LLP serves as counsel to the Trust.
FINANCIAL STATEMENTS
The Trust's financial statements for the fiscal year ended February 28,
1998, including notes thereto and the report of Price Waterhouse LLP thereon,
are herein incorporated by reference from the Trust's 1998 Annual Report. A copy
of the 1998 Annual Report must accompany the delivery of this Statement of
Additional Information.
S-31
