As filed with the Securities and Exchange Commission on September 1, 1998.
File No. 33-44712
File No. 811-6509
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20546
FORM N-1A
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933 | |
POST-EFFECTIVE AMENDMENT NO. 18 |X|
and
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 | |
AMENDMENT NO. 20 |X|
The Pillar Funds
(Exact Name of Registrant as Specified in Charter)
2 Oliver Street
Boston, Massachusetts 02109
(Address of Principal Executive Offices, Zip Code)
Registrant's Telephone Number, including Area Code (800) 932-7781
Mark E. Nagle
c/o SEI Investments Company
Oaks, Pennsylvania 19456
(Name and Address of Agent for Service)
Copies to:
Richard W. Grant, Esquire
Morgan, Lewis & Bockius LLP
2000 One Logan Square
Philadelphia, PA 19103
It is proposed that this filing will become effective (check appropriate box)
|X| immediately upon filing pursuant to Paragraph (b)
|_| on (date) pursuant to Paragraph (b)
|_| 60 days after filing pursuant to Paragraph (a)
|_| 75 days after filing pursuant to Paragraph (a)
|_| on (date) pursuant to Paragraph (a) of Rule 485
================================================================================
<PAGE>
THE PILLAR FUNDS
CROSS REFERENCE SHEET
PART A - High Yield Bond, Equity Index and
International Equity Funds - Class A and B Shares
High Yield Bond, Equity Index and
International Equity Funds - Class I Shares
i
<PAGE>
<TABLE>
<CAPTION>
N-1A ITEM NO. LOCATION
- ------------- --------
<S> <C> <C>
Item 1. Cover Page..................................... Cover Page
Item 2. Synopsis....................................... Summary
Item 3. Condensed Financial Information................ Financial Highlights
Item 4. General Description of Registrant.............. The Trust; Investment Objectives and
Policies; Investment Limitations;
Description of Permitted
Investments
Item 5. Management of the Trust........................ The Advisor; The Sub-Advisor; The
Administrator; The Shareholder
Servicing Agent; The Distributor;
General Information--The Trust;
General Information--Trustees of
the Trust
Item 5A. Management's Discussion of Fund Performance.... *
Item 6. Capital Stock and Other Securities............. Taxes; General Information--
Dividends
Item 7. Purchase of Securities Being Offered........... Cover Page; The Distributor;
Purchase and Redemptions of Shares
Item 8. Redemption or Repurchase....................... Purchase and Redemption of Shares
Item 9. Pending Legal Proceedings...................... Not Applicable
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
PART B--All Funds
<S> <C> <C>
Item 10. Cover Page..................................... Cover Page
Item 11. Table of Contents.............................. Table of Contents
Item 12. General Information and History................ General Information and History--
The Trust
Item 13. Investment Objectives and Policies............. Investment Objectives and Policies--
Description of Permitted
Investments; Investment Objectives
and Policies--Investment
Limitations
Item 14. Management of the Registrant................... General Information--Trustees of the
Trust (Prospectus); Management of
the Trust--Trustees and Officers of
the Trust; Management of the
Trust--The Administrator
Item 15. Control Persons and Principal Holders of
Securities.................................... Management of the Trust--Trustees
and Officers of the Trust
Item 16. Investment Advisory and Other Services......... Management of the Trust--The
Advisor; Management of the Trust--
The Sub-Advisor; Management of
the Trust--The Administrator; The
Distributor and Distribution Plans;
Shareholder Services; Experts
Item 17. Brokerage Allocation and Other Practices....... Fund Transactions--General; Fund
Transactions--Trading Practices
and Brokerage
Item 18. Capital Stock and Other Securities............. General Information and History--
Description of Shares
Item 19. Purchase, Redemption, and Pricing of
Securities Being Offered...................... Purchase and Redemption of Shares
(Prospectus and Statement of
Additional Information);
Determination of Net Asset Value
</TABLE>
iii
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Item 20. Tax Status..................................... Taxes (Prospectus and Statement of
Additional Information)
Item 21 Underwriters................................... The Distributor and Distribution
Plans
Item 22. Calculation of Performance Data................ Performance--Computation of Yield;
Performance--Calculation of Total
Return
Item 23. Financial Statements........................... Financial Information
</TABLE>
PART C Information required to be included in Part C is set forth under the
appropriate item, so numbered, in Part C of this Registration Statement.
- ----------
* Information required by Item 5A is contained in the 1997 Annual Report to
Shareholders.
iv
<PAGE>
The Pillar Funds
Your Investment Foundation
PROSPECTUS
Class A and B Shares
September 1, 1998
<PAGE>
Table of Contents
Summary ................................................................. 2
Expense Summary ......................................................... 3
Financial Highlights .................................................... 7
The Trust ............................................................... 9
Investment Objectives and Policies ...................................... 9
Risk Factors ............................................................ 12
Investment Limitations .................................................. 14
The Advisor ............................................................. 15
The Sub-Advisor ......................................................... 16
Management of the Portfolios ............................................ 16
The Administrator ....................................................... 18
The Transfer Agent ...................................................... 18
The Shareholder Servicing Agent ......................................... 18
The Distributor ......................................................... 18
Purchase and Redemption of Shares ....................................... 19
Performance ............................................................. 29
Taxes ................................................................... 29
General Information ..................................................... 31
Description of Permitted Investments .................................... 33
Appendix ................................................................ A-1
The Pillar Funds and Pillar are registered service marks of Summit Bank. Your
Investment Foundation and the stylized "P" logo are service marks of Summit
Bank. Reach Higher, Summit, Summit Bancorp and Summit Financial Services Group
are registered service marks of Summit Bancorp. Summit Bank is a service mark of
Summit Bancorp. Corporate Master-Feeder is a registered trademark of SEI
Investments Company.
<PAGE>
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September 1, 1998
THE PILLAR FUNDS
CLASS A AND B SHARES
Investment Advisor:
SUMMIT BANK INVESTMENT MANAGEMENT DIVISION,
A DIVISION OF SUMMIT BANK
THE PILLAR FUNDS (the "Trust") consists of mutual fund portfolios seeking to
provide a convenient and economical means of investing in one or more
professionally managed portfolios of securities. This Prospectus relates to the
Class A and B Shares of the following funds (the "Funds"):
O HIGH YIELD BOND FUND
O EQUITY INDEX FUND
O INTERNATIONAL EQUITY FUND
The Trust's Class A and Class B Shares are offered to all investors. Investors
who own Class A or Class B Shares of a Fund are referred to herein as
"Shareholders." This Prospectus offers Class A and Class B Shares of the Funds.
Class A and Class B Shares differ with respect to the method of paying
distribution costs through sales charges, and distribution and service fees.
The High Yield Bond Fund currently seeks to achieve its objective of maximizing
total return by investing up to 100% of its assets in the High Yield Bond
Portfolio (the "SIMT High Yield Bond Portfolio"), a separate series of SEI
Institutional Managed Trust ("SIMT"), an open-end management investment company
advised by SEI Investments Management Corporation ("SIMC"), with an investment
objective identical to, and investment policies and limitations substantially
similar to, those of the High Yield Bond Fund. The performance of the High Yield
Bond Fund, therefore, will be directly related to the performance of the SIMT
High Yield Bond Portfolio.
The SIMT High Yield Bond Portfolio invests primarily, and may invest all of its
assets, in lower rated bonds, commonly referred to as "junk bonds." These
securities are speculative and are subject to greater risk of loss of principal
and interest than are investments in higher rated bonds. Because investment in
such securities entails greater risks, including risk of default, an investment
in the High Yield Bond Fund should not constitute a complete investment program
and may not be appropriate for all investors. Investors should carefully
consider the risks posed by an investment in the High Yield Bond Fund before
investing. See "Risk Factors -- High Yield Securities" and the "Appendix."
The Equity Index Fund currently seeks to achieve its objective of maximizing
total return by investing up to 100% of its assets in the S&P 500 Index
Portfolio (the "SIF S&P 500 Index Portfolio"), a separate series of SEI Index
Funds, an open-end management investment company advised by World Asset
Management ("World"), with an investment objective identical to, and investment
policies and limitations substantially similar to, those of the Equity Index
Fund. The performance of the Equity Index Fund, therefore, will be directly
related to the performance of the SIF S&P 500 Index Portfolio.
- ------------------------------------------------------------------------
| SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR |
| INSURED, ENDORSED OR GUARANTEED BY, ANY BANK (INCLUDING |
| SUMMIT BANK OR ITS AFFILIATES OR CORRESPONDENTS), ANY STATE |
| OR STATE AGENCY, THE FEDERAL DEPOSIT INSURANCE CORPORATION |
| (FDIC), THE U.S. GOVERNMENT OR ANY U.S. GOVERNMENT AGENCY. |
- ------------------------------------------------------------------------
Amounts invested in the Funds are subject to investment risks, including
possible loss of the principal amount invested.
This Prospectus sets forth concisely the information about the Trust that a
prospective investor should know before investing. Investors are advised to read
this Prospectus and retain it for future reference. A Statement of Additional
Information dated September 1, 1998 has been filed with the Securities and
Exchange Commission and is available without charge by writing to the
Distributor, SEI Investments Distribution Co., Oaks, Pennsylvania 19456 or by
calling 1-800-932-7782. The Statement of Additional Information is incorporated
into this Prospectus by reference.
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.
September 1, 1998
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1
<PAGE>
- --------------------------------------------------------------------------------
Summary
The Pillar Funds (the "Trust") consists of open-end management investment
companies which provide a convenient way to invest in professionally managed
portfolios of securities. The following provides basic information about the
Class A and Class B Shares of the Trust's High Yield Bond Fund, Equity Index
Fund and International Equity Fund (the "Funds").
WHAT ARE THE INVESTMENT OBJECTIVES?
The High Yield Bond Fund seeks to maximize total return. The Equity Index Fund
seeks investment results that correspond to the performance of the Standard &
Poor's 500 Composite Stock Index (the "S&P 500"). The International Equity Fund
seeks to achieve capital appreciation.
There is no assurance that a Fund will meet its investment objective. See
"Investment Objective and Policies."
WHAT ARE THE PERMITTED INVESTMENTS?
The High Yield Bond Fund will invest up to 100% of its assets in the SIMT High
Yield Bond Portfolio, which in turn, will invest at least 65% of its total
assets in fixed income securities that are below investment grade, i.e., rated
below the top four ratings categories by a nationally recognized statistical
ratings organization (an "NRSRO"), or, if not rated, determined to be of
comparable quality by the Money Managers (defined below). The Equity Index Fund
will invest up to 100% of its assets in the SIF S&P 500 Index Portfolio which,
in turn, will invest substantially in common stocks included in the S&P 500. The
International Equity Fund will invest primarily in equity securities (which
include securities convertible into equity securities, such as warrants,
convertible bonds, debentures or convertible preferred stock) of issuers located
in Europe and the Pacific Basin.
ARE THERE ADDITIONAL RISK FACTORS FOR THE HIGH YIELD BOND AND EQUITY INDEX
FUNDS? The High Yield Bond Fund and the Equity Index Fund (together, the "Feeder
Funds") are currently "feeder funds" in separate Corporate Master-Feeder
structures. That is, the High Yield Bond Fund and Equity Index Fund each invests
in another open-end management investment company and hold as their only
investment securities, shares of a single "master" fund, in this case the SIMT
High Yield Bond Portfolio and the SIF S&P 500 Index Portfolio (together, the
"Portfolios"), respectively. See "Investment Objectives and Policies,"
"Temporary Defensive Positions," "Risk Factors" and "Description of Permitted
Investments."
WHO ARE THE ADVISOR AND SUB-ADVISOR? Summit Bank Investment Management Division,
a division of Summit Bank, serves as the advisor (the "Advisor") to the Trust.
Vontobel USA Inc. serves as the sub-advisor (the "Sub-Advisor") to the
International Equity Fund. With respect to the High Yield Bond and Equity Index
Funds, the Advisor invests in a "master" fund, cash and other non-investment
securities and monitors the performance of SIMC and World as the advisors of the
SIMT High Yield Bond and SIF S&P 500 Index Portfolios, respectively. See "The
Advisor," "The Sub-Advisor" and "Management of the Portfolios."
WHO IS THE ADMINISTRATOR? SEI Investments Mutual Funds Services serves as the
administrator (the "Administrator") of the Trust. See "The Administrator."
WHO IS THE TRANSFER AGENT? State Street Bank and Trust Company acts as transfer
agent (the "Transfer Agent") for the Trust. See "The Transfer Agent."
WHO IS THE SHAREHOLDER SERVICING AND DIVIDEND DISBURSING AGENT? Boston Financial
Data Services is the Trust's dividend disbursing agent and shareholder servicing
agent. See "The Shareholder Servicing Agent."
WHO IS THE DISTRIBUTOR? SEI Investments Distribution Co. acts as distributor
(the "Distributor") of the Trust's shares. See "The Distributor."
HOW DO I PURCHASE AND REDEEM SHARES?
Shares may be purchased and redeemed directly from the Trust's Distributor or
through an investment professional of a securities broker or other financial
institution, such as Summit Bank, that has entered into a selling agreement with
the Trust or the Distributor.
The Trust has also authorized certain broker-dealers and other financial
intermediaries (collectively, "Authorized Broker-Dealers") to accept purchase
orders and redemption requests up to the times mentioned below on behalf of the
Funds.
Purchases and redemptions of a Fund's shares may be made through the Distributor
(or Authorized Broker-Dealer) on any "Business Day." A "Business Day" is any day
that the New York Stock Exchange is open for trading. A purchase order will be
effective as of the Business Day received by the Distributor (or Authorized
Broker-Dealer) if the Distributor (or Authorized Broker-Dealer) receives the
order and payment in federal funds before the time the Fund calculates its net
asset value (normally, 4:00 p.m., Eastern time). The purchase price of Class A
Shares of the Fund is the net asset value next determined after the purchase
order is effective plus any applicable sales load. The purchase price of Class B
Shares is the net asset value next determined after the purchase order is
effective. Redemption orders must be placed prior to the time the Fund
calculates its net asset value (normally, 4:00 p.m., Eastern time), on any
Business Day for the order to be effective that day. All redemption orders are
effected at the net asset value per share next determined after receipt of a
valid request for redemption, reduced by any applicable contingent deferred
sales charge, for Class B Shares, and for certain Class A Shares that were
purchased without an initial sales load. See "Purchase and Redemption of
Shares."
Each Fund offers two classes of shares to the general public: Class A Shares and
Class B Shares. Class A Shares of the Funds are offered at net asset value per
share plus a maximum initial sales charge of 5.50% for the International Equity
Fund and the Equity Index Fund and 4.25% for the High Yield Bond Fund. Certain
Class A Share purchases are subject to reduced or waived sales charges and
certain Class A Share redemptions may be subject to a 1.00% contingent deferred
sales charge.
Class B Shares of the Funds are offered at net asset value per share and are
subject to a maximum contingent deferred sales charge of 5.50% of redemption
proceeds during the first year, declining each year thereafter to 0% after the
sixth year. Class B Shares pay annual distribution and service fees of 1.00% of
their average daily net assets.
HOW ARE DIVIDENDS PAID?
Substantially all of the net investment income (exclusive of capital gains) of
the: (i) High Yield Bond Fund is declared and paid monthly as a dividend; (ii)
Equity Index Fund is declared and paid quarterly; and (iii) International Equity
Fund is declared and distributed annually, in the form of dividends to
Shareholders.
Any capital gains will be distributed at least annually. Dividends are paid in
additional shares, unless the Shareholder has elected to take the payments in
cash. See "Dividends."
- --------------------------------------------------------------------------------
2
<PAGE>
- --------------------------------------------------------------------------------
September 1, 1998
Expense Summary
HIGH YIELD BOND FUND AND EQUITY INDEX FUND
CLASS A SHARES
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
HIGH YIELD EQUITY
BOND INDEX
FUND FUND
- -------------------------------------------------------------------------------------
<S> <C> <C>
Maximum Sales Load Imposed on Purchases* (as a
percentage of offering price) 4.25% 5.50%
Maximum Sales Load on Reinvested Dividends (as a
percentage of offering price) None None
Maximum Contingent Deferred Sales Charge*
(as a percentage of original purchase price or
redemption proceeds, as applicable) None None
Wire Redemption Fee $ 10 $ 10
Exchange Fee None None
</TABLE>
* The percentage shown is the maximum initial sales load. In certain
circumstances, shareholders may receive sales load waivers or reductions.
Purchases of $1,000,000 or more are at net asset value and shares redeemed
prior to 12 months from the date such shares were purchased are subject to a
contingent deferred sales charge of 1.00%.
ANNUAL OPERATING EXPENSES
(As a percentage of average net assets)
<TABLE>
<CAPTION>
AGGREGATE FEES AT
MASTER AND FEEDER LEVEL
-----------------------
HIGH YIELD EQUITY
BOND INDEX
FUND FUND
- -------------------------------------------------------------------------------------
<S> <C> <C>
Advisory Fees (after waivers)(1) 0.86% 0.34%
12b-1 Fees 0.25% 0.25%
Other Expenses (after waivers)(2) 0.39% 0.46%
- -------------------------------------------------------------------------------------
Total Operating Expenses (after waivers)(3) 1.50% 1.05%
- -------------------------------------------------------------------------------------
</TABLE>
(1) Advisory Fees reflect voluntary waivers. Absent such fee waivers, Advisory
Fees would be 1.44% and 1.00% for the High Yield Bond Fund and the Equity
Index Fund, respectively. Additional information about Advisory Fees may be
found under "The Advisor" and "Management of the Portfolios."
(2) The Advisor and the Administrator have voluntarily agreed to waive their
fees to the extent necessary to keep the Total Operating Expenses from
exceeding 1.50% for the High Yield Bond Fund and 1.05% for the Equity Index
Fund. Absent such waivers, Other Expenses for the High Yield Bond Fund and
the Equity Index Fund are estimated to be 0.53% and 0.60%, respectively, for
the current fiscal year. Additional information may be found under "The
Administrator" and "The Distributor." (3) Absent voluntary fee waivers, the
Total Operating Expenses are estimated to be as follows: High Yield Bond
Fund -- 2.28%; and Equity Index Equity Fund -- 2.15%.
EXAMPLE
An investor would pay the following expenses on a $1,000 investment in a Fund
assuming: (1) a 5% annual return; and (2) redemption at the end of each time
period:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1 YR. 3 YRS. 5 YRS.* 10 YRS.*
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
High Yield Bond Fund.................................... $57 $ 88 N/A N/A
Equity Index Fund....................................... $65 $ 87 N/A N/A
</TABLE>
* Because the Funds are new, expenses have not been estimated for periods beyond
the three year period shown.
THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. THE FUNDS ARE NEW AND 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 HIGH YIELD BOND AND
EQUITY INDEX FUNDS. Financial institutions may impose fees on their customers in
addition to those described above. Additional information may be found under
"The Advisor," "Management of the Portfolios," "The Administrator" and "The
Distributor."
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 a waiver or reduction of sales charges. See "Purchase and Redemption
of Shares."
Long-term Shareholders may pay more than the equivalent of the maximum front-end
sales charges otherwise permitted by the Conduct Rules (the "Conduct Rules") of
the National Association of Securities Dealers, Inc. (the "NASD"). The Trust
intends to operate the Class A distribution plan in accordance with its terms
and the NASD Conduct Rules concerning sales charges.
- --------------------------------------------------------------------------------
3
<PAGE>
- --------------------------------------------------------------------------------
Expense Summary
INTERNATIONAL EQUITY FUND
CLASS A SHARES
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
INTERNATIONAL
EQUITY
FUND
- ----------------------------------------------------------------------------------------------------
<S> <C>
Maximum Sales Load Imposed on Purchases* (as a percentage of offering price) 5.50%
Maximum Sales Load Imposed on Reinvested Dividends (as a percentage of
offering price) None
Maximum Contingent Deferred Sales Charge*
(as a percentage of original purchase price or redemption proceeds, as
applicable) None
Wire Redemption Fee $ 10
Exchange Fee None
</TABLE>
* The percentage shown is the maximum initial sales load. In certain
circumstances, shareholders may receive sales load waivers or reductions.
Purchases of $1,000,000 or more are at net asset value and shares redeemed
prior to 12 months from the date such shares were purchased are subject to a
contingent deferred sales charge of 1.00%.
ANNUAL OPERATING EXPENSES
(As a percentage of average net assets)
<TABLE>
<CAPTION>
INTERNATIONAL
EQUITY
FUND
- ----------------------------------------------------------------------------------------------------
<S> <C>
Advisory Fees (after waivers) (1),(2) .80%
12b-1 Fees .25%
Other Expenses .70%
- ----------------------------------------------------------------------------------------------------
Total Operating Expenses (after waivers)(2) 1.75%
- ----------------------------------------------------------------------------------------------------
</TABLE>
(1) The Advisor and Sub-Advisor have agreed to voluntarily waive a portion of
their fees in an amount that operates to limit Total Operating Expenses of
Class A Shares of the Fund to not more than 1.75% of average daily net
assets. The Advisor and Sub-Advisor each reserves the right to terminate its
fee waiver at any time in their sole discretion.
(2) Absent fee waivers for the Fund, the Advisory Fee would be 1.00%, and Total
Operating Expenses would be 1.95% of the Fund's average daily net assets.
Additional information may be found under "The Advisor," "The Sub-Advisor,"
"The Administrator" and "The Distributor."
EXAMPLE
An investor in the Fund 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:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
1 YR. 3 YRS. 5 YRS. 10 YRS.
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
International Equity Fund $72 $107 $145 $250
</TABLE>
THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES, AND 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 Fund. Financial institutions may
impose fees on their customers in addition to those described above. Additional
information may be found under "The Advisor," "The Sub-Advisor," "The
Administrator" and "The Distributor."
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 a waiver or reduction of sales charges. See "Purchase and Redemption
of Shares."
Long-term Shareholders may pay more than the equivalent of the maximum front-end
sales charges otherwise permitted by the Conduct Rules of the NASD. The Trust
intends to operate the Class A distribution plan in accordance with its terms
and the NASD Conduct Rules concerning sales charges.
- --------------------------------------------------------------------------------
4
<PAGE>
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September 1, 1998
Expense Summary
HIGH YIELD BOND FUND AND EQUITY INDEX FUND
CLASS B SHARES
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
HIGH EQUITY
YIELD BOND INDEX
FUND FUND
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Maximum Sales Load Imposed on Purchases (as a percentage of offering price) None None
Maximum Sales Load on Reinvested Dividends (as a percentage of
offering price) None None
Maximum Contingent Deferred Sales Charge
(as a percentage of original purchase price or redemption proceeds,
as applicable) 5.50% 5.50%
Wire Redemption Fee $10 $10
Exchange Fee None None
</TABLE>
ANNUAL OPERATING EXPENSES
(As a percentage of average net assets)
<TABLE>
<CAPTION>
AGGREGATE FEES AT
MASTER AND FEEDER LEVEL
------------------------
HIGH EQUITY
YIELD BOND INDEX
FUND FUND
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Advisory Fees (after waivers)(1) 0.86% 0.34%
12b-1/Shareholder Servicing Fees(2) 1.00% 1.00%
Other Expenses (after waivers)(3) 0.39% 0.46%
- ------------------------------------------------------------------------------------------------------------
Total Operating Expenses (after waivers)(4) 2.25% 1.80%
- ------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Advisory Fees reflect voluntary waivers. Absent such fee waivers, Advisory
Fees would be 1.44% and 1.00% for the High Yield Bond Fund and the Equity
Index Fund, respectively.
(2) To the extent that a Shareholder Servicing Fee is charged at the master
level, the distributor will waive a corresponding amount at the feeder level
to limit 12b-1/Shareholder Servicing Fees to a total of 1.00%.
(3) The Advisor and the Administrator have voluntarily agreed to waive their
fees to the extent necessary to keep the Total Operating Expenses from
exceeding 2.25% for the High Yield Bond Fund and 1.80% for the Equity Index
Fund. Absent such waivers, Other Expenses for the High Yield Bond Fund and
the Equity Index Fund are estimated to be 0.53% and 0.60%, respectively, for
the current fiscal year.
(4) Absent voluntary fee waivers, the Total Operating Expenses are estimated to
be as follows: High Yield Bond Fund -- 3.03%; and Equity Index Equity Fund
-- 2.90%.
EXAMPLE
An investor would pay the following expenses on a $1,000 investment in a Fund
assuming: (1) a 5% annual return; and (2) no redemption or redemption at the end
of each time period:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
1 YR. 3 YRS. 5 YRS.* 10 YRS.*
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
High Yield Bond Fund
Assuming no redemptions.............................. $23 $ 70 N/A N/A
Assuming a complete redemption at end of period...... $78 $110 N/A N/A
Equity Index Fund
Assuming no redemptions.............................. $18 $ 57 N/A N/A
Assuming a complete redemption at end of period...... $73 $ 97 N/A N/A
</TABLE>
* Because the Funds are new, expenses have not been estimated for periods beyond
the three year period shown.
THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. THE FUNDS ARE NEW AND 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 B SHARES OF THE HIGH YIELD BOND AND
EQUITY INDEX FUNDS. Financial institutions may impose fees on their customers in
addition to those described above. Additional information may be found under
"The Advisor," "Management of the Portfolios," "The Administrator" and "The
Distributor."
- --------------------------------------------------------------------------------
5
<PAGE>
- --------------------------------------------------------------------------------
Expense Summary
INTERNATIONAL EQUITY FUND
CLASS B SHARES
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
INTERNATIONAL
EQUITY
FUND
- ----------------------------------------------------------------------------------------
<S> <C>
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price) None
Maximum Sales Load Imposed on Reinvested Dividends
(as a percentage of offering price) None
Maximum Contingent Deferred Sales Charge
(as a percentage of original purchase price or redemption
proceeds, as applicable) 5.50%
Wire Redemption Fee $ 10
Exchange Fee None
</TABLE>
ANNUAL OPERATING EXPENSES
(As a percentage of average net assets)
<TABLE>
<CAPTION>
INTERNATIONAL
EQUITY
FUND
- ----------------------------------------------------------------------------------------
<S> <C>
Advisory Fees (after waivers) (1),(2) .80%
12b-1 Shareholder Servicing Fees 1.00%
Other Expenses .70%
- ----------------------------------------------------------------------------------------
Total Operating Expenses (after waivers)(2) 2.50%
- ----------------------------------------------------------------------------------------
</TABLE>
(1) The Advisor and Sub-Advisor have agreed to voluntarily waive a portion of
their fees in an amount that operates to limit Total Operating Expenses of
Class B Shares of the Fund to not more than 2.50% of average daily net
assets. The Advisor and Sub-Advisor each reserves the right to terminate its
fee waiver at any time in their sole discretion.
(2) Absent fee waivers for the Fund, the Advisory Fee would be 1.00%, and Total
Operating Expenses would be 2.70% of the Fund's average daily net assets.
Additional information may be found under "The Advisor," "The Sub-Advisor,"
"The Administrator" and "The Distributor."
EXAMPLE
An investor in the Fund would pay the following expenses on a $1,000 investment
assuming: (1) a 5% annual return and (2) no redemption or redemption at the end
of each time period:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
1 YR. 3 YRS. 5 YRS. 10 YRS.
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
International Equity Fund
Assuming no redemptions.............................. $25 $ 78 $133 $251
Assuming a complete redemption at end of period...... $80 $118 $153 $251
</TABLE>
THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES, AND 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 B Shares of the Fund. Financial institutions may
impose fees on their customers in addition to those described above. Additional
information may be found under "The Advisor," "The Sub-Advisor," "The
Administrator" and "The Distributor."
The rules of the Securities and Exchange Commission require that the maximum
sales charge be reflected in the above table. However, sales charges are reduced
for longer-term investors. See "Purchase and Redemption of Shares."
Long-term Shareholders may pay more than the equivalent of the maximum sales
charges otherwise permitted by the NASD Conduct Rules. The Trust intends to
operate the Class B distribution plan in accordance with its terms and the NASD
Conduct Rules concerning sales charges.
- --------------------------------------------------------------------------------
6
<PAGE>
- --------------------------------------------------------------------------------
September 1, 1998
Financial Highlights
THE PILLAR FUNDS
The following are highlights of the International Equity Fund for a share
outstanding throughout the periods indicated. This information should be read in
conjunction with the Trust's 1) unaudited financial statements as of, and for
the period ended, June 30, 1998 and notes thereto which are incorporated by
reference into the Trust's Statement of Additional Information under "Financial
Information" and 2) financial statements as of, and for the fiscal year ended,
December 31, 1997 and notes thereto which have been audited by Arthur Andersen
LLP, the Trust's independent public accountants, which are incorporated by
reference into the Trust's Statement of Additional Information under "Financial
Information." Additional performance information is contained in the Trust's
1998 Semi-Annual Report to Shareholders and is available upon request and
without charge by calling 1-800-932-7782. Because the High Yield Bond and Equity
Index Funds had not commenced operations as of June 30, 1998, no financial
highlights are presented for these Funds. The financial highlights for the
Portfolios in which the High Yield Bond and Equity Index Funds invest are
presented on the following page. The following financial highlights reflect the
International Equity Fund's performance prior to the change of the Fund's
sub-advisor and the related investment policy changes.
<TABLE>
<CAPTION>
Realized
and Net Ratio of
Net Asset Unrealized Distributions Net Asset Assets Expenses
Value Net Gains or from Net Distributions Value End of to
Beginning Investment Losses on Investment from Capital End of Total Period Average
of Period Income Securities Income Gains Period Return+ (000) Net Assets
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INTERNATIONAL EQUITY FUND
- -----------------------------------------------------------------------------------------------------------------------------
CLASS A
1998* $10.33 $ 0.07 $ 1.41 $ -- $ -- $11.81 14.33% $676 1.75%
1997 11.22 0.05 (0.04) (0.05) (0.85) 10.33 0.00 655 1.75
1996 10.73 0.09 1.06 (0.04) (0.62) 11.22 10.88 788 1.75
1995(1) 10.00 0.01 0.75 (0.01) (0.02) 10.73 7.64 621 1.75
CLASS B
1998* $10.30 $ 0.03 $ 1.40 $ -- $ -- $11.73 13.88% $214 2.50%
1997(2) 11.45 (0.03) (0.23) (0.04) (0.85) 10.30 (3.39)** 118 2.50
- -----------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Ratio of
Net
Ratio of Ratio of Investment
Net Expenses Income to
Investment to Average Average
Income to Net Assets Net Assets Portfolio Average
Average (Excluding (Excluding Turnover Commission
Net Assets Waivers) Waivers) Rate Rate++
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CLASS A
1998* 0.99% 1.97% 0.77% 20.34% $.0065
1997 0.70 1.95 0.50 71.22 .0052
1996 0.70 1.98 0.47 67.03 .0051
1995(1) 0.45 2.38 (0.18) 14.32 n/a
CLASS B
1998* 0.48% 2.70% 0.28% 20.34% $.0065
1997(2) (0.60) 2.70 (0.80) 71.22 .0052
- ----------------------------------------------------------------------------------------
</TABLE>
* For the six-month period ended June 30, 1998 (unaudited). All ratios,
excluding total return, for that period have been annualized. Amounts
designated as "--" are either $0 or have been rounded to $0.
** Annualized.
(+) Total Return does not reflect sales loads on Class A and Class B Shares.
(++) Average commission rate paid per share for security purchases and sales
during the period. Presentation of the rate is only required for the
fiscal years beginning after September 1, 1995.
(1) The International Growth Fund (Class A Shares) commenced operations on
May 4, 1995. Ratios for this period have been annualized.
(2) The International Growth Fund (Class B Shares) commenced operations on
May 7, 1997. Ratios for this period have been annualized.
- --------------------------------------------------------------------------------
7
<PAGE>
- --------------------------------------------------------------------------------
The following are highlights of the SIMT High Yield Bond Portfolio for a share
outstanding throughout the periods indicated. This information should be read in
conjunction with SIMT's 1) unaudited financial statements as of, and for the
period ended, March 31, 1998 and notes thereto which are incorporated by
reference into the Statement of Additional Information and 2) financial
statements as of, and for the fiscal year ended, September 30, 1997 and notes
thereto which have been audited by PricewaterhouseCoopers LLP, independent
accountants for SIMT, which are incorporated by reference into SIMT's Statement
of Additional Information. Additional performance is set forth in SIMT's 1998
Semi-Annual Report to Shareholders and is available upon request and without
charge by calling 1-800-342-5734.
FOR A CLASS A SHARE OUTSTANDING THROUGHOUT THE PERIOD
<TABLE>
<CAPTION>
Net
Realized
and
Unrealized Distributions
Net Asset Gains or Dividends from Net Asset
Value Net (Losses) from Net Realized Value Net Assets
Beginning Investment on Investment Capital End of Total End of Period
of Period Income Securities Income Gains Period Return (000)
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SIMT HIGH YIELD BOND PORTFOLIO
- --------------------------------------------------------------------------------------------------------------------------------
For the periods ended September 30,
1998* $11.66 $0.52 $ 0.23 $(0.52) $(0.10) $11.79 6.61% $281,648
1997 11.14 1.04 0.57 (1.04) (0.05) 11.66 15.30 236,457
1996 10.64 0.94 0.62 (1.03) (0.03) 11.14 15.46 107,545
1995(1) 10.00 0.67 0.55 (0.58) -- 10.64 17.72 23,724
- --------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Ratio of
Net
Ratio of Ratio of Investment
Ratio of Net Expense to Income to
Expenses Investment Average Average
to Income to Net Assets Net Assets Portfolio
Average Average (Excluding (Excluding Turnover
Net Assets Net Assets Waivers) Waivers) Rate
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
SIMT HIGH YIELD BOND
- -------------------------------------------------------------------------------------------------------
For the periods ended
1998* 0.85% 8.94% 1.15% 8.64% 44%
1997 0.86 9.33 0.91 9.28 68
1996 0.87 9.01 0.94 8.94 55
1995(1) 0.67 10.02 0.86 9.83 56
- -------------------------------------------------------------------------------------------------------
</TABLE>
* For the six month period ended March 31, 1998 (unaudited). All ratios,
excluding total return, for that period have been annualized. Amounts
designated as "--" are either $0 or have been rounded to $0.
(1) High Yield Bond Class A shares were offered beginning January 11, 1995. All
ratios including total return for that period have been annualized.
The following are highlights of the SIF S&P 500 Index Portfolio for a share
outstanding for the periods indicated. This information should be read in
conjunction with SIF's financial statements as of, and for the fiscal year
ended, March 31, 1998 and notes thereto which have been audited by Arthur
Andersen LLP, independent public accountants for SIF, which are incorporated by
reference into SIF's Statement of Additional Information. Additional performance
is set forth in SIF's 1998 Annual Report to Shareholders, which is available
upon request and without charge by calling 1-800-342-5734.
FOR A CLASS E SHARE OUTSTANDING THROUGHOUT THE PERIOD
<TABLE>
<CAPTION>
Net
Realized
and
Net Asset Unrealized Dividends
Value Net Gains or from Net Distributions Net Asset
Beginning Investment (Loss) on Investment from Capital Value, End Total
of Period Income Investments Income Gains of Period Return
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
SIF S&P 500 INDEX PORTFOLIO**
- -----------------------------------------------------------------------------------------------------------------------
For the periods ended March 31,
1998 $24.10 $0.45 $10.88 $(0.45) $(0.21) $34.77 47.62%
1997 20.88 0.46 3.54 (0.45) (0.33) 24.10 19.46
1996 16.40 0.44 4.72 (0.37) (0.31) 20.88 31.88
1995 15.07 0.42 1.79 (0.42) (0.46) 16.40 15.26
1994 15.80 0.43 (0.22) (0.42) (0.52) 15.07 1.19
1993 14.17 0.40 1.69 (0.40) (0.06) 15.80 14.97
1992 13.43 0.40 1.01 (0.41) (0.26) 14.17 10.71
1991 12.45 0.43 1.24 (0.43) (0.26) 13.43 14.18
1990 10.88 0.42 1.64 (0.43) (0.06) 12.45 19.02
1989 9.63 0.39 1.26 (0.40) -- 10.88 17.60
1988 12.68 0.43 (1.65) (0.45) (1.38) 9.63 (9.35)
1987 12.45 0.42 2.63 (0.38) (2.44) 12.68 25.96
1986(1) 10.00 0.29 2.37 (0.21) -- 12.45 40.43*
- -----------------------------------------------------------------------------------------------------------------------
<CAPTION>
Ratio of
Net
Ratio of Investment
Ratio of Expenses Income to
Net to Average Average Net
Ratio of Investment Net Assets Assets
Net Assets Expenses Income to (Excluding (Excluding Portfolio Average
End of to Average Average Net Fee Fee Turnover Commission
Period (000) Net Assets Assets Waivers) Waivers) Rate Rate+
- --------------------------------------------------------------------------------------------------------------------------
SIF S&P 500 INDEX PORTFOLIO**
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
For the periods ended March 3
1998 $1,300,924 0.25% 1.55% 0.54% 1.26% 4% $.0169
1997 835,889 0.25 2.03 0.54 1.74 2 .0197
1996 630,566 0.25 2.31 0.35 2.21 3 n/a
1995 458,012 0.25 2.69 0.35 2.59 4 n/a
1994 424,647 0.25 2.57 0.33 2.49 23 n/a
1993 675,484 0.25 2.75 0.35 2.65 1 n/a
1992 470,847 0.25 2.99 0.34 2.90 1 n/a
1991 261,165 0.25 3.56 0.32 3.49 40 n/a
1990 192,154 0.25 3.58 0.36 3.47 10 n/a
1989 125,714 0.25 4.03 0.39 3.89 47 n/a
1988 105,473 0.25 3.74 0.43 3.56 77 n/a
1987 103,468 0.23 3.29 0.44 3.08 145 n/a
1986(1) 94,224 0.20* 4.10* 0.44* 3.86* 66 n/a
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Annualized
** Effective July 31, 1997, the former Class A shares were renamed Class E
shares.
+ Average commission rate paid per share for security purchases and sales
during the period. Presentation of the rate is only required for the fiscal
years beginning after September 1, 1995.
(1) Class E shares (formerly Class A shares) commenced operations on August 1,
1985.
- --------------------------------------------------------------------------------
8
<PAGE>
- --------------------------------------------------------------------------------
September 1, 1998
THE TRUST
The Pillar Funds (the "Trust") is an open-end management investment company that
consists of diversified and non-diversified portfolios. The Trust currently
offers units of beneficial interest ("shares") in seventeen separate investment
portfolios. The Trust offers shares of each portfolio through up to four
separate classes of shares (Class A, Class B, Class I and Class S) which provide
for variations in distribution costs, voting rights, sales loads, minimum
investments, redemption fees, transfer agency fees and dividends. Except for
these differences between classes, each share of each portfolio represents an
undivided proportionate interest in that portfolio. This Prospectus relates to
the Class A Shares and Class B Shares of the Trust's High Yield Bond Fund,
Equity Index Fund and International Equity Fund (the "Funds"). Each Fund is a
diversified mutual fund. Information regarding the Trust's other portfolios and
the Class I Shares of the Funds is contained in separate prospectuses that may
be obtained by writing the Trust's Distributor, SEI Investments Distribution
Co., Oaks, Pennsylvania 19456 or by calling 1-800-932-7782.
INVESTMENT OBJECTIVES AND POLICIES
The investment objective and policies of each Fund are described below. For
additional information regarding risks and permitted investments of the Funds,
see "Risk Factors," "Temporary Defensive Positions" and "Description of
Permitted Investments" in this Prospectus and "Description of Permitted
Investments" and "Description of Ratings" in the Statement of Additional
Information. There is no assurance that the investment objective of a Fund will
be met.
THE HIGH YIELD BOND FUND
The investment objective of the Fund is to maximize total return. It currently
pursues this objective by investing up to 100% of its assets in the SIMT High
Yield Bond Portfolio, which has an identical investment objective.
Under normal market conditions, the SIMT High Yield Bond Portfolio will invest
at least 65% of its total assets in fixed income securities that are rated below
investment grade, i.e., rated below the top four rating categories by an NRSRO
at the time of purchase or, if not rated, determined to be of comparable quality
by the money manager or managers chosen by SIMC (the "Money Managers"). Below
investment grade securities are commonly referred to as "junk bonds," and
generally entail increased credit and market risk. Securities rated in the
lowest rating categories may have predominantly speculative characteristics or
may be in default. The achievement of the Portfolio's investment objective may
be more dependent on a Money Manager's own credit analysis than would be the
case if the Portfolio invested in higher rated securities. There is no bottom
limit on the ratings of high yield securities that may be purchased or held by
the Portfolio.
The SIMT High Yield Bond Portfolio may invest in all types of fixed income
securities issued by domestic and foreign issuers, including: (i)
mortgage-backed securities, (ii) asset-backed securities, (iii) zero coupon,
pay-in-kind or deferred payment securities, and (iv) variable and floating rate
instruments.
Any assets of the SIMT High Yield Bond Portfolio not invested in the fixed
income securities described above may be invested in: (i) convertible
securities, (ii) preferred stocks, (iii) equity securities, (iv) investment
grade fixed income securities, (v) money market securities, (vi) securities
issued on a when-issued and delayed-delivery basis, including TBA
mortgage-backed securities, (vii) forward foreign currency contracts, and (viii)
Yankee obligations. In addition, the Portfolio may purchase or write options,
futures and options on futures.
The Money Managers may vary the average maturity of the securities in the SIMT
High Yield Bond
- --------------------------------------------------------------------------------
9
<PAGE>
- --------------------------------------------------------------------------------
Portfolio without limit, and there is no restriction on the maturity of any
individual security.
The "Appendix" to this Prospectus sets forth a description of the bond rating
categories of several NRSROs. The ratings established by each NRSRO represents
its opinion of the safety of principal and interest payments (and not the market
risk) of bonds and other fixed income securities it undertakes to rate at the
time of issuance. Ratings are not absolute standards of quality, and may not
reflect changes in an issuer's creditworthiness. Accordingly, although the Money
Managers will consider ratings, they will perform their own analyses and will
not rely principally on ratings. The Money Managers will consider, among other
things, the price of the security and the financial history and condition, the
prospects and the management of an issuer in selecting securities for the
Portfolio.
THE EQUITY INDEX FUND
The investment objective of the Fund is to seek investment results that
correspond to the S&P 500. It currently pursues this objective by investing up
to 100% of its assets in the SIF S&P 500 Index Portfolio, which has an identical
investment objective.
The SIF S&P 500 Index Portfolio's ability to duplicate the performance of the
S&P 500 will depend to some extent on the size and timing of cash flows into and
out of the Portfolio, as well as on the level of the Portfolio's expenses.
Adjustments made to accommodate cash flows will track the S&P 500 to the maximum
extent practicable, and may result in brokerage expenses for the Portfolio. Over
time, the correlation between the performance of the Portfolio and the S&P 500
is expected to be over 0.95. A correlation of 1.00 would indicate perfect
correlation, which would be achieved when the net asset value of the Portfolio,
including the value of its dividend and capital gains distributions, increased
or decreased in exact proportion to changes in the S&P 500.
The Portfolio will normally invest in all of the stocks which comprise the S&P
500, except when changes are made to the S&P 500 itself. The Portfolio's policy
is to fully invest in common stocks, and it is expected that cash reserves or
other non-Index securities would normally be less than 10% of net assets.
Accordingly, an investment in shares of the Portfolio involves risks similar to
those of investing in a fund consisting of the common stocks of some or all of
the companies included in the S&P 500.
The weightings of stocks in the S&P 500 are based on each stock's relative total
market value, i.e., market price per share times the number of shares
outstanding. Because of this weighting, approximately 50% of the S&P 500 is
currently composed of stocks of the 50 largest companies in the S&P 500, and the
S&P 500 currently represents over 65% of the market value of all U.S. common
stocks listed on the New York Stock Exchange.
World makes no attempt to "manage" the Portfolio in the traditional sense (i.e.,
by using economic, financial or market analyses). The adverse financial
situation of a company usually will not result in the elimination of a stock
from the Portfolio. However, an investment may be removed from the Portfolio if,
in the judgement of World, the merit of the investment has been substantially
impaired by extraordinary events or adverse financial conditions. Furthermore,
administrative adjustments may be made in the Portfolio from time to time
because of mergers, changes in the composition of the S&P 500 and similar
reasons. In certain circumstances, World may exercise discretion in determining
whether to exercise warrants and rights issued in respect to portfolio
securities or whether to tender portfolio securities pursuant to a tender or
exchange offer.
The Portfolio may enter into stock index futures contracts to maintain adequate
liquidity to meet its redemptions demands while maximizing the level of the
Portfolio's assets which are tracking the performance of the S&P 500, provided
that the value
- --------------------------------------------------------------------------------
10
<PAGE>
- --------------------------------------------------------------------------------
September 1, 1998
of these contracts does not exceed 20% of the Portfolio's total assets. The
Portfolio may only purchase those stock index futures contracts--such as futures
contracts on the S&P 500--that are likely to closely duplicate the performance
of the S&P 500. The Portfolio also can sell such futures contracts in order to
close out a previously established position. The Portfolio will not enter into
any stock index futures contract for the purpose of speculation, and will only
enter into contracts traded on national securities exchanges with standardized
maturity dates.
The Portfolio may invest cash reserves in securities issued by the U.S.
Government, its agencies or instrumentalities, bankers' acceptances, commercial
paper rated at least A-1 by Standard & Poor's Corporation ("S&P") and/or Prime-1
by Moody's Investors Services, Inc. ("Moody's"), certificates of deposit or
repurchase agreements involving such obligations. Such investments will not be
used for defensive purposes.
The equity securities in which the Portfolio invests are common stocks,
preferred stocks, securities convertible into common stock and American
Depositary Receipts ("ADRs").
The Portfolio may lend up to 20% of its assets to qualified institutions for the
purpose of realizing additional income, however the Portfolio has no present
intention to lend its securities. The Portfolio may invest in illiquid
securities. The Portfolio may enter into forward commitments, or purchase
securities on a when-issued or delayed delivery basis.
In order to maintain liquidity during times of unusual market conditions, the
Fund also may invest temporarily in cash and cash items of the kinds described
under "Description of Permitted Investments."
THE INTERNATIONAL EQUITY FUND
The investment objective of the Fund is to seek capital appreciation.
The Fund will attempt to achieve its objective by investing in a carefully
selected and continuously managed diversified portfolio consisting primarily of
equity securities (including securities convertible into equity securities, such
as warrants, convertible bonds, debentures or convertible preferred stock). The
investments of the Fund will consist principally of equity securities of
European and Pacific Basin countries.
The Fund will invest most of its assets in equity securities of issuers located
in countries which are generally considered to have developed markets, such as
the United Kingdom, Germany, France, the Netherlands, Switzerland, Norway,
Spain, Japan, Hong Kong, Australia, and Singapore, which are included in Morgan
Stanley Capital International's Europe, Australia and Far East Index ("EAFE").
The Sub-Advisor will decide when and how much to invest in each of those
markets. Investments may also be made in equities issued by companies in
"developing countries" or "emerging markets," such as Taiwan, Malaysia,
Indonesia, and Brazil, included in Morgan Stanley Capital International's
Emerging Markets Free Index ("EMF"). Investments in the equity markets of these
countries involves exposure to economic structures that are generally less
diverse and mature, and whose political systems may have less stability than
those of "developed countries." Subject to investment limitations stated in the
Statement of Additional Information, the Fund may invest in the shares of
closed-end investment companies that acquire equity securities of foreign
issuers in which the Fund may invest.
It is the policy of the Fund to invest primarily in equity securities which may
achieve capital appreciation by selecting companies with superior potential
based on a series of macro and micro analyses. The Fund may select its
investments from companies which are listed on a securities exchange or from
companies whose securities have an
- --------------------------------------------------------------------------------
11
<PAGE>
- --------------------------------------------------------------------------------
established over-the-counter market, and may make limited investments in "thinly
traded" securities.
Under normal circumstances the Fund will have at least 65% of its assets
invested in European and Pacific Basin equity securities. The Fund intends to
diversify investments broadly among countries and normally to have represented
in the portfolio business activities of not fewer than three different
countries. The securities the Fund purchases may not always be purchased on the
principal market. For example, ADRs may be purchased if trading conditions make
them more attractive than the underlying security.
The selection of the securities in which the Fund will invest will not be
limited to companies of any particular size, or to securities traded in any
particular marketplace, and will be based only upon the expected contribution
such security will make to the Fund's investment objective.
Since the Fund seeks to achieve capital appreciation, it will dispose of a
security, regardless of the time it has been held, to establish gains, to avoid
anticipated reductions of value, or to reduce or eliminate a position in a
security which is no longer believed to offer the potential for suitable gains.
Portfolio turnover is expected not to exceed an annual rate of 100% under normal
circumstances. Such a turnover rate may reflect substantial short-term trading
and corresponding brokerage costs which the Fund must pay.
The Fund may: (i) enter into forward contracts to purchase or sell foreign
currencies ("forward currency contracts"); (ii) purchase and write covered call
options on foreign currencies ("currency options"); (iii) enter into contracts
for the purchase or sale for future delivery of foreign currencies ("currency
futures"); or (iv) purchase and write covered call options on currency futures.
For active currency risk management, the Sub-Advisor employs a systematic
currency hedging approach based on a technical-trend-following model.
In seeking to achieve the Fund's investment objective of capital appreciation,
the Sub-Advisor will employ an approach that combines top-down country
allocation and bottom-up stock selection. The Sub-Advisor will seek to identify
countries where economic and political factors are likely to provide above
average returns, and companies in such countries that are best positioned in
their respective industries and that are attractively valued.
TEMPORARY DEFENSIVE POSITIONS
For temporary defensive purposes during periods when the Advisor, Sub-Advisor,
Money Manager or World determines that market conditions warrant, a Fund may
invest up to 100% of its assets in money market securities and may hold cash for
liquidity purposes. The money market securities a Fund may invest in are
described under "Description of Permitted Investments."
For temporary defensive purposes, the International Equity Fund may hold cash or
debt obligations denominated in U.S. dollars or foreign currencies. These debt
obligations include U.S. and foreign government securities and investment grade
corporate debt securities, or bank deposits of major international institutions.
To the extent a Fund is engaged in defensive investing, the Fund will not be
pursuing its investment objective.
RISK FACTORS
HIGH YIELD SECURITIES
Investors should carefully consider the relative risks of investing in high
yield securities and understand that such securities generally are not meant for
short-term investing. The high yield market is relatively new and its growth
paralleled a long period of economic expansion and an increase in merger,
acquisition and leveraged buy out activity. 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 incidence of
default on such securities. In addition, the secondary market for high yield
securities, which
- --------------------------------------------------------------------------------
12
<PAGE>
- --------------------------------------------------------------------------------
September 1, 1998
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
Money Manager 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 Portfolio 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 such Portfolio's net asset value. Prices for high
yield securities may also be affected by legislative and regulatory
developments.
Lower rated or unrated fixed income 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.
EQUITY SECURITIES
The value of shares will fluctuate due to the underlying securities in which a
Fund invests. The market value of the convertible securities purchased by a Fund
also may be affected by changes in interest rates, the credit quality of the
issuer and any call provisions. In addition, investments in smaller, less
well-established companies may subject a Fund to certain special risks related
to, for example, limited product lines, markets or financial resources and
dependence on a small management group. Such securities may trade less
frequently, in smaller volumes and fluctuate more sharply in value than exchange
listed securities of larger companies.
FOREIGN SECURITIES
A Fund's investments in securities of foreign issuers may subject it to risks
different than those attendant to investments in securities of U.S. issuers,
such as differences in accounting, auditing and financial reporting standards
applicable in foreign countries, the possibility of expropriation or
confiscatory taxation, political instability and greater fluctuations in value
due to changes in currency exchange rates. There may also be less publicly
available information with regard to foreign issuers than domestic issuers. In
addition, foreign markets may be characterized by less liquidity, greater price
volatility, less regulation and higher transaction costs than U.S. markets.
Moreover, the dividends payable on a Fund's foreign securities may be subject to
foreign withholding taxes, thus reducing the net amount of income available for
distribution to the Fund's Shareholders. Also, it may be more difficult to
obtain a judgment in a court outside the United States. These risks could be
greater in emerging markets than in more developed foreign markets because
emerging markets may have less stable political environments than more developed
countries.
EQUITY INDEX FUND
Neither the Equity Index Fund nor the SIF S&P 500 Index Portfolio is sponsored,
endorsed, sold or promoted by S&P. S&P makes no representation or warranty,
implied or expressed, to the purchasers of the Fund, Portfolio or any member of
the public regarding the advisability of investing in index funds or the Fund or
Portfolio or the ability of the S&P 500 Index to track general stock market
performance.
S&P DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF THE INDEX OR ANY
DATA INCLUDED THEREIN. S&P MAKES NO WARRANTY, EXPRESSED OR IMPLIED, AS TO
RESULTS TO BE OBTAINED BY THE FUND, PORTFOLIO, OWNERS OF THE FUND, OWNERS OF THE
PORTFOLIO, OR ANY DATA INCLUDED
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THEREIN. S&P MAKES NO EXPRESSED OR IMPLIED WARRANTIES, AND HEREBY DISCLAIMS ALL
WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE WITH
RESPECT TO THE INDEX OR ANY DATA INCLUDED THEREIN.
THE FEEDER FUNDS AND THE PORTFOLIOS
Unlike other mutual funds which directly acquire and manage their own portfolio
securities, each Feeder Fund seeks to achieve its investment objective by
investing up to 100% of its assets in the corresponding Portfolio, which is a
separate registered investment company with identical investment objectives. The
investment objective of a Feeder Fund or a Portfolio may not be changed without
shareholder approval. In addition to selling beneficial interests to the Feeder
Funds, each Portfolio may sell beneficial interests to other mutual funds or
institutional investors. Such investors will invest in a Portfolio on the same
terms and conditions and will pay a proportionate share of that Portfolio's
expenses. However, other investors investing in a Portfolio are not required to
buy their shares at the same public offering prices as the corresponding Feeder
Fund. Investors in a Feeder Fund should be aware that because of these
differences, other investors in the other funds that invest in the corresponding
Portfolio may obtain different returns. Such differences in returns are also
present in other mutual fund structures.
Certain changes in a Portfolio's investment objective, policies or restrictions
may require the corresponding Feeder Fund to redeem its investment. Any such
withdrawal could result in a distribution-in-kind of portfolio securities (as
opposed to a cash distribution from the Portfolio). The Feeder Fund could incur
brokerage fees or other transaction costs in converting such securities to cash.
The distribution-in-kind may also result in a less diversified portfolio of
investments or adversely affect the liquidity of the Feeder Fund. In addition,
the investment of a Feeder Fund may be withdrawn from the corresponding
Portfolio at any time if the Trustees of the Trust determine that it is in the
best interest of the Feeder Fund to do so.
Upon any such withdrawal, the Trustees of the Trust would consider what action
might be taken, including the investment of all of the assets of such Feeder
Fund in another pooled investment entity having the same investment objective as
the Feeder Fund or retaining an investment advisor to manage the Feeder Fund's
assets in accordance with its investment objective and policies. The performance
of a Feeder Fund might be adversely affected under such circumstances and such
Feeder Fund may not be able to achieve its investment objective.
INVESTMENT LIMITATIONS
The investment objective and the following investment limitations are
fundamental policies of each Fund. Fundamental policies cannot be changed with
respect to a Fund without the consent of the holders of a majority of that
Fund's outstanding shares. The Portfolios have adopted fundamental limitations
that are similar to these limitations.
A FUND MAY NOT:
1. Purchase any securities which would cause more than 25% of the total assets
of a Fund 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 the obligations issued or
guaranteed by the U.S. Government, its agencies or instrumentalities and
repurchase agreements involving such securities. For purposes of this
limitation, (i) utility companies will be classified according to their
services, for example, gas, gas transmissions, electric and telephone will
each be considered a separate industry; (ii) financial services companies
will be classified according to the end users of their services, for example,
automobile finance, bank finance and
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September 1, 1998
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 activities in the same industry.
2. Make loans, except that a Fund may (a) purchase or hold debt instruments in
accordance with its investment objective and policies; (b) enter into
repurchase agreements; and (c) engage in securities lending as described in
this Prospectus and in the Statement of Additional Information.
The foregoing percentage limitations apply at the time of the purchase of a
security.
It is a non-fundamental policy of each Fund to invest no more than 15% of its
net assets in illiquid securities (as defined below under "Description of
Permitted Investments").
Additional investment limitations are set forth in the Statement of Additional
Information.
THE ADVISOR
Summit Bank Investment Management Division, a division of Summit Bank (the
"Advisor"), serves as the investment advisor to the Trust. The Advisor makes the
investment decisions for the assets of the Funds, other than the Feeder Funds,
and continuously reviews, supervises and administers each Fund's investment
program subject to the supervision of, and policies established by, the Trustees
of the Trust.
Summit Bank, 210 Main Street, Hackensack, New Jersey 07601, was chartered in
1899 and has been exercising trust powers and managing money since 1916. The
Investment Management Division began as a separate operating division of the
Bank in 1973. The Bank's investment professionals have, on average, over 20
years of experience in investment management. As of December 31, 1997, total
assets under management were approximately $8.2 billion.
Summit Bank is a wholly-owned subsidiary of Summit Bancorp, an interstate bank
holding company with approximately $30 billion in assets and 426 banking
offices, predominantly in New Jersey and eastern Pennsylvania, as of December
31, 1997.
The Advisor is entitled to a fee from each Fund, which is calculated daily and
paid monthly at the annual rate of the respective Fund's average daily net
assets as set forth in the following table. The Advisor has voluntarily agreed
to waive all or a portion of its fees to limit the total operating expenses of
Class A and B Shares of each Fund to the respective levels set forth below. The
Advisor reserves the right to terminate any and all fee waivers at any time in
its sole discretion.
Also set forth below are the advisory fees of each Fund paid to the Advisor
(shown as a percentage of average daily net assets) for the fiscal year ended
December 31, 1997.
Maximum Total
Operating Expense
After Fee Waiver Fees Received
Contractual ----------------- In Fiscal Year
Fee Class A Class B 1997
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High Yield Bond Fund .60% 1.50% 2.25% N/A
Equity Index Fund .75% 1.05% 1.80% N/A
International Equity Fund 1.00% 1.95% 2.70% .80%
The fees listed above for the High Yield Bond Fund and the Equity Index Fund
represent the contractual fees payable to the Advisor at the feeder level only.
In addition to these fees, Shareholders of the Funds will bear their pro rata
portion of the respective Portfolio's advisory fees at the master level.
Contractual advisory fees at the master level are discussed in "Management of
the Portfolios."
Should the Trustees of the Trust determine that either the High Yield Bond Fund
or the Equity Index Fund should no longer remain in a Corporate
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Master-Feeder structure, the Advisor will manage all of the investments for such
Fund(s). At that time, the Advisor would be entitled to a fee, calculated daily
and paid monthly, at an annual rate of .60% of the average daily net assets of
the High Yield Bond Fund and/or .75% of the average daily net assets of the
Equity Index Fund.
Summit Bank has also entered into a custodian agreement with the Trust, under
which it provides all securities safekeeping services as required by the Funds
and the Investment Company Act of 1940 (the "1940 Act"). The Trust pays Summit
Bank (referred to herein in its custodial capacity as the "Custodian") a
custodian fee, which is calculated daily and paid monthly, at an annual rate of
.025% of the average daily net assets of the High Yield Bond and Equity Index
Portfolios, respectively, and .17% of the International Equity Fund's average
daily net assets.
THE SUB-ADVISOR
Vontobel USA Inc. (the "Sub-Advisor") serves as the investment sub-advisor to
the International Equity Fund.
The Sub-Advisor is a wholly owned and controlled subsidiary of Vontobel Holding
Ltd., a Swiss bank holding company, having its registered offices in Zurich,
Switzerland. As of December 31, 1997, the Sub-Advisor managed in excess of $1.9
billion. The Sub-Advisor also acts as the advisor or Sub-Advisor to other mutual
funds and to three series of a Luxembourg fund organized by an affiliate of the
Sub-Advisor. That fund does not accept investments from the U.S.
The address of the Sub-Advisor is 450 Park Avenue, New York, N.Y. 10022.
Mr. Fabrizio Pierallini, who is a Senior Vice President of the Sub-Advisor, is
the portfolio manager of the International Equity Fund since August 31, 1998
and has been a portfolio manager at the Sub-Advisor since April 1994. He is
currently in charge of portfolio management and research for the Sub-Advisor's
international and emerging market equity portfolios. From 1991 to 1994, Mr.
Pierallini was an Associate-Director/Portfolio Manager with Swiss Bank
Corporation, New York. From 1988 to 1991, he was a Vice President/Portfolio
Manager with SBC Portfolio Management, Zurich. Mr. Rajiv Jain, who is a Vice
President of the Sub-Advisor, is the associate portfolio manager of the Fund.
Mr. Jain joined the Sub-Advisor in November 1994 and serves as an assistant
portfolio manager for the Sub- Advisor's international emerging markets equity
portfolios since August 31, 1998. From 1993 to 1994, Mr. Jain worked as an
analyst with Swiss Bank Corporation, New York.
The Sub-Advisor is entitled to a fee payable by the Advisor from the Advisor's
fee, which is calculated daily and paid monthly, at an annual rate of .60% of
the average daily net assets of the Fund up to and including $50 million; .45%
of the average daily net assets of the Fund in excess of $50 million up to and
including $150 million; and .30% of the average daily net assets of the Fund in
excess of $150 million. The Sub-Advisor may, from time to time, waive a portion
of its fee in order to limit the operating expenses of Class A Shares and/or
Class B Shares of the Fund. The Sub-Advisor reserves the right to terminate any
such fee waiver at any time in its sole discretion. For the fiscal year ended
December 31, 1997, the Advisor paid Wellington Management Company, LLP, the
Fund's prior sub-advisor, a sub-advisory fee of .60% of the average daily net
assets of the Fund.
MANAGEMENT OF THE PORTFOLIOS
SIMT HIGH YIELD BOND PORTFOLIO
SIMC serves as investment advisor to the SIMT High Yield Bond Portfolio. SIMC is
a wholly-owned subsidiary of SEI Investments Company ("SEI Investments"), a
financial services company. The principal business address of SIMC is Oaks,
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September 1, 1998
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 the selection and evaluation of investment advisors. SIMC currently
serves as manager or administrator to more than 46 investment companies,
including more than 345 portfolios, which investment companies have more than
$99.9 billion in assets as of September 30, 1997.
SIMC operates as a "manager of managers." 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 SIMT Board of Trustees, the Money Managers
are responsible for the day-to-day investment management of all or a discrete
portion of the assets of the Portfolio. The Money Managers are selected based
primarily upon the research and recommendations of SIMC, which evaluates
quantitatively and qualitatively each Money Manager's skills and investment
results in managing assets for specific asset classes, investment styles and
strategies. Subject to SIMT Board's review, SIMC allocates and, when
appropriate, reallocates the Portfolio's assets among Money Managers, monitors
and evaluates Money Manager performance, and oversees Money Manager compliance
with the Portfolio's investment objective, policies and restrictions. SIMC HAS
THE ULTIMATE RESPONSIBILITY FOR THE INVESTMENT PERFORMANCE OF THE PORTFOLIO DUE
TO ITS RESPONSIBILITY TO OVERSEE MONEY MANAGERS 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 .4875% of the Portfolio's average
daily net assets. SIMC pays the Money Managers out of its investment advisory
fee.
For the fiscal year ended September 30, 1997, SIMC received an advisory fee of
.4875% of the High Yield Bond Portfolio's average daily net assets.
SIMC has obtained an exemptive order from the Securities and Exchange Commission
(the "SEC") that permits SIMC, with the approval of SIMT's Board of Trustees, to
retain Money Managers 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 Money Managers.
BEA Associates ("BEA") currently serves as the sole Money Manager for the SIMT
High Yield Bond Portfolio. SIMC pays BEA a fee based on a percentage of the
average monthly market value of the portion of the assets of the High Yield Bond
Portfolio managed by BEA.
SIF S&P 500 INDEX PORTFOLIO
World Asset Management ("World") serves as investment advisor to the SIF S&P 500
Index Portfolio.
World is a general partnership organized by Munder Capital Management ("MCM"), a
general partnership formed in December, 1994, which engages in investment
management and advisory services. As of December 31, 1997, total assets under
management of World were $11.0 billion and assets under management of MCM were
$37.0 billion. The principal address for World is 255 Brown Street Centre, 2nd
Floor, Birmingham, Michigan 48009.
World provides certain record keeping and management services in connection with
SIF S&P 500 Index Portfolio, including monitoring the
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indexing systems and determining which securities to purchase and sell in order
to keep the SIF S&P 500 Index Portfolio in balance with its index.
For its services, World is entitled to a fee, which is calculated daily and paid
monthly, at an annual rate of 0.03% of the average daily net assets of the SIF
S&P 500 Index Portfolio. For the fiscal year ended March 31, 1997, the SIF S&P
500 Index Portfolio paid World an advisory fee of 0.03% of its average daily net
assets.
THE ADMINISTRATOR
SEI Investments Mutual Funds Services (the "Administrator") serves as the
Administrator of the Trust. The Administrator provides the Trust with
administrative services, other than investment advisory services, including all
regulatory reporting, necessary office space, equipment, personnel and
facilities.
The Administrator is entitled to a fee, which is calculated daily and paid
monthly, at an annual rate of .20% of the average daily net assets of the Fund.
The Administrator has agreed to waive its fees for the High Yield Bond Fund and
Equity Index Fund to the extent necessary to maintain the total operating
expenses stated in the "Expense Summary."
THE TRANSFER AGENT
State Street Bank and Trust Company (the "Transfer Agent"), 225 Franklin St.,
Boston, Massachusetts 02110 is the Trust's transfer agent.
THE SHAREHOLDER SERVICING AGENT
Boston Financial Data Services, Two Heritage Drive, North Quincy, Massachusetts,
02171 is the Trust's dividend disbursing agent and shareholder servicing agent.
THE DISTRIBUTOR
SEI Investments Distribution Co. (the "Distributor"), a wholly-owned subsidiary
of SEI Investments, acts as the Distributor of the Trust's shares.
The Class A Shares of the Funds are subject to a distribution plan dated
February 28, 1992 ("Class A Plan"). As provided in the Distribution Agreement
and the Class A Plan, the Trust will pay the Distributor a fee of .25% of the
average daily net assets of each Fund's Class A Shares. The Distributor may
apply this fee toward: a) compensation for its services in connection with
distribution assistance or provision of shareholder services; or (b) payments to
financial institutions and intermediaries such as banks (including Summit Bank),
savings and loan associations, insurance companies, investment counselors,
broker-dealers, and the Distributor's affiliates and subsidiaries as
compensation for services or reimbursement of expenses incurred in connection
with distribution assistance or provision of shareholder services. The Class A
Plan is characterized as a compensation plan since the distribution fee will be
paid to the Distributor without regard to the distribution or shareholder
service expenses incurred by the Distributor or the amount of payments made to
financial institutions and intermediaries.
The Board of Trustees of the Trust has approved and adopted a distribution plan
dated February 20, 1997 for Class B Shares of a Fund (the "Class B Plan")
pursuant to Rule 12b-1 under the 1940 Act. Under the Class B Plan, the
Distributor is entitled to receive from the Funds an annual distribution fee of
.75% of the average daily net assets of each Fund's Class B Shares. The
Distributor may apply this fee toward: (a) compensation for its services in
connection with distribution assistance or provision of shareholder services; or
(b) payments to financial institutions and intermediaries such as banks
(including Summit Bank), savings and loan associations, insurance companies,
investment counselors, broker-dealers, and the Distributor's affiliates and
subsidiaries as
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September 1, 1998
compensation for services or reimbursement of expenses incurred in connection
with distribution assistance or provision of shareholder services. Additionally,
the Class B Plan provides that Class B Shares are subject to a service fee at an
annual rate of .25% of the average daily net assets of each Fund's Class B
Shares. The Class B Plan is characterized as a compensation plan since the
distribution fee will be paid to the Distributor without regard to the
distribution or shareholder service expenses incurred by the Distributor or the
amount of payments made to financial institutions and intermediaries. To the
extent that a shareholder servicing fee is charged at the master fund level, the
Distributor will waive a corresponding amount at the feeder level to limit
distribution fees and service fees to a total of 1.00%.
Class A and Class B Shares of each Fund are offered to all investors.
Consequently, it is possible that individuals and institutions may offer
different classes of shares of a Fund to their customers and thus receive
different compensation with respect to different classes of shares. In addition,
individuals and institutions that are the record owner of shares of the account
of their customers may impose separate fees for account services to their
customers. Each Fund may also execute brokerage or other agency transactions
through an affiliate of the Advisor or through the Distributor for which such
affiliate or the Distributor receives compensation.
The Distributor may, from time to time in its sole discretion, institute one or
more promotional incentive programs which will be paid by the Distributor from
the sales charge it receives or from any other source available to it. Under any
such program, the Distributor may provide promotional incentives in the form of
cash or other compensation, including merchandise, gifts and prizes, and payment
of travel expenses, meals and lodging, to all dealers selling shares of a Fund.
Such promotional incentives will be offered uniformly to all dealers and
predicated upon the number of shares of the Trust's portfolios sold by the
dealer.
THE PORTFOLIOS
The Distributor also provides distribution services for the Portfolios' shares.
No compensation is paid to the Distributor for distribution services for the SIF
S&P 500 Index Portfolio. The SIMT High Yield Bond Portfolio has adopted a
shareholder servicing plan for its Class A shares (the "Service Plan") under
which a shareholder servicing fee of up to .25% of average daily net assets
attributable to SIMT's Class A shares will be paid to the Distributor. Under the
Service Plan, the Distributor may perform, or may compensate other service
providers for performing, the following shareholder and administrative services:
maintaining client accounts; arranging for bank wires; responding to client
inquiries concerning services provided on investments; assisting clients in
changing dividend options, account 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.
PURCHASE AND REDEMPTION OF SHARES
Alternative Sales Charge Options
You may purchase shares of a Fund at a price equal to its net asset value per
share plus a sales charge which, at your election, may be imposed either (i) at
the time of the purchase (the Class A "initial sales charge alternative"), or
(ii) on a contingent deferred basis (the Class B "deferred sales charge
alternative"). Each class represents a portion of a Fund's interest in a
portfolio of investments. The classes have the same rights and are identical in
all respects except that (i) Class A Shares and Class B Shares bear different
distribution and service fees resulting from their respective sales
arrangements, (ii) each class has exclusive voting rights with respect to
approvals of any Rule 12b-1 distribution plan related to that specific class
(although Class B Shareholders may
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vote on any increase in distribution fees imposed on Class A Shares so long as
Class B Shares convert into Class A Shares), (iii) only Class B Shares carry a
conversion feature and (iv) each class has different exchange privileges.
As a result of each class's differing sales arrangements, Class A Shares are not
subject to a shareholder service fee and are subject to a lower distribution fee
than Class B Shares, and accordingly, Class A Shares pay higher dividends per
share. The Trust adds front-end sales charges to the net asset value of Class A
Shares of a Fund and, therefore, unless a sales charge waiver is available, an
initial investment in Class A Shares will cost more per share than Class B
Shares. Class A Shareholders therefore would own fewer shares than they would
have owned if they had invested an identical sum in Class B Shares.
Sales personnel of broker-dealers distributing a Funds' shares, and other
persons entitled to receive compensation for selling such shares, may receive
differing compensation for selling Class A or Class B Shares.
How to Choose the Right Class of Shares
The decision as to which class of shares provides a more suitable investment for
an investor depends on a number of factors, including the amount and intended
length of investment. Investors making investments that qualify for reduced
sales charges might consider Class A Shares. Investors who prefer not to pay an
initial sales charges might consider Class B Shares. For more information about
these sales arrangements, consult the Distributor or your investment
professional who is a salesperson, financial planner, investment advisor or
trust officer of an entity, other than the Distributor, that has entered into a
selling Agreement with the Trust or the Distributor ("Investment Professional").
Shares may only be exchanged for shares of the same class of another Pillar
portfolio. See "Exchanges."
Front-End Sales Charge -- Class A
The public offering price of Class A Shares equals the net asset value of the
shares plus any applicable initial sales charge. The sales charge as a
percentage of an investment decreases as the amount invested reaches the
succeeding levels set forth in the following tables. The table shows the initial
sales charge on Class A Shares of the Funds to a "single purchaser" (defined
below), the reallowance paid to dealers and the agency commission paid to
brokers (collectively, the "commission"):
EQUITY INDEX AND INTERNATIONAL EQUITY FUNDS:
Reallowance and
Sales Charge as a Brokerage
Sales Charge as a Percentage of Commission as
Percentage of Net Amount Percentage of
Amount of Purchase Offering Price Invested Offering Price
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$0-49,999 5.50% 5.82% 5.00%
$50,000-99,999 4.75% 4.99% 4.25%
$100,000-249,999 3.75% 3.90% 3.25%
$250,000-499,999 2.75% 2.83% 2.50%
$500,000-999,999 2.00% 2.04% 1.75%
$1,000,000 and above* 0.00% 0.00% 0.00%**
HIGH YIELD BOND FUND:
Reallowance and
Sales Charge as a Brokerage
Sales Charge as a Percentage of Commission as
Percentage of Net Amount Percentage of
Amount of Purchase Offering Price Invested Offering Price
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$0-99,999 4.25% 4.44% 4.00%
$100,000-249,999 3.75% 3.90% 3.50%
$250,000-499,999 2.75% 2.83% 2.50%
$500,000-999,999 2.00% 2.04% 1.75%
$1,000,000 and above* 0.00% 0.00% 0.00%**
- ------------------
* Purchases of $1,000,000 or more are at net asset value. However, a contingent
deferred sales charge will be imposed on such investments in the event such
shares are redeemed within 12 months from the date they are purchased. The
contingent deferred sales charge will be imposed at the rate of 1.00% of the
lesser of the current market value of the shares redeemed or the total cost
of such shares and is payable to the Distributor. In determining whether a
contingent deferred sales charge is payable, and, if so, the amount of the
charge, it is assumed that shares not subject to such charge are the first
redeemed.
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September 1, 1998
** There is no initial sales charge on purchases of $1,000,000 or more; however,
the Distributor may pay a dealer concession and/or advance a service fee on
such transactions.
The commissions shown in the table above apply to sales through financial
institutions. From time to time, some financial institutions, including Summit
Bank and its affiliates, may be reallowed up to the entire sales charge imposed
on the purchase of Class A Shares. Firms that receive a reallowance of the
entire sales charge may be considered underwriters for purposes of federal
securities laws. Commission rates may vary among the Trust's portfolios.
SALES CHARGE REDUCTIONS FOR PURCHASES OF CLASS A SHARES
Right of Accumulation
A "single purchaser" (defined below) may benefit from the reduced sales charges
set forth in the foregoing tables for current purchases by adding the amount of
any current purchase with the market value of a Fund that the purchaser already
owns. The calculation of the sales charge for the current purchase will be based
on the combined amount. A single purchaser can also combine purchases of Class A
Shares of different portfolios of the Trust if those portfolios are subject to a
sales charge.
The term "single purchaser" refers to (i) an individual, (ii) an individual and
spouse purchasing shares of the Funds for their own account or for trust or
custodial accounts for 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. To be entitled to a reduced sales charge based upon shares
already owned, the investor must identify eligible accounts at the time of
purchase and provide the account number(s) of the investor and, if applicable,
the investor and spouse, their minor children, as well as the ages of such
children. The Trust may amend or terminate this right of accumulation at any
time prior to subsequent purchases.
Letter of Intent
A single purchaser may obtain a reduced sales charge by means of a written
Letter of Intent (a "Letter") that expresses the investor's intention to invest
a specified amount within a 13-month period, which if invested at one time,
would qualify for a reduced sales charge.
A Letter is not a binding obligation upon the investor to purchase the full
amount indicated. An investor must invest, or have already invested, at least
$1,000 in Class A Shares of each applicable portfolio when the Letter is
submitted. Only those portfolios which are subject to a sales charge are
eligible to be counted towards the amount indicated in the Letter. Five percent
of the shares purchased under a Letter will be held in escrow (while remaining
registered in the name of the investor) to secure payment of the higher sales
charge that would have been applicable to the shares actually purchased if the
investor fails to purchase the amount indicated in the Letter. In such a case,
escrowed shares will be involuntarily redeemed to pay any additional sales
charge. When the full amount indicated in the Letter has been purchased, the
escrowed shares will be released. A Letter may include purchases of shares made
within 90 days prior to the date the investor signs the Letter; however, the
13-month period during which the Letter is in effect will begin on the date of
the earliest purchase.
Waiver of Class A Sales Charges
No sales charge is imposed on Class A Shares of a Fund: (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
arrangement with the Distributor, for their own account or for retirement plans
for their employees; (iii) sold to present employees of dealers or brokers that
certify to the Distributor at the time of purchase that such
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purchase is for their own account; (iv) sold to present or retired employees of
Summit Bancorp, or one of its affiliates, and/or spouses of such employees; (v)
sold to present employees of any entity that is a current service provider to
the Trust; (vi) sold to any qualified customer who has entered into an agreement
with Summit Bank, its affiliates or correspondent banks; (vii) sold to present
or retired Trustees of the Trust and their immediate families; (viii) sold to
present or retired Directors of Summit Bancorp or its affiliates, and their
immediate families; (ix) sold to beneficial owners of Class I Shares whose
interests are converted into Class A Shares; (x) purchased within 90 days of a
redemption of Class A Shares of a non-money market fund (only to the amount of
such redemption); or (xi) sold to 401(k) plans that have entered into service
arrangements with Summit Bank, its affiliates or correspondent banks.
Deferred Sales Charges -- Class B
Class B Shares are offered at their net asset value per share. If you sell
shares within six years of purchase, a contingent deferred sales charge (a
"CDSC") is assessed at the rates set forth below. The CDSC is assessed on the
lesser of the current market value or the initial purchase price of the shares
being redeemed. As a result, no sales charge will be imposed on increases in the
net asset value above the initial purchase price or on shares derived from
reinvestment of dividends or capital gain distributions.
CONTINGENT DEFERRED SALES CHARGE AS A PERCENTAGE
OF DOLLAR AMOUNT SUBJECT TO CHARGE
Years Since Purchase CDSC
- -------------------------------
1 5.50%
2 5.00%
3 4.00%
4 3.00%
5 2.00%
6 1.00%
7 0.00%
8 0.00%
Aging Schedule
In determining whether a particular redemption is subject to a CDSC, it is
assumed that Class B Shares are redeemed in the following order: (i) shares held
for over six years or shares acquired through reinvested dividends or capital
gain distributions and (ii) shares held longest during the six year period. This
method should result in the lowest possible sales charge.
Purchases will age based on the trade date of purchase. For example, a purchase
made on January 5 will be one year old on January 5 of the following year.
Waivers of Class B Sales Charges
The CDSC is waived on redemption of shares (i) following the death or disability
(as defined in the Code) of a Shareholder, or (ii) to the extent that the
redemption represents a minimum required distribution from an individual
retirement account or other retirement plan to a Shareholder who has attained
the age of 70 1/2. In addition, Shareholders who automatically reinvest their
dividends and distributions may redeem up to 10% of the value of their shares
each year without imposition of the CDSC. A Shareholder, or his or her
representative, must notify the Transfer Agent prior to the time of redemption
that the Shareholder is eligible for any such waiver.
The CDSC is also waived on redemptions of shares held by Trustees, employees and
sales representatives of the Trust, the Distributor, or affiliates of the Trust
or the Distributor, and their immediate family members; employees of any
financial institution that sells shares of the Trust pursuant to a sales
agreement with the Distributor; and spouses and children under the age of 21 of
the aforementioned persons. Also, no CDSC will be imposed on the redemption of
shares originally purchased through a bank trust department, an investment
adviser registered under the Investment Advisers Act of 1940, or retirement
plans where the third party administrator has entered into certain arrangements
with the Distributor or any other financial institution, to the extent that no
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September 1, 1998
payments were advanced for purchases made through such entities.
Additionally, shareholders of any mutual fund not affiliated with the Trust who
have paid a sales charge in that mutual fund may purchase Class B Shares of the
Trust, in an amount equal to the proceeds of the redemption of such unaffiliated
shares, by submitting such proceeds to the Distributor together with evidence of
the payment of a sales charge and the source of such proceeds. Purchases must
take place within 30 days of the redemption of the unaffiliated shares. Class B
Shares issued pursuant to this offer will not be subject to a CDSC.
Automatic Conversion of Class B Shares
Class B Shares of the Fund will automatically convert into Class A Shares of
that Fund without a sales charge after eight years from the acquisition of the
Class B Shares. The conversion will take place at the respective net asset
values of each of the classes. At that time the Shares will no longer be subject
to the higher distribution and service fees. When Class B Shares of a Fund
convert, any other Class B Shares that were acquired by the reinvestment of
dividends and distributions attributable to such Shares will also convert into
Class A Shares. Conversions are not taxable events to Shareholders.
How to Purchase Shares
Shares may be purchased directly from the Fund's Distributor or through an
investment professional of a securities broker or other financial institution,
such as Summit Bank, that has entered into a selling agreement with the Trust or
the Distributor. Shares of each Fund are sold on a continuous basis and may be
purchased on any business day that the New York Stock Exchange is open for
trading (a "Business Day").
A purchase order for shares of a Fund will be executed at a per share price
equal to the net asset value next determined after the purchase order is
effective (plus any applicable sales charge in the case of Class A Shares of a
Fund) (the "offering price").
The net asset value per share of each class of a Fund is determined by dividing
the total value of its investments and other assets that are allocated to that
class, less any liabilities that are allocated to that class, by the class's
total outstanding shares. Although the methodology and procedures are identical,
the net asset value per share of classes within a Fund may differ because of the
classes' different distribution and shareholder service expenses.
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, a Fund or its
Shareholders to accept such order. Investment Strategy Account Agreement
customers (Qualified Customers) should call the Transfer Agent for information
regarding requirements for purchase and redemption orders.
A purchase order for a Fund will be effective as of the Business Day received by
the Distributor (or Authorized Broker-Dealer) if the Distributor (or Authorized
Broker-Dealer) receives the order and payment before the Fund calculates its net
asset value (normally, 4:00 p.m., Eastern time). All other purchase orders
accompanied by payment, except those of certain types of investors as described
below, will be effective the next Business Day. Certain institutional investors
and financial institutions, such as Summit Bank, that have entered into a
settlement agreement with the Distributor, may make payment in federal funds for
purchases of a Fund to the Distributor by 12:00 noon, Eastern time, the Business
Day following the effective date of the trade. A purchase order may be canceled
if the Distributor does not receive federal funds before 12:00 noon, Eastern
time, the next Business Day.
The net asset value per share of a Fund is determined as of the
regularly-scheduled close of normal trading on the New York Stock Exchange
(normally, 4:00 p.m., Eastern time) each Business Day. Purchases will be made in
full and fractional shares of a Fund calculated to three decimal places. A Fund
may use a pricing service to provide market
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quotations. A pricing service may use a matrix system of valuation to value
fixed income securities which considers factors such as securities prices, yield
features, ratings and developments related to a specific security.
Purchases Through Investment Professionals
A customer who purchases shares of a Fund through an Investment Professional
should contact that Investment Professional for information about purchasing
shares. Investment Professionals may charge fees for their services that are in
addition to, and unrelated to, the fees and expenses charged by a Fund. In
addition, the Trust has approved Authorized Broker-Dealers to act as the Funds'
agent for the purpose of accepting purchase orders. A Fund will be deemed to
have received a purchase order upon receipt of the order by an Authorized
Broker-Dealer. Other Investment Professionals may impose an earlier cut-off time
for receipt of purchase orders directed through them to allow time for
processing and transmittal of these orders to the Distributor for effectiveness
the same day. In addition, state securities laws may require banks and financial
institutions purchasing shares for their customers to register as dealers
pursuant to state laws.
Investment Requirements
The minimum initial investment is $1,000; however, the minimum initial
investment may be waived at the Distributor's discretion. All subsequent
investments must be at least $100. For investments made through the Automatic
Investment Plan, the minimum initial and subsequent investments must be at least
$50. All purchases made by check must be in U.S. dollars and made payable to
"The Pillar Funds," or in the case of a retirement account, to either the
Custodian or the retirement plan trustee. Third party checks, credit cards,
credit card checks and cash will not be accepted. When purchases are made by
check or Automatic Clearing House ("ACH") transfer, redemption proceeds will not
be forwarded until the investment being redeemed has been in the account for 10
Business Days. If the check does not clear, the purchase will be canceled and
the investor could be liable for any losses or fees incurred.
No certificates representing shares will be issued. Customers must specify
whether they intend to purchase Class A or Class B Shares at the time of
investment. If a selection is not made, the investment will be made in Class A
Shares.
INVESTING DIRECTLY
Investing by Mail
Investors may purchase shares of a Fund by completing and signing an Account
Application form and mailing it, along with a check (or other negotiable bank
instrument or money order) to:
The Pillar Funds
P.O. Box 8523
Boston, MA 02266-8523
The following address may be used for overnight delivery:
The Pillar Funds
c/o Boston Financial Data Services
Two Heritage Drive
North Quincy, MA 02171-2144
Investors may obtain Account Application forms by calling the Distributor at
1-800-932-7782.
Investing by Telephone
Purchases may be made to an existing account by calling the Distributor at
1-800-932-7782. While telephone transaction privileges are automatic,
Shareholders may specifically request that no telephone transactions be accepted
for their account(s). This election may be made on the Account Application form
at the time of purchase or at any time thereafter by completing and returning
appropriate documentation supplied by the Transfer Agent.
By Wire: Shareholders must call the Distributor before wiring funds. Federal
funds should be wired to:
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September 1, 1998
State Street Bank and Trust Company
ABA #011000028
For Credit to DDA Account #9905-150-0
For Further Credit To Account # (insert account number, Shareholder name,
and control number assigned by the Distributor)
The Trust does not impose a fee for purchase wire transactions, although the
Shareholder's financial institution may charge a fee for this service.
Shares cannot be purchased by Federal Reserve wire on days when either the New
York Stock Exchange or the Federal Reserve is closed.
Orders will not be executed until payment has been received by the Distributor.
By ACH: This service allows the purchase of additional shares through an
electronic transfer of money from a checking or savings account. When an
additional purchase is made by telephone, the Transfer Agent will automatically
debit the pre-designated bank account for the desired amount. Shareholders may
call 1-800-932-7782 to request an Optional Services Form to establish this
option.
By Automatic Investment Plan: A Shareholder may also arrange for periodic
additional investments in the Funds through automatic deductions by ACH transfer
by completing an Optional Services Form. The minimum pre-authorized investment
amount is $50. Customers may call 1-800-932-7782 to request an Optional Services
Form to establish an Automatic Investment Plan.
Any employee of Summit Bancorp or any of its affiliates who elects to
participate in the Trust's Automatic Investment Plan for the purchase of Class A
Shares of any of the Trust's portfolios, excluding the money market funds,
through an investment counselor of Summit Bank's Financial Services Group will
receive $50 worth of shares of the portfolio of the Trust selected by the
investor. The offer is subject to the following additional conditions: (i)
limited to one payment per household and to one payment in the case of joint
accounts; (ii) Summit Bank must furnish to the Distributor the names and
addresses of each purchaser; and (iii) the offer may be terminated (as to
persons who have not yet purchased shares at the time of termination) at any
time by the Distributor without prior notice. The Distributor will not be
reimbursed by the Trust for any payment made pursuant to this offer.
Retirement Plans
A Fund may be used as part of a retirement portfolio. Investors can establish
their account under one of several tax-sheltered plans. Investors should contact
their Investment Professional or the Distributor at 1-800-932-7782 for details
regarding an IRA or other retirement plan.
How to Exchange Shares
Each portfolio of the Trust, other than the U.S. Treasury Securities Plus Money
Market Fund, (collectively, the "Eligible Funds") is eligible for exchange with
any other Eligible Fund.
Class A Shares of an Eligible Fund may be exchanged only for Class A Shares of
another Eligible Fund, usually without paying an additional sales charge.
However, exchanges from Class A Shares of an Eligible money market Fund, which
were purchased directly, to Class A Shares of an Eligible non-money market Fund
are made at net asset value plus the appropriate sales load for that Eligible
non-money market Fund.
Class B Shares of one Eligible Fund may be exchanged only for Class B Shares of
another Eligible Fund. Exchanges are made at relative net asset value per share
without the imposition at that time of a CDSC. For purposes of determining the
"age" of exchanged shares, exchanges will be treated as a transaction involving
a redemption of the original Eligible Fund followed by a purchase of the new
Eligible Fund and shares will be exchanged in the same order as determined by
the aging hierarchy above (See "Aging Schedule"). The aging of Class B
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Shares will continue uninterrupted regardless of an exchange.
If an exchange request is received in good order by the Transfer Agent by 4:00
p.m., Eastern time, on any Business Day, the exchange usually will occur on that
day. Exchanges are regarded as sales for federal and state income tax purposes
and could result in a gain or loss depending on the original cost of the shares
exchanged.
To exchange shares, several conditions must be met:
1. After the exchange is complete, the Shareholder must have at least $1,000
(the minimum account balance) in the new Eligible Fund.
2. Shares of Eligible Funds can only be exchanged between accounts with
identical registrations and tax identification numbers.
3. Shares in the original Eligible Fund must be held at least 10 Business Days
before an exchange can be made. Shares can be exchanged on any Business Day.
4. Shares of the new Eligible Fund selected for exchange must be available for
sale in the Shareholder's state of residence.
5. Shareholders should read the prospectus for the new Eligible Fund prior to
initiating an exchange.
6. The prospectuses of both Eligible Funds involved in the exchange must offer
the exchange privilege.
By Mail: An exchange will be honored by a written letter of request to the
Transfer Agent if signed by all registered owners of the account.
By Telephone: Telephone exchange requests may be made by Shareholders either
calling the Transfer Agent at 1-800-932-7782 or contacting their Investment
Professional. See "Investing Directly -- Investing by Telephone" above for a
description of telephone transaction privileges.
Systematic Exchange Program
Shares of a Fund also may be exchanged through automatic monthly deductions from
an investor's account for the same class of shares of another Eligible Fund.
Under the Systematic Exchange Program, an investor initially purchases Class A
or Class B Shares of the Prime Obligation Money Market Fund in an amount equal
to the total amount of the investment the investor desires to make in the same
class of shares of an Eligible Fund. On a monthly basis, a specified dollar
amount of Prime Obligation Money Market Fund shares is exchanged for shares of
the same class of a specified Eligible Fund. Exchange of Class A Shares will be
subject to the applicable sales charge imposed by the Eligible Fund and,
accordingly, it may be beneficial for an investor to execute a Letter in
connection with a Class A Shares Systematic Exchange Program. Exchanges of Class
B Shares are not subject to a CDSC. The Systematic Exchange Program of investing
a fixed dollar amount at regular intervals over time in an Eligible Fund may
have the effect of reducing the average cost per share of the shares of the
Eligible Fund acquired. This effect may also be achieved through the Trust's
Automatic Investment Plan, which is described above. A Shareholder may apply for
participation in the Systematic Exchange Program through the Distributor or his
or her Investment Professional. Shares purchased through the Systematic Exchange
Program are subject to the conditions listed under "How to Exchange Shares,"
however, such shares are not subject to the Trust's minimum investment
limitations. Exchanges are considered taxable events for Shareholders. If a
Shareholder redeems, rather than exchanges, Class B Shares of the Prime
Obligation Money Market Fund, such shares will be subject to the applicable
CDSC.
How to Redeem Shares
Shares may be redeemed on any Business Day directly from the Transfer Agent or
through an Investment Professional. Each Fund 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 less any applicable CDSC. In such
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September 1, 1998
cases, an investor may incur brokerage costs in converting such securities to
cash.
When purchases are made by check or by ACH transfer, redemption proceeds will
not be forwarded until the investment being redeemed has been in the account for
10 Business Days. Payment to Shareholders for shares redeemed will be made as
promptly as possible, and in any event, within seven days after the Transfer
Agent receives the redemption request in good order. A Shareholder may request
that the redemption proceeds are paid by check, by federal funds wire or by ACH
transfer.
A redemption order for shares of a Fund will be executed at a price per share
equal to the net asset value next determined after receipt of the redemption
order by the Transfer Agent (minus any applicable CDSC).
A redemption order for a Fund will be effective as of the Business Day received
by the Transfer Agent if the Transfer Agent receives the order before the Fund
calculates its net asset value (normally, 4:00 p.m., Eastern time). Requests
received after the Fund calculates its net asset value will be effective on the
next Business Day.
Redemptions Through Investment Professionals
Shareholders should contact their Investment Professional for information about
redeeming shares of a Fund and any charges for services provided by the
Investment Professional. In addition, the Trust has approved Authorized
Broker-Dealers to act as the Funds' agent for the purpose of accepting
redemption requests. A Fund will be deemed to have received a redemption request
upon receipt of the request by an Authorized Broker-Dealer. Other Investment
Professionals may impose an earlier cut-off time for receipt of redemption
orders directed through them to allow time for processing and transmittal of
these orders to the Transfer Agent for effectiveness the same Business Day.
By Mail: Shareholders may redeem shares of a Fund by mailing a letter of
instruction signed by all registered owners exactly as their names appear in the
registration to:
The Pillar Funds
P.O. Box 8523
Boston, MA 02266-8523
The following address may be used for overnight delivery:
The Pillar Funds
c/o Boston Financial Data Services
Two Heritage Drive
North Quincy, MA 02171-2144
A signature guarantee is required if any of the following conditions apply: (i)
the redemption is for more than $10,000 worth of shares, (ii) the redemption
check is payable to other than the Shareholder(s) of record, (iii) the
redemption check is mailed to other than the Shareholder(s) address of record,
or (iv) the redemption proceeds are to be forwarded by federal funds wire or ACH
transfer to a financial institution not pre-designated on the account. A
signature guarantee can be obtained from a commercial bank, a trust company, a
member firm of a domestic stock exchange or a member of a securities transfer
association medallion program. A signature guarantee cannot be provided by a
notary public. A signature guarantee is designed to protect the Shareholders,
the Trust and its agents from fraud.
To determine if any additional documentation may be required to consider a
redemption request in good order, Shareholders should contact their Investment
Professional or the Transfer Agent.
By Telephone: To redeem shares by telephone, Shareholders should call the
Transfer Agent at 1-800-932-7782. See "Investing Directly -- Investing by
Telephone" above for a description of telephone transaction privileges. Neither
the Trust nor the Transfer Agent will be responsible for any loss, liability,
cost or expense for acting upon instructions that it reasonably believes to be
genuine. The Trust and the Transfer Agent will each employ reasonable
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procedures to confirm that instructions communicated by telephone are genuine.
If market conditions are extraordinarily active, or other extraordinary
circumstances exist, Shareholders who experience difficulties placing redemption
orders by telephone may wish to consider placing the redemption order by other
means.
By Check: Shares may be redeemed by check to the address of record for most
requests under $10,000. Requests received by the Transfer Agent by 4:00 p.m.,
Eastern time, will be processed that Business Day, and the check will be mailed
the following Business Day. For more information, call the Transfer Agent at
1-800-932-7782.
By Wire: Shares may be redeemed by federal funds wire and sent to a
pre-designated bank account. Shareholders may call 1-800-932-7782 to request an
Optional Services Form to establish this option.
A wire will be sent the Business Day after the redemption request is effective.
The Trust reserves the right to assess a wire redemption charge, currently
$10.00, for this transaction, which will be deducted from the redemption
proceeds. The Shareholder's receiving financial institution may also impose a
fee.
By ACH: Shares may be redeemed by ACH transfer and sent to a pre-designated
financial institution account. Shareholders may call 1-800-932-7782 to request
an Optional Services Form to establish this option. ACH transfers of redemption
proceeds may take up to two Business Days to credit to the Shareholder's
financial institution.
The Trust does not charge for ACH transfers, but the Shareholder's receiving
financial institution may charge for this service.
By Systematic Withdrawal Plan: Shareholders with an account value of at least
$2,000 may elect to receive automatic distributions of $50 or more by
establishing a Systematic Withdrawal Plan. Distributions can be received either
by check or ACH transfer on a monthly, quarterly, semi-annual or annual basis.
To participate in a Systematic Withdrawal Plan, Shareholders must elect to have
all dividends reinvested in additional shares.
Shareholders who have attained the age of 70 1/2 may want to establish a
Systematic Withdrawal Plan as a convenient means to satisfy mandatory
distribution requirements from a retirement plan.
It is not generally in the best interest of a Shareholder to participate in a
Systematic Withdrawal Plan at the same time that he or she is purchasing
additional Class A Shares if those purchases are subject to a sales load. In
addition, it may not be in the best interest of a Class B Shareholder to
participate in a Systematic Withdrawal Plan when Class B Shares are subject to a
CDSC.
Shareholders may obtain an Optional Services Form to establish a Systematic
Withdrawal Plan by calling the Transfer Agent at 1-800-932-7782.
Minimum Balance Requirements
Due to the relatively high costs of handling small investments, each Fund
reserves the right to redeem (with the exception of a retirement account) the
shares of any Shareholder if, because of redemptions of shares by or on behalf
of the Shareholder, the account of such Shareholder in that Fund has a value of
less than $1,000, the minimum initial purchase amount. Before a Fund exercises
its right to redeem such shares and sends the proceeds to the Shareholder, the
Shareholder will be given 60 days' notice to reestablish the minimum balance. If
the balance does not increase within 60 days, the account may be closed and the
proceeds mailed to the address of record. Shares will be redeemed at the last
calculated net asset value on the day the account is closed.
See "Purchase and Redemption of Shares" in the Statement of Additional
Information for examples of when the right of redemption may be suspended.
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September 1, 1998
PERFORMANCE
Computation of Yield
The High Yield Bond Fund may advertise yield and total return (described below).
The yield of the Fund refers to the annualized income generated by an investment
in the Fund over a specified 30-day period. The yield is calculated by assuming
that the income generated by the investment during that period is generated over
one year and is shown as a percentage of the investment.
Computation of Total Return
Each Fund may advertise total return. Total return figures are based on
historical earnings and are not intended to indicate future performance.
The total return of a Fund 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 Fund 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.
A Fund 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. A Fund may quote
Morningstar, Inc., a service that ranks mutual funds on the basis of risk
adjusted performance. A Fund may use long-term performance of the 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
Fund may also quote financial and business publications and periodicals as they
relate to fund management, investment philosophy and investment techniques.
A Fund 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.
Each Feeder Fund may advertise the performance of its corresponding Portfolio
adjusted to reflect operating expenses at the feeder level. The performance data
for the SIMT High Yield Bond Portfolio and SIF S&P 500 Index Portfolio will be
adjusted to reflect estimated operating expenses of .40% and .55%, respectively.
Investment performance reflects voluntary fee waivers and reimbursements
currently in effect. In the absence or reduction of current fee waivers or
reimbursements, total return would be reduced.
TAXES
The following summary of federal income tax consequences is based on current tax
laws and regulations, which may be changed by legislative, judicial or
administrative action. No attempt has been made to present a detailed
explanation of the federal, state or local income tax treatment of a Fund or its
Shareholders. Accordingly, Shareholders are urged to consult their tax advisors
regarding specific questions as to federal, state and local income taxes.
Tax Status of the Funds
Each Fund is treated as a separate entity for federal income tax purposes and is
not combined with the Trust's other investment portfolios. Each Fund
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intends to continue to qualify for the special tax treatment afforded regulated
investment companies under Subchapter M of the Code, so as to be relieved of
federal income tax on that part of its net investment income and net capital
gain (the excess of net long-term capital gain over net short-term capital loss)
which is distributed to Shareholders.
Tax Status of Distributions
Each Fund will distribute substantially all of its net investment income
(including, for this purpose, net short-term capital gain) to Shareholders.
Dividends from net investment income will be taxable to Shareholders as ordinary
income whether received in cash or in additional shares and will not qualify for
the dividends-received deduction otherwise available to corporate shareholders.
Any dividends from net capital gain (the excess of net long-term capital gain
over net short-term capital loss) will be distributed annually and will be
treated as a 20% rate gain distribution (taxed at a rate of 20%) or a 28% rate
gain distribution (taxed at a rate of 28%), depending upon the designation by
the Fund (such designation being dependent upon the holding period of the Fund
in the underlying asset generating the net capital gain), regardless of how long
the Shareholder has held the Fund's shares. Capital gains distributions also
will not qualify for the dividends-received deduction. Each Fund will make
annual reports to Shareholders of the federal income tax status of all
distributions.
Dividends declared by a Fund in October, November or December of any year and
payable to Shareholders of record on a date in these months will be deemed to
have been paid by the Fund and received by the Shareholders on December 31 if
paid by the Fund at any time during the following January.
Each Fund intends to make sufficient distributions prior to the end of each
calendar year to avoid liability for federal excise tax.
The sale, exchange or redemption of Fund shares is a taxable event to the
Shareholder.
Generally, gain or loss on the sale, exchange or redemption of a share will be a
capital gain or loss which will be long-term if the share has been held for more
than eighteen months, mid-term if the share has been held for more than twelve,
but not more than eighteen months and otherwise will be short-term. However, if
a Shareholder realizes a loss on the sale, exchange or redemption of a share
held for six months or less and has previously received a capital gains
distribution with respect to the share (or any undistributed capital gains of
the Fund with respect to such share are included in determining the
Shareholder's long-term capital gains), the Shareholder must treat the loss as a
long-term capital loss from the sale or exchange of a capital asset held for
more than twelve months to the extent of the amount of the prior capital gains
distribution (or any undistributed net capital gains of the Fund which have been
included in determining such Shareholder's long-term capital gains). In
addition, any loss realized on a sale or other disposition of shares will be
disallowed to the extent an investor repurchases (or enters into a contract or
option to repurchase) shares within a period of 61 days (beginning 30 days
before and ending 30 days after the disposition of the shares). Investors should
particularly note that this loss disallowance rule will apply to shares received
through the reinvestment of dividends during the 61-day period.
Income derived by a Fund from obligations of foreign issuers may be subject to
foreign withholding taxes. The Funds, other than the International Equity Fund,
will not be able to elect to treat Shareholders as having paid their
proportionate share of such foreign taxes. See the Statement of Additional
Information for information regarding a Shareholder's ability to receive foreign
tax credits with respect to any such taxes.
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September 1, 1998
GENERAL INFORMATION
The Trust
The Trust was organized as a Massachusetts business trust under a Declaration of
Trust dated September 9, 1991. The Declaration of Trust permits the Trust to
offer separate portfolios of shares and different classes of each portfolio. In
addition to the Funds, the Trust currently consists of the U.S. Treasury
Securities Plus Money Market Fund, Institutional Select Money Market Fund, U.S.
Treasury Securities Money Market Fund, Prime Obligation Money Market Fund,
Tax-Exempt Money Market Fund, Fixed Income Fund, New Jersey Municipal Securities
Fund, Pennsylvania Municipal Securities Fund, Intermediate-Term Government
Securities Fund, Equity Growth Fund, Equity Value Fund, Equity Income Fund, Mid
Cap Fund and Balanced Fund. Shares of the portfolios are offered through up to
four separate classes of shares (Class A, B, I and S). 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.
Each Fund pays its expenses, including fees of its service providers, audit and
legal expenses, expenses of preparing prospectuses, proxy solicitation material
and reports to Shareholders, costs of custodial services, registering the shares
under federal laws and filing with state securities commissions, pricing,
insurance expenses, litigation and other extraordinary expenses, brokerage
costs, interest charges, taxes and organization expenses.
The Advisor, in addition to providing investment advice to the Trust, provides
investment advice to other clients. Some of these clients' funds are managed
under an asset allocation program and may be invested in the Funds. From time to
time, the Funds may experience relatively large purchases or redemptions due to
asset allocation decisions made by the Advisor for its clients. These
transactions may have a material effect on the Funds, since portfolios that
experience redemptions as a result of reallocations may have to sell portfolio
securities and because portfolios that receive additional cash will have to
invest it. While it is impossible to predict the overall impact of these
transactions over time, there could be adverse effects on portfolio management
to the extent that the Funds may be required to sell securities at times when
they would not otherwise do so, or receive cash that cannot be invested in an
expeditious manner. There may be tax consequences associated with purchases and
sales of securities, and such sales may also increase transaction costs. The
Advisor is committed to minimizing the impact of these transactions on the Funds
to the extent it is consistent with pursuing the investment objectives of its
asset allocation program.
SIMT and SIF are organized as Massachusetts business trusts. The Trustees
believe that neither the High Yield Bond Fund nor the Equity Index Fund will be
adversely affected by reason of investing in the corresponding Portfolio.
Trustees of the Trust
The management and affairs of the Trust are supervised by the Trustees under the
laws governing business trusts in the Commonwealth of Massachusetts. The
Trustees have approved contracts under which, as described above, certain
companies provide essential management services to the Trust.
A discussion of the Trust's Trustees and officers appears in the Statement of
Additional Information. A discussion of SIMT's and SIF's Trustees and officers
also appears in the Statement of Additional Information.
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Voting Rights
Each share held entitles a Shareholder of record to one vote. The Shareholders
of each portfolio or class will vote separately on matters relating solely to
that portfolio or class. 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.
In the case of the High Yield Bond and Equity Index Funds, whenever a vote is
required on matters pertaining to the SIMT High Yield Bond Portfolio or SIF S&P
500 Index Portfolio, respectively, the Trust will either (a) seek instructions
from the appropriate Fund's Shareholders with regard to the voting of the
proxies and vote such proxies only in accordance with such instructions; or (b)
vote the shares held by it in the same proportion as the vote of all the other
shareholders of the particular Portfolio. In either instance, other investors in
a Portfolio could control the results of voting at the Portfolio level.
Reporting
The Trust issues unaudited financial information 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 Pillar Funds, P.O. Box 8523,
Boston, MA 02266-8523.
Dividends
Shareholders automatically receive all income dividends and capital gain
distributions in additional Class A Shares or Class B Shares, as appropriate, at
the net asset value next determined following the record date, unless the
Shareholder has elected to take such payment in cash. Shareholders may change
their election by providing written notice to the Administrator at least 15 days
prior to the distribution. If any capital gain is realized, substantially all of
it will be distributed at least annually.
Dividends and distributions of each Fund are paid on a per-share basis. The
value of each share will be reduced by the amount of the payment. If shares are
purchased shortly before the record date for a dividend or the distribution of
capital gains, 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 amount of dividends payable on Class A Shares and Class B Shares will be
less than the dividends payable on Class I Shares because of the distribution
expenses charged to Class A and Class B Shares.
Substantially all of the net investment income (not including capital gain) of:
(i) the High Yield Bond Fund is declared and paid monthly; (ii) the Equity Index
Fund is declared and paid quarterly; and (iii) the International Equity Fund is
declared and distributed annually, as a dividend to Shareholders of record.
Counsel and Independent Public Accountants
Morgan, Lewis & Bockius LLP serves as counsel to the Trust. Arthur Andersen LLP
serves as the independent public accountants of the Trust.
As stated under "The Advisor," Summit Bank acts as custodian for the Trust.
First Union National Bank, acts as wire agent and custodian for the SIMT High
Yield Bond Portfolio. Comerica Bank acts as custodian for the SIF S&P 500 Index
Portfolio.
The respective custodians hold cash, securities and other assets of the Funds or
Portfolios for which they act as custodian as required by the 1940 Act.
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DESCRIPTION OF PERMITTED INVESTMENTS
The following is a description of certain permitted investments and associated
risk factors for the various Funds (and the Portfolios). Unless otherwise
indicated, policies that relate to "a Fund," or "all Funds" also relate to the
SIMT High Yield Bond Portfolio and policies that relate to "a Fund," "the Equity
Fund," or "all Funds" also relate to the SIF S&P 500 Index Portfolio.
AMERICAN DEPOSITARY RECEIPTS ("ADRS"), EUROPEAN DEPOSITARY RECEIPTS ("EDRS"),
CONTINENTAL DEPOSITARY RECEIPTS ("CDRS") 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. ADRs
include American Depositary Shares and New York Shares. EDRs, which are
sometimes referred to as Continental Depositary Receipts, 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
markets, 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. 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--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.
Asset-backed securities are not issued or guaranteed by the U.S. Government, its
agencies or instrumentalities; however, the payment of principal and interest on
such obligations may be guaranteed up to certain amounts and 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 collateral may not, in some cases, be
available to support payments on those securities. Asset-backed 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 holder. 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.
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BANKERS' ACCEPTANCES--Bankers' acceptances are bills of exchange or time drafts
drawn on and accepted by a commercial bank. They are used by corporations to
finance the shipment and storage of goods and to furnish dollar exchange.
Maturities are generally six months or less.
CERTIFICATES OF DEPOSIT--Certificates of deposit are interest-bearing
instruments with a specific maturity. They 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 with
penalties for early withdrawal will be considered illiquid.
COMMERCIAL PAPER--Commercial paper is the term used to designate unsecured
short-term promissory notes issued by corporations and other entities.
Maturities on these issues vary from a few to 270 days.
CONVERTIBLE SECURITIES--Convertible securities are corporate securities that are
exchangeable for a set number of another security at a prestated price.
Convertible securities typically have characteristics similar to both fixed
income and equity securities. Because of the conversion feature, the market
value of convertible securities tends to move with the market value of the
underlying stock. The value of a convertible security is also affected by
prevailing interest rates, the credit quality of the issuer and any call
provisions.
DERIVATIVES--Derivatives are securities that derive their value from other
securities, financial instruments or indices. The following are considered
derivative securities: options on futures, futures, options (e.g., puts and
calls), swap agreements, mortgage-backed securities (e.g., collateralized
mortgage obligations ("CMOs"), real estate mortgage investment conduits
("REMICs"), interest-only class ("IOs") and principal-only class ("POs")), when-
issued securities and forward commitments, floating and variable rate
securities, convertible securities, "stripped" U.S. Treasury securities (e.g.,
Receipts and STRIPs), and privately issued stripped securities (e.g., TGRs, TRs
and CATs). See elsewhere in this "Description of Permitted Investments" for
discussions of these various instruments, and see "Investment Objectives and
Policies" for more information about any investment policies and limitations
applicable to their use.
EQUITY SECURITIES--Equity securities represent ownership interests in a company
and consist of common stocks, preferred stocks, warrants to acquire common stock
and securities convertible into common stock. 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
provision. Fluctuations in the value of equity securities in which a Fund
invests will cause the net asset value of a Fund to fluctuate.
FIXED INCOME SECURITIES--Fixed income securities consist of bonds, notes,
debentures and other interest-bearing securities that represent indebtedness.
The market value of the fixed income investments in which a Fund invests will
change in response to interest rate changes and other factors. During periods of
falling interest rates, the values of outstanding fixed income securities
generally rise. Conversely, during periods of rising interest rates, the values
of such securities generally decline. Moreover, while securities with longer
maturities tend to produce higher yields, the prices of longer maturity
securities are also subject to greater market fluctuations as a result of
changes in interest rates. Changes by recognized agencies in the rating of any
fixed income security and in the ability of an issuer to make payments of
interest and principal also affect the value of these investments. Changes in
the value of these securities will not necessarily affect cash income derived
from these securities but will affect a Fund's net asset value.
FORWARD FOREIGN CURRENCY CONTRACTS--The High Yield Bond Fund and the
International Equity Fund may conduct foreign currency exchange transactions on
a spot (i.e., cash)
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September 1, 1998
basis at the spot rate prevailing in the foreign currency exchange market or
through entering into forward currency contracts to protect against uncertainty
in the level of future exchange rates between a particular foreign currency and
the U.S. dollar or between foreign currencies in which the Fund's securities are
or may be denominated. A forward contract involves an obligation to purchase or
sell a specific currency amount at a future date, which may be any fixed number
of days from the date of the contract, agreed upon by the parties, at a price
set at the time of the contract. Forward currency contracts, along with futures
contracts and option transactions, are considered to be derivative securities
and may present special risks. Under normal circumstances, consideration of the
prospect for changes in currency exchange rates will be incorporated into a
Fund's long-term investment strategies. However, the Advisor, Sub-Advisor and
Money Manager believe that it is important to have the flexibility to enter into
forward currency contracts when it determines that the best interest of the Fund
will be served.
The Fund will convert currency on a spot basis from time to time, and investors
should be aware of the costs of currency conversion. When the Advisor, Sub-
Advisor and/or Money Manager believes that the currency of a particular country
may suffer a significant decline against the U.S. dollar or against another
currency, a Fund may enter into a currency 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 Fund's securities denominated in
such foreign currency.
At the maturity of a forward contract, a Fund 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. A Fund may realize a gain or loss from currency transactions.
Generally, a Fund will enter into forward currency contracts only as a hedge
against foreign currency exposure affecting the Fund. If a Fund enters into
forward currency contracts to cover activities which are essentially
speculative, the Fund will segregate cash and/or readily marketable securities
with its Custodian, or a designated sub-custodian, in an amount at all times
equal to or exceeding the Fund's commitment with respect to such contracts.
To assure that a Fund's foreign currency contracts are not used for leverage,
the net amount the Fund may invest in forward currency contracts is limited to
the amount of the Fund's aggregate investments in foreign currencies.
By entering into forward foreign currency contracts, a Fund will seek to protect
the value of its investment securities against a decline in the value of a
currency. However, these forward foreign currency contracts will not eliminate
fluctuations in the underlying prices of the securities. Rather, they simply
establish a rate of exchange which one can achieve at some future point in time.
Additionally, although such contracts tend to minimize the risk of loss due to a
decline in the value of the hedged currency, at the same time, they tend to
limit any potential gain which might result should the value of such currency
increase.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS--A Fund may enter into
contracts for the purchase or sale of securities, including index contracts or
foreign currencies. A purchase of a futures contract means the acquisition of a
contractual right to obtain delivery to the Fund of the securities or foreign
currency called for by the contract at a specified price during a specified
future month. When a futures contract on securities or currency is sold, a Fund
incurs a contractual
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obligation to deliver the securities or foreign currency underlying the contract
at a specified price on a specified date during a specified future month. A Fund
may sell stock index futures contracts in anticipation of, or during a market
decline to attempt to offset the decrease in market value of its common stocks
that might otherwise result; and it may purchase such contracts in order to
offset increases in the cost of common stocks that it intends to purchase. A
Fund may enter into futures contracts and options thereon to the extent that not
more than 5% of the Fund's assets are required as futures contract margin
deposits and premiums on options.
A Fund may also purchase and write options to buy or sell futures contracts. A
Fund may write options on futures only on a covered basis. Options on futures
are similar to options on securities except that options on futures give the
purchaser the right, in return for the premium paid, to assume a position in a
futures contract, rather than actually to purchase or sell the futures contract,
at a specified exercise price at any time during the period of the option.
When a Fund enters into a futures transaction it must deliver to the futures
commission merchant selected by the Fund an amount referred to as "initial
margin." This amount is maintained in a segregated account at the custodian
bank. Thereafter, a "variation margin" may be paid by the Fund to, or drawn by
the Fund from, such account in accordance with controls set for such accounts,
depending upon changes in the price of the underlying securities subject to the
futures contract. In addition, a Fund will segregate liquid assets and/or cash
in an amount equal to its obligations under such contract. A Fund will enter
into such futures and options on futures transactions on domestic exchanges and,
to the extent such transactions have been approved by the Commodity Futures
Trading Commission for sale to customers in the United States, on foreign
exchanges.
Options and futures can be volatile investments and involve certain risks. If
the Advisor, Sub-Advisor, Money Manager and/or World applies a hedge at an
inappropriate time or judges interest rates incorrectly, options and futures
strategies may lower the Fund's return. A Fund could also experience losses if
the prices of its options and futures positions were poorly correlated with its
other instruments, or if it could not close out its positions because of an
illiquid secondary market.
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 Fund's books. Not more than 15% of the net assets of a Fund will be
invested in such instruments. An illiquid security includes a demand instrument
with a demand notice period exceeding seven days, if there is no secondary
market for such security. Restricted securities, including Rule 144A securities,
that meet the criteria established by the Trustees of the Trust will be
considered liquid.
INVESTMENT COMPANIES--The International Equity Fund may invest up to 10% of its
total assets in shares of other 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. Such investments may involve the payment of substantial premiums
above the net asset value of such issuers' fund securities, and are subject to
limitations under the 1940 Act.
The Fund does not intend to invest in other investment companies unless, in the
judgment of the Sub-Advisor, the potential benefits of such investment exceed
the associated costs relative to the benefits and costs associated with direct
investments in the underlying securities. As a shareholder in an investment
company, the Fund would bear its ratable share of that investment company's
expenses, including its advisory and administration fees.
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
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September 1, 1998
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
Fund'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.
Throughout the year ended September 30, 1997, the SIMT High Yield Bond Portfolio
invested in securities that are rated below investment grade. The following is
the Portfolio's allocation of bond ratings for the period as rated by Standard &
Poor's:
AAA....................... 0%
BBB....................... 0.52%
BB........................ 13.63%
B......................... 73.62%
CCC....................... 3.34%
Unrated................... 8.89%
-------
Total:................. 100.00%
=======
MONEY MARKET SECURITIES--Money market securities include short-term U.S.
Government Securities; custodial receipts evidencing separately traded interest
and principal components of securities issued by the U.S. Treasury; commercial
paper rated in the highest short-term rating category by an NRSRO or determined
by the Advisor, Sub-Advisor, Money Manager and/or World to be of comparable
quality at the time of purchase; short-term bank obligations (certificates of
deposit, time deposits and bankers' acceptances) of U.S. commercial banks with
assets of at least $1 billion as of the end of their most recent fiscal year;
and repurchase agreements involving such securities. The Portfolios may also
invest in additional money market securities issued by foreign banks and
corporations.
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 thirty-year fixed-rate mortgages, graduated payment
mortgages, and adjustable rate 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.
Mortgage-backed securities may not be an effective means of locking in long-term
interest rates for a Fund.
Government Pass-Through Securities: These are securities that are issued or
guaranteed by a U.S. Government agency representing an interest in a pool of
mortgage loans. The primary issuers or guarantors of these mortgage-backed
securities are GNMA, Fannie Mae and FHLMC. 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. GNMA, Fannie Mae and
FHLMC each guarantees timely distributions of scheduled principal. FHLMC has in
the past guaranteed only the ultimate collection of principal of the underlying
mortgage loan; however, FHLMC now issues mortgage-backed securities (FHLMC Gold
PCS) which also guarantee timely payment of monthly principal reductions.
Government and private guarantees do not extend to the securities value, which
is likely to vary inversely with fluctuations in interest rates.
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Private Pass-Through Securities: These are mortgage-backed securities issued
by a non-governmental entity, such as a trust. These securities include CMOs and
REMICs that are rated in one of the top two rating categories. While they are
generally structured with one or more types of credit enhancement, private
pass-through securities typically lack a guarantee by an entity having the
credit status of a governmental agency or instrumentality.
CMOs: CMOs are debt obligations or multi-class pass-through certificates
issued by agencies or instrumentalities of the U.S. Government or by private
originators or investors in mortgage loans. In a CMO, series of bonds or
certificates are usually issued in multiple classes. Principal and interest paid
on the underlying mortgage assets may be allocated among the several classes of
a series of a CMO in a variety of ways. Each class of a CMO, often referred to
as a "tranche," is issued with a specific fixed or floating coupon rate and has
a stated maturity or final distribution date. Principal payments on the
underlying mortgage assets may cause CMOs to be retired substantially earlier
than their stated maturities or final distribution dates, resulting in a loss of
all or part of any premium paid.
REMICs: A REMIC is a CMO that qualifies for special tax treatment under the
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 "residential" interests. Guaranteed REMIC
pass-through certificates ("REMIC Certificates") issues by Fannie Mae or FHLMC
represent beneficial ownership interests in a REMIC trust consisting principally
of mortgage loans or Fannie Mae, FHLMC or GNMA-guaranteed mortgage pass-through
certificates. For FHMLC 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.
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.
REITs: REITs are trusts that invest primarily in commercial real estate or
real estate-related loans. The value of interests in REITs may be affected by
the value of the property owned or the quality of the mortgages held by the
trust.
Stripped Mortgage-Backed Securities ("SMBs"): SMBs are usually structured with
two classes that receive specified proportions of the monthly interest and
principal payments from a pool of mortgage securities. One class may receive all
of the interest payments and is thus termed an IO, while the other class may
receive all of the principal payments and is thus termed the PO. The value of
IOs tends to increase as rates rise and decrease as rates fall; the opposite is
true of POs. SMBs are extremely sensitive to changes in interest rates because
of the impact thereon of prepayment of principal on the underlying mortgage
securities and can experience wide swings in value in response to changes in
interest rates and associated mortgage prepayment rates. During times when
interest rates are experiencing fluctuations, such securities can be difficult
to price on a consistent basis. The market for SMBs is not fully developed as
other markets; SMBs therefore may be illiquid.
Risk Factors: Due to the possibility of prepayments of the underlying mortgage
instruments, mortgage-backed securities generally do not have a known maturity.
In the absence of a known maturity, market participants generally refer to an
estimated
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September 1, 1998
average life. An average life estimate is a function of an assumption regarding
anticipated prepayment patterns, based upon current interest rates, current
conditions in the relevant housing markets and other factors. The assumption is
necessarily subjective, and thus different market participants can produce
different average life estimates with regard to the same security. There can be
no assurance that estimated average life will be a security's actual average
life.
OPTIONS--A put option 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 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. The initial purchase (sale) of an option contract is an "opening
transaction." In order to close out an option position, a Fund 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.
A Fund may purchase put and call options to protect against a decline in the
market value of the securities in its portfolio or to protect against an
increase in the cost of securities that the Fund may seek to purchase in the
future. A Fund pays a premium for purchasing put and call options. If price
movements in the underlying securities are such that exercise of the options
would not be profitable for a Fund, loss of the premium paid may be offset by an
increase in the value of the Fund's securities or by a decrease in the cost of
acquisition of securities by the Fund.
A Fund may write covered put and call options as a means of increasing the yield
or total return on its portfolio and as a means of providing limited protection
against decreases in its market value. When a Fund 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 Fund will realize as
profit the premium received for such option. When a call option of which a Fund
is the writer is exercised, the Fund 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 Fund is the writer is exercised, the Fund will be required to
purchase the underlying securities at the strike price, which may be in excess
of the market value of such securities.
A Fund 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 SEC that OTC options are illiquid.
A Fund 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 securities or foreign currency written by a Fund will be
"covered," which means that the Fund will own an equal amount of the underlying
security or foreign currency. With respect to put options on securities or
foreign currency written by a Fund, the Fund will establish a segregated account
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with its custodian bank consisting of liquid assets and/or cash in an amount
equal to the amount the Fund would be required to pay upon exercise of the put.
A Fund may purchase and write put and call options on indices and enter into
related closing transactions. 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 Fund may choose to
terminate an option position by entering into a closing transaction. The ability
of a Fund to enter into closing transactions depends upon the existence of a
liquid secondary market for such transactions.
All options written on indices must be covered. When a Fund writes an option on
an index, it will establish a segregated account containing liquid assets and/or
cash with its custodian 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 Fund will receive a premium
when it writes covered call options, it may not participate fully in a rise in
the market value of the underlying security.
RECEIPTS--Receipts are sold as zero coupon securities which means that they are
sold at a substantial discount and redeemed at face value at their maturity date
without interim cash payments of interest or principal. This discount is
accreted over the life of the security, and such accretion will constitute the
income earned on the security for both accounting and tax purposes. Because of
these features, such securities may be subject to greater interest rate
volatility than interest-paying investments.
REPURCHASE AGREEMENTS--Repurchase agreements are agreements by which a Fund
obtains a security and simultaneously commits to return the security to the
seller at an agreed upon price on an agreed upon date within a number of days
from the date of purchase. The Fund will have actual or constructive possession
of the security as collateral for the repurchase agreement. A Fund bears a risk
of loss in the event the other party defaults on its obligations and the Fund is
delayed or prevented from its right to dispose of the collateral securities or
if the Fund realizes a loss on the sale of the collateral securities. A Fund
will enter into repurchase agreements only with financial institutions deemed to
present minimal risk of bankruptcy during the term of the agreement based on
established guidelines. Repurchase agreements are considered loans under the
1940 Act.
REVERSE REPURCHASE AGREEMENTS--Reverse repurchase agreements are agreements by
which a Fund sells securities to financial institutions and simultaneously
agrees to repurchase those securities at a mutually agreed-upon date and price.
At the time a Fund enters into a reverse repurchase agreement, the Fund will
place liquid assets having a value equal to the repurchase price in a segregated
custodial account and monitor this account to ensure equivalent value is
maintained. Reverse repurchase agreements involve the risk that the market value
of securities sold by the Fund may decline below the
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September 1, 1998
price at which the Fund is obligated to repurchase the securities. Reverse
repurchase agreements may be considered to be borrowings by a Fund under the
1940 Act.
SECURITIES LENDING--In order to generate additional income, a Fund may lend
securities which it owns pursuant to agreements requiring that the loan be
continuously secured by collateral consisting of cash, securities of the U.S.
Government or its agencies equal to at least 102% of the market value of the
securities lent. A Fund continues to receive interest on the securities lent
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. A Fund pays lending and
other fees in connection with securities loans.
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, 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. Also
it may be more difficult to obtain a judgment in a court outside the United
States.
A Fund'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 Fund'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 Fund may have limited recourse in the event of default on such
debt instruments.
STANDBY COMMITMENTS AND PUTS--Securities subject to standby commitments or puts
permit the holder thereof to sell the securities at a fixed price prior to
maturity. Securities subject to a standby commitment or put may be sold at any
time at the current market price. However, unless the standby commitment or put
was an integral part of the security as originally issued, it may not be
marketable or assignable; therefore, the standby commitment or put would only
have value to a Fund owning the security to which it relates. In certain cases,
a premium may be paid for a standby commitment or put, which premium will have
the effect of reducing the yield otherwise payable on the underlying security. A
Fund will limit standby
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commitment or put transactions to institutions believed to present minimal
credit risk.
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 seven days are considered to be illiquid securities.
U.S. GOVERNMENT AGENCIES--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, others are supported by the
right of the issuer to borrow from the Treasury, while still others are
supported only by the credit of the instrumentality. Guarantees of principal by
agencies or instrumentalities of the U.S. Government may be a guarantee of
payment at the maturity of the obligation so that in the event of a default
prior to maturity there might not be a market and thus no means of realizing on
the obligation prior to maturity. Guarantees as to the timely payment of
principal and interest do not extend to the value or yield of these securities
nor to the value of a Fund's shares.
U.S. TREASURY OBLIGATIONS--U.S. Treasury obligations consist of bills, notes and
bonds issued by the U.S. Treasury and separately traded interest and principal
component parts of such obligations that are transferable through the federal
book-entry system known as Separately Traded Registered Interest and Principal
Securities ("STRIPS").
VARIABLE AND FLOATING RATE INSTRUMENTS--Certain obligations may carry variable
or floating rates of interest, and may involve a conditional or unconditional
demand feature. Such instruments bear interest at rates which are not fixed, but
which vary with changes in specified market rates or indices. The interest rates
on these securities may be reset daily, weekly, quarterly or some other reset
period, and may have a floor or ceiling on interest rate changes. 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.
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
basis 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 Fund will maintain with the Custodian a separate account with liquid assets
and/or cash in an amount at least equal to these commitments. The interest rate
realized, if any, on these securities is fixed as of the purchase date and no
interest accrues to a Fund before settlement. These securities may be 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 Fund generally purchases securities on a when-issued or forward commitment
basis with the intention of actually acquiring securities, a Fund may dispose of
a when-issued security or forward commitment prior to settlement if it deems
such action appropriate.
One form of when-issued or delayed-delivery security that a Fund may purchase is
a "to be announced" ("TBA") mortgage-backed security. A TBA mortgage-
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September 1, 1998
backed security transaction arises when a mortgage-backed security, such as a
GNMA pass-through security, is purchased or sold with specific pools that will
constitute that GNMA pass-through security to be announced on a future
settlement date.
YANKEE OBLIGATIONS--Yankee obligations ("Yankees") are U.S. dollar-denominated
instruments of foreign issuers who either register with the Securities and
Exchange Commission 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.
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 Fund will distribute its
"phantom income" to Shareholders, to the extent that Shareholders elect to
receive dividends in cash rather than reinvesting such dividends in additional
shares, the Fund will have fewer assets with which to purchase income producing
securities. Pay-in-kind securities pay interest in either cash or additional
securities, at the issuer's option, 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 accreted interest since the last
payment. Pay-in-kind bonds are usually less volatile than zero coupon bonds, but
more volatile than cash pay securities. Pay-in-kind securities are securities
that have interest payable by delivery of additional securities. Upon maturity,
the holder is entitled to receive the aggregate par value of the 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. Zero coupons,
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
intervals.
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<PAGE>
APPENDIX
DESCRIPTION OF CORPORATE BOND RATINGS
Moody's Investors Services, Inc.'s corporate bond ratings:
Aaa - Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt-edged." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Aa - Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high-grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risk appear somewhat larger than Aaa securities.
A - 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 some time in the future.
Baa - 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 as well.
Ba - 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.
B - 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.
Caa - Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca - Bonds which are rated Ca represent obligations which are speculative
in a high degree. Such issues are often in default or have other marked
shortcomings.
C - Bonds which are rated C are the lowest rated class of bonds, and issues
so rated can be regarded as having extremely poor prospects of ever attaining
any real investment standing.
Moody's applies numerical modifiers 1, 2 and 3 in each generic rating
classification from Aa through B. The modifier 1 indicates that the obligation
ranks in the higher end of its generic rating category; the modifier 2 indicates
a mid-range ranking; and the modifier 3 indicates a rating in the lower end of
that generic rating category.
Standard & Poor's Ratings Group's corporate bond ratings:
AAA - This is the highest rating assigned by Standard & Poor's to a debt
obligation and indicates an extremely strong capacity to pay principal and
interest.
AA - 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 to a small degree.
A - Bonds rated A have a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than bonds in higher rated
categories.
BBB - Bonds rated BBB are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit 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
bonds in this category than in higher rated categories.
Debt rated BB, B, CCC, CC and C is regarded, on balance, as predominantly
speculative with respect to capacity to pay interest and repay principal in
accordance with the terms of the obligation. BB indicates the lowest degree of
speculation and C the highest degree of speculation. While such debt will likely
have some quality and
A-1
<PAGE>
protective characteristics, these may be outweighed by large uncertainties or
major risk exposures to adverse conditions.
The C rating may be used to cover a situation where a bankruptcy petition
has been filed or similar action has been taken, but payments on this obligation
are being continued.
Debt rated D is in payment default. The D rating category is used when
payments on an obligation are not made on the date due even if the applicable
grace period has not expired, unless S&P believes that such payments will be
made during such grace period. The D rating also will be used upon the filing of
a bankruptcy petition of the taking of a similar action if payments on a
obligation are jeopardized.
DESCRIPTION OF COMMERCIAL PAPER RATINGS
Moody's Investor Services, Inc.'s commercial paper ratings:
PRIME-1 - Issues rated Prime-1 (or supporting institutions) have a superior
ability for repayment of senior short-term debt obligations. Prime-1 repayment
ability will often be evidenced by many of the following characteristics:
o Leading market positions in well-established industries.
o High rates of return on funds employed.
o Conservative capitalization structure with moderate reliance on debt
and ample asset protection.
o Broad margins in earnings coverage of fixed financial charges and
high internal cash generation.
o Well-established access to a range of financial markets and assured
sources of alternate liquidity.
PRIME-2 - Issuers rated Prime-2 (or supporting institutions) have a strong
ability for repayment of senior short-term debt obligations. This will normally
be evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, may be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
PRIME-3 - Issuers rated Prime-3 (or supporting institutions) have an
acceptable ability for repayment of senior short-term obligations. The effect of
industry characteristics and market compositions may be more pronounced.
Variability in earnings and profitability may result in changes in the level of
debt protection measurements and may require relatively high financial leverage.
Adequate alternate liquidity is maintained.
Standard & Poor's Ratings Group's commercial paper ratings:
A-1 - This is the highest category and indicates that the degree of safety
regarding timely payment is strong. Those issues determined to possess extremely
strong safety characteristics are denoted with a plus sign (+) designation.
A-2 - Capacity for timely payment on issues with this designation is
satisfactory and the obligation is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than obligations in
higher rating categories.
A-3 - Issues carrying this designation have adequate capacity for timely
payment. They are, however, more vulnerable to the adverse effects of changes in
circumstances than obligations carrying the higher designations.
B - Issues rated B are regarded as having significant speculative
characteristics for timely payment.
C - This rating is assigned to short-term debt obligations that is
currently vulnerable to nonpayment.
D - Debt rated D is in payment default. The D rating category is used when
interest payments or principal payments are not made on the date due even if the
applicable grace period has not expired, unless S&P believes that such payments
will be made during such grace period. The D rating also will be used upon the
filing of a bankruptcy petition or the taking of a similar action if payments on
an obligation are jeopardized.
A-2
<PAGE>
The Pillar Funds
Class A and B Shares
High Yield Bond Fund
Equity Index Fund
International Equity Fund
Advisor:
[LOGO]
Distributor:
SEI Investments Distribution Co.
Oaks, Pennsylvania 19456
1-800-932-7782
<PAGE>
The Pillar Funds
Your Investment Foundation
PROSPECTUS
Class I Shares
September 1, 1998
<PAGE>
Table of Contents
Summary ................................................................... 2
Expense Summary ........................................................... 3
Financial Highlights ...................................................... 5
The Trust ................................................................. 7
Investment Objectives and Policies ........................................ 7
Risk Factors .............................................................. 10
Investment Limitations .................................................... 12
The Advisor ............................................................... 13
The Sub-Advisor ........................................................... 14
Management of the Portfolios .............................................. 14
The Administrator ......................................................... 16
The Transfer Agent ........................................................ 16
The Shareholder Servicing Agent ........................................... 16
The Distributor ........................................................... 16
Purchase and Redemption of Shares ......................................... 17
Performance ............................................................... 18
Taxes ..................................................................... 19
General Information ....................................................... 20
Description of Permitted Investments ...................................... 22
Appendix .................................................................. A-1
The Pillar Funds and Pillar are registered service marks of Summit Bank. Your
Investment Foundation and the stylized "P" logo are service marks of Summit
Bank. Reach Higher, Summit, Summit Bancorp and Summit Financial Services Group
are registered service marks of Summit Bancorp. Summit Bank is a service mark of
Summit Bancorp. Corporate Master-Feeder is a registered trademark of SEI
Investments Company.
<PAGE>
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September 1, 1998
THE PILLAR FUNDS
CLASS I SHARES
Investment Advisor:
SUMMIT BANK INVESTMENT MANAGEMENT DIVISION,
A DIVISION OF SUMMIT BANK
THE PILLAR FUNDS (the "Trust") consists of mutual fund portfolios seeking to
provide a convenient and economical means of investing in one or more
professionally managed portfolios of securities. This Prospectus relates to the
Class I Shares of the following funds (the "Funds"):
o HIGH YIELD BOND FUND
o EQUITY INDEX FUND
o INTERNATIONAL EQUITY FUND
The Trust's Class I Shares are offered without distribution fees to: (i)
institutional investors (including Summit Bank, its affiliates and correspondent
banks) for the investment of their own funds; (ii) any individual or institution
(including Summit Bank, its affiliates and correspondent banks) for the
investment of funds held by such individual or institution in a fiduciary,
agency, custodial or other representative capacity, if such individual or
institution is able to provide complete shareholder recordkeeping services with
respect to shares purchased and held in such capacity; and (iii) any "qualified
customer" who has entered into an agreement with Summit Bank, its affiliates or
correspondent banks ("Qualified Customers"). Investors who own Class I Shares of
a Fund are referred to herein as "Shareholders."
The High Yield Bond Fund currently seeks to achieve its objective of maximizing
total return by investing up to 100% of its assets in the High Yield Bond
Portfolio (the "SIMT High Yield Bond Portfolio"), a separate series of SEI
Institutional Managed Trust ("SIMT"), an open-end management investment company
advised by SEI Investments Management Corporation ("SIMC"), with an investment
objective identical to, and investment policies and limitations substantially
similar to, those of the High Yield Bond Fund. The performance of the High Yield
Bond Fund, therefore, will be directly related to the performance of the SIMT
High Yield Bond Portfolio.
The SIMT High Yield Bond Portfolio invests primarily, and may invest all of its
assets, in lower rated bonds, commonly referred to as "junk bonds." These
securities are speculative and are subject to greater risk of loss of principal
and interest than are investments in higher rated bonds. Because investment in
such securities entails greater risks, including risk of default, an investment
in the High Yield Bond Fund should not constitute a complete investment program
and may not be appropriate for all investors. Investors should carefully
consider the risks posed by an investment in the High Yield Bond Fund before
investing. See "Risk Factors -- High Yield Securities" and the "Appendix."
The Equity Index Fund currently seeks to achieve its objective of maximizing
total return by investing up to 100% of its assets in the S&P 500 Index
Portfolio (the "SIF S&P 500 Index Portfolio"), a separate series of SEI Index
Funds, an open-end management investment company advised by World Asset
Management ("World"), with an investment objective identical to, and investment
policies and limitations substantially similar to, those of the Equity Index
Fund. The performance of the Equity Index Fund, therefore, will be directly
related to the performance of the SIF S&P 500 Index Portfolio.
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| SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR |
| INSURED, ENDORSED OR GUARANTEED BY, ANY BANK (INCLUDING |
| SUMMIT BANK OR ITS AFFILIATES OR CORRESPONDENTS), ANY STATE |
| OR STATE AGENCY, THE FEDERAL DEPOSIT INSURANCE CORPORATION |
| (FDIC), THE U.S. GOVERNMENT OR ANY U.S. GOVERNMENT AGENCY. |
- -------------------------------------------------------------------------
Amounts invested in the Funds are subject to investment risks, including
possible loss of the principal amount invested.
This Prospectus sets forth concisely the information about the Trust that a
prospective investor should know before investing. Investors are advised to read
this Prospectus and retain it for future reference. A Statement of Additional
Information dated September 1, 1998 has been filed with the Securities and
Exchange Commission and is available without charge by writing to the
Distributor, SEI Investments Distribution Co., Oaks, Pennsylvania 19456 or by
calling 1-800-932-7782. The Statement of Additional Information is incorporated
into this Prospectus by reference.
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.
September 1, 1998
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1
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Summary
The Pillar Funds (the "Trust") consists of open-end management investment
companies which provide a convenient way to invest in professionally managed
portfolios of securities. The following provides basic information about the
Class I Shares of the Trust's High Yield Bond Fund, Equity Index Fund and
International Equity Fund (the "Funds").
WHAT ARE THE INVESTMENT OBJECTIVES?
The High Yield Bond Fund seeks to maximize total return. The Equity Index Fund
seeks investment results that correspond to the performance of the Standard &
Poor's 500 Composite Stock Index (the "S&P 500"). The International Equity Fund
seeks to achieve capital appreciation.
There is no assurance that a Fund will meet its investment objective. See
"Investment Objectives and Policies."
WHAT ARE THE PERMITTED INVESTMENTS?
The High Yield Bond Fund will invest up to 100% of its assets in the SIMT High
Yield Bond Portfolio, which in turn, will invest at least 65% of its total
assets in fixed income securities that are below investment grade, i.e., rated
below the top four ratings categories by a nationally recognized statistical
ratings organization (an "NRSRO"), or, if not rated, determined to be of
comparable quality by the Money Managers (defined below). The Equity Index Fund
will invest up to 100% of its assets in the SIF S&P 500 Index Portfolio which,
in turn, will invest substantially in common stocks included in the S&P 500. The
International Equity Fund will invest primarily in equity securities (which
include securities convertible into equity securities, such as warrants,
convertible bonds, debentures or convertible preferred stock) of issuers located
in Europe and the Pacific Basin.
ARE THERE ADDITIONAL RISK FACTORS FOR THE HIGH YIELD BOND AND EQUITY INDEX
FUNDS? The High Yield Bond Fund and the Equity Index Fund (the "Feeder Funds")
are currently "feeder funds" in separate Corporate Master-Feeder structures.
That is, the High Yield Bond Fund and the Equity Index Fund each invests in
another open-end management investment company and hold as their only investment
securities, shares of a single "master" fund, in this case the SIMT High Yield
Bond Portfolio and the SIF S&P 500 Index Portfolio (together, the "Portfolios"),
respectively. See "Investment Objectives and Policies," "Temporary Defensive
Positions," "Risk Factors" and "Description of Permitted Investments."
WHO ARE THE ADVISOR AND SUB-ADVISOR? Summit Bank Investment Management Division,
a division of Summit Bank, serves as the advisor (the "Advisor") to the Trust.
Vontobel USA Inc. serves as the sub-advisor (the "Sub-Advisor") to the
International Equity Fund. With respect to the High Yield Bond and Equity Index
Funds, the Advisor invests in a "master" fund, cash and other non-investment
securities and monitors the performance of SIMC and World as the advisors of the
SIMT High Yield Bond and SIF S&P 500 Index Portfolios, respectively. See "The
Advisor," "The Sub-Advisor" and "Management of the Portfolios."
WHO IS THE ADMINISTRATOR? SEI Investments Mutual Funds Services serves as the
administrator (the "Administrator") of the Trust. See "The Administrator."
WHO IS THE TRANSFER AGENT? State Street Bank and Trust Company acts as transfer
agent (the "Transfer Agent") for the Trust. See "The Transfer Agent."
WHO IS THE SHAREHOLDER SERVICING AND DIVIDEND DISBURSING AGENT? Boston Financial
Data Services is the Trust's dividend disbursing agent and shareholder servicing
agent. See "The Shareholder Servicing Agent."
WHO IS THE DISTRIBUTOR? SEI Investments Distribution Co. acts as distributor
(the "Distributor") of the Trust's shares. See "The Distributor."
HOW DO I PURCHASE AND REDEEM SHARES?
Purchases and redemptions of a Fund's shares may be made through the Distributor
on any "Business Day." A "Business Day" is any day that the New York Stock
Exchange is open for trading. A purchase order for a Fund will be effective as
of the Business Day received by the Distributor if the Distributor receives the
order and payment in federal funds before the time the Fund calculates its net
asset value (normally, 4:00 p.m., Eastern time). Redemption orders must be
placed prior to the time the Fund calculates its net asset value (normally, 4:00
p.m., Eastern time), on any Business Day for the order to be effective that day.
The purchase and redemption price for shares is the net asset value per share
determined as of the end of the day the order is effective. The Trust has also
authorized certain broker-dealers and other financial intermediaries
(collectively, "Authorized Broker-Dealers") to accept purchase orders and
redemption requests up to the times mentioned above on behalf of the Funds. See
"Purchase and Redemption of Shares."
HOW ARE DIVIDENDS PAID?
Substantially all of the net investment income (exclusive of capital gains) of
the: (i) High Yield Bond Fund is declared and paid monthly as a dividend; (ii)
Equity Index Fund is declared and paid quarterly; and (iii) International Equity
Fund is declared and distributed annually, in the form of dividends to
Shareholders.
Any capital gains will be distributed at least annually. Dividends are paid in
additional shares, unless the Shareholder has elected to take the payments in
cash. See "Dividends."
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2
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September 1, 1998
Expense Summary
HIGH YIELD BOND FUND AND EQUITY INDEX FUND
CLASS I SHARES
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
HIGH EQUITY
YIELD BOND INDEX
FUND FUND
- -------------------------------------------------------------------------------------------
<S> <C> <C>
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price) None None
Maximum Sales Load on Reinvested Dividends
(as a percentage of offering price) None None
Maximum Contingent Deferred Sales Charge
(as a percentage of original purchase price or redemption
proceeds, as applicable) None None
Wire Redemption Fee $ 10 $ 10
Exchange Fee None None
</TABLE>
ANNUAL OPERATING EXPENSES
(As a percentage of average net assets)
<TABLE>
<CAPTION>
AGGREGATE FEES AT
MASTER AND FEEDER LEVELS
-------------------------
HIGH EQUITY
YIELD BOND INDEX
FUND FUND
<S> <C> <C>
- -------------------------------------------------------------------------------------------
Advisory Fees (after waivers)(1) 0.86% 0.34%
Other Expenses (after waivers) (2) 0.39% 0.46%
- -------------------------------------------------------------------------------------------
Total Operating Expenses (after waivers)(3) 1.25% 0.80%
- -------------------------------------------------------------------------------------------
</TABLE>
(1) Advisory Fees reflect voluntary waivers. Absent such fee waivers, Advisory
Fees would be 1.44% and 1.00% for the High Yield Bond Fund and the Equity
Index Fund, respectively. Additional information about Advisory Fees may be
found under "The Advisor" and "Management of the Portfolios."
(2) The Advisor and the Administrator have voluntarily agreed to waive their
fees to the extent necessary to keep the Total Operating Expenses from
exceeding 1.25% for the High Yield Bond Fund and 0.80% for the Equity Index
Fund. Absent such waivers, Other Expenses for the High Yield Bond Fund and
the Equity Index Fund are estimated to be 0.53% and 0.60%, respectively, for
the current fiscal year. Additional information may be found under "The
Administrator" and "The Distributor."
(3) Absent voluntary fee waivers, the Total Operating Expenses are estimated to
be as follows: High Yield Bond Fund -- 2.03%; and Equity Index Fund --
1.90%.
EXAMPLE
An investor would pay the following expenses on a $1,000 investment in a Fund
assuming: (1) a 5% annual return; and (2) redemption at the end of each time
period:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
1 YR. 3 YRS. 5 YRS.* 10 YRS.*
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
High Yield Bond Fund $13 $40 N/A N/A
Equity Index Fund $ 8 $26 N/A N/A
</TABLE>
* Because the Funds are new, expenses have not been estimated for periods beyond
the three year period shown.
THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. THE FUNDS ARE NEW AND 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 I SHARES OF THE HIGH YIELD BOND AND
EQUITY INDEX FUNDS. Financial institutions may impose fees on their customers in
addition to those described above. Additional information may be found under
"The Advisor," "Management of the Portfolios," "The Administrator" and "The
Distributor."
- --------------------------------------------------------------------------------
3
<PAGE>
- --------------------------------------------------------------------------------
Expense Summary
INTERNATIONAL EQUITY FUND
CLASS I SHARES
ANNUAL OPERATING EXPENSES
(As a percentage of average net assets)
INTERNATIONAL
EQUITY
FUND
- --------------------------------------------------------------------------------
Advisory Fees (after waivers) (1),(2) .80%
Other Expenses .70%
- --------------------------------------------------------------------------------
Total Operating Expenses (after waivers)(2) 1.50%
- --------------------------------------------------------------------------------
(1) The Advisor and Sub-Advisor have agreed to voluntarily waive a portion of
their fees in an amount that operates to limit Total Operating Expenses of
Class I Shares of the Fund to not more than 1.50% of average daily net
assets. The Advisor and Sub-Advisor each reserves the right to terminate its
fee waiver at any time in its sole discretion.
(2) Absent fee waivers for the Fund, the Advisory Fee would be 1.00%, and Total
Operating Expenses would be 1.70% of the Fund's average daily net assets.
Additional information may be found under "The Advisor," "The Sub-Advisor,"
"The Administrator" and "The Distributor."
EXAMPLE
An investor in a Fund 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:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
1 YR. 3 YRS. 5 YRS. 10 YRS.
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
International Equity Fund $15 $47 $82 $179
</TABLE>
THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES, AND ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. The
purpose of the expense table and example is to assist the investor in
understanding the various costs and expenses that may be directly or indirectly
borne by investors in the Fund. Financial institutions may impose fees on their
customers in addition to those described above. Additional information may be
found under "The Advisor," "The Sub-Advisor," "The Administrator" and "The
Distributor."
- --------------------------------------------------------------------------------
4
<PAGE>
- --------------------------------------------------------------------------------
September 1, 1998
Financial Highlights
THE PILLAR FUNDS
The following are highlights of the International Equity Fund for a share
outstanding throughout the periods indicated. This information should be read in
conjunction with the Trust's 1) unaudited financial statements as of, and for
the period ended, June 30, 1998 and notes thereto which are incorporated by
reference into the Trust's Statement of Additional Information under "Financial
Information" and 2) financial statements as of, and for the fiscal year ended,
December 31, 1997 and notes thereto which have been audited by Arthur Andersen
LLP, the Trust's independent public accountants, which are incorporated by
reference into the Trust's Statement of Additional Information under "Financial
Information." Additional performance information is contained in the Trust's
1998 Semi-Annual Report to Shareholders and is available upon request and
without charge by calling 1-800-932-7782. Because the High Yield Bond and Equity
Index Funds had not commenced operations as of June 30, 1998, no financial
highlights are presented for these Funds. The financial highlights for the
Portfolios in which the High Yield Bond and Equity Index Funds invest are
presented on the following page. The following financial highlights reflect the
International Equity Fund's performance prior to the change of the Fund's
sub-advisor and the related investment policy changes.
<TABLE>
<CAPTION>
Realized
and
Net Asset Unrealized Distributions Net Asset Net Assets
Value Net Gains or from Net Distributions Value End of
Beginning Investment Losses on Investment from Capital End of Total Period
of Period Income Securities Income Gains Period Return (000)
- -----------------------------------------------------------------------------------------------------------------------------
INTERNATIONAL EQUITY FUND
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CLASS I
1998* $10.34 $0.07 $1.42 $ -- $ -- $11.83 14.41% $14,530
1997 11.23 0.08 (0.04) (0.08) (0.85) 10.34 0.25 14,143
1996 10.74 0.08 1.11 (0.08) (0.62) 11.23 11.17 14,822
1995(1) 10.00 0.03 0.75 (0.02) (0.02) 10.74 7.81 9,990
- -----------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Ratio of
Net
Ratio of Ratio of Investment
Ratio of Net Expenses Income to
Expenses Investment to Average Average
to Income to Net Assets Net Assets Portfolio Average
Average Average (Excluding (Excluding Turnover Commission
Net Assets Net Assets Waivers) Waivers) Rate Rate+
- ------------------------------------------------------------------------------------------------------------
INTERNATIONAL EQUITY FUND
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CLASS I
1998* 1.50% 1.26% 1.72% 1.04% 20.34% $.0065
1997 1.50 0.95 1.69 0.76 71.22 .0052
1996 1.50 0.85 1.73 0.62 67.03 .0051
1995(1) 1.50 0.79 2.11 0.18 14.32 n/a
- ------------------------------------------------------------------------------------------------------------
</TABLE>
* For the six-month period ended June 30, 1998 (unaudited). All ratios,
excluding total return, for that period have been annualized. Amounts designated
as "--" are either $0 or have been rounded to $0.
(+) Average commission rate paid per share for security purchases and sales
during the period. Presentation of the rate is only required for the fiscal
years beginning after September 1, 1995.
(1) Commenced operations on May 1, 1995. Ratios for this period have been
annualized.
- --------------------------------------------------------------------------------
5
<PAGE>
- --------------------------------------------------------------------------------
The following are highlights of the SIMT High Yield Bond Portfolio for a share
outstanding throughout the periods indicated. This information should be read in
conjunction with SIMT's 1) unaudited financial statements as of, and for the
period ended, March 31, 1998 and notes thereto which are incorporated by
reference into SIMT's Statement of Additional Information and 2) financial
statements as of, and for the fiscal year ended, September 30, 1997 and notes
thereto which have been audited by PricewaterhouseCoopers LLP, independent
accountants for SIMT, which are incorporated by reference into SIMT's Statement
of Additional Information. Additional performance is set forth in SIMT's 1998
Semi-Annual Report to Shareholders and is available upon request and without
charge by calling 1-800-342-5734.
FOR A CLASS A SHARE OUTSTANDING THROUGHOUT THE PERIOD
<TABLE>
<CAPTION>
Net
Realized
and
Unrealized Distributions
Net Asset Gains or Dividends from Net Asset
Value Net (Losses) from Net Realized Value Net Assets
Beginning Investment on Investment Capital End of Total End of Period
of Period Income Securities Income Gains Period Return (000)
- ------------------------------------------------------------------------------------------------------------------------------
SIMT HIGH YIELD BOND PORTFOLIO
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
For the periods ended September 30,
1998* $11.66 $0.52 $ 0.23 $(0.52) $(0.10) $11.79 6.61% $281,648
1997 11.14 1.04 0.57 (1.04) (0.05) 11.66 15.30 236,457
1996 10.64 0.94 0.62 (1.03) (0.03) 11.14 15.46 107,545
1995(1) 10.00 0.67 0.55 (0.58) -- 10.64 17.72 23,724
- ------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Ratio of
Net
Ratio of Ratio of Investment
Ratio of Net Expense to Income to
Expenses Investment Average Average
to Income to Net Assets Net Assets Portfolio
Average Average (Excluding (Excluding Turnover
Net Assets Net Assets Waivers) Waivers) Rate
- ----------------------------------------------------------------------------------------------------------------------------
SIMT HIGH YIELD BOND PORTFOLIO
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
For the periods ended
1998* 0.85% 8.94% 1.15% 8.64% 44%
1997 0.86 9.33 0.91 9.28 68
1996 0.87 9.01 0.94 8.94 55
1995(1) 0.67 10.02 0.86 9.83 56
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
* For the six month period ended March 31, 1998 (unaudited). All ratios,
excluding total return, for that period have been annualized. Amounts
designated as "--" are either $0 or have been rounded to $0.
(1) High Yield Bond Class A shares were offered beginning January 11, 1995.
All ratios including total return for that period have been annualized.
The following are highlights of the SIF S&P 500 Index Portfolio for a share
outstanding for the periods indicated. This information should be read in
conjunction with SIF's financial statements as of, and for the fiscal year
ended, March 31, 1998 and notes thereto which have been audited by Arthur
Andersen LLP, independent public accountants for SIF, which are incorporated by
reference into SIF's Statement of Additional Information. Additional performance
is set forth in SIF's 1998 Annual Report to Shareholders, which is available
upon request and without charge by calling 1-800-342-5734.
FOR A CLASS E SHARE OUTSTANDING THROUGHOUT THE PERIOD
<TABLE>
<CAPTION>
Net
Realized
and
Net Asset Unrealized Dividends
Value Net Gains or from Net Distributions Net Asset Net Assets
Beginning Investment (Loss) on Investment from Capital Value, End Total End of
of Period Income Investments Income Gains of Period Return Period (000)
- ------------------------------------------------------------------------------------------------------------------------------
SIF S&P 500 INDEX PORTFOLIO**
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
For the periods ended March 31,
1998 $24.10 $0.45 $10.88 $(0.45) $(0.21) $34.77 47.62% $1,300,924
1997 20.88 0.46 3.54 (0.45) (0.33) 24.10 19.46 835,889
1996 16.40 0.44 4.72 (0.37) (0.31) 20.88 31.88 630,566
1995 15.07 0.42 1.79 (0.42) (0.46) 16.40 15.26 458,012
1994 15.80 0.43 (0.22) (0.42) (0.52) 15.07 1.19 424,647
1993 14.17 0.40 1.69 (0.40) (0.06) 15.80 14.97 675,484
1992 13.43 0.40 1.01 (0.41) (0.26) 14.17 10.71 470,847
1991 12.45 0.43 1.24 (0.43) (0.26) 13.43 14.18 261,165
1990 10.88 0.42 1.64 (0.43) (0.06) 12.45 19.02 192,154
1989 9.63 0.39 1.26 (0.40) -- 10.88 17.60 125,714
1988 12.68 0.43 (1.65) (0.45) (1.38) 9.63 (9.35) 105,473
1987 12.45 0.42 2.63 (0.38) (2.44) 12.68 25.96 103,468
1986(1) 10.00 0.29 2.37 (0.21) -- 12.45 40.43* 94,224
- ------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Ratio of Net
Ratio of Investment
Expenses Income to
Ratio of Net to Average Average Net
Ratio of Investment Net Assets Assets
Expenses Income to (Excluding (Excluding Portfolio Average
to Average Average Fee Fee Turnover Commission
Net Assets Net Assets Waivers) Waivers) Rate Rate+
- ------------------------------------------------------------------------------------------------------------------------------
SIF S&P 500 INDEX PORTFOLIO**
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
For the periods ended
1998 0.25% 1.55% 0.54% 1.26% 4% $.0169
1997 0.25 2.03 0.54 1.74 2 .0197
1996 0.25 2.31 0.35 2.21 3 n/a
1995 0.25 2.69 0.35 2.59 4 n/a
1994 0.25 2.57 0.33 2.49 23 n/a
1993 0.25 2.75 0.35 2.65 1 n/a
1992 0.25 2.99 0.34 2.90 1 n/a
1991 0.25 3.56 0.32 3.49 40 n/a
1990 0.25 3.58 0.36 3.47 10 n/a
1989 0.25 4.03 0.39 3.89 47 n/a
1988 0.25 3.74 0.43 3.56 77 n/a
1987 0.23 3.29 0.44 3.08 145 n/a
1986(1) 0.20* 4.10* 0.44* 3.86* 66 n/a
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Annualized
** Effective July 31, 1997, the former Class A shares were renamed Class E
shares.
+ Average commission rate paid per share for security purchases and sales
during the period. Presentation of the rate is only required for the fiscal
years beginning after September 1, 1995.
(1) Class E shares (formerly Class A shares) commenced operations on August 1,
1985.
- --------------------------------------------------------------------------------
6
<PAGE>
- --------------------------------------------------------------------------------
September 1, 1998
THE TRUST
The Pillar Funds (the "Trust") is an open-end management investment company that
consists of diversified and non-diversified portfolios. The Trust currently
offers units of beneficial interest ("shares") in seventeen separate investment
portfolios. The Trust offers shares of each portfolio through up to four
separate classes of shares (Class A, Class B, Class I and Class S) which provide
for variations in distribution costs, voting rights, sales loads, minimum
investments, redemption fees, transfer agency fees and dividends. Except for
these differences between classes, each share of each portfolio represents an
undivided proportionate interest in that portfolio. This Prospectus relates to
the Class I Shares of the Trust's High Yield Bond Fund, Equity Index Fund and
International Equity Fund (the "Funds"). Each Fund is a diversified mutual fund.
Information regarding the Trust's other portfolios and the Class A Shares and
Class B Shares of the Funds is contained in separate prospectuses that may be
obtained by writing the Trust's Distributor, SEI Investments Distribution Co.,
Oaks, Pennsylvania 19456 or by calling 1-800-932-7782.
INVESTMENT OBJECTIVES AND POLICIES
The investment objective and policies of each Fund are described below. For
additional information regarding risks and permitted investments of the Funds,
see "Risk Factors," "Temporary Defensive Positions" and "Description of
Permitted Investments" in this Prospectus and "Description of Permitted
Investments" and "Description of Ratings" in the Statement of Additional
Information. There is no assurance that the investment objective of a Fund will
be met.
THE HIGH YIELD BOND FUND
The investment objective of the Fund is to maximize total return. It currently
pursues this objective by investing up to 100% of its assets in the SIMT High
Yield Bond Portfolio, which has an identical investment objective.
Under normal market conditions, the SIMT High Yield Bond Portfolio will invest
at least 65% of its total assets in fixed income securities that are rated below
investment grade, i.e., rated below the top four rating categories by an NRSRO
at the time of purchase or, if not rated, determined to be of comparable quality
by the money manager or managers chosen by SIMC (the "Money Managers"). Below
investment grade securities are commonly referred to as "junk bonds," and
generally entail increased credit and market risk. Securities rated in the
lowest rating categories may have predominantly speculative characteristics or
may be in default. The achievement of the Portfolio's investment objective may
be more dependent on a Money Manager's own credit analysis than would be the
case if the Portfolio invested in higher rated securities. There is no bottom
limit on the ratings of high yield securities that may be purchased or held by
the Portfolio.
The SIMT High Yield Bond Portfolio may invest in all types of fixed income
securities issued by domestic and foreign issuers, including: (i)
mortgage-backed securities, (ii) asset-backed securities, (iii) zero coupon,
pay-in-kind or deferred payment securities, and (iv) variable and floating rate
instruments.
Any assets of the SIMT High Yield Bond Portfolio not invested in the fixed
income securities described above may be invested in: (i) convertible
securities, (ii) preferred stocks, (iii) equity securities, (iv) investment
grade fixed income securities, (v) money market securities, (vi) securities
issued on a when-issued and delayed-delivery basis, including TBA
mortgage-backed securities, (vii) forward foreign currency contracts, and (viii)
Yankee obligations. In addition, the Portfolio may purchase or write options,
futures and options on futures.
The Money Managers may vary the average maturity of the securities in the SIMT
High Yield Bond Portfolio without limit, and there is no restriction on the
maturity of any individual security.
The "Appendix" to this Prospectus sets forth a description of the bond rating
categories of several
- --------------------------------------------------------------------------------
7
<PAGE>
- --------------------------------------------------------------------------------
NRSROs. The ratings established by each NRSRO represents its opinion of the
safety of principal and interest payments (and not the market risk) of bonds and
other fixed income securities it undertakes to rate at the time of issuance.
Ratings are not absolute standards of quality, and may not reflect changes in an
issuer's creditworthiness. Accordingly, although the Money Managers will
consider ratings, they will perform their own analyses and will not rely
principally on ratings. The Money Managers will consider, among other things,
the price of the security and the financial history and condition, the prospects
and the management of an issuer in selecting securities for the Portfolio.
THE EQUITY INDEX FUND
The investment objective of the Fund is to seek investment results that
correspond to the S&P 500. It currently pursues this objective by investing up
to 100% of its assets in the SIF S&P 500 Index Portfolio, which has an identical
investment objective.
The SIF S&P 500 Index Portfolio's ability to duplicate the performance of the
S&P 500 will depend to some extent on the size and timing of cash flows into and
out of the Portfolio, as well as on the level of the Portfolio's expenses.
Adjustments made to accommodate cash flows will track the S&P 500 to the maximum
extent practicable, and may result in brokerage expenses for the Portfolio. Over
time, the correlation between the performance of the Portfolio and the S&P 500
is expected to be over 0.95. A correlation of 1.00 would indicate perfect
correlation, which would be achieved when the net asset value of the Portfolio,
including the value of its dividend and capital gains distributions, increased
or decreased in exact proportion to changes in the S&P 500.
The Portfolio will normally invest in all of the stocks which comprise the S&P
500, except when changes are made to the S&P 500 itself. The Portfolio's policy
is to fully invest in common stocks, and it is expected that cash reserves or
other non-Index securities would normally be less than 10% of net assets.
Accordingly, an investment in shares of the Portfolio involves risks similar to
those of investing in a fund consisting of the common stocks of some or all of
the companies included in the S&P 500.
The weightings of stocks in the S&P 500 are based on each stock's relative total
market value, i.e., market price per share times the number of shares
outstanding. Because of this weighting, approximately 50% of the S&P 500 is
currently composed of stocks of the 50 largest companies in the S&P 500, and the
S&P 500 currently represents over 65% of the market value of all U.S. common
stocks listed on the New York Stock Exchange.
World makes no attempt to "manage" the Portfolio in the traditional sense (i.e.,
by using economic, financial or market analyses). The adverse financial
situation of a company usually will not result in the elimination of a stock
from the Portfolio. However, an investment may be removed from the Portfolio if,
in the judgement of World, the merit of the investment has been substantially
impaired by extraordinary events or adverse financial conditions. Furthermore,
administrative adjustments may be made in the Portfolio from time to time
because of mergers, changes in the composition of the S&P 500 and similar
reasons. In certain circumstances, World may exercise discretion in determining
whether to exercise warrants and rights issued in respect to portfolio
securities or whether to tender portfolio securities pursuant to a tender or
exchange offer.
The Portfolio may enter into stock index futures contracts to maintain adequate
liquidity to meet its redemptions demands while maximizing the level of the
Portfolio's assets which are tracking the performance of the S&P 500, provided
that the value of these contracts does not exceed 20% of the Portfolio's total
assets. The Portfolio may only purchase those stock index futures
contracts--such as futures contracts on the S&P 500--that are likely to
- --------------------------------------------------------------------------------
8
<PAGE>
- --------------------------------------------------------------------------------
September 1, 1998
closely duplicate the performance of the S&P 500. The Portfolio also can sell
such futures contracts in order to close out a previously established position.
The Portfolio will not enter into any stock index futures contract for the
purpose of speculation, and will only enter into contracts traded on national
securities exchanges with standardized maturity dates.
The Portfolio may invest cash reserves in securities issued by the U.S.
Government, its agencies or instrumentalities, bankers' acceptances, commercial
paper rated at least A-1 by Standard & Poor's Corporation ("S&P") and/or Prime-1
by Moody's Investors Services, Inc. ("Moody's"), certificates of deposit or
repurchase agreements involving such obligations. Such investments will not be
used for defensive purposes.
The equity securities in which the Portfolio invests are common stocks,
preferred stocks, securities convertible into common stock and American
Depositary Receipts ("ADRs").
The Portfolio may lend up to 20% of its assets to qualified institutions for the
purpose of realizing additional income, however the Portfolio has no present
intention to lend its securities. The Portfolio may invest in illiquid
securities. The Portfolio may enter into forward commitments, or purchase
securities on a when-issued or delayed delivery basis.
In order to maintain liquidity during times of unusual market conditions, the
Fund also may invest temporarily in cash and cash items of the kinds described
under "Description of Permitted Investments."
THE INTERNATIONAL EQUITY FUND
The investment objective of the Fund is to seek capital appreciation.
The Fund will attempt to achieve its objective by investing in a carefully
selected and continuously managed diversified portfolio consisting primarily of
equity securities (including securities convertible into equity securities, such
as warrants, convertible bonds, debentures or convertible preferred stock). The
investments of the Fund will consist principally of equity securities of issuers
located in European and Pacific Basin countries.
The Fund will invest most of its assets in equity securities of issuers located
in countries which are generally considered to have developed markets, such as
the United Kingdom, Germany, France, the Netherlands, Switzerland, Norway,
Spain, Japan, Hong Kong, Australia, and Singapore, which are included in Morgan
Stanley Capital International's Europe, Australia and Far East Index ("EAFE").
The Sub-Advisor will decide when and how much to invest in each of those
markets. Investments may also be made in equities issued by companies in
"developing countries" or "emerging markets," such as Taiwan, Malaysia,
Indonesia, and Brazil, included in Morgan Stanley Capital International's
Emerging Markets Free Index ("EMF"). Investments in the equity markets of these
countries involve exposure to economic structures that are generally less
diverse and mature, and whose political systems may have less stability than
those of "developed countries." Subject to investment limitations stated in the
Statement of Additional Information, the Fund may invest in the shares of
closed-end investment companies that acquire equity securities of foreign
issuers in which the Fund may invest.
It is the policy of the Fund to invest primarily in equity securities which may
achieve capital appreciation by selecting companies with superior potential
based on a series of macro and micro analyses. The Fund may select its
investments from companies which are listed on a securities exchange or from
companies whose securities have an established over-the-counter market, and may
make investments in "thinly traded" securities.
Under normal circumstances the Fund will have at least 65% of its assets
invested in European and
- --------------------------------------------------------------------------------
9
<PAGE>
- --------------------------------------------------------------------------------
Pacific Basin equity securities. The Fund intends to diversify investments
broadly among countries and normally to have represented in the portfolio
business activities of not fewer than three different countries. The securities
the Fund purchases may not always be purchased on the principal market. For
example, ADRs may be purchased if trading conditions make them more attractive
than the underlying security.
The selection of the securities in which the Fund will invest will not be
limited to companies of any particular size, or to securities traded in any
particular marketplace, and will be based only upon the expected contribution
such security will make to the Fund's investment objective.
Since the Fund seeks to achieve capital appreciation, it will dispose of a
security, regardless of the time it has been held, to establish gains, to avoid
anticipated reductions of value, or to reduce or eliminate a position in a
security which is no longer believed to offer the potential for suitable gains.
Portfolio turnover is expected not to exceed an annual rate of 100% under normal
circumstances. Such a turnover rate may reflect substantial short-term trading
and corresponding brokerage costs which the Fund must pay.
The Fund may: (i) enter into forward contracts to purchase or sell foreign
currencies ("forward currency contracts"); (ii) purchase and write covered call
options on foreign currencies ("currency options"); (iii) enter into contracts
for the purchase or sale for future delivery of foreign currencies ("currency
futures"); or (iv) purchase and write covered call options on currency futures.
For active currency risk management, the Sub-Advisor employs a systematic
currency hedging approach based on a technical-trend-following model.
In seeking to achieve the Fund's investment objective of capital appreciation,
the Sub-Advisor will employ an approach that combines top-down country
allocation and bottom-up stock selection. The Sub-Advisor will seek to identify
countries where economic and political factors are likely to provide above
average returns, and companies in such countries that are best positioned in
their respective industries and that are attractively valued.
TEMPORARY DEFENSIVE POSITIONS
For temporary defensive purposes during periods when the Advisor, Sub-Advisor,
Money Manager or World determines that market conditions warrant, a Fund may
invest up to 100% of its assets in money market securities and may hold cash for
liquidity purposes. The money market securities a Fund may invest in are
described under "Description of Permitted Investments."
For temporary defensive purposes, the International Equity Fund may hold cash or
debt obligations denominated in U.S. dollars or foreign currencies. These debt
obligations include U.S. and foreign government securities and investment grade
corporate debt securities, or bank deposits of major international institutions.
To the extent a Fund is engaged in defensive investing, the Fund will not be
pursuing its investment objective.
RISK FACTORS
HIGH YIELD SECURITIES
Investors should carefully consider the relative risks of investing in high
yield securities and understand that such securities generally are not meant for
short-term investing. The high yield market is relatively new and its growth
paralleled a long period of economic expansion and an increase in merger,
acquisition and leveraged buy out activity. 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 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
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Money Manager 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 Portfolio 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 such Portfolio's net asset value. Prices for high
yield securities may also be affected by legislative and regulatory
developments.
Lower rated or unrated fixed income 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.
EQUITY SECURITIES
The value of shares will fluctuate due to the underlying securities in which a
Fund invests. The market value of the convertible securities purchased by a Fund
also may be affected by changes in interest rates, the credit quality of the
issuer and any call provisions. In addition, investments in smaller, less
well-established companies may subject a Fund to certain special risks related
to, for example, limited product lines, markets or financial resources and
dependence on a small management group. Such securities may trade less
frequently, in smaller volumes and fluctuate more sharply in value than exchange
listed securities of larger companies.
FOREIGN SECURITIES
A Fund's investments in securities of foreign issuers may subject it to risks
different than those attendant to investments in securities of U.S. issuers,
such as differences in accounting, auditing and financial reporting standards
applicable in foreign countries, the possibility of expropriation or
confiscatory taxation, political instability and greater fluctuations in value
due to changes in currency exchange rates. There may also be less publicly
available information with regard to foreign issuers than domestic issuers. In
addition, foreign markets may be characterized by less liquidity, greater price
volatility, less regulation and higher transaction costs than U.S. markets.
Moreover, the dividends payable on a Fund's foreign securities may be subject to
foreign withholding taxes, thus reducing the net amount of income available for
distribution to the Fund's Shareholders. Also, it may be more difficult to
obtain a judgment in a court outside the United States. These risks could be
greater in emerging markets than in more developed foreign markets because
emerging markets may have less stable political environments than more developed
countries.
EQUITY INDEX FUND
Neither the Equity Index Fund nor the SIF S&P 500 Index Portfolio is sponsored,
endorsed, sold or promoted by S&P. S&P makes no representation or warranty,
implied or expressed, to the purchasers of the Fund, Portfolio or any member of
the public regarding the advisability of investing in index funds or the Fund or
Portfolio or the ability of the S&P 500 Index to track general stock market
performance.
S&P DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF THE INDEX OR ANY
DATA INCLUDED THEREIN. S&P MAKES NO WARRANTY, EXPRESSED OR IMPLIED, AS TO
RESULTS TO BE OBTAINED BY THE FUND, PORTFOLIO, OWNERS OF THE FUND, OWNERS OF THE
PORTFOLIO, OR ANY DATA INCLUDED THEREIN. S&P MAKES NO EXPRESSED OR IMPLIED
WARRANTIES, AND HEREBY DISCLAIMS ALL WARRANTIES OF MERCHANTABILITY OR FITNESS
FOR A
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PARTICULAR PURPOSE OR USE WITH RESPECT TO THE INDEX OR ANY DATA INCLUDED
THEREIN.
THE FEEDER FUNDS AND THE PORTFOLIOS
Unlike other mutual funds which directly acquire and manage their own portfolio
securities, each Feeder Fund seeks to achieve its investment objective by
investing up to 100% of its assets in the corresponding Portfolio, which is a
separate registered investment company with identical investment objectives. The
investment objective of a Feeder Fund or a Portfolio may not be changed without
shareholder approval. In addition to selling beneficial interests to the Feeder
Fund, each Portfolio may sell beneficial interests to other mutual funds or
institutional investors. Such investors will invest in a Portfolio on the same
terms and conditions and will pay a proportionate share of that Portfolio's
expenses. However, other investors investing in a Portfolio are not required to
buy their shares at the same public offering prices as the corresponding Feeder
Fund. Investors in a Feeder Fund should be aware that because of these
differences, other investors in the other funds that invest in the corresponding
Portfolio may obtain different returns. Such differences in returns are also
present in other mutual fund structures.
Certain changes in a Portfolio's investment objective, policies or restrictions
may require the corresponding Feeder Fund to redeem its investment. Any such
withdrawal could result in a distribution-in-kind of portfolio securities (as
opposed to a cash distribution from the Portfolio). The Feeder Fund could incur
brokerage fees or other transaction costs in converting such securities to cash.
The distribution-in-kind may also result in a less diversified portfolio of
investments or adversely affect the liquidity of the Feeder Fund. In addition,
the investment of a Feeder Fund may be withdrawn from the Portfolio at any time
if the Trustees of the Trust determine that it is in the best interest of the
Feeder Fund to do so.
Upon any such withdrawal, the Trustees of the Trust would consider what action
might be taken, including the investment of all of the assets of such Feeder
Fund in another pooled investment entity having the same investment objective as
the Feeder Fund or retaining an investment advisor to manage the Feeder Fund's
assets in accordance with its investment objective and policies. The performance
of a Feeder Fund might be adversely affected under such circumstances and such
Feeder Fund may not be able to achieve its investment objective.
INVESTMENT LIMITATIONS
The investment objective and the following investment limitations are
fundamental policies of each Fund. Fundamental policies cannot be changed with
respect to a Fund without the consent of the holders of a majority of that
Fund's outstanding shares. The Portfolios have adopted fundamental limitations
that are similar to these limitations.
A FUND MAY NOT:
1. Purchase any securities which would cause more than 25% of the total assets
of a Fund 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 the obligations issued or
guaranteed by the U.S. Government, its agencies or instrumentalities and
repurchase agreements involving such securities. For purposes of this
limitation, (i) utility companies will be classified according to their
services, for example, gas, gas transmissions, electric and telephone will
each be considered a separate industry; (ii) financial services companies
will be classified according to the 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
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September 1, 1998
(iv) governmental issuers within a particular country will be deemed to be
conducting their principal business activities in the same industry.
2. Make loans, except that a Fund may (a) purchase or hold debt instruments in
accordance with its investment objective and policies; (b) enter into
repurchase agreements; and (c) engage in securities lending as described in
this Prospectus and in the Statement of Additional Information.
The foregoing percentage limitations apply at the time of the purchase of a
security.
It is a non-fundamental policy of each Fund to invest no more than 15% of its
net assets in illiquid securities (as defined below under "Description of
Permitted Investments").
Additional investment limitations are set forth in the Statement of Additional
Information.
THE ADVISOR
Summit Bank Investment Management Division, a division of Summit Bank (the
"Advisor"), serves as the investment advisor to the Trust. The Advisor makes the
investment decisions for the assets of the Funds, other than the Feeder Funds,
and continuously reviews, supervises and administers each Fund's investment
program subject to the supervision of, and policies established by, the Trustees
of the Trust.
Summit Bank, 210 Main Street, Hackensack, New Jersey 07601, was chartered in
1899 and has been exercising trust powers and managing money since 1916. The
Investment Management Division began as a separate operating division of the
Bank in 1973. The Bank's investment professionals have, on average, over 20
years of experience in investment management. As of December 31, 1997, total
assets under management were approximately $8.2 billion.
Summit Bank is a wholly-owned subsidiary of Summit Bancorp, an interstate bank
holding company with approximately $30 billion in assets and 426 banking
offices, predominantly in New Jersey and eastern Pennsylvania, as of December
31, 1997.
The Advisor is entitled to a fee from each Fund, which is calculated daily and
paid monthly at the annual rate of the respective Fund's average daily net
assets as set forth in the following table. The Advisor has voluntarily agreed
to waive all or a portion of its fees to limit the total operating expenses of
Class I Shares of each Fund to the respective levels set forth below. The
Advisor reserves the right to terminate any and all fee waivers at any time in
its sole discretion.
Also set forth below are the advisory fees each Fund paid to the Advisor (shown
as a percentage of average daily net assets) for the fiscal year ended December
31, 1997.
Maximum Total Fees Received
Contractual Operating Expense In
Fee After Fee Waiver Fiscal Year 1997
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High Yield Bond Fund .60% 1.25% N/A
Equity Index Fund .75% .80% N/A
International Equity Fund 1.00% 1.50% .80%
The fees listed above for the High Yield Bond Fund and the Equity Index Fund
represent the contractual fees payable to the Advisor at the feeder level only.
In addition to these fees, Shareholders of the Funds will bear their pro rata
portion of the respective Portfolio's advisory fees at the master level.
Contractual advisory fees at the master level are discussed in "Management of
the Portfolios."
Should the Trustees of the Trust determine that either the High Yield Bond Fund
or the Equity Index Fund should no longer remain in a Corporate Master-Feeder
structure, the Advisor will manage all of the investments for the Fund. At that
time, the Advisor would be entitled to a fee, calculated daily and paid monthly,
at an annual rate of .60% of the average daily net assets of the High Yield Bond
Fund
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and/or .75% of the average daily net assets of the Equity Index Fund.
Summit Bank has also entered into a custodian agreement with the Trust, under
which it provides all securities safekeeping services as required by the Funds
and the Investment Company Act of 1940 (the "1940 Act"). The Trust pays Summit
Bank (referred to herein in its custodial capacity as the "Custodian") a
custodian fee, which is calculated daily and paid monthly, at an annual rate of
.025% of the average daily net assets of the High Yield Bond and Equity Index
Portfolios, respectively, and .17% of the International Equity Fund's average
daily net assets.
THE SUB-ADVISOR
Vontobel USA Inc. (the "Sub-Advisor") serves as the investment sub-advisor to
the International Equity Fund.
The Sub-Advisor is a wholly owned and controlled subsidiary of Vontobel Holding
Ltd., a Swiss bank holding company, having its registered offices in Zurich,
Switzerland. As of December 31, 1997, the Sub-Advisor managed in excess of $1.9
billion. The Sub-Advisor also acts as the advisor or sub-advisor to other mutual
funds and to three series of a Luxembourg fund organized by an affiliate of the
Sub-Advisor. That fund does not accept investments from the U.S.
The address of the Sub-Advisor is 450 Park Avenue, New York, N.Y. 10022.
Mr. Fabrizio Pierallini, who is a Senior Vice President of the Sub-Advisor, is
the portfolio manager of the International Equity Fund since August 31, 1998
and has been a portfolio manager at the Sub-Advisor since April 1994. He is
currently in charge of portfolio management and research for the Sub-Advisor's
international and emerging market equity portfolios. From 1991 to 1994, Mr.
Pierallini was an Associate-Director/Portfolio Manager with Swiss Bank
Corporation, New York. From 1988 to 1991, he was a Vice President/Portfolio
Manager with SBC Portfolio Management, Zurich. Mr. Rajiv Jain, who is a Vice
President of the Sub-Advisor, is the associate portfolio manager of the Fund
since August 31, 1998. Mr. Jain joined the Sub-Advisor in November 1994 and
serves as an assistant portfolio manager for the Sub-Advisor's international and
emerging markets equity portfolios. From 1993 to 1994, Mr. Jain worked as an
analyst with Swiss Bank Corporation, New York.
The Sub-Advisor is entitled to a fee payable by the Advisor from the Advisor's
fee, which is calculated daily and paid monthly, at an annual rate of .60% of
the average daily net assets of the Fund up to and including $50 million; .45%
of the average daily net assets of the Fund in excess of $50 million up to and
including $150 million; and .30% of the average daily net assets of the Fund in
excess of $150 million. The Sub-Advisor may, from time to time, waive a portion
of its fee in order to limit the operating expenses of Class I Shares of the
Fund. The Sub-Advisor reserves the right to terminate any such fee waiver at any
time in its sole discretion. For the fiscal year ended December 31, 1997, the
Advisor paid Wellington Management Company, LLP, the Fund's prior sub-advisor, a
sub-advisory fee of .60% of the average daily net assets of the Fund.
MANAGEMENT OF THE PORTFOLIOS
SIMT HIGH YIELD BOND PORTFOLIO
SIMC serves as investment advisor to the SIMT High Yield Bond Portfolio. SIMC is
a wholly-owned subsidiary of SEI Investments Company ("SEI Investments"), a
financial services company. The principal business address of SIMC is Oaks,
Pennsylvania 19456. SEI Investments was founded in 1968 and is a leading
provider of investment solutions to banks, institutional investors, investment
advisors and insurance companies. Affiliates of SIMC have provided consulting
advice to institutional
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September 1, 1998
investors for more than 20 years, including advice regarding the selection and
evaluation of investment advisors. SIMC currently serves as manager or
administrator to more than 46 investment companies, including more than 345
portfolios, which investment companies have more than $99.9 billion in assets as
of September 30, 1997.
SIMC operates as a "manager of managers." 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 SIMT Board of Trustees, the Money Managers
are responsible for the day-to-day investment management of all or a discrete
portion of the assets of the Portfolio. The Money Managers are selected based
primarily upon the research and recommendations of SIMC, which evaluates
quantitatively and qualitatively each Money Manager's skills and investment
results in managing assets for specific asset classes, investment styles and
strategies. Subject to SIMT Board's review, SIMC allocates and, when
appropriate, reallocates the Portfolio's assets among Money Managers, monitors
and evaluates sub-advisor performance, and oversees Money Manager compliance
with the Portfolio's investment objective, policies and restrictions. SIMC HAS
THE ULTIMATE RESPONSIBILITY FOR THE INVESTMENT PERFORMANCE OF THE PORTFOLIO DUE
TO ITS RESPONSIBILITY TO OVERSEE MONEY MANAGERS 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 .4875% of the Portfolio's average
daily net assets. SIMC pays the Money Managers out of its investment advisory
fee.
For the fiscal year ended September 30, 1997, SIMC received an advisory fee of
.4875% of the High Yield Bond Portfolio's average daily net assets.
SIMC has obtained an exemptive order from the Securities and Exchange Commission
(the "SEC") that permits SIMC, with the approval of SIMT's Board of Trustees, to
retain Money Managers 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 Money Managers.
BEA Associates ("BEA") currently serves as the sole Money Manager for the SIMT
High Yield Bond Portfolio. SIMC pays BEA a fee based on a percentage of the
average monthly market value of the portion of the assets of the High Yield Bond
Portfolio managed by BEA.
SIF S&P 500 INDEX PORTFOLIO
World Asset Management ("World") serves as investment advisor to the SIF S&P 500
Index Portfolio.
World is a general partnership organized by Munder Capital Management ("MCM"), a
general partnership formed in December, 1994, which engages in investment
management and advisory services. As of December 31, 1997, total assets under
management of World were $11.0 billion and assets under management of MCM were
$37.0 billion. The principal address for World is 255 Brown Street Centre, 2nd
Floor, Birmingham, Michigan 48009.
World provides certain record keeping and management services in connection with
SIF S&P 500 Index Portfolio, including monitoring the indexing systems and
determining which securities to purchase and sell in order to keep the SIF S&P
500 Index Portfolio in balance with its index.
For its services, World is entitled to a fee, which is calculated daily and paid
monthly, at an annual rate
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of 0.03% of the average daily net assets of the SIF S&P 500 Index Portfolio. For
the fiscal year ended March 31, 1997, the SIF S&P 500 Index Portfolio paid World
an advisory fee of 0.03% of its average daily net assets.
THE ADMINISTRATOR
SEI Investments Mutual Funds Services (the "Administrator") serves as the
Administrator of the Trust. The Administrator provides the Trust with
administrative services, other than investment advisory services, including all
regulatory reporting, necessary office space, equipment, personnel and
facilities.
The Administrator is entitled to a fee, which is calculated daily and paid
monthly, at an annual rate of .20% of the average daily net assets of each Fund.
The Administrator has agreed to waive its fees for the High Yield Bond Fund and
the Equity Index Fund to the extent necessary to maintain the total operating
expenses stated in the "Expense Summary."
THE TRANSFER AGENT
State Street Bank and Trust Company (the "Transfer Agent"), 225 Franklin St.,
Boston, Massachusetts 02110 is the Trust's transfer agent.
THE SHAREHOLDER SERVICING AGENT
Boston Financial Data Services, Two Heritage Drive, North Quincy, Massachusetts,
02171 is the Trust's dividend disbursing agent and shareholder servicing agent.
THE DISTRIBUTOR
SEI Investments Distribution Co. (the "Distributor"), a wholly-owned subsidiary
of SEI Investments, acts as the Distributor of the Trust's shares.
No compensation is paid to the Distributor for distribution services for the
Class I Shares of the Funds. Class I Shares of the Funds are offered without
distribution fees to: (i) institutional investors (including Summit Bank, its
affiliates and correspondent banks) for the investment of their own funds; (ii)
individuals and institutions (including Summit Bank, its affiliates and
correspondent banks) for the investment of funds held by such individuals or
institutions in a fiduciary, agency, custodial or other representative capacity
if such individuals or institutions are able to provide complete shareholder
recordkeeping services with respect to shares purchased and held in such
capacity; and (iii) any qualified customer who has entered into an agreement
with Summit Bank, its affiliates or correspondent banks ("Qualified Customers").
The Distributor may, from time to time in its sole discretion, institute one or
more promotional incentive programs which will be paid by the Distributor from
the sales charge it receives or from any other source available to it. Under any
such program, the Distributor may provide promotional incentives in the form of
cash or other compensation, including merchandise, gifts and prizes, and payment
of travel expenses, meals and lodging, to all dealers selling shares of a Fund.
Such promotional incentives will be offered uniformly to all dealers and
predicated upon the number of shares of the Trust's portfolios sold by the
dealer.
THE PORTFOLIOS
The Distributor also provides distribution services for the Portfolios' shares.
No compensation is paid to the Distributor for distribution services for the SIF
S&P 500 Index Portfolio. The SIMT High Yield Bond Portfolio has adopted a
shareholder servicing plan for its Class A shares (the "Service Plan") under
which a shareholder servicing fee of up to .25% of average daily net assets
attributable to SIMT's Class A shares will be paid to the Distributor. Under the
Service Plan, the Distributor may perform, or may compensate other service
providers for performing, the following shareholder and administrative services:
maintaining client accounts; arranging for bank wires;
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September 1, 1998
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.
PURCHASE AND REDEMPTION OF SHARES
Shares of each Fund are sold on a continuous basis and may be purchased on any
day that the New York Stock Exchange is open for trading (a "Business Day").
Generally, (i) an investor in the Class I Shares of a Fund must pay for shares
by federal funds and (ii) checks (including third party and credit card checks),
credit cards and cash will not be accepted for payment for Class I Shares.
A purchase or redemption order for shares of a Fund will be executed at a per
share price equal to the net asset value next determined after the appropriate
order is effective.
The net asset value per Class I Share of a Fund is determined by dividing the
total value of the Fund's investments and other assets that are allocated to its
Class I Shares, less any liabilities that are allocated to its Class I Shares,
by the Fund's total outstanding Class I Shares. The net asset value per share of
a Fund is determined as of the regularly-scheduled close of normal trading on
the New York Stock Exchange (normally, 4:00 p.m., Eastern time), each Business
Day. Purchases will be made in full and fractional shares of the Funds
calculated to three decimal places. The Funds may use a pricing service to
provide market quotations. A pricing service may use a matrix system of
valuation to value fixed income securities which considers factors such as
securities prices, yield features, ratings and developments related to a
specific security.
No certificates representing shares will be issued.
Neither the Trust nor the Transfer Agent will be responsible for any loss,
liability, cost or expense for acting upon 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. If market conditions are extraordinarily active, or other extraordinary
circumstances exist, Shareholders who experience difficulties placing redemption
orders by telephone may wish to consider placing the redemption order by other
means.
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, the Funds or their
Shareholders to accept such order. Qualified Customers should call the Transfer
Agent for information regarding requirements for purchase and redemption orders.
In addition, the Trust has approved Authorized Broker-Dealers to act as the
Funds' agent for the purposes of accepting purchase orders and redemption
requests. The Funds will be deemed to have received a purchase order or
redemption request upon receipt of the order or request by an Authorized
Broker-Dealer.
A purchase order for a Fund will be effective as of the Business Day received by
the Distributor (or Authorized Broker-Dealer) if the Distributor (or Authorized
Broker-Dealer) receives the order and payment in federal funds before the time
the Fund calculates its net asset value (normally, 4:00 p.m., Eastern time). All
other purchase orders accompanied by payment, except those of certain types of
investors as described below, will be effective the next Business Day. Certain
institutional investors and financial institutions, such as Summit Bank, that
have entered
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into a settlement agreement with the Distributor, may make payment in federal
funds for purchases of a Fund to the Distributor by 3:00 p.m., Eastern time, the
Business Day following the effective date of the trade. A purchase order may be
canceled if the Distributor does not receive federal funds before 3:00 p.m.,
Eastern time, the next Business Day. Financial institutions may impose an
earlier cut-off time for receipt of purchase orders directed through them to
allow time for processing and transmittal of these orders to the Distributor for
effectiveness the same day.
Shareholders who desire to redeem shares of a Fund must place their redemption
orders prior to the time the Fund calculates its net asset value (normally 4:00
p.m., Eastern time) on any Business Day for the order to be effective on that
Business Day. The redemption price of shares is the net asset value of a Fund
next determined after the redemption order is effective. Payment on redemption
will be made by the next Business Day transfer of federal funds as promptly as
possible and, in any event, within seven days after the redemption order is
effective.
Each Fund 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.
PERFORMANCE
Computation of Yield
The High Yield Bond Fund may advertise yield and total return (described below).
The yield of the Fund refers to the annualized income generated by an investment
in the Fund over a specified 30-day period. The yield is calculated by assuming
that the income generated by the investment during that period is generated over
one year and is shown as a percentage of the investment.
Computation of Total Return
Each Fund may advertise total return. Total return figures are based on
historical earnings and are not intended to indicate future performance.
The total return of a Fund 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 Fund 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.
A Fund 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. A Fund may quote
Morningstar, Inc., a service that ranks mutual funds on the basis of risk
adjusted performance. A Fund may use long-term performance of the 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
Fund may also quote financial and business publications and periodicals as they
relate to fund management, investment philosophy and investment techniques.
A Fund 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
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September 1, 1998
calculated using averages of historical data and cannot be calculated precisely.
Each Feeder Fund may advertise the performance of its corresponding Portfolio
adjusted to reflect operating expenses at the feeder level. The performance data
for the SIMT High Yield Bond Portfolio and SIF S&P 500 Index Portfolio will be
adjusted to reflect estimated feeder level operating expenses of .40% and .55%,
respectively. Investment performance reflects voluntary fee waivers and
reimbursements currently in effect. In the absence or reduction of current fee
waivers or reimbursements, total return would be reduced.
TAXES
The following summary of federal income tax consequences is based on current tax
laws and regulations, which may be changed by legislative, judicial or
administrative action. No attempt has been made to present a detailed
explanation of the federal, state or local income tax treatment of a Fund or its
Shareholders. Accordingly, Shareholders are urged to consult their tax advisors
regarding specific questions as to federal, state and local income taxes.
Tax Status of the Funds
Each Fund is treated as a separate entity for federal income tax purposes and is
not combined with the Trust's other investment portfolios. Each Fund intends to
continue to qualify for the special tax treatment afforded regulated investment
companies under Subchapter M of the Internal Revenue Code of 1986, as amended
(the "Code"), so as to be relieved of federal income tax on that part of its net
investment income and net capital gain (the excess of net long-term capital gain
over net short-term capital loss) which is distributed to Shareholders.
Tax Status of Distributions
Each Fund will distribute substantially all of its net investment income
(including, for this purpose, net short-term capital gain) to Shareholders.
Dividends from net investment income will be taxable to Shareholders as ordinary
income whether received in cash or in additional shares and will not qualify for
the dividends-received deduction otherwise available to corporate shareholders.
Any dividends from net capital gain (the excess of net long-term capital gain
over net short-term capital loss) will be distributed annually and will be
treated as a 20% rate gain distribution (taxed at a rate of 20%) or a 28% rate
gain distribution (taxed at a rate of 28%), depending upon the designation by
the Fund (such designation being dependent upon the holding period of the Fund
in the underlying asset generating the net capital gain), regardless of how long
the Shareholder has held the Fund's shares. Capital gains distributions also
will not qualify for the dividends-received deduction. Each Fund will make
annual reports to Shareholders of the federal income tax status of all
distributions.
Dividends declared by a Fund in October, November or December of any year and
payable to Shareholders of record on a date in these months will be deemed to
have been paid by the Fund and received by the Shareholders on December 31 if
paid by the Fund at any time during the following January.
Each Fund intends to make sufficient distributions prior to the end of each
calendar year to avoid liability for federal excise tax.
The sale, exchange or redemption of Fund shares is a taxable event to the
Shareholder.
Generally, gain or loss on the sale, exchange or redemption of a share will be a
capital gain or loss which will be long-term if the share has been held for more
than eighteen months, mid-term if the share has been held for more than twelve,
but not more than eighteen months and otherwise will be short-term. However, if
a Shareholder realizes a loss on the sale, exchange or redemption of a share
held for six months or less and has previously received a capital gains
distribution with respect to the share (or
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any undistributed capital gains of the Fund with respect to such share are
included in determining the Shareholder's long-term capital gains), the
Shareholder must treat the loss as a long-term capital loss from the sale or
exchange of a capital asset held for more than twelve months to the extent of
the amount of the prior capital gains distribution (or any undistributed net
capital gains of the Fund which have been included in determining such
Shareholder's long-term capital gains). In addition, any loss realized on a sale
or other disposition of shares will be disallowed to the extent an investor
repurchases (or enters into a contract or option to repurchase) shares within a
period of 61 days (beginning 30 days before and ending 30 days after the
disposition of the shares). Investors should particularly note that this loss
disallowance rule will apply to shares received through the reinvestment of
dividends during the 61-day period.
Income derived by a Fund from obligations of foreign issuers may be subject to
foreign withholding taxes. The Funds, other than the International Equity Fund,
will not be able to elect to treat Shareholders as having paid their
proportionate share of such foreign taxes. See the Statement of Additional
Information for information regarding a Shareholder's ability to receive foreign
tax credits with respect to any such taxes.
GENERAL INFORMATION
The Trust
The Trust was organized as a Massachusetts business trust under a Declaration of
Trust dated September 9, 1991. The Declaration of Trust permits the Trust to
offer separate portfolios of shares and different classes of each portfolio. In
addition to the Funds, the Trust currently consists of the U.S. Treasury
Securities Plus Money Market Fund, Institutional Select Money Market Fund, U.S.
Treasury Securities Money Market Fund, Prime Obligation Money Market Fund,
Tax-Exempt Money Market Fund, Fixed Income Fund, New Jersey Municipal Securities
Fund, Pennsylvania Municipal Securities Fund, Intermediate-Term Government
Securities Fund, Equity Growth Fund, Equity Value Fund, Equity Income Fund, Mid
Cap Fund and Balanced Fund. Shares of the portfolios are offered through up to
four separate classes of shares (Class A, B, I and S). 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.
Each Fund pays its expenses, including fees of its service providers, audit and
legal expenses, expenses of preparing prospectuses, proxy solicitation material
and reports to Shareholders, costs of custodial services, registering the shares
under federal laws and filing with state securities commissions, pricing,
insurance expenses, litigation and other extraordinary expenses, brokerage
costs, interest charges, taxes and organization expenses.
The Advisor, in addition to providing investment advice to the Trust, provides
investment advice to other clients. Some of these clients' funds are managed
under an asset allocation program and may be invested in the Funds. From time to
time, the Funds may experience relatively large purchases or redemptions due to
asset allocation decisions made by the Advisor for its clients. These
transactions may have a material effect on the Funds, since portfolios that
experience redemptions as a result of reallocations may have to sell portfolio
securities and because portfolios that receive additional cash will have to
invest it. While it is impossible to predict the overall impact of these
transactions over time, there could be adverse effects on portfolio management
to the extent that the Funds may be required to sell securities at times when
they would not otherwise do so, or receive cash that cannot be invested in an
expeditious manner. There may be tax consequences associated with purchases and
sales of securities, and such sales may also increase transaction costs. The
Advisor is committed to minimizing the impact of these transactions on the Funds
to the extent it is consistent with pursuing the investment objectives of its
asset allocation program.
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September 1, 1998
SIMT and SIF are organized as Massachusetts business trusts. The Trustees
believe that neither the High Yield Bond Fund nor the Equity Index Fund will be
adversely affected by reason of investing in the corresponding Portfolio.
Trustees of the Trust
The management and affairs of the Trust are supervised by the Trustees under the
laws governing business trusts in the Commonwealth of Massachusetts. The
Trustees have approved contracts under which, as described above, certain
companies provide essential management services to the Trust.
A discussion of the Trust's Trustees and officers appears in the Statement of
Additional Information. A discussion of SIMT's and SIF's Trustees and officers
also appears in the Statement of Additional Information.
Voting Rights
Each share held entitles a Shareholder of record to one vote. The Shareholders
of each portfolio or class will vote separately on matters relating solely to
that portfolio or class. 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.
In the case of the High Yield Bond and Equity Index Funds, whenever a vote is
required on matters pertaining to the SIMT High Yield Bond Portfolio or SIF S&P
500 Index Portfolio, respectively, the Trust will either (a) seek instructions
from the appropriate Fund's Shareholders with regard to the voting of the
proxies and vote such proxies only in accordance with such instructions; or (b)
vote the shares held by it in the same proportion as the vote of all the other
shareholders of the particular Portfolio. In either instance, other investors in
a Portfolio could control the results of voting at the Portfolio level.
Reporting
The Trust issues unaudited financial information 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 Pillar Funds, P.O. Box 8523,
Boston, MA 02266-8523.
Dividends
Shareholders automatically receive all income dividends and capital gain
distributions in additional Class I Shares at the net asset value next
determined following the record date, unless the Shareholder has elected to take
such payment in cash. Shareholders may change their election by providing
written notice to the Administrator at least 15 days prior to the distribution.
If any capital gain is realized, substantially all of it will be distributed at
least annually.
Dividends and distributions of each Fund are paid on a per-share basis. The
value of each share will be reduced by the amount of the payment. If shares are
purchased shortly before the record date for a dividend or the distribution of
capital gains, 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 amount of dividends payable on Class A Shares and Class B Shares will be
less than the dividends payable on Class I Shares because of the distribution
expenses charged to Class A and Class B Shares.
Substantially all of the net investment income (not including capital gain) of:
(i) the High Yield Bond Fund is declared and paid monthly; (ii) the Equity Index
Fund is declared and paid quarterly; and
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(iii) the International Equity Fund is declared and distributed annually, as a
dividend to Shareholders of record.
Counsel and Independent Public Accountants
Morgan, Lewis & Bockius LLP serves as counsel to the Trust. Arthur Andersen LLP
serves as the independent public accountants of the Trust.
As stated under "The Advisor," Summit Bank acts as custodian for the Trust.
First Union National Bank, acts as wire agent and custodian for the SIMT High
Yield Bond Portfolio. Comerica Bank acts as custodian for the SIF S&P 500 Index
Fund.
The respective custodians hold cash, securities and other assets of the Funds or
Portfolios for which they act as custodian as required by the 1940 Act.
DESCRIPTION OF PERMITTED INVESTMENTS
The following is a description of certain permitted investments and associated
risk factors for the various Funds (and the Portfolios). Unless otherwise
indicated, policies that relate to "a Fund," or "all Funds" also relate to the
SIMT High Yield Bond Portfolio and policies that relate to "a Fund," "the Equity
Fund," or "all Funds" also relate to the SIF S&P 500 Index Portfolio.
AMERICAN DEPOSITARY RECEIPTS ("ADRS"), EUROPEAN DEPOSITARY RECEIPTS ("EDRS"),
CONTINENTAL DEPOSITARY RECEIPTS ("CDRS") 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. ADRs
include American Depositary Shares and New York Shares. EDRs, which are
sometimes referred to as Continental Depositary Receipts, 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
markets, 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. 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--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.
Asset-backed securities are not issued or guaranteed by the U.S. Government, its
agencies or instrumentalities; however, the payment of principal and interest on
such obligations may be guaranteed up to certain amounts and 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
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September 1, 1998
securities. There also is the possibility that recoveries on repossessed
collateral may not, in some cases, be available to support payments on those
securities. Asset-backed 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 holder. 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.
BANKERS' ACCEPTANCES--Bankers' acceptances are bills of exchange or time drafts
drawn on and accepted by a commercial bank. They are used by corporations to
finance the shipment and storage of goods and to furnish dollar exchange.
Maturities are generally six months or less.
CERTIFICATES OF DEPOSIT--Certificates of deposit are interest-bearing
instruments with a specific maturity. They 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 with
penalties for early withdrawal will be considered illiquid.
COMMERCIAL PAPER--Commercial paper is the term used to designate unsecured
short-term promissory notes issued by corporations and other entities.
Maturities on these issues vary from a few to 270 days.
CONVERTIBLE SECURITIES--Convertible securities are corporate securities that are
exchangeable for a set number of another security at a prestated price.
Convertible securities typically have characteristics similar to both fixed
income and equity securities. Because of the conversion feature, the market
value of convertible securities tends to move with the market value of the
underlying stock. The value of a convertible security is also affected by
prevailing interest rates, the credit quality of the issuer and any call
provisions.
DERIVATIVES--Derivatives are securities that derive their value from other
securities, financial instruments or indices. The following are considered
derivative securities: options on futures, futures, options (e.g., puts and
calls), swap agreements, mortgage-backed securities (e.g., collateralized
mortgage obligations ("CMOs"), real estate mortgage investment conduits
("REMICs"), interest-only class ("IOs") and principal-only class ("POs")), when-
issued securities and forward commitments, floating and variable rate
securities, convertible securities, "stripped" U.S. Treasury securities (e.g.,
Receipts and STRIPs), and privately issued stripped securities (e.g., TGRs, TRs
and CATs). See elsewhere in this "Description of Permitted Investments" for
discussions of these various instruments, and see "Investment Objectives and
Policies" for more information about any investment policies and limitations
applicable to their use.
EQUITY SECURITIES--Equity securities represent ownership interests in a company
and consist of common stocks, preferred stocks, warrants to acquire common stock
and securities convertible into common stock. 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
provision. Fluctuations in the value of equity securities in which a Fund
invests will cause the net asset value of a Fund to fluctuate.
FIXED INCOME SECURITIES--Fixed income securities consist of bonds, notes,
debentures and other interest-bearing securities that represent indebtedness.
The market value of the fixed income investments in which a Fund invests will
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
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values of such securities generally decline. Moreover, while securities with
longer maturities tend to produce higher yields, the prices of longer maturity
securities are also subject to greater market fluctuations as a result of
changes in interest rates. Changes by recognized agencies in the rating of any
fixed income security and in the ability of an issuer to make payments of
interest and principal also affect the value of these investments. Changes in
the value of these securities will not necessarily affect cash income derived
from these securities but will affect a Fund's net asset value.
FORWARD FOREIGN CURRENCY CONTRACTS--The High Yield Bond Fund and the
International Equity Fund may conduct foreign currency exchange transactions on
a spot (i.e., cash) basis at the spot rate prevailing in the foreign currency
exchange market or through entering into forward currency contracts to protect
against uncertainty in the level of future exchange rates between a particular
foreign currency and the U.S. dollar or between foreign currencies in which the
Fund's securities are or may be denominated. A forward contract involves an
obligation to purchase or sell a specific currency amount at a future date,
which may be any fixed number of days from the date of the contract, agreed upon
by the parties, at a price set at the time of the contract. Forward currency
contracts, along with futures contracts and option transactions, are considered
to be derivative securities and may present special risks. Under normal
circumstances, consideration of the prospect for changes in currency exchange
rates will be incorporated into a Fund's long-term investment strategies.
However, the Advisor, Sub-Advisor and Money Manager believe that it is important
to have the flexibility to enter into forward currency contracts when it
determines that the best interest of its Fund will be served.
A Fund will convert currency on a spot basis from time to time, and investors
should be aware of the costs of currency conversion. When the Advisor, Sub-
Advisor and/or Money Manager believes that the currency of a particular country
may suffer a significant decline against the U.S. dollar or against another
currency, a Fund may enter into a currency 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 Fund's securities denominated in
such foreign currency.
At the maturity of a forward contract, a Fund 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. A Fund may realize a gain or loss from currency transactions.
Generally, a Fund will enter into forward currency contracts only as a hedge
against foreign currency exposure affecting the Fund. If a Fund enters into
forward currency contracts to cover activities which are essentially
speculative, the Fund will segregate cash and/or readily marketable securities
with its Custodian, or a designated sub-custodian, in an amount at all times
equal to or exceeding the Fund's commitment with respect to such contracts.
To assure that a Fund's foreign currency contracts are not used for leverage,
the net amount the Fund may invest in forward currency contracts is limited to
the amount of the Fund's aggregate investments in foreign currencies.
By entering into forward foreign currency contracts, a Fund will seek to protect
the value of its investment securities against a decline in the value of a
currency. However, these forward foreign currency contracts will not eliminate
fluctuations in the underlying prices of the securities. Rather, they simply
establish a rate of exchange which one can achieve at some future point in time.
Additionally, although such contracts tend to minimize the risk of loss due to a
decline in the value of the hedged currency, at the same time, they tend to
limit any potential gain which might result should the value of such currency
increase.
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FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS--A Fund may enter into
contracts for the purchase or sale of securities, including index contracts or
foreign currencies. A purchase of a futures contract means the acquisition of a
contractual right to obtain delivery to the Fund of the securities or foreign
currency called for by the contract at a specified price during a specified
future month. When a futures contract on securities or currency is sold, a Fund
incurs a contractual obligation to deliver the securities or foreign currency
underlying the contract at a specified price on a specified date during a
specified future month. A Fund may sell stock index futures contracts in
anticipation of, or during a market decline to attempt to offset the decrease in
market value of its common stocks that might otherwise result; and it may
purchase such contracts in order to offset increases in the cost of common
stocks that it intends to purchase. A Fund may enter into futures contracts and
options thereon to the extent that not more than 5% of the Fund's assets are
required as futures contract margin deposits and premiums on options.
A Fund may also purchase and write options to buy or sell futures contracts. A
Fund may write options on futures only on a covered basis. Options on futures
are similar to options on securities except that options on futures give the
purchaser the right, in return for the premium paid, to assume a position in a
futures contract, rather than actually to purchase or sell the futures contract,
at a specified exercise price at any time during the period of the option.
When a Fund enters into a futures transaction it must deliver to the futures
commission merchant selected by the Fund an amount referred to as "initial
margin." This amount is maintained in a segregated account at the custodian
bank. Thereafter, a "variation margin" may be paid by the Fund to, or drawn by
the Fund from, such account in accordance with controls set for such accounts,
depending upon changes in the price of the underlying securities subject to the
futures contract. In addition, a Fund will segregate liquid assets and/or cash
in an amount equal to its obligations under such contract. A Fund will enter
into such futures and options on futures transactions on domestic exchanges and,
to the extent such transactions have been approved by the Commodity Futures
Trading Commission for sale to customers in the United States, on foreign
exchanges.
Options and futures can be volatile investments and involve certain risks. If
the Advisor, Sub-Advisor, Money Manager and/or World applies a hedge at an
inappropriate time or judges interest rates incorrectly, options and futures
strategies may lower the Fund's return. A Fund could also experience losses if
the prices of its options and futures positions were poorly correlated with its
other instruments, or if it could not close out its positions because of an
illiquid secondary market.
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 Fund's books. Not more than 15% of the net assets of a Fund will be
invested in such instruments. An illiquid security includes a demand instrument
with a demand notice period exceeding seven days, if there is no secondary
market for such security. Restricted securities, including Rule 144A securities,
that meet the criteria established by the Trustees of the Trust will be
considered liquid.
INVESTMENT COMPANIES--The International Equity Fund may invest up to 10% of its
total assets in shares of other 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. Such investments may involve the payment of substantial premiums
above the net asset value of such issuers' fund securities, and are subject to
limitations under the 1940 Act.
The Fund does not intend to invest in other investment companies unless, in the
judgment of the Sub-Advisor, the potential benefits of such investment exceed
the associated costs relative to the benefits and costs associated with direct
investments in the underlying securities. As a shareholder in an
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investment company, the Fund would bear its ratable share of that investment
company's expenses, including its advisory and administration fees.
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 Fund'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.
Throughout the year ended September 30, 1997, the SIMT High Yield Bond Portfolio
invested in securities that are rated below investment grade. The following is
the Portfolio's allocation of bond ratings for the period as rated by Standard &
Poor's:
AAA....................... 0%
BBB....................... 0.52%
BB........................ 13.63%
B......................... 73.62%
CCC....................... 3.34%
Unrated................... 8.89%
-------
Total:................. 100.00%
=======
MONEY MARKET SECURITIES--Money market securities include short-term U.S.
Government Securities; custodial receipts evidencing separately traded interest
and principal components of securities issued by the U.S. Treasury; commercial
paper rated in the highest short-term rating category by an NRSRO or determined
by the Advisor, the Sub-Advisor, the Money Manager and/or World to be of
comparable quality at the time of purchase; short-term bank obligations
(certificates of deposit, time deposits and bankers' acceptances) of U.S.
commercial banks with assets of at least $1 billion as of the end of their most
recent fiscal year; and repurchase agreements involving such securities. The
Portfolios may also invest in money market securities issued by foreign banks
and corporations.
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 thirty-year fixed-rate mortgages, graduated payment
mortgages, and adjustable rate 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.
Mortgage-backed securities may not be an effective means of locking in long-term
interest rates for a Fund.
Government Pass-Through Securities: These are securities that are issued or
guaranteed by a U.S. Government agency representing an interest in a pool of
mortgage loans. The primary issuers or guarantors of these mortgage-backed
securities are GNMA, Fannie Mae and FHLMC. 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. GNMA, Fannie Mae and
FHLMC each guarantees timely distributions of scheduled principal. FHLMC has in
the past guaranteed only the ultimate collection of principal of the underlying
mortgage loan; however, FHLMC now issues mortgage-backed securities (FHLMC Gold
PCS) which also guarantee timely payment of monthly principal reductions.
Government and private guarantees do not extend to the securities value, which
is likely to vary inversely with fluctuations in interest rates.
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September 1, 1998
Private Pass-Through Securities: These are mortgage-backed securities issued
by a non-governmental entity, such as a trust. These securities include CMOs and
REMICs that are rated in one of the top two rating categories. While they are
generally structured with one or more types of credit enhancement, private
pass-through securities typically lack a guarantee by an entity having the
credit status of a governmental agency or instrumentality.
CMOs: CMOs are debt obligations or multi-class pass-through certificates
issued by agencies or instrumentalities of the U.S. Government or by private
originators or investors in mortgage loans. In a CMO, series of bonds or
certificates are usually issued in multiple classes. Principal and interest paid
on the underlying mortgage assets may be allocated among the several classes of
a series of a CMO in a variety of ways. Each class of a CMO, often referred to
as a "tranche," is issued with a specific fixed or floating coupon rate and has
a stated maturity or final distribution date. Principal payments on the
underlying mortgage assets may cause CMOs to be retired substantially earlier
than their stated maturities or final distribution dates, resulting in a loss of
all or part of any premium paid.
REMICs: A REMIC is a CMO that qualifies for special tax treatment under the
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 "residential" interests. Guaranteed REMIC
pass-through certificates ("REMIC Certificates") issues by Fannie Mae or FHLMC
represent beneficial ownership interests in a REMIC trust consisting principally
of mortgage loans or Fannie Mae, FHLMC or GNMA-guaranteed mortgage pass-through
certificates. For FHMLC 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.
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.
REITs: REITs are trusts that invest primarily in commercial real estate or
real estate-related loans. The value of interests in REITs may be affected by
the value of the property owned or the quality of the mortgages held by the
trust.
Stripped Mortgage-Backed Securities ("SMBs"): SMBs are usually structured with
two classes that receive specified proportions of the monthly interest and
principal payments from a pool of mortgage securities. One class may receive all
of the interest payments and is thus termed an IO, while the other class may
receive all of the principal payments and is thus termed the PO. The value of
IOs tends to increase as rates rise and decrease as rates fall; the opposite is
true of POs. SMBs are extremely sensitive to changes in interest rates because
of the impact thereon of prepayment of principal on the underlying mortgage
securities and can experience wide swings in value in response to changes in
interest rates and associated mortgage prepayment rates. During times when
interest rates are experiencing fluctuations, such securities can be difficult
to price on a consistent basis. The market for SMBs is not fully developed as
other markets; SMBs therefore may be illiquid.
Risk Factors: Due to the possibility of prepayments of the underlying mortgage
instruments, mortgage-backed securities generally do not have a known
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maturity. In the absence of a known maturity, market participants generally
refer to an estimated average life. An average life estimate is a function of an
assumption regarding anticipated prepayment patterns, based upon current
interest rates, current conditions in the relevant housing markets and other
factors. The assumption is necessarily subjective, and thus different market
participants can produce different average life estimates with regard to the
same security. There can be no assurance that estimated average life will be a
security's actual average life.
OPTIONS--A put option 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 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. The initial purchase (sale) of an option contract is an "opening
transaction." In order to close out an option position, a Fund 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.
A Fund may purchase put and call options to protect against a decline in the
market value of the securities in its portfolio or to protect against an
increase in the cost of securities that the Fund may seek to purchase in the
future. A Fund pays a premium for purchasing put and call options. If price
movements in the underlying securities are such that exercise of the options
would not be profitable for a Fund, loss of the premium paid may be offset by an
increase in the value of the Fund's securities or by a decrease in the cost of
acquisition of securities by the Fund.
A Fund may write covered put and call options as a means of increasing the yield
or total return on its portfolio and as a means of providing limited protection
against decreases in its market value. When a Fund 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 Fund will realize as
profit the premium received for such option. When a call option of which a Fund
is the writer is exercised, the Fund 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 Fund is the writer is exercised, the Fund will be required to
purchase the underlying securities at the strike price, which may be in excess
of the market value of such securities.
A Fund 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 SEC that OTC options are illiquid.
A Fund 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 securities or foreign currency written by a Fund will be
"covered," which means that the Fund will own an equal amount of the underlying
security or foreign currency. With respect to put options on securities or
foreign currency written by a Fund, the Fund will establish a segregated account
with its custodian bank consisting of liquid assets and/or cash in an amount
equal to the amount the Fund would be required to pay upon exercise of the put.
A Fund may purchase and write put and call options on indices and enter into
related closing transactions.
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28
<PAGE>
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September 1, 1998
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 Fund may choose to terminate an option
position by entering into a closing transaction. The ability of a Fund to enter
into closing transactions depends upon the existence of a liquid secondary
market for such transactions.
All options written on indices must be covered. When a Fund writes an option on
an index, it will establish a segregated account containing liquid assets and/or
cash with its custodian 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 Fund will receive a premium
when it writes covered call options, it may not participate fully in a rise in
the market value of the underlying security.
RECEIPTS--Receipts are sold as zero coupon securities which means that they are
sold at a substantial discount and redeemed at face value at their maturity date
without interim cash payments of interest or principal. This discount is
accreted over the life of the security, and such accretion will constitute the
income earned on the security for both accounting and tax purposes. Because of
these features, such securities may be subject to greater interest rate
volatility than interest-paying investments.
REPURCHASE AGREEMENTS--Repurchase agreements are agreements by which a Fund
obtains a security and simultaneously commits to return the security to the
seller at an agreed upon price on an agreed upon date within a number of days
from the date of purchase. A Fund will have actual or constructive possession of
the security as collateral for the repurchase agreement. A Fund bears a risk of
loss in the event the other party defaults on its obligations and the Fund is
delayed or prevented from its right to dispose of the collateral securities or
if the Fund realizes a loss on the sale of the collateral securities. A Fund
will enter into repurchase agreements only with financial institutions deemed to
present minimal risk of bankruptcy during the term of the agreement based on
established guidelines. Repurchase agreements are considered loans under the
1940 Act.
REVERSE REPURCHASE AGREEMENTS--Reverse repurchase agreements are agreements by
which a Fund sells securities to financial institutions and simultaneously
agrees to repurchase those securities at a mutually agreed-upon date and price.
At the time a Fund enters into a reverse repurchase agreement, it will place
liquid assets and/or cash having a value equal to the repurchase price in a
segregated custodial account and monitor this account to ensure equivalent value
is maintained. Reverse repurchase agreements involve the risk that the market
value of securities sold by a Fund may decline below the price at which the Fund
is obligated to repurchase the securities. Reverse repurchase agreements may be
considered to be borrowings by a Fund under the 1940 Act.
SECURITIES LENDING--In order to generate additional income, a Fund may lend
securities which it owns pursuant to agreements requiring that the
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29
<PAGE>
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loan be continuously secured by collateral consisting of cash, securities of the
U.S. Government or its agencies equal to at least 102% of the market value of
the securities lent. A Fund continues to receive interest on the securities lent
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. A Fund pays lending and
other fees in connection with securities loans.
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, 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. Also
it may be more difficult to obtain a judgment in a court outside the United
States.
A Fund'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 securities, a
Fund'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
Fund may have limited recourse in the event of default on such debt instruments.
STANDBY COMMITMENTS AND PUTS--Securities subject to standby commitments or puts
permit the holder thereof to sell the securities at a fixed price prior to
maturity. Securities subject to a standby commitment or put may be sold at any
time at the current market price. However, unless the standby commitment or put
was an integral part of the security as originally issued, it may not be
marketable or assignable; therefore, the standby commitment or put would only
have value to a Fund owning the security to which it relates. In certain cases,
a premium may be paid for a standby commitment or put, which premium will have
the effect of reducing the yield otherwise payable on the underlying security. A
Fund will limit standby commitment or put transactions to institutions believed
to present minimal credit risk.
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 seven days are considered to be illiquid securities.
U.S. GOVERNMENT AGENCIES--Obligations issued or guaranteed by agencies of the
U.S. Government, including, among others, the Federal Farm Credit Bank, the
Federal Housing
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30
<PAGE>
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September 1, 1998
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, others are supported by the right of the issuer to
borrow from the Treasury, while still others are supported only by the credit of
the instrumentality. Guarantees of principal by agencies or instrumentalities of
the U.S. Government may be a guarantee of payment at the maturity of the
obligation so that in the event of a default prior to maturity there might not
be a market and thus no means of realizing on the obligation prior to maturity.
Guarantees as to the timely payment of principal and interest do not extend to
the value or yield of these securities nor to the value of a Fund's shares.
U.S. TREASURY OBLIGATIONS--U.S. Treasury obligations consist of bills, notes and
bonds issued by the U.S. Treasury and separately traded interest and principal
component parts of such obligations that are transferable through the federal
book-entry system known as Separately Traded Registered Interest and Principal
Securities ("STRIPS").
VARIABLE AND FLOATING RATE INSTRUMENTS--Certain obligations may carry variable
or floating rates of interest, and may involve a conditional or unconditional
demand feature. Such instruments bear interest at rates which are not fixed, but
which vary with changes in specified market rates or indices. The interest rates
on these securities may be reset daily, weekly, quarterly or some other reset
period, and may have a floor or ceiling on interest rate changes. 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.
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
basis 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 Fund will maintain with the Custodian a separate account with liquid assets
and/or cash in an amount at least equal to these commitments. The interest rate
realized, if any, on these securities is fixed as of the purchase date and no
interest accrues to a Fund before settlement. These securities may be 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 Fund generally purchases securities on a when-issued or forward commitment
basis with the intention of actually acquiring securities, a Fund may dispose of
a when-issued security or forward commitment prior to settlement if it deems
such action appropriate.
One form of when-issued or delayed-delivery security that a Fund may purchase is
a "to be announced"("TBA") mortgage-backed security. A TBA mortgage-backed
security transaction arises when a mortgage-backed security, such as a GNMA
pass-through security, is purchased or sold with specific pools that will
constitute that GNMA pass-through security to be announced on a future
settlement date.
YANKEE OBLIGATIONS--Yankee obligations ("Yankees") are U.S. dollar-denominated
instruments of foreign issuers who either register with the Securities and
Exchange Commission 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
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31
<PAGE>
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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.
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 Fund will distribute its
"phantom income" to Shareholders, to the extent that Shareholders elect to
receive dividends in cash rather than reinvesting such dividends in additional
shares, the Fund will have fewer assets with which to purchase income producing
securities. Pay-in-kind securities pay interest in either cash or additional
securities, at the issuer's option, 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 accreted interest since the last
payment. Pay-in-kind bonds are usually less volatile than zero coupon bonds, but
more volatile than cash pay securities. Pay-in-kind securities are securities
that have interest payable by delivery of additional securities. Upon maturity,
the holder is entitled to receive the aggregate par value of the 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. Zero coupons,
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
intervals.
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32
<PAGE>
APPENDIX
DESCRIPTION OF CORPORATE BOND RATINGS
Moody's Investors Services, Inc.'s corporate bond ratings:
Aaa - Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt-edged." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Aa - Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high-grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risk appear somewhat larger than Aaa securities.
A - 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 some time in the future.
Baa - 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 as well.
Ba - 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.
B - 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.
Caa - Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca - Bonds which are rated Ca represent obligations which are speculative
in a high degree. Such issues are often in default or have other marked
shortcomings.
C - Bonds which are rated C are the lowest rated class of bonds, and issues
so rated can be regarded as having extremely poor prospects of ever attaining
any real investment standing.
Moody's applies numerical modifiers 1, 2 and 3 in each generic rating
classification from Aa through B. The modifier 1 indicates that the obligation
ranks in the higher end of its generic rating category; the modifier 2 indicates
a mid-range ranking; and the modifier 3 indicates a rating in the lower end of
that generic rating category.
Standard & Poor's Ratings Group's corporate bond ratings:
AAA - This is the highest rating assigned by Standard & Poor's to a debt
obligation and indicates an extremely strong capacity to pay principal and
interest.
AA - 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 to a small degree.
A - Bonds rated A have a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than bonds in higher rated
categories.
BBB - Bonds rated BBB are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit 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
bonds in this category than in higher rated categories.
Debt rated BB, B, CCC, CC and C is regarded, on balance, as predominantly
speculative with respect to capacity to pay interest and repay principal in
accordance with the terms of the obligation. BB indicates the lowest degree of
speculation and C the highest degree of speculation. While such debt will likely
have some quality and
A-1
<PAGE>
protective characteristics, these may be outweighed by large uncertainties or
major risk exposures to adverse conditions.
The C rating may be used to cover a situation where a bankruptcy petition
has been filed or similar action has been taken, but payments on this obligation
are being continued.
Debt rated D is in payment default. The D rating category is used when
payments on an obligation are not made on the date due even if the applicable
grace period has not expired, unless S&P believes that such payments will be
made during such grace period. The D rating also will be used upon the filing of
a bankruptcy petition of the taking of a similar action if payments on a
obligation are jeopardized.
DESCRIPTION OF COMMERCIAL PAPER RATINGS
Moody's Investor Services, Inc.'s commercial paper ratings:
PRIME-1 - Issues rated Prime-1 (or supporting institutions) have a superior
ability for repayment of senior short-term debt obligations. Prime-1 repayment
ability will often be evidenced by many of the following characteristics:
o Leading market positions in well-established industries.
o High rates of return on funds employed.
o Conservative capitalization structure with moderate reliance on debt
and ample asset protection.
o Broad margins in earnings coverage of fixed financial charges and
high internal cash generation.
o Well-established access to a range of financial markets and assured
sources of alternate liquidity.
PRIME-2 - Issuers rated Prime-2 (or supporting institutions) have a strong
ability for repayment of senior short-term debt obligations. This will normally
be evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, may be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
PRIME-3 - Issuers rated Prime-3 (or supporting institutions) have an
acceptable ability for repayment of senior short-term obligations. The effect of
industry characteristics and market compositions may be more pronounced.
Variability in earnings and profitability may result in changes in the level of
debt protection measurements and may require relatively high financial leverage.
Adequate alternate liquidity is maintained.
Standard & Poor's Ratings Group's commercial paper ratings:
A-1 - This is the highest category and indicates that the degree of safety
regarding timely payment is strong. Those issues determined to possess extremely
strong safety characteristics are denoted with a plus sign (+) designation.
A-2 - Capacity for timely payment on issues with this designation is
satisfactory and the obligation is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than obligations in
higher rating categories.
A-3 - Issues carrying this designation have adequate capacity for timely
payment. They are, however, more vulnerable to the adverse effects of changes in
circumstances than obligations carrying the higher designations.
B - Issues rated B are regarded as having significant speculative
characteristics for timely payment.
C - This rating is assigned to short-term debt obligations that is
currently vulnerable to nonpayment.
D - Debt rated D is in payment default. The D rating category is used when
interest payments or principal payments are not made on the date due even if the
applicable grace period has not expired, unless S&P believes that such payments
will be made during such grace period. The D rating also will be used upon the
filing of a bankruptcy petition or the taking of a similar action if payments on
an obligation are jeopardized.
A-2
<PAGE>
The Pillar Funds
Class I Shares
High Yield Bond Fund
Equity Index Fund
International Equity Fund
Advisor:
{LOGO]
Distributor:
SEI Investments Distribution Co.
Oaks, Pennsylvania 19456
1-800-932-7782
<PAGE>
THE PILLAR FUNDS
Investment Advisor:
Summit Bank Investment Management Division,
a division of Summit Bank
This Statement of Additional Information is not a prospectus. It is intended to
provide additional information regarding the activities and operations of The
Pillar Funds (the "Trust") and should be read in conjunction with the Trust's
Prospectuses for the following: U.S. Treasury Securities Plus Money Market, U.S.
Treasury Securities Money Market, Prime Obligation Money Market, Institutional
Select Money Market, Tax-Exempt Money Market, Fixed Income, Intermediate-Term
Government Securities, New Jersey Municipal Securities, Pennsylvania Municipal
Securities, Balanced, Equity Growth, Equity Value, Equity Income and Mid Cap
Funds dated April 30, 1998, as may be amended or supplemented from time to time;
and High Yield Bond, Equity Index and International Equity Funds, dated
September 1, 1998; as may be amended or supplemented from time to time.
Capitalized terms used in this Statement of Additional Information have the same
meaning as defined in the Prospectus. Prospectuses may be obtained through the
Distributor, SEI Investments Distribution Co., Oaks, PA 19456, or by calling
1-800-932-7782.
TABLE OF CONTENTS
The Trust.................................................................. S- 3
Year 2000 Issue............................................................ S- 4
The Euro................................................................... S- 4
Investment Objectives and Policies......................................... S- 5
Description of Permitted Investments.............................. S- 5
Investment Limitations.............................................S-23
The Trust................................................ S-23
SIMT High Yield Bond Portfolio........................... S-25
SIF S&P 500 Index Portfolio.............................. S-27
Management of the Trust.................................................... S-29
Trustees and Officers of the Trust................................ S-29
Trustees and Officers of SIMT and SIF............................. S-32
The Advisor....................................................... S-35
The Sub-Advisor................................................... S-36
SIMT High Yield Bond Portfolio.................................... S-37
SIF S&P 500 Index Portfolio....................................... S-38
The Administrator................................................. S-39
The Portfolios' Administrator and Transfer Agent.................. S-41
Custodians........................................................ S-42
Fund Transactions.......................................................... S-42
Trading Practices and Brokerage................................... S-42
The Trust................................................ S-42
SIMT..................................................... S-46
SIF...................................................... S-47
The Distributor and the Distribution Plans of the Trust.................... S-49
Portfolio Distribution..................................................... S-54
SIMT.............................................................. S-54
SIF............................................................... S-55
Performance................................................................ S-55
Computation of Yield.............................................. S-55
Calculation of Total Return....................................... S-58
Purchase and Redemption of Shares.......................................... S-61
Shareholder Services....................................................... S-62
Determination of Net Asset Value........................................... S-62
The Trust......................................................... S-62
<PAGE>
SIMT and SIF...................................................... S-64
General Information and History............................................ S-65
Description of Shares............................................. S-65
Shareholder Liability............................................. S-71
Limitation of Trustees' Liability................................. S-71
Taxes...................................................................... S-71
Federal Taxes..................................................... S-71
State Taxes....................................................... S-74
Legal Matters.............................................................. S-74
Experts.................................................................... S-75
Financial Statements....................................................... S-76
Appendix................................................................... A-1
Description of Ratings ........................................... A-1
September 1, 1998
PIL-F-027-04
The Pillar Funds and Pillar are registered service marks of Summit Bank. Your
Investment Foundation and the stylized "P" logo are service marks of Summit
Bank. Reach Higher, Summit, Summit Discount Brokerage and Summit Bancorp
are registered service marks of Summit Bancorp. Summit Bank is a service mark of
Summit Bancorp. Corporate Master-Feeder is a registered trademark of SEI
Investments Company.
Neither the Equity Index Fund nor the SEI Index Funds ("SIF") S&P 500 Index
Portfolio is sponsored, endorsed, sold or promoted by Standard & Poor's Ratings
Group ("S&P"). S&P makes no representation or warranty, implied or expressed, to
the purchasers of the Fund, Portfolio or any member of the public regarding the
advisability of investing in index funds or the Fund or Portfolio or the ability
of the S&P 500 Index to track general stock market performance. S&P has no
obligation to take the needs of the owners of the Fund or Portfolio into
consideration in determining, composing or calculating the S&P 500 Index. S&P is
not responsible for and has not participated in the determination of, the timing
of, pricing at, or quantities of the Fund or Portfolio to be issued or in the
determination or calculation of the equation by which the Fund or Portfolio is
to be converted into cash. S&P has no obligation or liability in connection with
the administration, marketing or trading of the Fund or Portfolio.
S&P DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF THE INDEX OR ANY
DATA INCLUDED THEREIN. S&P MAKES NO WARRANTY, EXPRESS OR IMPLIED, AS TO RESULTS
TO BE OBTAINED BY THE FUND, PORTFOLIO, OWNERS OF THE FUND, OWNERS OF THE
PORTFOLIO, OR ANY DATA INCLUDED THEREIN. S&P MAKES NO EXPRESSED OR IMPLIED
WARRANTIES, AND HEREBY DISCLAIMS ALL WARRANTIES OF MERCHANTABILITY OR FITNESS
FOR A PARTICULAR PURPOSE OR USE WITH RESPECT TO THE INDEX OR ANY DATA INCLUDED
THEREIN.
S-2
<PAGE>
THE TRUST
The Trust is an open-end management investment company established under
Massachusetts law as a Massachusetts business trust under a Declaration of Trust
dated September 9, 1991. The Declaration of Trust permits the Trust to offer
separate series of units of beneficial interest ("shares") and different classes
of shares of each series. This Statement of Additional Information relates to
the shares of the Trust's:
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Fund Class(es)
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U.S. Treasury Securities Plus Money Market Fund Not Applicable
Institutional Select Money Market Fund Not Applicable
U.S. Treasury Securities Money Market Fund I/A
Tax-Exempt Money Market Fund I/A
New Jersey Municipal Securities Fund I/A
Pennsylvania Municipal Securities Fund I/A
Intermediate-Term Government Securities Fund I/A
Equity Index Fund I/A/B
Fixed Income Fund I/A/B
Equity Growth Fund I/A/B
Equity Value Fund I/A/B
Equity Income Fund I/A/B
High Yield Bond Fund I/A/B
International Equity Fund I/A/B
Balanced Fund I/A/B
Prime Obligation Money Market Fund I/A/B/S
Mid Cap Fund I
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Shareholders may purchase shares of the Funds through the different classes as
indicated above. The different classes provide for variations in distribution
and transfer agent costs, voting rights and dividends. In addition, a sales load
is imposed on the sale and/or redemption of Class A and Class B Shares of
certain Funds. See "Description of Shares."
S-3
<PAGE>
Under the "Corporate Master-Feeder" structure, the High Yield Bond Fund will
invest up to 100% of its assets in the High Yield Bond Portfolio (the "SIMT High
Yield Bond Portfolio"), a separate series of SEI Institutional Managed Trust
("SIMT"). The Equity Index Fund will invest up to 100% of its assets in the S&P
500 Index Portfolio (the "SIF S&P 500 Index Portfolio"), a separate series of
SEI Index Funds ("SIF"). The SIMT High Yield Bond Portfolio and the SIF S&P 500
Index Portfolio are referred to herein as the "Portfolios."
The investment policies of the High Yield Bond Fund and the Equity Index Fund
will be substantially similar to those of the SIMT High Yield Bond Portfolio and
the SIF S&P 500 Index Portfolio, respectively, should the Funds withdraw from
the Corporate Master-Feeder(TM) structure and the Advisor manage their assets
directly.
Unless otherwise indicated, policies with respect to "a Fund," "all Funds" or
"Fixed Income Funds" includes the SIMT High Yield Bond Portfolio, and policies
with respect to "a Fund," "all Funds" or "Equity Funds" includes the SIF S&P 500
Index Portfolio.
YEAR 2000 ISSUE
The Trust depends on the smooth functioning of computer systems in almost every
aspect of its business. Like other mutual funds, businesses 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 is in
the process of asking its service providers whether they expect to have their
computer systems adjusted for the year 2000 transition, and is seeking
assurances from each service provider that it is devoting significant resources
to prevent, and it expects its system 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).
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Although it is not possible to predict the impact of the Euro implementation
plan on the Funds, particularly the International Equity Fund, 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 Advisor 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 from
current currencies to the Euro may be considered a taxable event. 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.
INVESTMENT OBJECTIVES AND POLICIES
DESCRIPTION OF PERMITTED INVESTMENTS
Asset Backed Securities. The Fixed Income, High Yield Bond, Equity Growth and
Balanced Funds may invest in asset-backed securities including company
receivables, truck and auto loans, leases, and credit card receivables. These
securities, like mortgage-backed securities, represent ownership of a pool of
obligations. The payment of principal and interest on non-mortgage asset-backed
securities may be guaranteed up to certain amounts and for a certain time 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. In
addition, these issues typically have a short to intermediate maturity structure
depending on the paydown characteristics of the underlying financial assets that
are passed through to the security holder. The purchase of non-mortgage
asset-backed securities raises risk considerations peculiar to the financing of
the instruments underlying such securities. For example, due to the manner in
which the issuing organizations may perfect their interests in their respective
obligations, 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.
Also, in most states the security interest in a motor vehicle must be noted on
the certificate of title to perfect a security interest against competing claims
of other parties. Due to the large number of vehicles involved, however, the
certificate of title to each vehicle financed, pursuant to the obligations
underlying the asset-backed securities, usually is not amended to reflect the
assignment of the seller's security interest for the benefit of the holders of
the asset-backed securities. Therefore, the possibility exists that recoveries
on repossessed collateral may not, in some cases, be available to support
payments on those securities. In addition, various state and federal laws give
the motor vehicle owner the right to assert against the holder of the owner's
obligation certain defenses such owner would have against the seller of the
motor vehicle. The assertion of such defenses could reduce payments on the
related asset-backed securities. Insofar as credit card receivables are
concerned, credit card holders are entitled to the protection of a number of
state and federal consumer credit laws, many of which give such holders the
right to set off certain amounts against balances
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owned on the credit card, thereby reducing the amounts paid on such receivables.
In addition, unlike most other asset-backed securities, credit card receivables
are unsecured obligations of the card holder. Asset-backed 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.
The development of non-mortgage asset-backed securities is at an earlier stage
than that of mortgage-backed securities. While the market for asset-backed
securities is becoming increasingly liquid, the market for non-mortgage
asset-backed securities is not as well developed as that for mortgage-backed
securities guaranteed by government agencies or instrumentalities. The Advisor
and/or Money Manager intends to limit purchases of non-mortgage asset-backed
securities to securities that are readily marketable at the time of purchase.
Currency Transactions. The International Equity Fund may engage in currency
transactions with counterparties in order to hedge the value of portfolio
holdings denominated in particular currencies against fluctuations in relative
value. Currency transactions include forward currency contracts, exchange listed
currency futures and options thereon, exchange listed and OTC options on
currencies, and currency swaps. A forward currency contract involves a privately
negotiated obligation to purchase or sell (with delivery generally required) a
specific currency at a future date, which may be any fixed number of days from
the date of other contract agreed upon by the parties, at a price set at the
time of the contract. These contracts are traded in the interbank market
conducted directly between currency traders (usually large, commercial banks)
and their customers. A forward foreign currency contract generally has no
deposit requirement, and no commissions are charged at any stage for trades. A
currency swap is an agreement to exchange cash flows based on the notional
difference among two or more currencies and operates similarly to an interest
rate swap, which is described below. The Fund may enter into currency
transactions with counterparties which have received (or the guarantors of the
obligations of which have received) a credit rating of A-1 or P-1 by S&P or
Moody's Investors Service, Inc. ("Moody's"), respectively, or that have an
equivalent rating from a NRSRO or (except for OTC currency options) are
determined to be of equivalent credit quality by the advisor or sub-advisor.
The Fund's dealings in forward currency contracts and other currency
transactions such as futures, options on futures, options on currencies and
swaps will be limited to hedging involving either specific transactions
("Transaction Hedging") or portfolio positions ("Position Hedging"). Transaction
Hedging is entering into a currency transaction with respect to specific assets
or liabilities of the Fund, which will generally arise in connection with the
purchase or sale of its portfolio securities or the receipt of income therefrom.
The Fund may enter into Transaction Hedging out of a desire to preserve the
United States dollar price of a security when it enters into a contract for the
purchase or sale of a security denominated in a foreign currency. The Fund will
be able to protect itself against possible losses resulting from changes in the
relationship between the United States dollar and foreign currencies during the
period between the date the security is purchased or sold and the date on which
payment is made or
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received by entering into a forward contract for the purchase or sale, for a
fixed amount of dollars, of the amount of the foreign currency involved in the
underlying security transactions.
Position Hedging is entering into a currency transaction with respect to
portfolio security positions denominated or generally quoted in that currency.
The Fund may use Position Hedging when the Advisor, Sub-Advisor and/or Money
Manager believes that the currency of a particular foreign country may suffer a
substantial decline against the United States dollar. The Fund may enter into a
forward foreign currency contract to sell, for a fixed amount of dollars, the
amount of foreign currency approximating the value of some or all of its
portfolio securities denominated in such foreign currency. The precise matching
of the forward foreign currency contract amount and the value of the portfolio
securities involved may not have a perfect correlation since the future value of
the securities hedged will change as a consequence of market between the date
the forward contract is entered into and the date its matures. The projection of
short-term currency market movement is difficult, and the successful execution
of this short-term hedging strategy is uncertain.
The Fund will not enter into a transaction to hedge currency exposure to an
extent greater, after netting all transactions intended wholly or partially to
offset other transactions, than the aggregate market value (at the time of
entering into the transaction) of the securities held in its portfolio that are
denominated or generally quoted in or currently convertible into such currency,
other than with respect to proxy hedging as described below.
The Fund may also cross-hedge currencies by entering into transactions to
purchase or sell one or more currencies that are expected to decline in value
relative to other currencies to which the Fund has or in which the Fund expects
to have portfolio exposure.
To reduce the effect of currency fluctuations on the value of existing or
anticipated holdings of portfolio securities, the Fund may also engage in proxy
hedging. Proxy hedging is often used when the currency to which a fund's
portfolio is exposed is difficult to hedge or to hedge against the dollar. Proxy
hedging entails entering into a forward contract to sell a currency whose
changes in value are generally considered to be linked to a currency or
currencies in which some or all of the fund's portfolio securities are or are
expected to be denominated, and to buy U.S. dollars. The amount of the contract
would not exceed the value of the Fund's securities denominated in linked
currencies. For example, if the Sub-Advisor considers that the Swedish krone is
linked to the euro, the Fund holds securities dominated in krone and the
Sub-Advisor believes that the value of the krone will decline against the U.S.
dollar, the Sub-Advisor may enter into a contract to sell euros and buy dollars.
Currency hedging involves some of the same risks and considerations as other
transactions with similar instruments. Currency transactions can result in
losses to the Fund if the currency being hedged fluctuates in value to a degree
in a direction that is not anticipated. Furthermore, there is risk that the
perceived linkage between various currencies may not by present or may not be
present during the particular time that the Fund is engaging in proxy hedging.
If the Fund enters into a currency hedging transaction, the Fund will comply
with the asset segregation requirements described below.
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Risk of Currency Transactions. Currency transactions are subject to
risks different from those of other portfolio transactions. Because currency
control is of great importance to the issuing governments and influences
economic planning and policy, purchase and sales of currency and related
instruments can be negatively affected by government exchange controls,
blockages, and manipulations or exchange restrictions imposed by governments.
These can result in losses to the International Equity Fund if it is unable to
deliver or receive currency or funds in settlement of obligations and could also
cause hedges it has entered into to be rendered useless, resulting in full
currency exposure as well as incurring transaction costs. Buyers and sellers of
currency futures are subject to the same risks that apply to the use of futures
generally. Further, settlement of a currency futures contract for the purchase
of most currencies must occur at a bank based in the issuing nation. Trading
options on currency futures is relatively new, and the ability to establish and
close out positions on such options is subject to the maintenance of a liquid
market which may not always be available. Currency exchange rates may fluctuate
based on factors extrinsic to that country's economy. Although forward foreign
currency contracts and currency futures tend to minimize the risk of loss due to
a decline in the value of the hedged currency, at the same time they tend to
limit any potential gain which might result should the value of such currency
increase.
Foreign Securities. The Fixed Income, Equity Growth and International Equity
Funds may invest in the securities of foreign issuers. The High Yield Bond Fund
may invest in U.S. dollar denominated obligations or foreign securities of
foreign issuers as well as Yankee Obligations. In addition, the Equity Growth,
Equity Value, Equity Income, Mid Cap, Balanced and International Equity Funds
may invest in American Depositary Receipts, American Depositary Shares and New
York Shares, and each reserves the right to invest up to 25% of its assets in
foreign equity securities denominated in foreign currencies, except for the
International Equity Fund which will invest at least 65% of its assets in
foreign equity securities. The High Yield Bond, Equity Growth and International
Equity Funds may also invest in European Depositary Receipts, Continental
Depositary Receipts and Global Depositary Receipts. These instruments may
subject the Funds to investment risks that differ in some respects from those
related to investments in obligations of U.S. domestic issuers. Such risks
include future adverse political and economic developments, the possible
imposition of withholding taxes on interest or other income, possible seizure,
nationalization, or expropriation of foreign deposits, the possible
establishment of exchange controls or taxation at the source, greater
fluctuations in value due to changes in currency exchange rates, or the adoption
of other foreign governmental restrictions which might adversely affect the
payment of principal and interest on such obligations. Such investments may also
entail higher custodial fees and sales commission than domestic investments.
Foreign issuers of securities or obligations are often subject to accounting
treatment and engage in business practices different from those respecting
domestic issuers of similar securities or obligations. Foreign branches of U.S.
banks and foreign banks may be subject to less stringent reserve requirements
than those applicable to domestic branches of U.S. banks. In addition, foreign
markets may be characterized by lower liquidity, greater price volatility, less
regulation and higher transaction costs than U.S. markets.
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Forward Foreign Currency Contracts. The High Yield Bond and International Equity
Funds may invest in 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 Fund 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 Fund may enter into a foreign forward 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 the Advisor, Sub-Advisor and/or Money Manager 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 Fund 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 Fund will also incur costs in
connection with forward foreign currency contracts and conversions of foreign
currencies into U.S. dollars.
Futures. A Fund's ability to effectively utilize futures contracts depends on
several factors. First, it is possible that there will not be a perfect price
correlation between the futures contracts and their underlying securities,
financial instruments or indices. In addition, the purchase of a futures
contract involves the risk that a Fund could lose more than the original margin
deposit required to initiate a futures transaction.
In considering the proposed use of futures contracts, particular note should be
taken that futures contracts relate to the anticipated levels at some point in
the future, not to the current level of the underlying instruments; thus, for
example, trading of stock index futures may not reflect the trading of the
securities which are used to formulate an index or even actual fluctuations in
the relevant index itself. There is, in addition, a risk that movements in the
price of futures contracts will not correlate with the movement in prices of the
stock index being tracked. There may be several reasons unrelated to the value
of the underlying securities which causes this situation to occur. First, all
participants in the futures market are subject to initial and variation margin
requirements. If, to avoid meeting additional margin deposit requirements or for
other reasons, investors choose to close a significant number of
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futures contracts through offsetting transactions, distortions in the normal
price relationship between the securities markets and futures markets may occur.
Second, because the deposit requirements in the futures market are less onerous
than margin requirements in the securities market, there may be increased
participation by speculators in the futures market which may also cause
temporary price distortions.
The SIMT High Yield Bond Portfolio has undertaken to restrict its futures
contract trading as follows: First, the Portfolio will not engage in
transactions in futures contracts for speculative purposes. Second, the
Portfolio will not market itself to the public as a commodity pool or otherwise
as a vehicle for trading in the commodities futures or commodity options
markets. Third, the Portfolio will disclose to all prospective shareholders the
purpose and limitations on its commodity futures trading. Fourth, the Portfolio
will submit to the Commodity Futures Trading Commission ("CFTC") special calls
for information. Accordingly, registration as a commodities pool operator with
the CFTC is not expected to be required.
No price is paid upon entering into futures contracts. Instead, a Fund is
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 "marking to market"). The margin is in the nature of
a performance bond or good-faith deposit on a futures contract.
Illiquid Securities. All Funds may invest in illiquid securities up to the
limits described in the appropriate Prospectus. An illiquid security is a
security which cannot be disposed of within seven days in the usual course of
business at approximately the price at which it is being carried on a Fund's
books, and includes repurchase agreements maturing in more than seven days, time
deposits with a withdrawal penalty, non-negotiable instruments and instruments
for which no market exists.
Lower Rated Securities. The High Yield Bond Fund will primarily invest and the
Equity Growth Fund may invest in lower-rated bonds commonly referred to as "junk
bonds" or high-yield/high-risk securities. These securities are rated "Ba" or
lower by Moody's or "BB" or lower by S&P, Fitch Investors Services, Inc.
("Fitch"), Duff & Phelps, Inc. ("Duff"), IBCA Limited ("IBCA") and Thomson
BankWatch ("Thomson"). These ratings indicate that the obligations are
speculative and may be in default. See the Appendix for a description of the
foregoing agencies' ratings. In addition, the Funds may invest in unrated
securities subject to the restrictions stated in the Prospectus.
Certain Risk Factors Relating to High-Yield, High-Risk Securities. The
descriptions below are intended to supplement the discussion in the Prospectus
under "Risk Factors."
Growth of High-Yield Bond, 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
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economic downturn could severely 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.
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 adversely
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, a Fund 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 a Fund'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, a Fund would likely 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 Fund's assets. If a Fund
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 Fund's rate of return.
Liquidity and Valuation. There may be little trading in the secondary
market for particular bonds, which may adversely affect a Fund'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 a Fund'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 Funds 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 Fund and
therefore is subject to the distribution requirements of the Internal Revenue
Code of 1986, as amended (the "Code"). Because the original issue discount
earned by a Fund in a taxable year may not be represented by cash
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income, the Funds may have to dispose of other securities and use the proceeds
to make distributions to Shareholders.
Mortgage-Backed Securities. Each of the Funds except the U.S. Treasury
Securities Money Market and U.S. Treasury Securities Plus Money Market Funds may
invest in mortgage-backed securities issued or guaranteed by U.S. Government
agencies or instrumentalities such as the Government National Mortgage
Association ("GNMA"), Fannie Mae and the Federal Home Loan Mortgage Corporation
("FHLMC"). In addition, the Fixed Income and High Yield Bond Funds may invest in
privately issued mortgage-backed securities. Obligations of GNMA are backed by
the full faith and credit of the U.S. Government. Obligations of Fannie Mae,
FHLMC and Federal Home Loan Banks are not backed by the full faith and credit of
the U.S. Government but are considered to be of high quality since they are
considered to be instrumentalities of the United States. The market value and
interest yield of these mortgage-backed securities can vary due to market
interest rate fluctuations and early prepayments of underlying mortgages. These
securities represent ownership in a pool of federally insured mortgage loans
with a maximum maturity of 30 years. However, due to scheduled and unscheduled
principal payments on the underlying loans, these securities have a shorter
average maturity and, therefore, less principal volatility than a comparable
30-year bond. Since prepayment rates vary widely, it is not possible to predict
accurately the average maturity of a particular mortgage-backed security. The
scheduled monthly interest and principal payments relating to mortgages in the
pool will be "passed through" to investors. Government mortgage-backed
securities differ from conventional bonds in that principal is paid back to the
certificate holders over the life of the loan rather than at maturity. As a
result, there will be monthly scheduled payments of principal and interest. In
addition, there may be unscheduled principal payments representing prepayments
on the underlying mortgages. Although these securities may offer yields higher
than those available from other types of U.S. Government securities,
mortgage-backed securities may be less effective than other types of securities
as a means of "locking in" attractive long-term rates because of the prepayment
feature. For instance, when interest rates decline, the value of these
securities likely will not rise as much as comparable debt securities due to the
prepayment feature. In addition, these prepayments can cause the price of a
mortgage-backed security originally purchased at a premium to decline in price
to its par value, which may result in a loss.
CMOs. The High Yield Bond, International Equity, Fixed Income and
Balanced Funds may also invest in mortgage-backed securities issued by
non-governmental entities. The mortgage-backed securities these Funds may
purchase are collateralized mortgage obligations ("CMOs") and real estate
mortgage investment conduits ("REMICs") that are rated in one of the two top
categories by S&P or Moody's and which are backed solely by GNMA certificates or
other mortgage pass-throughs issued or guaranteed by the U.S. Government, its
agencies or instrumentalities. CMOs are securities collateralized by mortgages,
mortgage pass-throughs, mortgage "pay-through" bonds (bonds representing an
interest in a pool of mortgages where the cash flow generated from the mortgage
collateral pool is dedicated to bond repayment), and "mortgage-backed" bonds
(general obligations of the issuers payable out of the issuers'
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general funds and additionally secured by a first lien on a pool of single
family detached properties). Many CMOs are issued with a number of classes or
series which have different maturities and are retired in sequence.
Investors purchasing such CMOs in the shortest maturities receive or are
credited with their pro rata portion of the scheduled payments of interest and
principal on the underlying mortgages plus all unscheduled prepayments of
principal up to a predetermined portion of the total CMO obligation. Until that
portion of such CMO obligation is repaid, investors in the longer maturities
receive interest only. Accordingly, the CMOs in the longer maturity series are
less likely than other mortgage pass-throughs to be prepaid prior to their
stated maturity. Although some of the mortgages underlying CMOs may be supported
by various types of insurance, and some CMOs may be backed by GNMA certificates
or other mortgage pass-throughs issued or guaranteed by U.S. Government agencies
or instrumentalities, the CMOs themselves are not generally guaranteed by U.S.
Government agencies or instrumentalities.
REMICs. REMICs, which were authorized under the Tax Reform Act of 1986,
are private entities formed for the purpose of holding a fixed pool of mortgages
secured by an interest in real property. REMICs are similar to CMOs in that they
issue multiple classes of securities.
Due to prepayments of the underlying mortgage instruments, mortgage-backed
securities do not have a known actual maturity. In the absence of a known
maturity, market participants generally refer to an estimated average life. The
Funds use the estimated average life as the most appropriate measure of the
maturity of a mortgage-backed security. An average life estimate is a function
of an assumption regarding anticipated prepayment patterns. The assumption is
based upon current interest rates, current conditions in the relevant housing
markets and other factors. The assumption is necessarily subjective, and thus
different market participants could produce somewhat different average life
estimates with regard to the same security. There can be no assurance that the
estimated average life will be the actual average life.
Municipal Securities. The Tax-Exempt Money Market, New Jersey Municipal
Securities and Pennsylvania Municipal Securities Funds may invest in the
following:
Municipal notes consist of general obligation notes, tax anticipation notes
(notes sold to finance working capital needs of the issuer in anticipation of
receiving taxes on a future date), revenue anticipation notes (notes sold to
provide needed cash prior to receipt of expected non-tax revenues from a
specific source), bond anticipation notes, certificates of indebtedness, demand
notes and construction loan notes.
Municipal bonds consist of general obligation bonds, revenue or special
obligation bonds and private activity bonds, the interest paid on which is
excludable from federal income tax. Private activity bonds are issued by or on
behalf of states or political subdivisions thereof to
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finance privately-owned or operated facilities for business and manufacturing,
housing, sports, and pollution control and to finance activities of and
facilities for charitable institutions. Private activity bonds are also used to
finance public facilities such as airports, mass transit systems, ports, parking
and low-income housing. The payment of the principal and interest on private
activity bonds is not backed by a pledge of tax revenues and is dependent solely
on the ability of the facility's operator to meet its financial obligations and
may be secured by a pledge of real and personal property so financed.
The Funds may also purchase variable and floating rate demand notes and
synthetic variable rate demand notes. Investments in such floating rate
instruments will normally involve industrial development or revenue bonds which
provide that the rate of interest is set as a specific percentage of a
designated base rate (such as the prime rate) at a major commercial bank, and
that the Fund involved can demand payment of the obligation at all times or at
stipulated dates on short notice (not to exceed 30 days) at par plus accrued
interest. Such obligations are frequently secured by letters of credit or other
credit support arrangements provided by banks. The Advisor, Sub-Advisor and/or
Money Manager will monitor the earning power, cash flow and liquidity ratios of
the issuers of such instruments and the ability of an issuer of a demand
instrument to pay principal and interest on demand. The Funds may also purchase
participation interests in municipal securities (such as industrial development
bonds and municipal lease/purchase agreements). A participation interest gives
the Fund an undivided interest in the underlying municipal security. If it is
unrated, the participation interest will be backed by an irrevocable letter of
credit or guarantee of a creditworthy financial institution or the payment
obligation otherwise will be collateralized by U.S. Government securities.
Participation interests may have fixed, variable or floating rates of interest
and may include a demand feature. A participation interest without a demand
feature or a participation interest or demand note with a demand feature
exceeding seven days may be deemed to be an illiquid security subject to each
Fund's investment limitations restricting its purchases of illiquid securities
to not more than 15% (10% with respect to the Tax-Exempt Money Market Fund) of
its total assets. The Advisor, Sub-Advisor or Money Manager may purchase other
types of tax-exempt instruments as long as they are of a quality equivalent to
the bond or commercial paper ratings applicable to each Fund and satisfy other
applicable requirements.
New Jersey Municipal Securities and Special Considerations Relating Thereto. The
New Jersey Municipal Securities Fund invests primarily in the obligations of New
Jersey State government and various local governments, including counties,
cities, special districts, agencies and authorities. In general, the credit
quality and credit risk of any issuer's debt depend on the state and local
economy, the health of the issuer's finances, the amount of the issuer's debt,
the quality of management, and the strength of legal provisions in debt
documents that protect debt holders. Credit risk is usually lower wherever the
economy is strong, growing and diversified; financial operations are sound; and
the debt burden is reasonable.
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The State and Its Economy. The State is the ninth largest state in population
and the fifth smallest in land area. With an average of 1,094 people per square
mile, it is the most densely populated of all the states. The State's economic
base is diversified, consisting of a variety of manufacturing, construction and
service industries, supplemented by rural areas with selective commercial
agriculture. Historically, New Jersey's average per capita income has been well
above the national average, and in 1995 the State ranked second among the states
in per capita personal income ($29,848).
The onset of the national recession (which officially began in July 1990
according to the National Bureau of Economic Research) caused an acceleration of
New Jersey's job losses in construction and manufacturing. In addition, the
national recession caused an employment downturn in such previously growing
sectors as wholesale trade, retail trade, finance, utilities and trucking and
warehousing. Reflecting the downturn, the rate of unemployment in the State rose
from a low of 3.6% during the first quarter of 1989 to an estimated 6.6% in
April 1996, which was greater than the national average of 5.4% in April 1996.
Improvement has been slow but steady. New Jersey's unemployment rate dropped to
5.2% in April 1997 versus the natural average of 4.9%. The state's jobless rate
is now the lowest it has been since August 1990.
Going forward, moderate growth is expected to continue through fiscal year 1998.
Corporate restructuring will continue in such fields as chemicals,
telecommunications and financial services. Meanwhile, because of the state's
high technology labor resources, its economy stands to benefit from emerging
information-based fields.
Debt Service. The primary method for State financing of capital projects is
through the sale of the general obligation bonds of the State. These bonds are
backed by the full faith and credit of the State tax revenues and certain other
fees are pledged to meet the principal and interest payments and if provided,
redemption premium payments, if any, required to repay the bonds. General
obligation debt must be approved by voter referendum and is used primarily to
finance various environmental, transportation, correctional and institutional
projects. As of June 30, 1996, the state's outstanding general obligation debt
totaled $3.7 billion. The debt service obligation for such outstanding
indebtedness was $450 million for fiscal year 1997.
New Jersey's Budget and Appropriation System. The State operates on a fiscal
year beginning July 1 and ending June 30. The State closed recent fiscal years
with surpluses in the general fund (the fund into which all State revenues not
otherwise restricted by statute are deposited and from which appropriations are
made) of $761 million in 1992, $937 million in 1993, $926 million in 1994, $569
million in 1995, and $442 million in 1996. It is estimated that fiscal year 1997
will end with a surplus of $300 million.
On June 30, 1996, Governor Whitman signed the New Jersey Legislature's $15.7
billion budget for fiscal year 1997. The balanced budget included $276 million
in surplus funds. As part
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of the fiscal year 1996 budget, the State enacted several additional tax cuts.
For the Gross Income Tax, a 15% reduction of personal income tax rates became
effective on January 1, 1996. This cut was in addition to the tax rate
reductions that were implemented during fiscal year 1994 and fiscal year 1995.
Effective April 1, 1996, yellow pages advertisements were exempt from the
State's Sales Tax. Effective July 1, 1996, a reduction in the Corporation
Business Tax rate from 9.0% to 7.5% was applied to those corporations that have
an allocated net income of $100,000 or less. Also effective July 1, 1996,
corporations' sales were double weighted in calculating receipt factors in
determining a multistate corporation's New Jersey State Corporation Business Tax
liability. As part of the fiscal year 1997 budget, the State enacted several
policies that affected the State's Gross Income Tax and Corporate Business Tax.
The State's fiscal year 1998 $16.3 billion proposed budget had a structural
imbalance in excess of $500 million prior to the legislative approval of
Governor Whitman's $2.7 billion pension bond issue. Approval was won in early
June 1997. The administration plans to use the proceeds from a $2.7 billion
pension obligation bond issue in addition to a portion of the pension system's
market-based surplus (approximately $600 million) to offset the State's pension
contributions in fiscal year 1997 and fiscal year 1998 and eliminate the State's
pension system deficit. Eliminating the pension system's deficit will enable the
administration to reduce this year's scheduled pension payment to $97 million
from $687 million, and provide the State with approximately $590 million to
balance the State budget and cover the $246 million that the State Supreme Court
ordered the State to raise for urban schools.
Debt Ratings. For many years prior to 1991, both Moody's and S&P had rated New
Jersey general obligation bonds Aaa and AAA, respectively. On July 3, 1991,
however, S&P downgraded New Jersey general obligation bonds to AA+. On June 4,
1992, S&P placed New Jersey general obligation bonds on Credit Watch with
negative implications, citing as its principal reason for its caution the denial
by the federal government of New Jersey's request for $450 million in
retroactive Medicaid payments for psychiatric hospitals. These funds were
critical to closing a $1 billion gap in the State's $15 billion budget for
fiscal year 1992 which ended on June 30, 1992. Under New Jersey state law, the
gap in the budget must be closed before the new budget year began on July 1,
1992. S&P suggested the State could close fiscal year 1992's budget gap and help
fill fiscal year 1993's hole by a reversion of $700 million of pension
contributions to its general fund under a proposal to change the way the State
calculates its pension liability.
On July 6, 1992, S&P reaffirmed its AA+ rating for New Jersey general obligation
bonds and removed the debt from its Credit Watch list, although it stated that
New Jersey's long-term financial outlook was negative. S&P was concerned that
the State was entering fiscal year 1993 with only a $26 million surplus and
remained concerned about whether the State economy would recover quickly enough
to meet lawmakers' revenue projections. It also remained concerned about the
recent federal ruling leaving in doubt how much the State was due in retroactive
Medicaid reimbursements and a ruling by a federal judge, now on appeal, of the
State's method for paying for uninsured hospital patients. However, on July 27,
1994, S&P announced that it was changing the State's outlook from negative to
stable due to a brightening of the State's prospects as a result of
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Governor Whitman's effort to trim spending and cut taxes, coupled with an
improving economy. S&P reaffirmed its AA+ rating at the same time. On July 1,
1996, S&P reaffirmed the State's long-term ratings.
On August 24, 1992, Moody's downgraded New Jersey general obligation bonds to
Aa1, stating that the reduction reflected a developing pattern of reliance on
nonrecurring measures to achieve budgetary balance, four years of financial
operations marked by revenue shortfalls and operating deficits, and the
likelihood that serious financial pressures would persist. On August 5, 1994,
and again on August 18, 1995 Moody's reaffirmed its Aa1 rating, citing on the
positive side New Jersey's broad-based economy, high income levels, history of
maintaining a positive financial position and moderate (albeit rising) debt
ratios, and, on the negative side, a continued reliance on one-time revenues and
a dependence on pension-related savings to achieve budgetary balance. On May 1,
1996, Moody's reaffirmed the State's long-term ratings.
The State's recently approved pension obligation issuance has met with
skepticism from both rating agencies.
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Pennsylvania Municipal Securities and Special Considerations Relating Thereto.
The Pennsylvania Municipal Securities Fund invests primarily in the obligations
of Pennsylvania state government, state agencies and various local governments,
including counties, cities, townships, special districts, and authorities. In
general, the credit quality and credit risk of any issuer's debt depend on the
state and local economy, the health of the issuer's finances, the amount of the
issuer's debt, the quality of management, and the strength of legal provisions
in debt documents that protect debt holders. Credit risk is usually lower
wherever the economy is strong, growing and diversified; financial operations
are sound; and the debt burden is reasonable.
Pennsylvania's economy, which is one of the weaker economies in the Northeast,
is expected to continue to lag national economic trends in the near future. The
sluggish economy is in part the result of continued mergers and acquisitions,
expenditure reductions, and layoffs in the industries most important to the
Commonwealth's economy--healthcare, defense, and telecommunications. The State's
healthcare environment continues to be difficult, particularly in the
Philadelphia and Pittsburgh metro areas.
Pennsylvania's unemployment rate outpaced national levels, rising from 4.9% at
the end of 1996 to 5.4% in June, 1997. Personal income growth has lagged
national levels, growing 5.5% in 1995, or 89% of the national gain. Pennsylvania
ranked 19th among the states in 1996 per capita income ($23,558).
The Governor must submit a balanced operating budget by law and while the
General Assembly may change items, the Governor retains a line-item veto power.
Total appropriations cannot exceed estimated revenues, also taking into account
any deficit or surplus remaining from the previous year. For fiscal year 1996,
the general fund balance was drawn down $53.1 million to $635 million (or 2.5%
of general fund revenues) to fund business tax cuts. Total revenues and other
sources in fiscal year 1996 increased 8.7%. As of July 31, 1997, Pennsylvania's
general obligation debt carries ratings of AA- by S&P, A1 by Moody's, and AA- by
Fitch.
Receipts. Each of the Funds may invest in receipts. Interests in separately
traded interest and principal component parts of U.S. Government obligations
that are issued by banks or brokerage firms and are created by depositing U.S.
Government obligations into a special account at a custodian bank. The custodian
holds the interest and principal payments for the benefit of the registered
owners of the certificates or receipts. The custodian arranges for the issuance
of the certificates or receipts evidencing ownership and maintains the register.
Receipts include "Treasury Receipts" ("TRs"), "Treasury Investment Growth
Receipts" ("TIGRs"), and "Certificates of Accrual on Treasury Securities"
("CATS"). TIGRs and CATS are interests in private proprietary accounts while TRs
and STRIPS are interests in accounts sponsored by the U.S. Treasury. Receipts
are sold as zero coupon securities; for more information, see "Zero Coupon
Securities."
Repurchase Agreements. Each of the Funds may invest in repurchase agreements.
Repurchase agreements are agreements by which a person (e.g., a portfolio)
obtains a security and simultaneously commits to return the security to the
seller (a financial institution deemed to present minimal risk of bankruptcy
during the term of the agreement based on guidelines established by the Trustees
of the Trust) at an agreed upon price (including principal and interest) on an
agreed upon date within a number of days (usually not more than seven) from the
date of purchase. The resale price reflects the purchase price plus an agreed
upon market rate of interest which is unrelated to the coupon rate or maturity
of the underlying security. A repurchase agreement involves the obligation of
the seller to pay the agreed upon price, which obligation is in effect secured
by the value of the underlying security.
Repurchase agreements are considered to be loans by a Fund for purposes of its
investment limitations. The repurchase agreements entered into by the Funds will
provide that the underlying security at all times shall have a value at least
equal to 102% of the resale price stated in the agreement (the Advisor,
Sub-Advisor and/or Money Manager monitors compliance with this requirement).
Under all repurchase agreements entered into by the Funds, a Fund takes actual
or constructive possession of the underlying collateral. However, if the seller
defaults, a Fund could realize a loss on the sale of the underlying security to
the extent that the proceeds of sale including accrued interest are less than
the resale price provided in the agreement including interest. In addition, even
though the United States Bankruptcy Code provides protection for most repurchase
agreements, if the seller should be involved in bankruptcy or insolvency
proceedings, a Fund may incur delay and costs in selling
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the underlying security or may suffer a loss of principal and interest if a Fund
is treated as an unsecured creditor and required to return the underlying
security to the seller's estate.
Restricted Securities. Each of the Funds may invest in 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 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. Each Fund may lend securities pursuant to agreements
requiring that the loans be continuously secured by cash, U.S. Government
securities, or any combination of cash and such securities, as collateral equal
at all times to at least 100% of the market value of the securities lent. Such
loans will not be made if, as a result, the aggregate amount of all outstanding
securities loans for the Fund exceed one-third of the value of a Fund's total
assets taken at fair market value. A Fund will continue to receive interest or
dividends on the securities lent while simultaneously earning interest on the
investment of the cash collateral in U.S. Government securities. However, a Fund
will normally pay lending fees to such broker-dealers and related expenses from
the interest earned on invested collateral. There may be risks of delay in
receiving additional collateral or risks of delay in recovery of the securities
if the borrowers fail financially. However, loans are made only to borrowers
deemed by the Advisor, Sub-Advisor and/or Money Manager, as appropriate, to be
of good standing and when, in the judgment of the Advisor, Sub-Advisor and/or
Money Manager, the consideration which can be earned currently from such
securities loans justifies the attendant risk. Any loan may be terminated by
either party upon reasonable notice to the other party. The Funds may use SEI
Investments Distribution Co. ("SEI Investments" or the "Distributor") or a
broker/dealer affiliate of the Advisor, Money Manager and/or Sub-Advisor as a
broker in these transactions.
Standby Commitments and Puts. The Tax-Exempt Money Market, High Yield Bond, New
Jersey Municipal Securities and Pennsylvania Municipal Securities Funds may
purchase securities at a price which would result in a yield to maturity lower
than that generally offered by the seller at the time of purchase when they can
simultaneously acquire the right to sell the securities back to the seller, the
issuer, or a third party (the "writer") at an agreed-upon price at any time
during a stated period or on a certain date. Such a right is generally denoted
as a "standby commitment" or a "put." The purpose of engaging in transactions
involving standby commitments or puts is to maintain flexibility and liquidity
to permit the Funds to meet redemptions and remain as fully invested as possible
in municipal securities. The right to put the securities depends on the writer's
ability to pay for the securities at the time the put is
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exercised. The Funds will limit their put transactions to institutions which the
Advisor and/or Money Manager believes present minimum credit risks, and the
Advisor and/or Money Manager will use its best efforts to initially determine
and continue to monitor the financial strength of the sellers of the options by
evaluating their financial statements and such other information as is available
in the marketplace. It may, however, be difficult to monitor the financial
strength of the writers because adequate current financial information may not
be available. In the event that any writer is unable to honor a put for
financial reasons, the Fund would be a general creditor (i.e., on a parity with
all other unsecured creditors) of the writer. Furthermore, particular provisions
of the contract between the Fund and the writer may excuse the writer from
repurchasing the securities; for example, a change in the published rating of
the underlying municipal securities or any similar event that has an adverse
effect on the issuer's credit or a provision in the contract that the put will
not be exercised except in certain special cases, for example, to maintain
portfolio liquidity. The Fund could, however, at any time sell the underlying
portfolio security in the open market or wait until the portfolio security
matures, at which time it should realize the full par value of the security.
Municipal Securities purchased subject to a put may be sold to third persons at
any time, even though the put is outstanding, but the put itself, unless it is
an integral part of the security as originally issued, may not be marketable or
otherwise assignable. Therefore, the put would have value only to the Fund. The
sale of the securities to a third party or the lapse of a certain period of
time with the put unexercised may terminate the right to put the securities.
Prior to the expiration of any put option, the Fund could seek to negotiate
terms for the extension of such an option. If such a renewal cannot be
negotiated on terms satisfactory to the Fund, the Fund could, of course, sell
the portfolio security. The maturity of the underlying security will generally
be different from that of the put. There will be no limit to the percentage of
portfolio securities that a Fund may purchase subject to a standby commitment or
put, but the amount paid directly or indirectly for all standby commitments and
puts, which are not integral parts of the security as originally issued, held in
the Fund will not exceed 1/2 of 1% of the value of the total assets of such Fund
calculated immediately after any such put is acquired.
Stock Index Futures. The SIF S&P 500 Index Portfolio may invest in stock index
futures. The nature of initial and variation margin in futures transactions is
different from that of margin in security transactions in that futures contract
margin does not involve the borrowing of funds to finance the transactions.
Rather, the margin is in the nature of a performance bond or good-faith deposit
on the contract that is returned to the Portfolio upon termination of the
contract, assuming all contractual obligations have been satisfied. Positions in
futures contracts may be closed only on an exchange or board of trade providing
a secondary market for such futures contracts. The value of the contract usually
will vary in direct proportion to the total face value. Market value of a stock
index futures position is defined as the closing value of the index multiplied
by 500 times the number of contracts held.
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The Portfolio's ability to effectively utilize futures contracts depends on
several factors. First, it is possible that there will not be a perfect price
correlation between the futures contracts and their underlying stock index. In
addition, the purchase of a futures contract involves the risk that the
Portfolio could lose more than the original margin deposit required to initiate
a futures transaction.
In considering the proposed use of futures contracts, particular note should be
taken that futures contracts relate to the anticipated levels at some point in
the future, not to the current level of the underlying instruments; thus, for
example, trading of stock index futures may not reflect the trading of the
securities which are used to formulate an index or even actual fluctuations in
the relevant index itself. There is, in addition, a risk that movements in the
price of futures contracts will not correlate with the movement in prices of the
stock index being tracked. There may be several reasons unrelated to the value
of the underlying securities which causes this situation to occur. First, all
participants in the futures market are subject to initial and variation margin
requirements. If, to avoid meeting additional margin deposit requirements or for
other reasons, investors choose to close a significant number of futures
contracts through offsetting transactions, distortions in the normal price
relationship between the securities markets and futures markets may occur.
Second, because the deposit requirements in the futures market are less onerous
than margin requirements in the securities market, there may be increased
participation by speculators in the futures market which may also cause
temporary price distortions.
The Portfolio has undertaken to restrict its futures contract trading as
follows: First, the Portfolio will not engage in transactions in futures
contracts for speculative purposes. Second, the Portfolio will not market itself
to the public as a commodity pool or otherwise as a vehicle for trading in the
commodities futures or commodity options markets. Third, the Portfolio will
disclose to all prospective shareholders the purpose and limitations on its
commodity futures trading. Fourth, the Portfolio will submit to the CFTC special
calls for information. Accordingly, registration as a commodities pool operator
with the CFTC is not expected to be required.
No price is paid upon entering into futures contracts. Instead, a Portfolio is
required to deposit an amount of cash or U.S. Treasury securities known as
"initial margin." Subsequent payments, 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 "marking to market"). The margin is in the nature of
a performance bond or good-faith deposit on a futures contract.
Variable Amount Master Demand Notes. The Tax-Exempt Money Market, High Yield
Bond, Equity Growth, Equity Income, Balanced and International Equity Funds may
invest in 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 the
Trust, 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
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a stated short-term interest rate index. Both the lender and the borrower have
the right to reduce the amount of outstanding indebtedness at any time. There is
no secondary market for the notes. It is not generally contemplated that such
instruments will be traded.
When-Issued Securities. The Funds may acquire fixed income and equity securities
on a when-issued basis, in which case delivery and payment normally take place
within 45 days after the date of commitment to purchase. The Funds will only
make commitments to purchase obligations on a when-issued basis with the
intention of actually acquiring the securities, but may sell them before the
settlement date. The when-issued securities may be subject to market
fluctuation, and no interest accrues to the purchaser on a fixed income security
to the purchaser during this period. The payment obligation and the interest
rate that will be received on the fixed income securities are each fixed at the
time the purchaser enters into the commitment. Purchasing obligations on a
when-issued basis is a form of leveraging and can involve a risk that the yields
available in the market when the delivery takes place may actually be higher
than those obtained in the transaction itself. In that case there could be an
unrealized loss at the time of delivery.
Segregated accounts will be established with the Custodian, and the Funds will
maintain liquid assets and/or cash in an amount at least equal in value to the
Funds' commitments to purchase when-issued securities. If the value of these
assets declines, the Funds will place additional liquid assets in the account on
a daily basis so that the value of the assets in the account is at all times
equal to the amount of such commitments.
Zero Coupon Securities. Each of the Funds may invest in zero coupon securities.
STRIPS and receipts (TRs, TIGRs and CATS) are sold as zero coupons securities,
that is, fixed income securities that have been stripped of their unmatured
interest coupons. Zero coupon securities are sold at a (usually substantial)
discount and redeemed at face value at their maturity date without interim cash
payments of interest or principal. The amount of this discount is accreted over
the life of the security, and the accretion constitutes the income earned on the
security for both accounting and tax purposes. Because of these features, the
market prices of zero coupon securities are generally more volatile than the
market prices of securities that have similar maturity but that pay interest
periodically. Zero coupon securities are likely to respond to a greater degree
to interest rate changes than are non-zero coupon securities with similar
maturity and credit qualities.
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 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.
A Fund must accrete the discount or interest on high-yield bonds structured as
zero coupon securities as income even though it does not receive a corresponding
cash interest payment until the security's maturity or payment date. A Fund may
have to dispose
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of its securities under disadvantageous circumstances to generate cash, or may
have to leverage itself by borrowing cash to satisfy distribution requirements.
A Fund accrues income with respect to the securities prior to the receipt of
cash payments.
INVESTMENT LIMITATIONS
I. Investment Limitations of the Trust
The following investment limitations are fundamental policies of each Fund which
cannot be changed with respect to a Fund without the consent of the holders of a
majority of that Fund's outstanding shares. The term "majority of the
outstanding shares" means the vote of (i) 67% or more of a Fund's shares present
at a meeting, if more than 50% of the outstanding shares of a Fund are present
or represented by proxy, or (ii) more than 50% of a Fund's outstanding shares,
whichever is less.
Each Fund may not:
1. Acquire more than 10% of the voting securities of any one issuer, with
the exception of the International Equity Fund which may invest more
than 5% of its total assets in the securities of a single issuer.
2. Invest in companies for the purpose of exercising control; provided,
that this limitation does not apply to the Equity Growth Fund,
International Equity Fund, High Yield Bond Fund or Equity Index Fund.
3. Borrow money except for temporary or emergency purposes and then only
in an amount not exceeding 10% of the value of total assets. Any
borrowing will be done from a bank and to the extent that such
borrowing exceeds 5% of the value of the Fund's assets, asset coverage
of at least 300% is required. In the event that such asset coverage
shall at any time fall below 300%, the Fund shall, within three days
thereafter or such longer period as the Securities and Exchange
Commission ("SEC") may prescribe by rules and regulations, reduce the
amount of its borrowings to such an extent that the asset coverage of
such borrowings shall be at least 300%. This borrowing provision is
included for temporary liquidity or emergency purposes. All borrowings
in excess of 5% of the value of a Fund's total assets will be repaid
before making additional investments and any interest paid on such
borrowings will reduce income.
4. Pledge, mortgage or hypothecate assets except to secure temporary
borrowings permitted by (3) above in aggregate amounts not to exceed
10% of total assets taken at current value at the time of the
incurrence of such loan, except as permitted with respect to securities
lending.
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5. Purchase or sell real estate, real estate limited partnership
interests, futures contracts, commodities or commodities contracts;
provided that this shall not prevent a Fund from investing in readily
marketable securities of issuers which own or invest in real estate, or
commodities or commodities contracts; and provided that the Equity
Growth, High Yield Bond, Equity Index and the International Equity
Funds can invest in futures contracts, commodities and commodities
contracts.
6. Make short sales of securities, maintain a short position or purchase
securities on margin, except that the Trust may obtain short-term
credits as necessary for the clearance of security transactions.
7. Act as an underwriter of securities of other issuers except as it may
be deemed an underwriter in selling a Fund security.
8. Purchase securities of other investment companies except as permitted
by the Investment Company Act of 1940, as amended (the "1940 Act"), and
the rules and regulations thereunder. Under these rules and
regulations, as currently in effect, a Fund is generally prohibited
from acquiring the securities of other investment companies if, as a
result of such acquisition, the Fund owns more than 3% of the total
voting stock of the company; securities issued by any one investment
company represent more than 5% of the Fund's total assets; or
securities (other than treasury stock) issued by all investment
companies represent more than 10% of the Fund's total assets. The 1940
Act and the rules and regulations thereunder permit feeder funds to
invest up to 100% of their assets in corresponding master funds.
9. Issue senior securities (as defined in the 1940 Act) except in
connection with permitted borrowings as described above 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 advisor 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; provided that limitation does not apply to the Equity
Growth Fund, International Equity, High Yield Bond and Equity Funds.
Notwithstanding the foregoing, each of the High Yield Bond and Equity Index
Funds may invest up to 100% of its assets in another investment company, or
series thereof, with substantially similar investment objectives, policies and
limitations.
Non-Fundamental Policies. The following investment policies are non-fundamental
policies that may be changed by the Board of Trustees without shareholder
approval.
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No Fund may:
1. Invest in interests in oil, gas or other mineral exploration or
development programs and oil, gas or mineral leases; provided that this
limitation does not apply to the Equity Growth Fund.
2. Except for the High Yield Bond, Equity Index, Equity Growth and
International Equity Funds, write or purchase puts, calls, options,
warrants, or combinations thereof; except that (i) the Tax-Exempt Money
Market, New Jersey Municipal Securities and Pennsylvania Municipal
Securities Funds may purchase securities subject to a put and (ii) the
Equity Value, Equity Income, Mid Cap and Balanced Funds may purchase
warrants. However, the Equity Value, Equity Income, Mid Cap and
Balanced Funds each may not invest more than 5% of its net assets in
warrants; provided that of this 5%, no more than 2% may be in warrants
not listed on the New York Stock Exchange or the American Stock
Exchange.
The following non-fundamental policies are additional policies with respect to
the Equity Growth, International Equity, High Yield Bond and Equity Index Funds
only.
The Equity Growth, International Equity, High Yield Bond and Equity Index Funds
may not:
1. 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 advisor 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.
2. Invest in companies for the purpose of exercising control.
The foregoing percentages apply at the time of the purchase of a security.
II. Investments Limitations of the SIMT High Yield Bond Portfolio
The following investment limitations are fundamental policies of the SIMT High
Yield Bond Portfolio which cannot be changed without the consent of the holders
of a majority of the Portfolio's outstanding shares. The term "majority of the
outstanding shares" means the vote of (i) 67% or more of the Portfolio's shares
present at a meeting, if more than 50% of the outstanding shares of the
Portfolio are present or represented by proxy, or (ii) more than 50% of the
Portfolio's outstanding shares, whichever is less.
The Portfolio may not:
1. Make loans if, as a result, more than 331/3% of its total assets would
be loaned to other parties, except that the Portfolio may (i) purchase
or hold debt instruments in accordance
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with its investment objective and policies; (ii) enter into repurchase
agreements; and (iii) lend its securities.
2. Purchase or sell real estate, physical commodities, or commodities
contracts, except that the Portfolio may purchase (i) marketable
securities issued by companies which own or invest in real estate
(including real estate investment trusts), commodities, or commodities
contracts; and (ii) commodities contracts relating to financial
instruments, such as financial futures contracts and options on such
contracts.
3. Issue senior securities (as defined in the 1940 Act) except as
permitted by rule, regulation or order of the SEC.
4. Act as an underwriter of securities of other issuers except as it may
be deemed an underwriter in selling a portfolio security.
5. Invest in interests in oil, gas, or other mineral exploration or
development programs and oil, gas or mineral leases.
The foregoing percentages will apply at the time of the purchase of a security
and shall not be considered violated unless an excess or deficiency occurs
immediately after or as a result of a purchase of such security. These
investment limitations and the investment limitations in SIMT's prospectus are
fundamental policies of SIMT and may not be changed without shareholder
approval.
Non-Fundamental Policies. The following investment policies are non-fundamental
policies that may be changed by SIMT's Board of Trustees without shareholder
approval.
The Portfolio may not:
1. Pledge, mortgage or hypothecate assets except to secure borrowings
permitted by the Portfolio's fundamental limitation on borrowing.
2. Invest in companies for the purpose of exercising control.
3. Purchase securities on margin or effect short sales, except that the
Portfolio may (i) obtain short term credits as necessary for the
clearance of security transactions; (ii) provide initial and variation
margin payments in connection with transactions involving futures
contracts and options on such contracts; and (iii) make short sales
"against the box" or in compliance with the SEC's position regarding
the asset segregation requirements imposed by Section 18 of the 1940
Act.
4. Invest its assets in securities of any investment company, except as
permitted by the 1940 Act or an order of exemption therefrom.
S-26
<PAGE>
5. Purchase or hold illiquid securities, i.e., securities that cannot be
disposed of for their approximate carrying value in seven days or less
(which term includes repurchase agreements and time deposits maturing
in more than seven days) if, in the aggregate, more than 15% of its net
assets would be invested in illiquid securities.
6. Purchase securities which are not readily marketable, if, in the
aggregate, more than 15% of its total assets would be invested in such
securities.
Under rules and regulations established by the SEC, a Portfolio is typically
prohibited from acquiring the securities of other investment companies if, as a
result of such acquisition, the Portfolio owns more than 3% of the total voting
stock of the company; securities issued by any one investment company represent
more than 5% of the total Portfolio's assets; or securities (other than treasury
stock) issued by all investment companies represent more than 10% of the total
assets of the Portfolio. However, certain Portfolios may rely upon SEC exemptive
orders issued to the Trust which permit the Portfolio to invest in other
investment companies beyond these percentage limitations. 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.
Each of the foregoing percentage limitations (except with respect to the
limitation on investing in illiquid securities) apply at the time of purchase.
III. Investment Limitations of the SIF S&P 500 Index Portfolio
The following investment limitations are fundamental policies of the SIF S&P 500
Index Portfolio which cannot be changed without the consent of the holders of a
majority of the Portfolio's outstanding shares. The term "majority of the
outstanding shares" means the vote of (i) 67% or more of the Portfolio's shares
present at a meeting, if more than 50% of the outstanding shares of the
Portfolio are present or represented by proxy, or (ii) more than 50% of the
Portfolio's outstanding shares, whichever is less.
The SIF S&P 500 Index Portfolio may not:
1. Pledge, mortgage or hypothecate assets, except to secure temporary
borrowings as described in the SIF S&P 500 Index Portfolio prospectus
in aggregate amounts not to exceed 10% of the net assets of the
Portfolio taken at current value at the time of the incurrence of such
loan and in connection with stock index futures trading as provided in
SIF's Prospectus and Statement of Additional Information.
2. Invest in companies for the purpose of exercising control.
3. Purchase or sell real estate, real estate limited partnership
interests, physical commodities or commodities contracts. However,
subject to its permitted investments, the Portfolio may
S-27
<PAGE>
purchase (i) obligations issued by companies which invest in real
estate, commodities or commodities contracts, and (ii) commodities
contracts related to financial instruments, such as financial futures
contracts.
4. Make short sales of securities, maintain a short position or purchase
securities on margin, except that SIF may obtain short-term credits as
necessary for the clearance of security transactions.
5. Act as an underwriter of securities of other issuers except as it may
be deemed an underwriter in selling a portfolio security.
6. Purchase securities of other investment companies except as permitted
by the 1940 Act and the rules and regulations thereunder and may only
purchase securities of money market funds.
7. Issue senior securities (as defined in the 1940 Act) except in
connection with permitted borrowings as described in the SIF S&P 500
Index Portfolio prospectus and SIF's Statement of Additional
Information or as permitted by rule, regulation or order of the SEC.
8. Purchase or retain securities of an issuer if, to the knowledge of SIF,
an officer, trustee, partner or director of SIF or any investment
advisor of SIF owns beneficially more than 1/2 of 1% of the shares or
securities of such issuer and all such officers, trustees, partners and
directors owning more than 1/2 of 1% of such shares or securities
together own more than 5% of such shares or securities.
9. Purchase securities of any company which has (with predecessors) a
record of less than three years continuing operations if, as a result,
more than 5% of the total assets (taken at current value) would be
invested in such securities.
10. Purchase warrants, puts, calls, straddles, spreads or combinations
thereof.
11. Invest in interests in oil, gas or other mineral exploration or
development programs.
12. Purchase restricted securities (securities which must be registered
under the Securities Act of 1933 before they may be offered or sold to
the public) or other illiquid securities except as described in SIF's
Prospectus and Statement of Additional Information.
The foregoing percentages will apply at the time of the purchase of a security
and shall not be considered violated unless an excess or deficiency occurs or
exists immediately after and as a result of a purchase of such security. These
investment limitations and the investment limitations in SIF's Prospectus are
fundamental policies of SIF and may not be changed without shareholder approval.
S-28
<PAGE>
MANAGEMENT OF THE TRUST
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(R), CoreFunds, Inc.,
CrestFunds, Inc., CUFUND, The Expedition Funds, FMB Funds, Inc., First American
Funds, Inc., First American Investment Funds, Inc., First American Strategy
Funds, Inc., HighMark Funds, Marquis Funds(R), Monitor Funds, Morgan Grenfell
Investment Trust, Oak Associates Funds, The PBHG Funds, Inc., PBHG Insurance
Series Fund, Inc., 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 International 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 Fund Resources or its
affiliates and, except for Santa Barbara Group of Mutual Funds, Inc.,
distributed by SEI Investments Distribution Co.
JAMES B. GRECCO - Trustee - Date of Birth: 02/17/33 - President, Grecco Auto
Body Inc. (1986 - present); President, Grecco Auto Imports, Inc. (1970 -
present); President, Joyce Motor Corp. (1979 - present); President, Grecco Auto
Leasing Inc. (1964 - present); President, Grecco Lincoln Mercury Inc. (1964 -
present).
CHRISTINE H. YACKMAN - Trustee - Date of Birth: 12/30/61 - Executive and
Corporate Officer, Edgeboro Disposal, Inc. and Affiliated Companies (1991 -
present); Officer Manager, Herbert Sand Co., Inc. (1981 - 1986).
ARTHUR L. BERMAN - Trustee - Date of Birth: 07/27/27 - President of Bertek, Inc.
(1972 - 1994).
RAY KONRAD - Trustee - Date of Birth: 09/17/36 - Chairman and Chief Executive
Officer of American Compressed Gases, Inc. (1961 - present).
THOMAS D. SAYLES, Jr. -Trustee* - Date of Birth: 01/16/32 - Consultant (1995 -
present); Chairman of Summit Bank (1971-1995).
ROBERT A. NESHER - Chairman of the Board of Trustees* - Date of Birth: 08/17/46
- - 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 Administrator and the Distributor,
1981-1994. Trustee of The Advisors'
S-29
<PAGE>
Inner Circle Fund, The Arbor Fund, Boston 1784 Funds(R), The Expedition Funds,
Marquis Funds(R), Oak Associates Funds, SEI Asset Allocation Trust, SEI Daily
Income Trust, SEI Index Funds, SEI Institutional Investments Trust, SEI
Institutional Managed Trust, SEI International Trust, SEI Liquid Asset Trust and
SEI Tax Exempt Trust.
MARK E. NAGLE - President and Chief Executive Officer - Date of Birth: 10/20/59
- - Vice President of Fund Accounting and Administration for SEI Fund Resources
and Vice President of the Administrator 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.
KEVIN P. ROBINS - Vice President and Assistant Secretary - Date of Birth:
04/15/61 - Senior Vice President and General Counsel of SEI Investments, the
Administrator and the Distributor since 1994. Assistant Secretary of SEI
Investments since 1992; Secretary of the Administrator and Distributor since
1994. Vice President, General Counsel and Assistant Secretary of the
Administrator and the Distributor, 1992-1994. Associate, Morgan, Lewis & Bockius
LLP (law firm), 1988-1992.
KATHRYN L. STANTON - Vice President and Assistant Secretary - Date of Birth:
11/19/58 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 Administrator and the Distributor since 1994.
Associate, Morgan, Lewis & Bockius LLP (law firm), 1989-1994.
RICHARD W. GRANT - Secretary - Date of Birth: 10/25/45 - 2000 One Logan Square,
Philadelphia, PA 19103, Partner of Morgan, Lewis & Bockius LLP (law firm),
counsel to the Trust, Administrator and Distributor.
SANDRA K. ORLOW - Vice President and Assistant Secretary - Date of Birth:
10/18/53 - Vice President and Assistant Secretary of the Administrator and
Distributor since 1983.
TODD B. CIPPERMAN - Vice President and Assistant Secretary - Date of Birth:
02/14/66 - Vice President and Assistant Secretary of SEI Investments, the
Administrator and the Distributor since 1995. Associate, Dewey Ballantine (law
firm) (1994-1995). Associate, Winston & Strawn (law firm) (1991-1994).
JOSEPH M. O'DONNELL -Vice President and Assistant Secretary - Date of Birth:
01/13/54 - Vice President and Assistant Secretary of 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).
S-30
<PAGE>
LYDIA A. GAVALIS -Vice President and Assistant Secretary- Date of Birth: 06/5/64
- - 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).
LYNDA J. STRIEGEL -Vice President and Assistant Secretary -Date of Birth:
10/30/48 - 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).
KATHY HEILIG -Vice President and Assistant Secretary - Date of Birth: 12/21/58
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.
CHRISTOPHER F. SALFI - Controller and Chief Financial Officer-
Date of Birth: 11/28/63 - Director, Fund Accounting, SEI Investments since
January 1998; prior to his current position, served most recently as Fund
Accounting Manager of SEI Investments from 1994 to 1997; Investment Accounting
Manager, PFPC from 1993 to 1994; FPS Services, Inc. from 1986 to 1993.
- ---------------
* "Interested person" within the meaning of the 1940 Act.
The Trustees and officers of the Trust own less than 1% of the outstanding
shares of the Trust. The Trust pays the fees for Trustees who are not affiliated
with the Administrator. During the fiscal year ended December 31, 1997, the
Trust paid approximately $54,000 in fees to the unaffiliated Trustees.
Compensation of officers and Trustees of the Trust affiliated with the
Administrator is paid by the Administrator.
Compensation Table
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
Name of Person, Aggregate Pension or Retirement Estimated Annual Total Compensation
Position Compensation From Benefits Accrued As Benefits Upon From Registrant and
Registrant (1) Part of Fund Expenses Retirement Fund Complex Paid to
Trustees for the Fiscal
Year Ended
December 31, 1997 (2)
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Arthur L. Berman, $12,000 N/A N/A $12,000 for services on
Trustee 1 board
Ray Konrad, Trustee $12,000 N/A N/A $12,000 for services on
1 board
James B. Grecco, $12,000 N/A N/A $12,000 for services on
Trustee 1 board
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
S-31
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
Name of Person, Aggregate Pension or Retirement Estimated Annual Total Compensation
Position Compensation From Benefits Accrued As Benefits Upon From Registrant and
Registrant (1) Part of Fund Expenses Retirement Fund Complex Paid to
Trustees for the Fiscal
Year Ended
December 31, 1997 (2)
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Christine H. Yackman, $12,000 N/A N/A $12,000 for services on
Trustee 1 board
Thomas D. Sayles, Jr., $6,000 N/A N/A $6,000 for services on
Trustee (3,4) 1 board
Robert A. Nesher, $0 N/A N/A $0
Trustee 3
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Amounts do not include travel expenses.
(2) There are no other investment companies in the "Fund Complex" (as that
term is defined in the Securities and Exchange Act of 1934, as
amended).
(3) Messrs. Sayles and Nesher are "interested persons" as defined in the
1940 Act.
(4) Elected to Board on August 21, 1997.
II. TRUSTEES AND OFFICERS OF SIMT AND SIF
The following individuals currently serve as the Trustees and Officers of SIMT
and SIF. For those executive officers who are also officers of the Trust, only
the name and office of the Trustee or officer is set forth below.
ROBERT A. NESHER - Chairman of the Board of Trustees.*
GEORGE J. SULLIVAN, JR. - Trustee - Date of Birth: 11/13/42 - General Partner,
Teton Partners, L.P., since 1991; Chief Financial Officer, Noble Partners, L.P.,
since 1991; Treasurer and Clerk, Peak Asset Management, Inc. since 1991;
Trustee, Navigator Securities Lending Trust since 1995. Trustee of SEI Asset
Allocation Trust, SEI Liquid Asset Trust, SEI Daily Income Trust, SEI Tax Exempt
Trust, SEI Index Funds and SEI Institutional Investments Trust.
WILLIAM M. DORAN - Trustee.* - Date of Birth: 05/06/40 - 2000 One Logan Square,
Philadelphia, PA 19103. Partner, Morgan, Lewis & Bockius LLP (law firm), counsel
to the Trust, Manager and Distributor, Director and Secretary of SEI Investments
and Secretary of the Advisor, Manager and Distributor. Trustee of The Arbor
Fund, Marquis Funds(R), The Advisors' Inner Circle Fund, The Expedition Funds,
SEI Asset Allocation Trust, SEI Daily Income Trust, SEI Index Funds, SEI Liquid
Asset Trust, SEI Institutional Investments Trust, SEI Institutional Managed
Trust, SEI International Trust, and SEI Tax Exempt Trust.
F. WENDELL GOOCH - Trustee** - Date of Birth: 12/03/32 - P.O. Box 190, Paoli, IN
47454. President, Orange County Publishing Co., Inc., since October 1981.
Publisher of the Paoli News and the Paoli Republican and Editor of the Paoli
Republican since January 1981, President, H & W Distribution, Inc. since July
1984. Trustee of STI Classic Funds.
S-32
<PAGE>
FRANK E. MORRIS - Trustee**- Date of Birth: 12/30/23 - 105 Walpole Street,
Dover, MA 02030. Retired since 1990. Peter Drucker Professor of Management,
Boston College, 1989-1990. President, Federal Reserve Bank of Boston, 1968-1988.
Trustee of The Arbor Fund, Marquis Funds(R), The Advisors' Inner Circle Fund,
SEI Asset Allocation Trust, SEI Daily Income Trust, SEI Index Funds, SEI Liquid
Asset Trust, SEI Institutional Investments Trust, SEI Institutional Managed
Trust, SEI International Trust, and SEI Tax Exempt Trust.
JAMES M. STOREY - Trustee**- Date of Birth: 04/12/31 - Retired; Partner, Dechert
Price & Rhoads, from September 1987-December 1993; Trustee of The Arbor Fund,
Marquis Funds(R), The Advisors' Inner Circle Fund, The Expedition Funds, SEI
Asset Allocation Trust, SEI Daily Income Trust, SEI Index Funds, SEI Liquid
Asset Trust, SEI Institutional Investments Trust, SEI Institutional Managed
Trust, SEI International Trust, and SEI Tax Exempt Trust.
EDWARD D. LOUGHLIN - President and Chief Executive Officer - Date of Birth:
03/07/51 - Executive Vice President and President - Asset Management Division of
SEI Investments since 1994. Senior Vice President, SEI Investments, 1986-1991;
Vice President, SEI Investments, 1981-1986.
CYNTHIA M. PARRISH - Vice President and Assistant Secretary - Date of Birth:
10/23/59 - Vice President and Assistant Secretary of the SEI Investments 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, September
1992-January 1995.
MARK E. NAGLE - Controller and Chief Financial Officer.
RICHARD W. GRANT - Secretary.
SANDRA K. ORLOW - Vice President and Assistant Secretary-Vice President,
Assistant Secretary.
KEVIN P. ROBINS - Vice President, Assistant Secretary.
KATHRYN L. STANTON - Vice President, Assistant Secretary.
TODD CIPPERMAN - Vice President, Assistant Secretary.
JOSEPH M. O'DONNELL - Vice President, Assistant Secretary.
LYDIA A. GAVALIS - Vice President, Assistant Secretary.
LYNDA J. STRIEGEL - Vice President, Assistant Secretary.
S-33
<PAGE>
KATHY HEILIG - Vice President, Assistant Secretary.
* Messrs. Nesher and Doran are Trustees who may be deemed to be "interested
persons" of SIMT 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.
For the fiscal year ended September 30, 1997, SIMT paid the following amounts to
the Trustees:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
Aggregate Pension or Retirement Estimated Total Compensation from
Compensation Benefits Accrued as Annual Registrant and Fund Complex
From SIMT for Part of Fund Expenses Benefits Upon Paid to Directors for Fiscal
Name of Person and Fiscal Year End Retirement Year End September 30, 1997
Position September 30,
1997
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Robert A. Nesher, $0 $0 $0 $0
Trustee
George J. Sullivan, Jr. $25,367 $0 $0 $96,750 for services on 8
Trustee boards
William M. Doran, $0 $0 $0 $0
Trustee
F. Wendell Gooch, $25,367 $0 $0 $96,750 for services on 8
Trustee boards
Frank E. Morris, $25,367 $0 $0 $96,750 for services on 8
Trustee boards
James M. Storey, $25,367 $0 $0 $96,750 for services on 8
Trustee boards
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- ----------
Mr. Edward W. Binshadler serves as a consultant to the Audit Committee and
receives as compensation $5,000 per Audit Committee meeting attended.
For the fiscal year ended March 31, 1997, SIF paid the following amounts to the
Trustees:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
Aggregate Pension or Retirement Estimated Total Compensation from
Compensation Benefits Accrued as Annual Registrant and Fund Complex
From SIF for Part of Fund Expenses Benefits Upon Paid to Directors for Fiscal
Name of Person and Fiscal Year End Retirement Year End March 31, 1997
Position March 31, 1997
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Robert A. Nesher, $0 $0 $0 $0
Trustee
George J. Sullivan, Jr. $3,430 $0 $0 $69,750 for services on 8
Trustee boards
- -------------------------------------------------------------------------------------------------------------------------------
S-34
<PAGE>
William M. Doran, $0 $0 $0 $0
Trustee
F. Wendell Gooch, $4,723 $0 $0 $92,250 for services on 8
Trustee boards
Frank E. Morris, $4,723 $0 $0 $92,250 for services on 8
Trustee boards
James M. Storey, $4,723 $0 $0 $92,250 for services on 8
Trustee* boards
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- ----------
* Mr. Storey received a portion of such amount as compensation for service as an
Honorary Trustee prior to being elected as a Trustee on August 14, 1996.
Mr. Edward W. Binshadler serves as a consultant to the Audit Committee and
receives as compensation $5,000 per Audit Committee meeting attended.
THE ADVISOR
The Trust and Summit Bank Investment Management Division, a division of Summit
Bank (the "Advisor"), have entered into an advisory agreement (the "Advisory
Agreement"). The Advisory Agreement provides that the Advisor shall not be
protected against any liability to the Trust or its shareholders by reason of
willful misfeasance, bad faith or gross negligence on its part in the
performance of its duties or from reckless disregard of its obligations or
duties thereunder.
The Advisor will not be required to bear expenses of the Trust to an extent
which would result in a Fund's inability to qualify as a regulated investment
company under provisions of the Code.
The continuance of the Advisory Agreement, after the first two years, must be
specifically approved at least annually (i) by the vote of the Trustees, and
(ii) by the vote of a majority of the Trustees who are not parties to the
Agreement or "interested persons" of any party thereto, cast in person at a
meeting called for the purpose of voting on such approval. The Advisory
Agreement will terminate automatically in the event of its assignment, and is
terminable at any time without penalty by the Trustees of the Trust or, with
respect to the Funds by a majority of the outstanding shares of that Fund, on
not less than 30 days', nor more than 60 days', written notice to the Advisor,
or by the Advisor on 90 days' written notice to the Trust.
The Glass-Steagall Act restricts the securities activities of banks such as
Summit Bank, but federal regulatory authorities permit such banks to provide
investment advisory and other services to mutual funds. Should this position be
challenged successfully in court or reversed by legislation, the Trust might
have to make other investment advisory arrangements.
S-35
<PAGE>
For the fiscal years ended December 31, 1995, 1996 and 1997, the Funds paid the
following advisory fees:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Fund Fees Paid (000) Fees Waived (000)
--------------------------------------------------------------------------------------------
1995 1996 1997 1995 1996 1997
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
U.S. Treasury Securities Money Market $1,379,851 $1,483,256 $1,647,200 $11,367 $13,685 $74,551
Fund
- -----------------------------------------------------------------------------------------------------------------------------------
Prime Obligation Money Market Fund $775,370 $1,249,323 $1,494,179 $11,245 $59,285 $58,224
- -----------------------------------------------------------------------------------------------------------------------------------
Tax-Exempt Money Market Fund $169,810 $235,721 $249,145 $28,362 $19,962 $13,948
- -----------------------------------------------------------------------------------------------------------------------------------
Institutional Select Money Market Fund * * $9,681 * * $9,249
- -----------------------------------------------------------------------------------------------------------------------------------
U.S. Treasury Securities Plus Money $43,958 $35,739 $36,157 $41,490 $65,612 $78,082
Market Fund
- -----------------------------------------------------------------------------------------------------------------------------------
Fixed Income Fund $549,172 $548,757 $1,152,778 $116,572 $132,719 $275,261
- -----------------------------------------------------------------------------------------------------------------------------------
New Jersey Municipal Securities Fund $68,649 $169,521 $629,451 $214,460 $117,210 $193,912
- -----------------------------------------------------------------------------------------------------------------------------------
Pennsylvania Municipal Securities Fund $0 $0 $173,734 $18,779 $23,653 $55,630
- -----------------------------------------------------------------------------------------------------------------------------------
Intermediate-Term Government $112,419 $164,062 $159,825 $77,884 $20,823 $49,402
Securities Fund
- -----------------------------------------------------------------------------------------------------------------------------------
Equity Growth Fund * * $809,370 * * $460,947
- -----------------------------------------------------------------------------------------------------------------------------------
Equity Value Fund $367,084 $503,319 $1,149,769 $208,115 $300,124 $610,793
- -----------------------------------------------------------------------------------------------------------------------------------
Equity Income Fund $208,394 $282,807 $587,414 $135,831 $181,061 $365,524
- -----------------------------------------------------------------------------------------------------------------------------------
Mid Cap Fund $191,285 $228,182 $241,395 $129,856 $149,082 $151,223
- -----------------------------------------------------------------------------------------------------------------------------------
Balanced Fund $166,657 $161,262 $133,549 $115,294 $110,920 $117,387
- -----------------------------------------------------------------------------------------------------------------------------------
International Equity Fund $15,494 $103,626 $129,179 $25,007 $30,671 $31,555
- -----------------------------------------------------------------------------------------------------------------------------------
High Yield Bond Fund * * * * * *
- -----------------------------------------------------------------------------------------------------------------------------------
Equity Index Fund * * * * * *
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* An asterisk indicates that the Fund had not commenced operations as of the
period indicated.
THE SUB-ADVISOR
The Advisor and Vontobel USA Inc., which acts as investment sub-advisor to the
International Equity Fund (the "Sub-Advisor"), have entered into a sub-advisory
agreement (the "Sub-Advisory Agreement"). The Sub-Advisory Agreement provides
that the Sub-Advisor shall not be protected against any liability to the Trust
or its shareholders by reason of willful misfeasance, bad faith or gross
negligence on its part in the performance of its duties or from reckless
disregard of its obligations or duties thereunder.
The continuance of the Sub-Advisory Agreement, after two years, must be
specifically approved at least annually (i) by the vote of the Trustees, and
(ii) by the vote of a majority of the Trustees who are not parties to the
Agreement or "interested persons" of any party thereto,
S-36
<PAGE>
cast in person at a meeting called for the purpose of voting on such approval.
The Sub-Advisory Agreement will terminate automatically in the event of its
assignment, and is terminable at any time without penalty by the Trustees of the
Trust or, with respect to the Fund by a majority of the outstanding shares of
the Fund on not less than 30 days', nor more than 60 days', written notice to
the Sub-Advisor, or by the Sub-Advisor on 90 days' written notice to the Trust.
For the fiscal periods ended December 31, 1995, 1996 and 1997, Wellington
Management Company, LLP, the Fund's prior sub-advisor, received the following
fees from the Advisor:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
Fees Paid Fees Waived
Fund
---------------------------------------------------------------------------------------------
1995 1996 1997 1995 1996 1997
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
International Equity Fund* $12,151 $81,600 $96,000 $12,151 $0 $0
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Vontobel USA Inc. was appointed the Fund's sub-advisor on June 22, 1998 and
began managing the Fund on August 31, 1998.
SIMT HIGH YIELD BOND PORTFOLIO
The advisory agreement and the sub-advisory agreement with respect to the SIMT
High Yield Bond Portfolio provide that SEI Investments Management Corporation
("SIMC" or the "High Yield Bond Advisor") and each Money Manager shall not be
protected against any liability to SIMT 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.
SIMC acts as the investment advisor to the SIMT High Yield Bond Portfolio and
operates as a "manager of managers." As investment advisor, SIMC oversees the
investment advisory services provided to the SIMT High Yield Bond 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 Money Managers are responsible for the day-to-day
investment management of all or a discrete portion of the assets of the SIMT
High Yield Bond Portfolio. The Money Managers are selected based primarily upon
the research and recommendations of SIMC, which evaluates quantitatively and
qualitatively each of the sub-investment advisor's styles and strategies.
Subject to the SIMT Board's review, SIMC allocates and, when appropriate,
reallocates the Portfolio's assets among Money Managers, monitors and evaluates
Money Manager performance, and oversees Money Manager compliance with the
Portfolio's investment objective, policies and restrictions. SIMC HAS THE
ULTIMATE RESPONSIBILITY FOR THE INVESTMENT PERFORMANCE OF THE SIMT HIGH YIELD
BOND PORTFOLIO DUE TO ITS RESPONSIBILITY TO OVERSEE MONEY MANAGERS AND RECOMMEND
THEIR HIRING, TERMINATION AND REPLACEMENT.
The continuance of the 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
S-37
<PAGE>
Trustees, and (ii) by the vote of a majority of the Trustees who are not parties
to such Agreement or "interested persons" of any party thereto, cast in person
at a meeting called for the purpose of voting on such approval. Each Advisory or
Sub-Advisory Agreement will terminate automatically in the event of its
assignment, and is terminable at any time without penalty by the Trustees of the
Trust or, with respect to the Portfolio, by a majority of the outstanding shares
of the Portfolio, on not less than 30 days' nor more than 60 days' written
notice to the High Yield Bond Advisor (or Sub-Advisor) or by the High Yield Bond
Advisor (or Sub-Advisor) 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-advisors
for the Portfolio without submitting the sub-advisory agreement to a vote of the
Portfolio's shareholders. The exemptive relief permits the non-disclosure of
amounts payable by SIMC under such sub-advisory agreement. The Trust will notify
shareholders in the event of any change in the identity of the sub-advisor for
the Portfolio.
For the fiscal year ended September 30, 1995, 1996 and 1997, the SIMT High Yield
Bond Portfolio paid the following fees to SIMC:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
Advisory Fees Paid (000) Advisory Fees Waived (000)
------------------------------------------------------------------------------------------
1995 1996 1997 1995 1996 1997
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
SIMT High Yield Bond Portfolio $31 $282 $812 $0 $0 $0
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
BEA Associates ("BEA" or the "Money Manager") serves as investment sub-advisor
to the SIMT High Yield Bond Fund. BEA is a general partnership organized under
the laws of the State of New York which, together with its predecessor firms,
have been engaged in the investment advisory business for over 50 years.
For the fiscal year ended September 30, 1995, 1996 and 1997, the SIMT High Yield
Bond Portfolio paid the following fees to BEA:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
Sub-Advisory Fees Paid (000) Sub-Advisory Fees Waived (000)
------------------------------------------------------------------------------------------
1995 1996 1997 1995 1996 1997
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
SIMT High Yield Bond Portfolio $16 $195 $585 $0 $0 $0
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
SIF S&P 500 INDEX PORTFOLIO
The advisory agreement for the SIF S&P 500 Index Portfolio ("SIF Advisory
Agreement") provides that the investment advisor, World Asset Management
("World" or the "S&P Advisor"), shall not be protected against any liability to
SIF or its shareholders by reason of
S-38
<PAGE>
willful misfeasance, bad faith or gross negligence on its part in the
performance of its duties or from reckless disregard of its obligations or
duties thereunder.
The continuance of the SIF Advisory Agreement, after the first two years, must
be specifically approved at least annually (i) by the vote of the Trustees, and
(ii) by the vote of a majority of the Trustees who are not parties to the
Agreement or "interested persons" of any party thereto, cast in person at a
meeting called for the purpose of voting on such approval. The SIF Advisory
Agreement will terminate automatically in the event of its assignment, and is
terminable at any time without penalty by the Trustees of SIF or, with respect
to the Portfolio by a majority of the outstanding shares of the Portfolio, on
not less than 30 days', nor more than 60 days', written notice to World, or by
World on 90 days' written notice to SIF.
World is a general partnership organized by Munder Capital Management, a general
partnership formed in December, 1994, which engages in investment management and
advisory services.
World is entitled to a fee for its investment advisory services, which is
calculated daily and paid monthly, at an annual rate of 0.03% of the average
daily net assets of the Portfolio. No monthly payment to World shall exceed the
payment actually made to SEI Management pursuant to the management agreement
between SEI Management and SIF.
For the fiscal years ended March 31, 1995, 1996 and 1997, the Portfolio paid the
following advisory fees:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
Advisory Fees Paid Advisory Fees Waived
------------------------------------------------------------------------------------------
1995 1996 1997 1995 1996 1997
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
SIF S&P 500 Index Portfolio $127,331 $161,179 $234,127 $0 $0 $0
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
THE ADMINISTRATOR
The Trust and SEI Investments Mutual Fund Services (the "Administrator") are
parties to an Administration Agreement. The Administration Agreement provides
that the Administrator 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 Administration Agreement relates, except a loss resulting from willful
misfeasance, bad faith or gross negligence on the part of the Administrator in
the performance of its duties or from reckless disregard by it of its duties and
obligations thereunder. The Administration Agreement shall remain in effect for
a period of five years after the date of the Agreement; thereafter shall
continue in effect for a period of three years; and thereafter for successive
periods of two years subject to review at least annually by the Trustees of the
Trust. The Administration Agreement is also subject to termination by either
party on not less than 90 days' written notice to the other party.
S-39
<PAGE>
The Administrator, a Delaware business trust, has its principal business offices
at Oaks, Pennsylvania 19456. SIMC, a wholly-owned subsidiary of SEI Investments
Company ("SEI Investments"), is the owner of all beneficial interest in the
Administrator. SEI Investments and its subsidiaries and affiliates, including
the Administrator, are leading providers of funds evaluation services, trust
accounting systems, and brokerage and information services to financial
institutions, institutional investors, and money managers. The Administrator 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(R), CoreFunds, Inc., CrestFunds, Inc., CUFUND, The Expedition Funds, First
American Funds, Inc., First American Investment Funds, Inc., First American
Strategy Funds, Inc., HighMark Funds, Marquis Funds(R), Monitor Funds, Morgan
Grenfell Investment Trust, The Nevis Funds, Oak Associates Funds, PBHG Advisor
Funds, Inc., The PBHG Funds, Inc., PBHG Insurance Series Fund, Inc., 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 International Trust, SEI Liquid Asset Trust,
SEI Tax Exempt Trust, STI Classic Funds, STI Classic Variable Trust, TIP Funds
and TIP Institutional Funds.
For the fiscal years ended December 31, 1995, 1996 and 1997, the Funds paid the
following administrative fees:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Fund Fees Paid Fees Waived
---------------------------------------------- ---------------------------------------
1995 1996 1997 1995 1996 1997
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
U.S. Treasury Securities Money Market Fund $794,951 $855,185 $984,420 $0 $0 $0
- -----------------------------------------------------------------------------------------------------------------------------------
Prime Obligation Money Market Fund $449,500 $747,383 $887,094 $0 $0 $0
- -----------------------------------------------------------------------------------------------------------------------------------
Tax-Exempt Money Market Fund $112,391 $146,103 $150,340 $0 $0 $0
- -----------------------------------------------------------------------------------------------------------------------------------
U.S. Treasury Securities Plus Money Market $199,381 $235,806 $266,568 $0 $0 $0
Fund
- -----------------------------------------------------------------------------------------------------------------------------------
Institutional Select Money Market Fund * * $19,094 * * $0
- -----------------------------------------------------------------------------------------------------------------------------------
Fixed Income Fund $221,916 $227,160 $476,002 $0 $0 $0
- -----------------------------------------------------------------------------------------------------------------------------------
New Jersey Municipal Securities Fund $56,645 $86,863 $274,456 $33,587 $8,714 $0
- -----------------------------------------------------------------------------------------------------------------------------------
Pennsylvania Municipal Securities Fund $0 $0 $76,478 $5,076 $7,884 $6,505
- -----------------------------------------------------------------------------------------------------------------------------------
Intermediate-Term Government Securities Fund $63,435 $61,629 $69,742 $0 $0 $0
- -----------------------------------------------------------------------------------------------------------------------------------
Equity Growth Fund * * $338,754 * * $0
- -----------------------------------------------------------------------------------------------------------------------------------
Equity Value Fund $153,388 $214,253 $469,484 $0 $0 $0
- -----------------------------------------------------------------------------------------------------------------------------------
Equity Income Fund $91,794 $123,705 $254,120 $0 $0 $0
- -----------------------------------------------------------------------------------------------------------------------------------
Mid Cap Fund $85,638 $100,599 $104,699 $0 $0 $0
- -----------------------------------------------------------------------------------------------------------------------------------
Balanced Fund $75,188 $72,586 $66,885 $0 $0 $0
- -----------------------------------------------------------------------------------------------------------------------------------
International Equity Fund $8,100 $26,860 $32,086 $0 $0 $0
- -----------------------------------------------------------------------------------------------------------------------------------
High Yield Bond Fund * * * * * *
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
S-40
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Fund Fees Paid Fees Waived
--------------------------------------------------- --------------------------------------------
1995 1996 1997 1995 1996 1997
<S> <C> <C> <C> <C> <C> <C>
Equity Index Fund * * * * * *
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* An asterisk indicates that the Fund had not commenced operations as of the
period indicated.
THE PORTFOLIOS' ADMINISTRATOR AND TRANSFER AGENT
SIMT and SIF each has entered into a "management agreement" ("Management
Agreement") with SEI Investments Fund Management ("SEI Management") to provide
administrative services. Each Management Agreement provides that SEI Management
shall not be liable for any error of judgment or mistake of law or for any loss
suffered by SIMT or SIF, respectively, in connection with the matters to which
such Management Agreement relates, except a loss resulting from willful
misfeasance, bad faith or gross negligence on the part of SEI Management in the
performance of its duties or from reckless disregard of its duties and
obligations thereunder.
The continuance of each Management Agreement must be specifically approved at
least annually (i) by the vote of a majority of the SIMT or SIF Trustees or by
the vote of a majority of the outstanding voting securities of the appropriate
Portfolio, and (ii) by the vote of a majority of the Trustees of SIMT or SIF 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. Each Management
Agreement is terminable at any time, as to the Portfolio, without penalty by the
Trustees of SIMT or SIF by a vote of a majority of the outstanding shares of a
Portfolio or by SEI Management on not less than 30 days' nor more than 60 days'
written notice.
For the fiscal years indicated, the SIMT High Yield Bond Portfolio paid the
following fees to SEI Management:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Management Fees Paid (000) Management Fees Waived (000)
1995 1996 1997 1995 1996 1997
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
SIIT High Yield Bond Portfolio $16 $160 $501 $18 $42 $82
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
For the fiscal years indicated, the SIF S&P 500 Index Portfolio paid the
following fees to SEI Management:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Management Fees Paid Management Fees Waived
(000) (000)
1995 1996 1997 1995 1996 1997
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
SIF S&P 500 Index Portfolio $934 $658 $1,271 $404 $524 $446
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
S-41
<PAGE>
CUSTODIANS
Summit Bank serves as the custodian of the Trust's assets. In addition,
with respect to the International Equity Fund, The Bank of California, N.A.
serves as sub-custodian for the Fund's assets maintained in foreign countries.
FUND TRANSACTIONS
TRADING PRACTICES AND BROKERAGE
I. THE TRUST
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 Advisor, Sub-Advisor, and/or Money Manager is
responsible for placing the orders to execute transactions for the Fund. In
placing orders, it is the policy of the Trust to seek to obtain the best net
results taking into account such factors as price (including the applicable
dealer spread), the 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 Advisor, Money Manager and/or
Sub-Advisor generally seeks reasonably competitive spreads or commissions, the
Trust will not necessarily be paying the lowest spread or commission available.
The money market securities in which the Funds invest 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, the Advisor,
Money Manager and/or Sub-Advisor 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 the Trust will
primarily consist of dealer spreads and underwriting commissions.
The Advisor, Money Manager and/or Sub-Advisor selects brokers or dealers to
execute transactions for the purchase or sale of portfolio securities on the
basis of its judgment of their professional capability to provide the service.
The primary consideration is to have brokers or dealers execute transactions at
best price and execution. Best price and execution refers to many factors,
including the price paid or received for a security, the commission charged, the
promptness and reliability of execution, the confidentiality and placement
accorded the order and other factors affecting the overall benefit obtained by
the account on the transaction. The Advisor, Money Manager and/or Sub-Advisor's
determination of what are reasonably competitive rates is based upon the
professional knowledge of the Advisor, Money Manager and/or Sub-Advisor's
trading department as to rates paid and charged for similar transactions
S-42
<PAGE>
throughout the securities industry. In some instances, the Trust pays a
minimal share transaction cost when the transaction presents no difficulty.
As described above, bonds, debentures and money market securities are
bought and sold directly with a dealer without payment of a brokerage
commission. In these instances, while there is no direct commission charged,
there is a spread (the difference between the buy and sell price) which is the
equivalent of a commission.
The Advisor, Money Manager and/or Sub-Advisor may allocate, out of all
commission business generated by all of the funds and accounts under management
by the Advisor, Money Manager and/or Sub-Advisor, brokerage business to brokers
or dealers who provide brokerage and research services. 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 strategy, providing computer software used in security
analyses, and providing portfolio performance evaluation and technical market
analyses. Such services are used by the Advisor, Money Manager and/or
Sub-Advisor in connection with its investment decision-making process with
respect to one or more funds and accounts managed by it, and may not be used
exclusively with respect to the fund or account generating the brokerage.
As provided in the Securities Exchange Act of 1934, higher commissions may
be paid to brokers or dealers who provide brokerage and research services than
to brokers or dealers who do not provide such services if such higher
commissions are deemed reasonable in relation to the value of the brokerage and
research services provided. Although transactions are directed to brokers or
dealers who provide such brokerage and research services, the Trust believes
that the commissions paid to such brokers or dealers are not, in general, higher
than commissions that would be paid to brokers or dealers not providing such
services and that such commissions are reasonable in relation to the value of
the brokerage and research services provided. In addition, portfolio
transactions which generate commissions or their equivalent are directed to
brokers or dealers who provide daily portfolio pricing services to the Trust or
who have agreed to defray other Trust expenses such as custodian fees. Subject
to best price and execution, commissions used for pricing may or may not be
generated by the funds receiving the pricing service.
For the fiscal year ended December 31, 1997, the following commissions were
paid on brokerage transactions, pursuant to an agreement or understanding, to
brokers because of research services provided by the brokers:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
Total Dollar Amount of Brokerage Total Dollar Amount of Transactions Involving Directed
Commissions for Research Services Brokerage Commissions for Research Services
- -------------------------------------------------------------------------------------------------
<S> <C>
$499,360 $651,890,616
- -------------------------------------------------------------------------------------------------
</TABLE>
The Advisor, Money Manager and/or Sub-Advisor may place a combined order
for two or more accounts or funds engaged in the purchase or sale of the same
security if, in its judgment, joint execution is in the best interest of each
participant and will result in best price and execution.
S-43
<PAGE>
Transactions involving commingled orders are allocated in a manner deemed
equitable to each account or fund. It is believed that the ability of the
accounts to participate in volume transactions generally will be beneficial to
the accounts and funds. Although it is recognized that, in some cases, the joint
execution of orders could adversely affect the price or volume of the security
that a particular account or trust may obtain, it is the opinion of the Advisor,
Money Manager and/or Sub-Advisor and the Trust's Board of Trustees that the
advantages of combined orders outweigh the possible disadvantages of separate
transactions.
Consistent with the Conduct Rules of the National Association of Securities
Dealers, Inc., and subject to seeking best price and execution, the Advisor,
Money Manager and/or Sub-Advisor may, at the request of the Distributor, give
consideration to sales of shares of the Trust as a factor in the selection of
brokers and dealers to execute Trust portfolio transactions.
It is expected that the Trust may execute brokerage or other agency
transactions through the Distributor or Summit Discount Brokerage Co., an
affiliate of the Advisor, both of which are registered brokers or dealers, for a
commission in conformity with the 1940 Act, the Securities Exchange Act of 1934,
as amended, and rules promulgated by the SEC. Under these provisions, the
Distributor or Summit Discount Brokerage Co. is permitted to receive and retain
compensation for effecting portfolio transactions for the Trust on an exchange
if a written contract is in effect between the Distributor and the Trust
expressly permitting the Distributor or Summit Discount Brokerage Co. to receive
and retain such compensation. These rules further require that commissions paid
to the Distributor by the Trust for exchange transactions not exceed "usual and
customary" brokerage commissions. The rules define "usual and customary"
commissions to include amounts which are "reasonable and fair compared to the
commission, fee or other remuneration received or to be received by other
brokers in connection with comparable transactions involving similar securities
being purchased or sold on a securities exchange during a comparable period of
time." The Trustees, including those who are not "interested persons" of the
Trust, have adopted procedures for evaluating the reasonableness of commissions
paid to the Distributor and will review these procedures periodically.
For the fiscal years ended December 31, 1995, 1996 and 1997, the Funds paid
the following brokerage commissions:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
Fund Total Brokerage Commissions Amount Paid to SEI Investments(1)
-----------------------------------------------------------------------------------
1995 1996 1997 1995 1996 1997
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
U.S. Treasury Securities Money Market Fund N/A N/A N/A N/A N/A $2,134
- ----------------------------------------------------------------------------------------------------------------------------------
Prime Obligation Money Market Fund N/A N/A N/A N/A $53,399 $47,306
- ----------------------------------------------------------------------------------------------------------------------------------
Tax-Exempt Money Market Fund N/A N/A N/A N/A N/A N/A
- ----------------------------------------------------------------------------------------------------------------------------------
U.S. Treasury Securities Plus Money Market Fund N/A N/A N/A N/A $16,774 $17,304
- ----------------------------------------------------------------------------------------------------------------------------------
Institutional Select Money Market Fund * * N/A * * $2,625
- ----------------------------------------------------------------------------------------------------------------------------------
Fixed Income Fund N/A N/A N/A N/A N/A N/A
- ----------------------------------------------------------------------------------------------------------------------------------
New Jersey Municipal Securities Fund N/A N/A N/A N/A N/A N/A
- ----------------------------------------------------------------------------------------------------------------------------------
Pennsylvania Municipal Securities Fund N/A N/A $5,987 N/A N/A N/A
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
S-44
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
Fund Total Brokerage Commissions Amount Paid to SEI Investments(1)
------------------------------------------------------------------------
1995 1996 1997 1995 1996 1997
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Intermediate-Term Government Securities Fund N/A N/A N/A N/A N/A N/A
- -----------------------------------------------------------------------------------------------------------------------
Equity Growth Fund * * $392,850 * * N/A
- -----------------------------------------------------------------------------------------------------------------------
Equity Value Fund $210,169 $289,752 $359,684 $13,000 $6,360 N/A
- -----------------------------------------------------------------------------------------------------------------------
Equity Income Fund $96,146 $194,728 $269,004 $750 $1,000 N/A
- -----------------------------------------------------------------------------------------------------------------------
Mid Cap Fund $83,236 $129,497 $127,629 $660 N/A N/A
- -----------------------------------------------------------------------------------------------------------------------
Balanced Fund $35,560 $50,970 $57,835 $180 $1,008 N/A
- -----------------------------------------------------------------------------------------------------------------------
International Equity Fund $44,707 $60,818 $61,452 N/A N/A N/A
- -----------------------------------------------------------------------------------------------------------------------
High Yield Bond Fund * * * * * *
- -----------------------------------------------------------------------------------------------------------------------
Equity Index Fund * * * * * *
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
* An asterisk indicates that the Fund had not commenced operations for the
period indicated.
(1) The amounts paid to SEI Investments reflect fees paid in connection with
repurchase agreement transactions.
For the fiscal years indicated, the Funds paid the following brokerage
commissions:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
% of Total % of Total
Total $ Amount of Brokerage Brokerage Brokerage
Fund Total $ Amount of Brokerage Commissions Paid to Affiliated Commissions Transactions
Commissions Paid Brokers Paid to the Effected
Affiliated Through
Brokers Affiliated
Brokers
- ------------------------------------------------------------------------------------------------------------------------------
1995 1996 1997 1995 1996 1997 1997 1997
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury Securities Money N/A N/A N/A N/A N/A N/A N/A N/A
Market Fund
- ------------------------------------------------------------------------------------------------------------------------------
Prime Obligation Money Market N/A N/A N/A N/A N/A N/A N/A N/A
Fund
- ------------------------------------------------------------------------------------------------------------------------------
Tax-Exempt Money Market Fund N/A N/A N/A N/A N/A N/A N/A N/A
- ------------------------------------------------------------------------------------------------------------------------------
U.S. Treasury Securities Plus Money N/A N/A N/A N/A $16,774 N/A N/A N/A
Market Fund
- ------------------------------------------------------------------------------------------------------------------------------
Institutional Select Money Market * * N/A * * N/A * *
Fund
- ------------------------------------------------------------------------------------------------------------------------------
Fixed Income Fund $0 $0 $0 $0 $0 $0 $0 $0
- ------------------------------------------------------------------------------------------------------------------------------
New Jersey Municipal Securities $0 $0 $0 $0 $0 $0 $0 $0
Fund
- ------------------------------------------------------------------------------------------------------------------------------
Pennsylvania Municipal Securities $0 $0 $5,987 $0 $0 $0 $0 $0
Fund
- ------------------------------------------------------------------------------------------------------------------------------
Intermediate-Term Government $0 $0 $0 $0 $0 $0 $0 $0
Securities Fund
- ------------------------------------------------------------------------------------------------------------------------------
Equity Growth Fund * * $392,850 * * $0 $0 $0
- ------------------------------------------------------------------------------------------------------------------------------
Equity Value Fund $210,169 $289,752 $359,684 $13,100 $6,360 $0 $0 $0
- ------------------------------------------------------------------------------------------------------------------------------
Equity Income Fund $96,146 $194,728 $269,004 $750 $1,000 $0 $0 $0
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
S-45
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
% of Total % of Total
Total $ Amount of Brokerage Brokerage Brokerage
Fund Total $ Amount of Brokerage Commissions Paid to Affiliated Commissions Transactions
Commissions Paid Brokers Paid to the Effected
Affiliated Through
Brokers Affiliated
Brokers
- ------------------------------------------------------------------------------------------------------------------------------
1995 1996 1997 1995 1996 1997 1997 1997
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Mid Cap Fund $83,236 $129,497 $127,629 $660 $0 $0 $0 $0
- ------------------------------------------------------------------------------------------------------------------------------
Balanced Fund $35,560 $50,970 $57,835 $180 $1,008 $0 $0 $0
- ------------------------------------------------------------------------------------------------------------------------------
International Equity Fund $44,707 $60,818 $61,452 $0 $0 $0 $0 $0
- ------------------------------------------------------------------------------------------------------------------------------
High Yield Bond Fund * * * * * * * *
- ------------------------------------------------------------------------------------------------------------------------------
Equity Index Fund * * * * * * * *
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* An asterisk indicates that the Fund had not commenced operations as of the
period indicated.
"Regular brokers or dealers" of the Trust are the ten brokers or dealers
that, during the most recent fiscal year, (i) received the greatest dollar
amounts of brokerage commissions from the Trust's portfolio transactions, (ii)
engaged as principal in the largest dollar amounts of portfolio transactions of
the Trust, or (iii) sold the largest dollar amounts of the Trust's shares. At
December 31, 1997, the Balanced Fund held securities of the Trust's "regular
brokers or dealers" as follows: $709,500 in common stock of Morgan Stanley Dean
Witter.
II. SEI INSTITUTIONAL MANAGED TRUST
SIMT 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 SIMT's Trustees, the advisors are responsible for placing orders
to execute portfolio transactions. In placing orders, it is the SIMT's policy to
seek to obtain the best net results taking into account such factors as price
(including the applicable dealer spread), size, type and difficulty of the
transaction involved, the firm's general execution and operational facilities,
and the firm's risk in positioning the securities involved. While the advisors
generally seek reasonably competitive spreads or commissions, the SIMT will not
necessarily be paying the lowest spread or commission available. SIMT will not
purchase portfolio securities from any affiliated person acting as principal
except in conformity with the regulations of the SEC.
It is expected that the Portfolio may execute brokerage or other agency
transactions through the Distributor, a registered broker-dealer, for a
commission in conformity with the 1940 Act, the Securities Exchange Act of 1934,
as amended, and rules and regulations of the SEC. Under these provisions, the
Distributor is permitted to receive and retain compensation for effecting
portfolio transactions for the Portfolio on an exchange if a written contract is
in effect between the Distributor and the Trust expressly permitting the
Distributor to receive and retain such compensation. These provisions further
require that commissions paid to the Distributor by the Trust for exchange
transactions not exceed "usual and customary" brokerage commissions. The rules
define "usual and customary" commissions to include amounts which are
"reasonable and fair compared to the commission, fee or other remuneration
received or to be received by other brokers in connection with comparable
transactions involving similar securities being purchased
S-46
<PAGE>
or sold on a securities exchange during a comparable period of time." In
addition, the Portfolio may direct commission business to one or more designated
broker-dealers, including the Distributor, in connection with such
broker-dealer's payment of certain of the Portfolios' expenses. The Trustees,
including those who are not "interested persons" of the Trust, have adopted
procedures for evaluating the reasonableness of commissions paid to the
Distributor and will review these procedures for evaluating the reasonableness
of commissions paid to the Distributor and will review these procedures
periodically.
In connection with transactions effected for Portfolio operating within the
"Manager of Managers" structure, SIMC and the various firms that serve as
sub-advisor to the Portfolio of the Trust, in the exercise of joint investment
discretion over the assets of the Portfolio, may direct a substantial portion of
the Portfolio's brokerage to the Distributor. All such transactions directed to
the Distributor must be accomplished in a manner that is consistent with the
Trust's policy to achieve best net results, and must comply with the Trust's
procedures regarding the execution of transactions through affiliated brokers.
For the fiscal years indicated, the SIMT High Yield Bond Portfolio paid the
following brokerage fees:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
% of Total % of Total
Total $ Amount of Brokerage Brokerage Brokerage
Fund Total $ Amount of Brokerage Commissions Paid to Affiliated Commissions Transactions
Commissions Paid Brokers Paid to the Effected
Affiliated Through
Brokers Affiliated
Brokers
------------------------------------------------------------------------------------------------------
1995 1996 1997 1995 1996 1997 1997 1997
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
High Yield Bond Portfolio $0 $0 $0 $0 $0 $0 $0 $0
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The portfolio turnover rate for the SIMT High Yield Bond Portfolio for the
fiscal years indicated were as follows:
- --------------------------------------------------------------------------------
Portfolio Turnover Rate
--------------------------------------------------------
Fund 1995 1996 1997
- --------------------------------------------------------------------------------
High Yield Bond
Portfolio 56% 55% 68%
- --------------------------------------------------------------------------------
III. SEI INDEX FUNDS
SIF 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 S&P Advisor is responsible for placing orders
to execute portfolio transactions. In placing orders, it is SIF's policy to seek
to obtain the best net results taking into account such factors as price
(including
S-47
<PAGE>
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 S&P Advisor
generally seeks reasonably competitive spreads or commissions, SIF will not
necessarily be paying the lowest spread or commission available. SIF's policy of
investing in securities with short maturities will result in high portfolio
turnover. SIF will not purchase portfolio securities from any affiliated person
acting as principal except in conformity with the regulations of the SEC.
SIF does not expect to use one particular dealer, but, subject to SIF's
policy of seeking the best net results, dealers who provide supplemental
investment research to the S&P Advisor may receive orders to transactions by
SIF. Information so received will be in addition to and not in lieu of the
services required to be performed by the S&P Advisor under its Advisory
Agreement, and the expenses of the S&P Advisor will not necessarily be reduced
as a result of the receipt of such supplemental information.
The money market securities in which the Portfolio invests are traded
primarily in the over-the-counter market generally do not involve either
brokerage commissions or transfer taxes. Bonds and debentures are usually traded
over-the-counter, but may be traded on an exchange. Where possible, the S&P
Advisor will deal directly with the dealers who make a market in the securities
involved except in those circumstances where better prices and execution are
available elsewhere. Such dealers usually are acting as principal for their own
account. On occasion, securities may be purchased directly from the issuer. The
cost of executing portfolio securities transactions of the Portfolio will
primarily consist of dealer spreads and underwriting commissions.
The Portfolio may execute brokerage or other agency transactions through the
Distributor, a registered broker-dealer, for a commission, in conformity with
the Investment Company Act of 1940, the Securities Exchange Act of 1934 and the
rules and regulations thereunder. Under these provisions, the Distributor is
permitted to receive and retain compensation for effecting portfolio
transactions for the Portfolio on an exchange if a written contract is in effect
between the Distributor and SIF expressly permitting the Distributor to receive
and retain such compensation. These provisions further require that commissions
paid to the Distributor by SIF 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
commissions, fee or other remuneration 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 SIF, have adopted procedures
for evaluating the reasonableness of commissions paid to the Distributor and
will review these procedures periodically.
Since SIF does not market its shares through intermediary brokers or
dealers, it is not SIF'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 S&P Advisor may place portfolio orders with qualified broker-dealers who
recommend SIF to clients, and may, when a number of brokers and
S-48
<PAGE>
dealers can provide best price and execution on a particular transaction,
consider such recommendations by a broker or dealer in selecting among
broker-dealers.
It is expected that the portfolio turnover rate will normally not exceed
100% for the Portfolio. The portfolio turnover rate would exceed 100% if all of
its securities, exclusive of U.S. Government securities and other securities
whose maturities at the time of acquisition are one year or less, are replaced
in the period of one year. Turnover rates may vary from year to year and may be
affected by cash requirements for redemptions and by requirements which enable
the Portfolio to receive favorable tax treatment.
For the fiscal years indicated, the SIF S&P 500 Index Portfolio paid the
following brokerage commissions:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
% of Total % of Total Total $
Total $ Amount of Brokerage Brokerage Amount of
Fund Total $ Amount of Brokerage Brokerage Commissions Commissions Transactions Brokerage
Commissions Paid Paid to Affiliated Brokers Paid to the Effected Commissions
Affiliated Through Paid for
Brokers Affiliated Research
Brokers
------------------------------------------------------------------------------------------------------
1995 1996 1997 1995 1996 1997 1997 1997 1997
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SIF S&P 500 Index Portfolio $33,285 $36,384 $99,663 $0 $0 $0 $0 $0 $0
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The portfolio turnover rate for the SIF S&P 500 Index Portfolio for the fiscal
years indicated were as follows:
- -------------------------------------------------------------------------------
Portfolio Turnover Rate
--------------------------------------------------
Fund 1995 1996 1997
- -------------------------------------------------------------------------------
SIF S&P 500 Index Portfolio 4% 3% 2%
- -------------------------------------------------------------------------------
THE DISTRIBUTOR AND THE DISTRIBUTION PLANS OF THE TRUST
SEI Investments Distribution Co., (the "Distributor") a wholly owned subsidiary
of SEI Investments, and the Trust are parties to: a distribution agreement (the
"Distribution Agreement") dated February 28, 1992 which applies to Class A
Shares and Class I Shares of the Funds; a distribution and service agreement
(the "Class B Distribution Agreement") dated February 20, 1997, which applies to
the Class B Shares of the Funds; and a distribution agreement dated May 15, 1997
(the "Class S Distribution Agreement"), which applies to the Class S Shares of
the Funds. The Distributor has an obligation to use its best efforts to
distribute shares of the Fund on a continuous basis. The Distributor receives no
compensation for distribution of Class I shares, although it does receive
compensation pursuant to a distribution plan with respect to the U.S. Treasury
Securities Plus Money Market Fund as described below.
S-49
<PAGE>
The Distribution Agreement, the Class B Distribution Agreement and the
Class S Distribution Agreement are renewable annually and may be terminated by
the Distributor, the Qualified Trustees, or by a majority vote of the
outstanding securities of the Trust upon not more than 60 days' written notice
by either party. "Qualified Trustees" are Trustees of the Trust who are not
interested persons and have no financial interest in the Distribution Agreement,
Class B Distribution Agreement, Class S Distribution Agreement or any related
agreement or plan.
The Distribution Plan adopted by the U.S. Treasury Securities Plus Money
Market Fund shareholders (the "Distribution Plan") provides that the Trust will
pay the Distributor a fee of up to .03% of the Portfolio's average daily net
assets which the Distributor can use to compensate brokers or dealers and
service providers, including Summit Bank and its affiliates, which provide
distribution related services to shareholders or their customers who
beneficially own shares of the Fund.
The distribution plan for Class A Shares (the "Class A Distribution Plan")
provides that the Trust will pay the Distributor a fee of up to .25% of the
Class A Shares average daily net assets which the Distributor can use to
compensate brokers or dealers and service providers, including Summit Bank and
its affiliates, which provide distribution related services to Class A
shareholders or their customers who beneficially own Class A Shares.
The distribution and service plan for Class B Shares (the "Class B
Distribution Plan") provides that the Trust will pay the Distributor a Rule
12b-1 fee of up to .75% of the Class B Shares' average daily net assets, which
the Distributor can use to compensate brokers or dealers and service providers,
including Summit Bank and its affiliates, that provide distribution-related
services to Class B Shareholders or their customers who beneficially own Class B
Shares. In addition, the Class B Distribution Plan provides that the Trust will
pay the Distributor a shareholder servicing fee of up to .25% of the Class B
Shares, average daily net assets, which the Distributor can use to compensate
service providers, including Summit Bank and its affiliates.
The distribution and service plan for Class S Shares (the "Class S
Distribution Plan") provides that the Trust will pay the Distributor a Rule
12b-1 fee of up to .60% of the Class S Shares' average daily net assets, which
the Distributor can use to compensate brokers or dealers, including Summit Bank
and its affiliates, that provide distribution-related services to Class S Shares
or their customers who beneficially own Class S Shares.
Services under the Distribution Plan, the Class A Distribution Plan, the
Class B Distribution Plan and the Class S Distribution Plan (collectively, the
"Plans") may include establishing and maintaining customer accounts and records;
aggregating and processing purchase and redemption requests from customers;
placing net purchase and redemption orders with the Distributor; automatically
investing customer account cash balances; providing periodic statements to
customers; arranging for wires; answering customer inquiries concerning their
investments; assisting customers in changing dividend options, account
designations, and addresses; performing sub-accounting functions; processing
dividend payments from the Trust on behalf of customers; and forwarding
shareholder communications from the Trust (such as proxies, shareholder reports,
and dividend distribution and tax notices) to these customers with
S-50
<PAGE>
respect to investments in the Trust. Certain state securities laws may
require those financial institutions providing such distribution services to
register as dealers pursuant to state law.
Although banking laws and regulations prohibit banks from distributing
shares of open-end investment companies such as the Trust, according to an
opinion issued to the staff of the SEC by the Office of the Comptroller of the
Currency, financial institutions are not prohibited from acting in other
capacities for investment companies, such as providing shareholder services.
Should future legislative, judicial or administrative action prohibit or
restrict the activities of financial institutions in connection with providing
shareholder services, the Trust may be required to alter materially or
discontinue its arrangements with such financial institutions.
The Trust has adopted each Plan 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.
Continuance of each Plan must be approved annually by a majority of the
Trustees of the Trust and by a majority of the Qualified Trustees. Each Plan
requires that quarterly written reports of amounts spent under the respective
Plan and the purposes of such expenditures be furnished to and reviewed by the
Trustees. No Plan may be amended to increase materially the amount which may be
spent thereunder without approval by a majority of the outstanding shares of the
Trust. All material amendments of a Plan will require approval by a majority of
the Trustees of the Trust and of the Qualified Trustees.
The following Funds imposed a front-end sales charge upon their Class A
shares in the amounts shown for the fiscal years ended December 31, 1995, 1996
and 1997:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Fund Dollar Amount of Loads Dollar Amount of Loads
Retained by SEI Investments
--------------------------------------------------------------------------------------------------
1995 1996 1997 1995 1996 1997
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Fixed Income Fund $54,106 $45,951 $5,218 $2,113 $6,252 $729
- ------------------------------------------------------------------------------------------------------------------------------------
New Jersey Municipal Securities $75,388 $26,191 $17,033 $3,083 $3,531 $1,995
Fund
- ------------------------------------------------------------------------------------------------------------------------------------
Pennsylvania Municipal Securities $560 $648 $1,877 $36 $72 $221
Fund
- ------------------------------------------------------------------------------------------------------------------------------------
Intermediate-Term Government $54,745 $19,783 $0 $1,768 $2,774 $0
Securities Fund
- ------------------------------------------------------------------------------------------------------------------------------------
Equity Growth Fund * * $1,275 * * $122
- ------------------------------------------------------------------------------------------------------------------------------------
Equity Value Fund $133,599 $57,084 $81,148 $4,978 $8,140 $9,933
- ------------------------------------------------------------------------------------------------------------------------------------
Equity Income Fund $111,481 $99,330 $75,235 $4,040 $13,726 $8,933
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
S-51
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Fund Dollar Amount of Loads Dollar Amount of Loads
Retained by SEI Investments
--------------------------------------------------------------------------------------------------
1995 1996 1997 1995 1996 1997
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Mid Cap Fund $46,673 $18,446 $ 1,495 $1,351 $2,605 $ 215
- ------------------------------------------------------------------------------------------------------------------------------------
Balanced Fund $54,484 $38,379 $27,532 $1,315 $5,421 $3,510
- ------------------------------------------------------------------------------------------------------------------------------------
International Equity Fund $17,356 $13,212 $ 830 $ 673 $1,868 $ 91
- ------------------------------------------------------------------------------------------------------------------------------------
High Yield Bond Fund * * * * * *
- ------------------------------------------------------------------------------------------------------------------------------------
Equity Index Fund * * * * * *
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* An asterisk indicates that the Fund had not commenced operations as of the
period indicated.
The U.S. Treasury Securities Money Market Fund, Prime Obligation Money Market
Fund and Tax-Exempt Money Market Fund offer Class A Shares without a sales
charge, and therefore, no information is provided with respect to such Funds.
Class B Shares do not impose front-end sales charges. Class S Shares and Class I
Shares, the U.S. Treasury Securities Plus Money Market Fund and the
Institutional Select Money Market Fund do not impose sales charges.
The following Funds imposed a CDSC sales charge upon their Class B shares in the
amounts shown for the fiscal years ended December 31, 1995, 1996 and 1997:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
Fund Dollar Amount of Loads Dollar Amount of Loads
Retained by SEI Investments
--------------------------------------------------------------------------------------------
1995 1996 1997 1995 1996 1997
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Prime Obligation Money Market * * $0 * * $0
Fund
- ------------------------------------------------------------------------------------------------------------------------------
Fixed Income Fund * * $4,845 * * $0
- ------------------------------------------------------------------------------------------------------------------------------
Equity Value Fund * * $4,796 * * $0
- ------------------------------------------------------------------------------------------------------------------------------
Equity Income Fund * * $2,783 * * $0
- ------------------------------------------------------------------------------------------------------------------------------
Balanced Fund * * $1,250 * * $0
- ------------------------------------------------------------------------------------------------------------------------------
Equity Growth Fund * * $49 * * $0
- ------------------------------------------------------------------------------------------------------------------------------
International Equity Fund * * $0 * * $0
- ------------------------------------------------------------------------------------------------------------------------------
High Yield Bond Fund * * * * * *
- ------------------------------------------------------------------------------------------------------------------------------
Equity Index Fund * * * * * *
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* An asterisk indicates that the Class B Shares of the Fund had not commenced
operations as of the period indicated.
For the fiscal year ended December 31, 1997, the Class A Shares of the Funds
incurred the following distribution expenses:
S-52
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Total Distribution Total Distribution
Expenses Expenses (as a % Sales Expenses Printing Other
Fund of net assets) Costs Costs
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
U.S. Treasury Securities Money Market Fund $14,348 .25% N/A N/A N/A
Prime Obligation Money Market Fund $37,039 .25% N/A N/A N/A
Tax-Exempt Money Market Fund $13,218 .25% N/A N/A N/A
Fixed Income Fund $10,656 .25% N/A N/A N/A
New Jersey Municipal Securities Fund $45,335 .25% N/A N/A N/A
Pennsylvania Municipal Securities Fund $891 .25% N/A N/A N/A
Intermediate-Term Government Securities Fund $4,749 .25% N/A N/A N/A
Equity Growth Fund $425 .25% N/A N/A N/A
Equity Value Fund $30,599 .25% N/A N/A N/A
Equity Income Fund $36,993 .25% N/A N/A N/A
Mid Cap Fund $13,217 .25% N/A N/A N/A
Balanced Fund $24,118 .25% N/A N/A N/A
International Equity Fund $1,806 .25% N/A N/A N/A
High Yield Bond Fund * * * * *
Equity Index Fund * * * * *
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
*An asterisk indicates that the Class A Shares of the Fund had not commenced
operations as of the period indicated.
For the fiscal year ended December 31, 1997, the Class B Shares of the Funds
incurred the following distribution expenses:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Total Distribution Total Distribution
Expenses Expenses (as a % Sales Expenses Printing Other
Fund of net assets) Costs Costs
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Prime Obligation Money Market Fund $0 1.00% N/A N/A N/A
Fixed Income Fund $1,109 1.00% N/A N/A N/A
Equity Value Fund $16,331 1.00% N/A N/A N/A
Equity Income Fund $23,145 1.00% N/A N/A N/A
Balanced Fund $11,123 1.00% N/A N/A N/A
Equity Growth Fund $664 1.00% N/A N/A N/A
International Equity Fund $467 1.00% N/A N/A N/A
High Yield Bond Fund * * * * *
Equity Index Fund * * * * *
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
*An asterisk indicates that the Class B Shares of the Fund had not commenced
operations as of the period indicated.
For the fiscal year ended December 31, 1997, the Class S Shares of the Prime
Obligation Money Market Fund incurred the following distribution expenses:
S-53
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
Total Total Distribution
Distribution Expenses (as a % Sales Expenses Printing Costs Other Costs
Expenses of net assets)
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Prime Obligation Money Market $18,426 .35% N/A N/A N/A
Fund
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
Class I Shares do not have distribution expenses.
For the fiscal year ended December 31, 1997, the U.S. Treasury Securities Plus
Money Market Fund incurred the following distribution expenses:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
Total Total Distribution
Distribution Expenses (as a % Sales Expenses Printing Costs Other Costs
Expenses of net assets)
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
U.S. Treasury Securities Plus $22,842 .03% N/A N/A N/A
Money Market Fund
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
PORTFOLIO DISTRIBUTION
I. SIMT
SEI Investments Distribution Co. also serves as the distributor for the Class A
Shares of the Portfolio pursuant to a distribution agreement with SIMT.
The Portfolio has 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 Portfolio may pay the Distributor a negotiated fee at a rate of up to .25%
annually of the average daily net assets of the Portfolio attributable to Class
A Shares subject to the arrangement for provision of shareholder and
administrative services. The Distributor may retain as a profit any difference
between the fee it receives and the amount it pays to third parties.
Except to the extent that SIMC and Money Managers 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 Plan or related agreements.
For the fiscal year ended September 30, 1997, the Class A Shares of the
Portfolio incurred the following distribution expenses:
S-54
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
Total Distribution Total
Expenses Distribution Sales Printing Other
Fund Expenses (as Expenses Costs Costs
a % of net
assets)
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SIMT High Yield Bond Portfolio $2,789 .25% N/A N/A N/A
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
II. SIF
SEI Investments Distribution Co. also serves as the distributor for the Class E
Shares of the Portfolio pursuant to a distribution agreement with SIF.
Under the Class E Distribution Agreement, the Distributor has agreed to perform
all distribution services and functions of the Portfolio to the extent such
services and functions are not provided to the Portfolio pursuant to another
agreement. The Distribution Agreement provide that the shares of the Portfolio
are distributed through the Distributor.
The Distributor receives no compensation for distribution of Class E shares.
The Distribution Agreement provides that it will continue in effect for a period
of more than one year from the date of their execution only so long as such
continuance is specifically approved at least annually by the vote of a majority
of the Board members of SIF and by the vote of the majority of those board
members of SIF who are not interested persons of SIF.
For the fiscal year ended March 31, 1997, the Class E Shares of the Portfolio
incurred the following distribution expenses:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
Total Distribution Total
Expenses Distribution Sales Printing Other
Fund Expenses (as Expenses Costs Costs
a % of net
assets)
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SIF S&P 500 Index Portfolio $43,114 .03% N/A N/A N/A
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
PERFORMANCE
COMPUTATION OF YIELD
Money Market Funds. From time to time the U.S. Treasury Securities Money Market,
U.S. Treasury Securities Plus Money Market, Prime Obligation Money Market,
Tax-Exempt Money Market and Institutional Select Money Market Funds advertise
their "current yield" and "effective yield." Both yield figures are based on
historical earnings and are not intended to indicate future performance. The
"yield" of the Funds refers to the income generated by an investment in a Fund
over a seven-day period (which period will be stated in the
S-55
<PAGE>
advertisement). This income is then "annualized." That is, the amount of income
generated by the investment during that week is assumed to be generated each
week over a 52-week period and is shown as a percentage of the investment. The
"effective yield" is calculated similarly but, when annualized, the income
earned by an investment in a Fund is assumed to be reinvested. The "effective
yield" will be slightly higher than the "yield" because of the compounding
effect of this assumed reinvestment.
The current yield of the Funds will be calculated daily based upon the seven
days ending on the date of calculation ("base period"). The yield is computed by
determining the net change (exclusive of capital changes) in the value of a
hypothetical pre-existing shareholder account having a balance of one share at
the beginning of the period, subtracting a hypothetical charge reflecting
deductions from shareholder accounts, and dividing such net change by the value
of the account at the beginning of the same period to obtain the base period
return and multiplying the result by (365/7). Realized and unrealized gains and
losses are not included in the calculation of the yield. The effective compound
yield of the Funds is determined by computing the net change, exclusive of
capital changes, in the value of a hypothetical pre-existing account having a
balance of one share at the beginning of the period, subtracting a hypothetical
charge reflecting deductions from shareholder accounts, and dividing the
difference by the value of the account at the beginning of the base period to
obtain the base period return, and then compounding the base period return by
adding 1, raising the sum to a power equal to 365 divided by 7, and subtracting
1 from the result, according to the following formula: Effective Yield = [(Base
Period Return + 1) 365/7)] - 1. The current and the effective yields reflect the
reinvestment of net income earned daily on portfolio assets.
The Tax-Exempt Money Market Fund may also calculate its tax equivalent yield as
described under "Other Yields" below.
For the 7-day period ended December 31, 1997, the Money Market Funds' current,
effective and tax-equivalent yields were as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
Fund Class Current Yield Effective Yield Tax-Equivalent
(%) (%) Yield
(%)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury Securities Money Market Fund I 4.64 4.74 N/A
--------------------------------------------------------------------
A 4.38 4.47 N/A
- ----------------------------------------------------------------------------------------------------------------------
Prime Obligation Money Market Fund I 5.14 5.27 N/A
--------------------------------------------------------------------
A 4.88 5.00 N/A
--------------------------------------------------------------------
B 1.33 1.34 N/A
--------------------------------------------------------------------
S 4.79 4.90 N/A
- ----------------------------------------------------------------------------------------------------------------------
Tax-Exempt Money Market Fund I 3.22 3.27 5.37
--------------------------------------------------------------------
A 2.97 3.01 4.95
- ----------------------------------------------------------------------------------------------------------------------
U.S. Treasury Securities Plus Money Market Fund N/A 4.85 4.97 N/A
- ----------------------------------------------------------------------------------------------------------------------
Institutional Select Money Market Fund N/A 5.51 5.66 N/A
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
S-56
<PAGE>
Other Yields. The Fixed Income, High Yield Bond, New Jersey Municipal
Securities, Pennsylvania Municipal Securities, Intermediate-Term Government
Securities, Equity Value, Equity Income, Mid Cap, Balanced and International
Equity Funds may advertise a 30-day yield. These figures will be based on
historical earnings and are not intended to indicate future performance. The
yield of these Funds refers to the annualized income generated by an investment
in the Funds over a specified 30-day period and is shown as a percentage of the
investment. In particular, yield will be calculated according to the following
formula:
Yield = 2[{(a-b)/cd + 1}6 - 1] where a = dividends and interest earned during
the period; b = expenses accrued for the period (net of reimbursement); c = the
average daily number of shares outstanding during the period that were entitled
to receive dividends; and d = the maximum offering price per share on the last
day of the period.
The tax equivalent yield for the Tax-Exempt Money Market, New Jersey Municipal
Securities and Pennsylvania Municipal Securities Funds is computed by dividing
that portion of the Fund's yield which is tax-exempt by one minus a stated
federal and/or state income tax rate and adding the product to that portion, if
any, of the Fund's yield that is not tax-exempt. (Tax equivalent yields assume
the payment of federal income taxes at a rate of 39.6% and, if applicable, New
Jersey income taxes at a rate of 6.37% and Pennsylvania income taxes at a rate
of 2.8%).
Yields are one basis upon which investors may compare the Funds with other
funds; however, yields of other 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.
The yield of these Funds fluctuates, and the annualization of a week's dividend
is not a representation by the Trust as to what an investment in the Fund will
actually yield in the future. Actual yields will depend on such variables as
asset quality, average asset maturity, the type of instruments the Fund invests
in, changes in interest rates on money market instruments, changes in the
expenses of the Fund and other factors.
For the 30-day period ended December 31, 1997 the yields on the Fixed Income
Funds were as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
Fund Class Current Tax Equivalent
Yield Yield
(%) (%)
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Fixed Income Fund I 5.83 N/A
------------------------------------------------------------------------
A 5.33 N/A
------------------------------------------------------------------------
B 5.22 N/A
- ----------------------------------------------------------------------------------------------------------------
High Yield Bond Fund I * *
------------------------------------------------------------------------
A * *
------------------------------------------------------------------------
B * *
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
S-57
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
Fund Class Current Tax Equivalent
Yield Yield
(%) (%)
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
New Jersey Municipal I 3.89 7.20
Securities Fund -----------------------------------------------------------------------
A 3.60 6.67
- ----------------------------------------------------------------------------------------------------------------
Pennsylvania Municipal I 4.22 7.28
Securities Fund -----------------------------------------------------------------------
A 3.85 6.64
- ----------------------------------------------------------------------------------------------------------------
Intermediate-Term I 5.50 N/A
Government Securities Fund -----------------------------------------------------------------------
A 5.04 N/A
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
* Not in operation as of the period indicated.
CALCULATION OF TOTAL RETURN
From time to time, the Fixed Income, New Jersey Municipal Securities,
Pennsylvania Municipal Securities, Intermediate-Term Government Securities,
Equity Growth, Equity Value, Equity Income, Mid Cap, Balanced and International
Equity Funds may advertise total return on an "average annual total return"
basis and on an "aggregate total return" basis for various periods. Average
annual total return reflects the average annual percentage change in the value
of an investment in a Fund over the particular measuring period. Aggregate total
return reflects the cumulative percentage change in value over the measuring
period. Aggregate total return is computed according to a formula prescribed by
the SEC. The formula can be expressed as follows: 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 or the life of the fund. The formula for calculating aggregate total
return can be expressed as (ERV/P)-1.
The calculation of total return assumes reinvestment of all dividends and
capital gains distributions on the reinvestment dates during the period and that
the entire investment is redeemed at the end of the period. In addition, the
maximum sales charge for each Fund is deducted from the initial $1,000 payment.
Total return may also be shown without giving effect to any sales charges.
Based on the foregoing, the average total returns for the Funds from inception
through December 31, 1997 were as follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
Fund Class Average Annual Total Return
-----------------------------------------------
One Year Five Ten Since
Year Year Inception(1)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Fixed Income Fund I 7.78 6.48 ** 7.15
----------------------------------------------------------------------------
A (no load) 7.41 6.17 ** 6.85
----------------------------------------------------------------------------
A (load) 2.87 5.26 ** 6.06
----------------------------------------------------------------------------
B (no load) ** ** ** 9.61
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
S-58
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
Fund Class Average Annual Total Return
-----------------------------------------------
One Year Five Ten Since
Year Year Inception(1)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
B (load) ** ** ** .68
- -------------------------------------------------------------------------------------------------------------------------
I 6.76 5.85 ** 6.21
----------------------------------------------------------------------------
New Jersey Municipal Securities Fund A (no load) 6.31 5.50 ** 5.83
----------------------------------------------------------------------------
A (load) 3.13 4.86 ** 5.26
- -------------------------------------------------------------------------------------------------------------------------
I 7.18 ** ** 5.04
----------------------------------------------------------------------------
Pennsylvania Municipal Securities Fund A (no load) 6.63 ** ** 4.79
----------------------------------------------------------------------------
A (load) 3.48 ** ** 4.10
- -------------------------------------------------------------------------------------------------------------------------
I 6.96 5.53 ** 5.85
----------------------------------------------------------------------------
Intermediate-Term Government Securities Fund A (no load) 6.60 5.23 ** 5.58
----------------------------------------------------------------------------
A (load) 2.36 4.37 ** 4.82
- -------------------------------------------------------------------------------------------------------------------------
I ** ** ** 14.17
----------------------------------------------------------------------------
A (no load) ** ** ** 14.13
----------------------------------------------------------------------------
Equity Growth Fund A (load) ** ** ** 7.31
----------------------------------------------------------------------------
B (no load) ** ** ** 13.39
----------------------------------------------------------------------------
B (load) ** ** ** 5.19
- -------------------------------------------------------------------------------------------------------------------------
I 25.71 15.94 ** 15.23
----------------------------------------------------------------------------
A (no load) 25.51 15.62 ** 14.93
----------------------------------------------------------------------------
Equity Value Fund A (load) 18.58 14.32 ** 13.81
----------------------------------------------------------------------------
B (no load) ** ** ** 19.91
----------------------------------------------------------------------------
B (load) ** ** ** 12.01
- -------------------------------------------------------------------------------------------------------------------------
I 25.04 16.67 ** 16.17
----------------------------------------------------------------------------
A (no load) 24.68 16.38 ** 15.88
----------------------------------------------------------------------------
Equity Income Fund A (load) 17.80 15.08 ** 14.75
----------------------------------------------------------------------------
B (no load) ** ** ** 23.86
----------------------------------------------------------------------------
B (load) ** ** ** 15.58
- -------------------------------------------------------------------------------------------------------------------------
I 19.68 12.36 ** 11.86
----------------------------------------------------------------------------
A (no load) 19.46 12.08 ** 11.56
----------------------------------------------------------------------------
Balanced Fund A (load) 12.92 10.82 ** 10.48
----------------------------------------------------------------------------
B (no load) ** ** ** 20.18
----------------------------------------------------------------------------
B (load) ** ** ** 11.26
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
S-59
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
Fund Class Average Annual Total Return
-----------------------------------------------
One Year Five Ten Since
Year Year Inception(1)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
I .25 ** ** 7.12
----------------------------------------------------------------------------
A (no load) 0.00 ** ** 6.85
----------------------------------------------------------------------------
International Equity Fund A (load) (5.47) ** ** 4.63
----------------------------------------------------------------------------
B (no load) ** ** ** (3.64)
----------------------------------------------------------------------------
B (load) ** ** ** (11.03)
- -------------------------------------------------------------------------------------------------------------------------
I 20.49 10.91 ** 11.37
----------------------------------------------------------------------------
Mid Cap Fund A (no load) 20.16 10.62 ** 11.09
----------------------------------------------------------------------------
A (load) 15.39 9.72 ** 10.30
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Class I and Class A Shares of the Funds commenced operations on April 1,
1992, except: the New Jersey Municipal Securities Fund-Class I and Class A
Shares, commenced operations on May 4, 1992; the Pennsylvania Municipal
Securities Fund-Class I Shares and Class A Shares, commenced operations on May
3, 1993 and May 13, 1993, respectively; the International Equity Fund-Class I
and Class A Shares, commenced operations on May 1, 1995 and May 4, 1995,
respectively; and the Equity Growth Fund-Class I and Class A Shares, commenced
operations on February 3, 1997.
Class B Shares of the Funds commenced operations as follows: Fixed Income Fund,
May 16, 1997; the Equity Growth Fund, May 21, 1997; Equity Value Fund, May 12,
1997; the Equity Income Fund and Balanced Fund, May 8, 1997; and the
International Equity Fund, May 7, 1997.
** Not in operation during period.
Each Feeder Fund may advertise the performance of its corresponding Portfolio
adjusted to reflect applicable sales loads and operating expenses, other than
Rule 12b-1 fees. The data for the SIMT High Yield Bond Portfolio and the SIF S&P
500 Index Portfolio set forth below is adjusted to reflect estimated feeder
level operating expenses of .40% and .55%, respectively. In the absence or
reduction of current fee waivers or reimbursements, total return would be
reduced.
The following table shows total returns for the Class A Shares of the SIMT High
Yield Bond Portfolio for inception through September 30, 1997 and the Class E
Shares of the SIF S&P 500 Index Portfolio for inception through March 31,
1997:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
Average Annual Total Return
------------------------------------
Class/ One Five Since
Portfolio With/Without Load Year Years Inception
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SIMT High Yield Bond Portfolio Class A 15.30% * 16.00%
(commenced operations on Without Load
January 11, 1995)
- -----------------------------------------------------------------------------------------------------------
SIF S&P 500 Index Portfolio Class E 19.46% 16.14% 15.55%
(commenced operations on Without Load
August l, 1985)
- -----------------------------------------------------------------------------------------------------------
</TABLE>
* Not in operation during period.
S-60
<PAGE>
The Funds' performance may from time to time be compared to other mutual funds
tracked by mutual fund rating services (such as Lipper Analytical Services) or
financial and business publications and periodicals, broad groups of comparable
mutual funds, unmanaged indices which may assume investment of dividends but
generally do not reflect deductions for administrative and management costs or
to other investment alternatives. The Funds may quote Morningstar, Inc., a
service that ranks mutual funds on the basis of risk-adjusted performance. The
Funds may quote Ibbotson Associates of Chicago, Illinois, which provides
historical returns of the capital markets in the U.S. The Funds 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 Funds may also quote financial and business
publications and periodicals as they relate to fund management, investment
philosophy, and investment techniques.
The Funds 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.
PURCHASE AND REDEMPTION OF SHARES
It is currently the Trust's policy to pay for each Fund's 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
the Funds in lieu of cash. Shareholders may incur brokerage charges on the sale
of any such securities so received in payment of redemptions. However, a
shareholder will at all times be entitled to aggregate cash redemptions from all
Funds of the Trust during any 90-day period of up to the lesser of $250,000 or
1% of the Trust's net assets.
The Trust reserves the right to suspend the right of redemption and/or to
postpone the date of payment upon redemption for any period on 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
disposal or valuation of the Fund's securities is not reasonably practicable, or
for such other periods as the SEC has by order permitted. The Trust also
reserves the right to suspend sales of shares of a Fund for any period during
which the New York Stock Exchange, the Advisor and/or Sub-Advisor, the
Administrator and/or the Custodian are not open for business. Additionally, the
Trust reserves the right to suspend sales of shares of a feeder fund for any
period during which the corresponding master fund is not open for business. The
New York Stock Exchange will not open when the following holidays are observed:
New Year's Day; Martin Luther King, Jr., Day; Presidents' Day;
S-61
<PAGE>
Good Friday; Memorial Day; Independence Day; Labor Day; Thanksgiving; and
Christmas. In addition, as it relates to the Money Market Funds, the Federal
Reserve will not open when the following holidays are observed: Columbus Day and
Veterans' Day.
SHAREHOLDER SERVICES
Distribution Investment Option: Distributions of dividends and capital gains
made by the Funds may be automatically invested in shares of one of the Funds if
shares of the Funds are available for sale. Such investments will be subject to
initial investment minimums, as well as additional purchase minimums. A
shareholder considering the Distribution Investment Option should obtain and
read the prospectus of the other Funds and consider the differences in
objectives and policies before making any investment. This option is not
available for Cash Sweep Shareholders.
Reinstatement Privilege: In addition to a similar Class A shares' sales load
waiver described in the prospectus, a shareholder who has redeemed his or her
shares of any of the Funds has a one-time right to reinvest the redemption
proceeds in shares of any of the Funds 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.
DETERMINATION OF NET ASSET VALUE
I. THE TRUST
The net asset value per share of the Money Market Funds is calculated by adding
the value of securities and other assets, subtracting liabilities and dividing
by the number of outstanding shares. Securities will be valued by the amortized
cost method which involves valuing a security at its cost on the date of
purchase and thereafter (absent unusual circumstances) assuming a constant
amortization to maturity of any discount or premium, regardless of the impact of
fluctuations in general market rates of interest on the value of the instrument.
While this method provides certainty in valuation, it may result in periods
during which a security's value, as determined by this method, is higher or
lower than the price a Fund would receive if it sold the instrument. During
periods of declining interest rates, the daily yield of a Fund may tend to be
higher than a similar computation made by a company with identical investments
utilizing a method of valuation based upon market prices and estimates of market
prices for all of its portfolio securities. Thus, if the use of amortized cost
by a Fund resulted in a lower aggregate portfolio value on a particular day, a
prospective investor in that Fund
S-62
<PAGE>
would be able to obtain a somewhat higher yield than would result from
investment in a company utilizing solely market values, and existing investors
in the Fund would experience a lower yield. The converse would apply in a period
of rising interest rates.
The Money Market Funds' use of amortized cost and the maintenance of each Fund's
net asset value at $1.00 are permitted by regulations promulgated by Rule 2a-7
under the 1940 Act, provided that certain conditions are met. The regulations
also require the Trustees to establish procedures which are reasonably designed
to stabilize the net asset value per share at $1.00 for the Funds. Such
procedures include the determination of the extent of deviation, if any, of the
Funds current net asset value per share calculated using available market
quotations from the Funds amortized cost price per share at such intervals as
the Trustees deem appropriate and reasonable in light of market conditions and
periodic reviews of the amount of the deviation and the methods used to
calculate such deviation. In the event that such deviation exceeds 1/2 of 1%,
the Trustees are required to consider promptly what action, if any, should be
initiated, and, if the Trustees believe that the extent of any deviation may
result in material dilution or other unfair results to shareholders, the
Trustees are required to take such corrective action as they deem appropriate to
eliminate or reduce such dilution or unfair results to the extent reasonably
practicable. Such actions may include the sale of portfolio instruments prior to
maturity to realize capital gains or losses or to shorten average portfolio
maturity; withholding dividends; redeeming shares in kind; or establishing a net
asset value per share by using available market quotations. In addition, if the
Funds incur a significant loss or liability, the Trustees have the authority to
reduce pro rata the number of shares of the Funds in each shareholder's account
and to offset each shareholder's pro rata portion of such loss or liability from
the shareholder's accrued but unpaid dividends or from future dividends while
each other Fund must annually distribute at least 90% of its investment company
taxable income.
Shares will normally be issued for cash only. Transactions involving the
issuance of shares for securities or assets other than cash will be limited to a
bona fide reorganization, statutory merger or will be limited to other
acquisitions of portfolio securities (except for municipal debt securities
issued by state political subdivisions or their agencies or instrumentalities)
which: meet the investment objectives and policies of the investment company;
are acquired for investment and not for resale; are liquid securities which are
not restricted as to transfer either by law or liquidity of market; and have a
value which is readily ascertainable (and not established only by evaluation
procedures) as evidenced by a listing on the American Stock Exchange, the New
York Stock Exchange or NASDAQ.
The securities of the Equity and Balanced Funds are valued by the Administrator.
The Administrator may use an independent pricing service to obtain valuations of
securities. The pricing service relies primarily on prices of actual market
transactions as well as trader quotations. However, the service may also use a
matrix system to determine valuations of fixed income securities, which system
considers such factors as security prices, yields, maturities, call features,
ratings and developments relating to specific securities in arriving at
valuations. The procedures of the pricing service and its valuations are
reviewed by the
S-63
<PAGE>
officers of the Trust under the general supervision of the Trustees. Although
the methodology and procedures are identical, the net asset value per share of
Class I, Class A, Class B and Class S shares of the Funds may differ because of
the distribution expenses and shareholders servicing fees charged to Class A
shares, Class B shares and/or Class S shares.
A pricing service values portfolio securities, which are primarily traded on a
domestic exchange, at the last sale price on that exchange or, if there is no
recent sale, at the last current bid quotation. A Fund security that is
primarily traded on a foreign securities exchange is generally valued at its
preceding closing value on the exchange, provided that if an event occurs after
the security is so valued that is likely to have changed its value, then the
fair value of those securities will be determined through consideration of other
factors by or under the direction of the Board of Trustees. A security that is
listed or traded on more than one exchange is valued at the quotation on the
exchange determined to be the primary market for such security. For valuation
purposes, quotations of foreign securities in foreign currency are converted to
U.S. dollars equivalent at the prevailing market rate on the day of valuation.
Certain of the securities acquired by a Fund may be traded on foreign exchanges
or over-the-counter markets on days on which the Fund's net asset value is
calculated. In such cases, the net asset value of the Fund's shares may be
significantly affected on days when investors can neither purchase nor redeem
shares of the Fund.
II. SIMT AND SIF
The purchase and redemption price of shares is the net asset value of each
share. A Portfolio's securities are valued by SIMC 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 day on
which the New York Stock Exchange is open for business 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 SIMT and SIF under the general
supervision of the Trustees.
S-64
<PAGE>
GENERAL INFORMATION AND HISTORY
DESCRIPTION OF SHARES
The Declaration of Trust authorizes the issuance of an unlimited number of
shares of the Funds each of which represents an equal proportionate interest in
that Fund with each other share. Shares are entitled upon liquidation to a pro
rata share in the net assets of the Funds; shareholders have no preemptive
rights. The Declaration of Trust provides that the Trustees of the Trust may
create additional series of shares or classes of a series. All consideration
received by the Trust for shares of any additional series and all assets in
which such consideration is invested would belong to that series and would be
subject to the liabilities related thereto. Share certificates representing
shares will not be issued.
The names and addresses of the holders of 5% or more of the outstanding shares
of any Fund as of August 19, 1998 and the percentage of outstanding shares of
such Fund held by such shareholders as of such date are, to Trust management's
knowledge, as follows:
<TABLE>
<CAPTION>
Percent of
Beneficial
Fund Name and Address Ownership
- ---- ---------------- ----------
<S> <C> <C>
Institutional Select Money Summit Bank 72.49%
Market Fund Attn: Patricia Kyritz
P.O. Box 821
Hackensack, NJ 07602-0821
Acct #1181
Summit Asset Management 27.51%
c/o Laurie Minervini
P.O. Box 821
Hackensack, NJ 07602-0821
Acct #2283
U.S. Treasury Securities Summit Bank 93.37%
Money Market Fund: Attn: Patricia Kyritz
P.O. Box 821
Hackensack, NJ 07602-0821
Acct #1181
Summit Asset Management 6.15%
c/o Laurie Minervini
P.O. Box 821
Hackensack, NJ 07602-0821
Acct #2283
U.S. Treasury Securities Integrated Packing Corporation 8.56%
Plus Money Market Fund: c/o Dannie Warren
122 Quentin Road
New Brunswick, NJ 08901-3263
Acct #6135
</TABLE>
S-65
<PAGE>
<TABLE>
<CAPTION>
Percent of
Beneficial
Fund Name and Address Ownership
- ---- ---------------- ---------
- -
<S> <C> <C>
Prime Obligation Summit Bank 63.81%
Money Market Fund: Attn: Patricia Kyritz
P.O. Box 821
Hackensack, NJ 07602-0821
Acct #1181
Summit Discount Brokerage 15.93%
Attn: Richard Jennings
1457 MacArthur Road
Whitehall, PA 18052-5787
Acct #2016795
Summit Asset Management 12.26%
c/o Laurie Minervini
P.O. Box 821
Hackensack, NJ 07602-0821
Acct #2283
Tax-Exempt Money Market Summit Bank 76.39%
Fund: Attn: Patricia Kyritz
P.O. Box 547
Hackensack, NJ 07602-0547
Acct #1181
Summit Discount Brokerage 16.17%
Attn: Richard Jennings
P.O. Box 22227
Lehigh Valley, PA 18002-2227
Acct #2016795
Summit Asset Management 6.46%
c/o Laurie Minervini
P.O. Box 821
Hackensack, NJ 07602-0821
Acct #2283
</TABLE>
S-66
<PAGE>
<TABLE>
<CAPTION>
Percent of
Beneficial
Fund Name and Address Ownership
- ---- ---------------- ----------
<S> <C> <C>
Equity Growth Fund: Summit Bank 79.49%
Attn: Patricia Kyritz
P.O. Box 547
Hackensack, NJ 07602-0547
Acct #1182
Summit Bank 19.05%
Attn: Patricia Kyritz
P.O. Box 547
Hackensack, NJ 07602-0547
Acct #118
Fixed Income Fund: Summit Bank 38.60%
Attn: Patricia Kyritz
P.O. Box 547
Hackensack, NJ 07602-0547
Acct #1182
Summit Bank 30.72%
Attn: Patricia Kyritz
P.O. Box 547
Hackensack, NJ 07602-0547
Acct #1181
Summit Bank 29.95%
Attn: Patricia Kyritz
P.O. Box 547
Hackensack, NJ 07602-0547
Acct #118
New Jersey Municipal Summit Bank 49.53%
Securities Fund: Attn: Patricia Kyritz
P.O. Box 547
Hackensack, NJ 07602-0547
Acct #1182
Summit Bank 38.37%
Attn: Patricia Kyritz
P.O. Box 547
Hackensack, NJ 07602-0547
Acct #1181
</TABLE>
S-67
<PAGE>
<TABLE>
<CAPTION>
Percent of
Beneficial
Fund Name and Address Ownership
- ---- ---------------- ----------
<S> <C> <C>
Summit Bank 8.95%
Attn: Patricia Kyritz
P.O. Box 547
Hackensack, NJ 07602-0547
Acct #118
Equity Value Fund: Summit Bank 49.56%
Attn: Patricia Kyritz
P.O. Box 547
Hackensack, NJ 07602-0547
Acct #1182
Summit Bank 47.91%
Attn: Patricia Kyritz
P.O. Box 547
Hackensack, NJ 07602-0547
Acct #118
Equity Income Fund: Summit Bank 69.31%
Attn: Patricia Kyritz
P.O. Box 547
Hackensack, NJ 07602-0547
Acct #1182
Summit Bank 23.90%
Attn: Patricia Kyritz
P.O. Box 547
Hackensack, NJ 07602-0547
Acct #118
BHC Securities Inc. 6.78%
Trade House Acct
Attn: Mutual Fund Dept.
One Commerce Square
2005 Market Street
Suite 1200
Philadelphia, PA 19103-7042
Acct #2061784
</TABLE>
S-68
<PAGE>
<TABLE>
<CAPTION>
Percent of
Beneficial
Fund Name and Address Ownership
- ---- ---------------- ----------
<S> <C> <C>
Mid Cap Fund: Summit Bank 71.84%
Attn: Patricia Kyritz
P.O. Box 547
Hackensack, NJ 07602-0547
Acct #118
Summit Bank 23.70%
Attn: Patricia Kyritz
P.O. Box 547
Hackensack, NJ 07602-0547
Acct #1182
Balanced Fund: Summit Bank 74.19%
Attn: Patricia Kyritz
P.O. Box 547
Hackensack, NJ 07602-0547
Acct #118
Summit Bank 9.70%
Attn: Patricia Kyritz
P.O. Box 547
Hackensack, NJ 07602-0547
Acct #1181
Summit Bank 9.24%
Attn: Patricia Kyritz
P.O. Box 547
Hackensack, NJ 07602-0547
Acct #1182
BHC Securities Inc. 6.87%
Trade House Acct
Attn: Mutual Fund Dept.
One Commerce Square
2005 Market Street
Suite 1200
Philadelphia, PA 19103-7042
Acct #2061784
Pennsylvania Municipal Summit Bank 65.89%
Securities Fund: Attn: Patricia Kyritz
P.O. Box 547
Hackensack, NJ 07602-0547
Acct #1181
Summit Bank 32.98%
Attn: Patricia Kyritz
P.O. Box 547
Hackensack, NJ 07602-0547
Acct #1182
</TABLE>
S-69
<PAGE>
<TABLE>
<CAPTION>
Percent of
Beneficial
Fund Name and Address Ownership
- ---- ---------------- ----------
<S> <C> <C>
International Equity Fund: Summit Bank 46.78%
Attn: Patricia Kyritz
P.O. Box 547
Hackensack, NJ 07602-0547
Acct #118
Summit Bank 25.99%
Attn: Patricia Kyritz
P.O. Box 547
Hackensack, NJ 07602-0547
Acct #1181
Summit Bank 23.71%
Attn: Patricia Kyritz
P.O. Box 547
Hackensack, NJ 07602-0547
Acct #1182
Intermediate-Term Summit Bank 44.87%
Government Securities Fund: Attn: Patricia Kyritz
P.O. Box 547
Hackensack, NJ 07602-0547
Acct #118
Summit Bank 33.30%
Attn: Patricia Kyritz
P.O. Box 547
Hackensack, NJ 07602-0547
Acct #1182
Summit Bank 20.67%
Attn: Patricia Kyritz
P.O. Box 547
Hackensack, NJ 07602-0547
Acct #1181
</TABLE>
Beneficial owners of 25% or more of a Fund may be deemed a "controlling person"
of such Fund within the meaning of the 1940 Act.
The Trust believes that most of the shares referred to above held by Summit Bank
were held in accounts for its fiduciary, agency or custodial customers.
S-70
<PAGE>
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 shareholder held personally liable for the
obligations of the Trust.
LIMITATION OF TRUSTEES' LIABILITY
The Declaration of Trust provides that a Trustee shall be liable only for his or
her own willful defaults and, if reasonable care has been exercised in the
selection of officers, agents, employees or investment advisors, shall not be
liable for any neglect or wrongdoing of any such person. The Declaration of
Trust also provides that the Trust will indemnify its Trustees and officers
against liabilities and expenses incurred in connection with actual or
threatened litigation in which they may be involved because of their offices
with the Trust unless it is determined in the manner provided in the Declaration
of Trust that they have not acted in good faith in the reasonable belief that
their actions were in the best interests of the Trust. However, nothing in the
Declaration of Trust shall protect or indemnify a Trustee against any liability
for his or her willful misfeasance, bad faith, gross negligence or reckless
disregard of his or her duties.
TAXES
The following is only a summary of certain additional tax considerations
generally affecting the Funds and their shareholders that are not described in
the Funds' prospectuses. No attempt has been made to present a detailed
explanation of the tax treatment of the Funds or their shareholders and the
discussion here and in the Funds' prospectuses is not intended as a substitute
for careful tax planning.
FEDERAL INCOME TAX
All Funds. In order to qualify for treatment as a regulated investment company
("RIC") under the Code, each Fund 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 plus the excess, if any, of net short-term capital gain over net
long-term capital loss) (the "Distribution Requirement") and also must meet
several
S-71
<PAGE>
additional requirements. Among these requirements are the following: (i) at
least 90% of the Fund's gross income each taxable year must be derived from
dividends, interest, payments with respect to securities loans, and gains from
the sale or other disposition of stock or securities or foreign currencies, or
certain other income; (ii) at the close of each quarter of the Fund's taxable
year, at least 50% of the value of its total assets must be represented by cash
and cash items, U.S. Government securities, securities of other RICs and other
securities, with such other securities limited, in respect to any one issuer, to
an amount that does not exceed 5% of the value of the Fund's assets and that
does not represent more than 10% of the outstanding voting securities of such
issuer; and (iii) at the close of each quarter of the Fund's taxable year, not
more than 25% of the value of its assets may be invested in securities (other
than U.S. Government securities or the securities of other RICs) of any one
issuer or of two or more issuers which the Fund controls and which are engaged
in the same, similar or related trades of businesses.
Notwithstanding the Distribution Requirement described above, which only
requires a Fund to distribute at least 90% of its annual investment company
taxable income and does not require any minimum distribution of net capital gain
(the excess of net long-term capital gain over net short-term capital loss), a
Fund will be subject to a nondeductible 4% excise tax to the extent it fails to
distribute by the end of any calendar year 98% of its ordinary income for that
year and 98% of its capital gain net income for the one-year period ending on
October 31 of that year, plus certain other amounts. Each Fund intends to make
sufficient distributions prior to the end of each calendar year to avoid
liability for federal excise tax.
Any gain or loss recognized on a sale or redemption of shares of a Fund by a
shareholder who is not a dealer in securities generally will be treated as a
long-term capital gain or loss if the shares have been held for more than
eighteen months, mid-term if the share has been held for more than twelve, but
not more than eighteen months and otherwise will be treated as a short-term
capital gain or loss.
If shares on which a capital gain distribution has been received are
subsequently sold or redeemed and such shares have been held for six months or
less, any loss recognized will be treated as a loss from the sale or exchange of
a capital asset held for more than twelve months.
Distributions from the Funds generally will not be eligible for the dividends
received deduction available to corporate shareholders.
If for any taxable year a Fund does not qualify for the special tax treatment
afforded RICs, all of the taxable income of that Fund will be subject to federal
income tax at regular corporate rates (without any deduction for distributions
to Fund shareholders). In such event, all distributions made by the Fund
(whether or not derived from tax-exempt interest) would be taxable to
shareholders as dividends to the extent of the Fund's earnings and profits, and
such dividend distributions would be eligible for the dividends received
deduction available to corporate shareholders.
S-72
<PAGE>
Additional Consideration for the International Equity, Equity Growth and Fixed
Income Funds. Dividends and interest received by a Fund may be subject to
income, withholding or other taxes imposed by foreign countries and United
States possessions that would reduce the yield on a Fund'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 on investments by foreign investors. If more than 50% of the value
of a Fund's total assets at the close of its taxable year consists of securities
of foreign corporations, a Fund will be eligible to, and may, 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 Fund. Pursuant to an election,
a Fund 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 Fund makes the
election, it will report annually to its shareholders the respective amounts per
share of the Fund's income from sources within, and taxes paid to, foreign
countries and United States possessions.
Additional Considerations for the Tax-Exempt Money Market, New Jersey Municipal
Securities and Pennsylvania Municipal Securities Funds (the "Tax-Exempt Funds").
As noted in the prospectuses for the Tax-Exempt Money Market, New Jersey
Municipal Securities and Pennsylvania Municipal Securities Funds,
exempt-interest dividends are excludable from a shareholder's gross income for
regular federal income tax purposes. Exempt-interest dividends may nevertheless
be subject to the alternative minimum tax (the "Alternative Minimum Tax")
imposed by Section 55 of the Code or the environmental tax (the "Environmental
Tax") imposed by Section 59A of the Code. The Alternative Minimum Tax is imposed
at a maximum rate of 28% in the case of non-corporate taxpayers and at the rate
of 20% in the case of corporate taxpayers, to the extent it exceeds the
taxpayer's regular tax liability. The Environmental Tax is imposed at the rate
of 0.12% and applies only to corporate taxpayers. The Alternative Minimum Tax
and the Environmental Tax may be imposed in two circumstances. First,
exempt-interest dividends derived from certain "private activity bonds" issued
after August 7, 1986, will generally be an item of tax preference (and therefore
potentially subject to the Alternative Minimum Tax and the Environmental Tax)
for both corporate and non-corporate taxpayers. Second, in the case of
exempt-interest dividends received by corporate shareholders, all
exempt-interest dividends, regardless of when the bonds from which they are
derived were issued or whether they are derived from private activity bonds,
will be included in the corporation's "adjusted current earnings," as defined in
Section 56(g) of the Code, in calculating the corporation's alternative minimum
taxable income for purposes of determining the Alternative Minimum Tax and the
Environmental Tax.
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Any loss recognized by a shareholder upon the sale or redemption of shares of a
Tax-Exempt Fund held for six months or less will be disallowed to the extent of
any exempt-interest dividends the shareholder has received with respect to such
shares. Interest on indebtedness incurred by shareholders to purchase or carry
shares of a Tax-Exempt Fund will not be deductible for federal income tax
purposes. The deduction otherwise allowable to property and casualty insurance
companies for "losses incurred" will be reduced by an amount equal to a portion
of exempt-interest dividends received or accrued during any taxable year.
Foreign corporations engaged in a trade or business in the United States will be
subject to a "branch profits tax" on their "dividend equivalent amount" for the
taxable year, which will include exempt-interest dividends. Certain Subchapter S
corporations may also be subject to taxes on their "passive investment income,"
which could include exempt-interest dividends. Up to 85% of the Social Security
benefits or railroad retirement benefits received by an individual during any
taxable year will be included in the gross income of such individual if the
individual's "modified adjusted gross income" (which includes exempt-interest
dividends) plus one-half of the Social Security benefits or railroad retirement
benefits received by such individual during that taxable year exceeds the base
amount described in Section 86 of the Code.
A Tax-Exempt Fund may not be an appropriate investment for persons (including
corporations and other business entities) who are "substantial users" (or
persons related to such users) of facilities financed by industrial development
or private activity bonds. A "substantial user" is defined generally to include
certain persons who regularly use a facility in their trade or business. Such
entities or persons should consult their tax advisors before purchasing shares
of a Tax-Exempt Fund.
Issuers of bonds purchased by a Tax-Exempt Fund (or the beneficiary of such
bonds) may have made certain representations or covenants in connection with the
issuance of such bonds to satisfy certain requirements of the Code that must be
satisfied subsequent to the issuance of such bonds. Investors should be aware
that exempt-interest dividends derived from such bonds may become subject to
federal income taxation retroactively to the date thereof if such
representations are determined to have been inaccurate or if the issuer of such
bonds (or the beneficiary of such bonds) fails to comply with such covenants.
STATE TAXES
A Fund is not liable for any income or franchise tax in Massachusetts if it
qualifies as a RIC for federal income tax purposes. Distributions by the Funds
to shareholders and the ownership of shares may be subject to state and local
taxes.
LEGAL MATTERS
Morgan, Lewis & Bockius LLP serves as legal counsel to the Trust.
S-74
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EXPERTS
The financial statements of the Trust, incorporated by reference into this
Statement of Additional Information, have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their report with respect
thereto, and are incorporated by reference herein in reliance upon the authority
of said firm as experts in giving said report.
The financial statements of SIMT (with respect to the SIMT High Yield Bond
Portfolio only), incorporated by reference into this Statement of Additional
Information have been so incorporated in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
The financial statements of SIF (with respect to the SIF S&P 500 Index Portfolio
only), incorporated by reference into this Statement of Additional Information,
have been audited by Arthur Andersen LLP, independent public accountants, as
indicated in their report with respect thereto, and are incorporated by
reference herein in reliance upon the authority of said firm as experts in
giving said report.
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FINANCIAL STATEMENTS
The Trust's audited financial statements and the notes thereto and the Report of
the Independent Public Accountants dated February 6, 1998 for the fiscal year
ended December 31, 1997, relating to the financial statements and financial
highlights of the Trust are incorporated by reference herein. A copy of the
Trust's 1997 Annual Report to Shareholders must accompany delivery of this
Statement of Additional Information.
SIMT's audited financial statements and the notes thereto and the Report of the
Independent Accountants dated November 25, 1997 for the fiscal year ended
September 30, 1997, relating to the financial statements and financial
highlights of SIMT (each with respect to the SIMT High Yield Bond Portfolio
only) and unaudited financial statements for the period ended March 31, 1998 and
notes thereto are incorporated by reference herein. A copy of SIMT's 1997 Annual
Report to Shareholders must accompany delivery of this Statement of Additional
Information.
SIF's audited financial statements and the notes thereto and the Report of the
Independent Public Accountants dated May 8, 1998 for the fiscal year ended March
31, 1998, relating to the financial statements and financial highlights of SIF
(each with respect to the SIF S&P 500 Index Portfolio only) are incorporated by
reference herein. A copy of SIF's 1997 Annual Report to Shareholders must
accompany delivery of this Statement of Additional Information.
S-76
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APPENDIX
DESCRIPTION OF RATINGS
The following descriptions are summaries of published ratings.
Description of Commercial Paper Ratings
Commercial paper rated A by 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 reflect a "very strong" degree of safety regarding timely payment. Those
rated A-2 have satisfactory capacity to meet its financial commitments.
Commercial paper issues rated Prime-1 by Moody's are judged by Moody's to be of
the "highest" quality on the basis of relative repayment capacity.
The rating Fitch-1 (Highest Grade) is the highest commercial rating assigned by
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. 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 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 by 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, although such capacity may be
susceptible to adverse changes in business, economic or financial conditions.
The rating TBW-1 by Thomson indicates a very high likelihood that principal and
interest will be paid on a timely basis.
Description of Corporate Bond Ratings
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-edged." 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
A-1
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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 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.
Bonds which are rated Caa are of poor standing. Such issues may be in default or
there may be present elements of danger with respect to principal or interest.
Bonds which are rated Ca represent obligations which are speculative in a high
degree. Such issues are often in default or have other marked shortcomings.
Bonds which are rated C are the lowest rated class of bonds, and issues so rated
can be regarded as having extremely poor prospects of ever attaining any real
investment standing.
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
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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 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, B, CCC, CC and C is regarded as having significant 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 is less vulnerable to nonpayment
than other speculative grade debt. However, it faces major ongoing uncertainties
or exposure to adverse business, financial, or economic conditions that could
lead to the obligor's inadequate capacity to meet its financial commitment on
the obligation. 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 the obligor's capacity or willingness to meet its
financial commitment on the obligation. The B rating category also is used for
debt subordinated to senior debt that is assigned an actual or implied BB or BB-
rating.
Debt rated CCC has a currently identifiable vulnerability to nonpayment, and is
dependent upon favorable business, financial and economic conditions for the
obligor to meet its financial
A-3
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commitment on the obligation. In the event of adverse business, financial or
economic conditions, the obligor is not likely to have the capacity to meet its
financial commitment on the obligation. An obligation rated CC is currently
highly vulnerable to nonpayment. The C rating may be used to cover a situation
where a bankruptcy petition has been filed or similar action has been taken, but
payments on this obligation are being continued.
An obligation rated D is in payment default. The D rating category is used when
payments on an obligation are not made on the date due even if the applicable
grace period has not expired, unless S&P believes that such payments will be
made during such grace period. The D rating also will be used upon the filing of
a bankruptcy petition or the taking of a similar action if payments on an
obligation are jeopardized.
Bonds rated AAA by Fitch are considered to be investment grade and of the
highest credit quality. The obligor has an exceptionally strong ability to pay
interest and repay principal, which is unlikely to be affected by reasonably
foreseeable events. Bonds rated AA are considered to be investment grade and of
very high credit quality. The obligor's ability to pay interest and repay
principal is very strong, although not quite as strong as bonds rated AAA.
Because bonds rated in the AAA and AA categories are not significantly
vulnerable to foreseeable future developments, short-term debt of these issuers
is generally rated F-1+.
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 an 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 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 CCC have certain identifiable characteristics that, if not remedied,
may lead to default. The ability to meet obligations requires an advantageous
business and economic environment. Bonds rated CC are minimally protected.
Default in payment of interest and/or principal seems probable over time. Bonds
rated C are in imminent default in payment of interest or principal.
A-4
<PAGE>
Bonds rated DDD, DD and D are in default on interest and/or principal payments.
Such bonds are extremely speculative and should be valued on the basis of their
ultimate recovery value in liquidation or reorganization of the obligor. DDD
represents the highest potential for recovery on these bonds, and D represents
the lowest potential for recovery.
Bonds rated AAA by Duff are considered of the highest credit quality. The risk
factors are negligible, being only slightly more than for risk-free U.S.
Treasury debt. Bonds rated AA+, AA and AA- are considered to be of high credit
quality. Protection factors are strong. Risk is modest but may vary slightly
from time to time because of economic conditions. Bonds rated A+, A and A- have
protection factors that are average but adequate. However, risk factors are more
variable and greater in periods of economic stress.
Bonds rated BBB+, BBB and BBB- are considered to have below average protection
factors but are still considered sufficient for prudent investment. There is
considerable variability in risk during economic cycles. Bonds rated BB+, BB and
BB- are 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 and B- are below investment
grade and possess 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.
Bonds rated CCC are well below investment grade securities. Considerable
uncertainty exists as to timely payment of principal, interest or preferred
dividends. Protection factors are narrow and risk can be substantial with
unfavorable economic/industry conditions, and/or with unfavorable company
developments.
Bonds rated DD are defaulted debt obligations. Issuer failed to meet scheduled
principal and/or interest payments.
Bonds rated AAA by IBCA are obligations for which there is 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 substantially.
Bonds rated AA are obligations for which there is a very low expectation of
investment risk. 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 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.
A-5
<PAGE>
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 CCC are obligations for which there is a current perceived
possibility of default. Timely repayment of principal and interest is dependent
on favorable business, economic or financial conditions. Bonds rated CC are
obligations which are highly speculative or which have a high risk of default.
Bonds rated C are obligations which are currently in default.
Bonds rated AAA by Thomson 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. Bonds rated BBB are
the lowest investment grade category.
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.
Issues rated CCC clearly have a high likelihood of default, with little capacity
to address further adverse changes in financial circumstances. CC is applied to
issues that are subordinate to other obligations rated CCC and are afforded less
protection in the event of bankruptcy or reorganization. Issues rated D are in
default.
A-6
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PART C: OTHER INFORMATION
Item 24. Financial Statements and Exhibits
Financial statements and exhibits filed as part of the Registration
Statement:
(a) Part A - Financial Highlights
(b) Part B
(i) The following unaudited financial statements for the U.S. Treasury
Securities Plus Money Market, U.S. Treasury Securities Money Market,
Prime Obligation Money Market, Tax-Exempt Money Market, Fixed Income,
New Jersey Municipal Securities, Pennsylvania Municipal Securities,
Intermediate-Term Government Securities, Equity Growth, Equity Value,
Mid Cap, Balanced, International Equity and Institutional Select Money
Market Funds for the fiscal period ended June 30, 1998 are
incorporated by reference into the Statement of Additional Information
from Form N-30D filed on August 31, 1998 with Accession Number
0000935069-98-00153.
Schedule of Investments
Statement of Assets and Liabilities
Statement of Operations
Statement of Changes in Net Assets
Financial Highlights
Notes to Financial Statements
(ii) The following audited financial statements for the U.S. Treasury
Securities Plus Money Market, U.S. Treasury Securities Money Market,
Prime Obligation Money Market, Tax-Exempt Money Market, Fixed Income,
New Jersey Municipal Securities, Pennsylvania Municipal Securities,
Intermediate-Term Government Securities, Equity Growth, Equity Value,
Mid Cap, Balanced, International Equity and Institutional Select Money
Market Funds for the fiscal year ended December 31, 1997, including a
report of Arthur Andersen LLP dated February 6, 1998, are incorporated
by reference into the Statement of Additional Information from Form
N-30D filed on February 25, 1998 with Accession Number 0000935069-98-
000030.
Schedule of Investments
Statement of Assets and Liabilities
Statement of Operations
Statement of Changes in Net Assets
Financial Highlights
Notes to Financial Statements
(iii) The following unaudited financial statements for the High Yield Bond
Portfolio of SEI Institutional Managed Trust, for the fiscal period
ended March 31, 1998 are incorporated by reference into the Statement
of Additional Information from Form N-30D filed on May 28, 1998
Accession Number 0000935069-98-000089.
C-1
<PAGE>
Schedule of Investments
Statement of Assets and Liabilities
Statement of Operations
Statement of Changes in Net Assets
Financial Highlights
Notes to Financial Statements
(iv) The following audited financial statements for the High Yield Bond
Portfolio of SEI Institutional Managed Trust, for the fiscal
year ended September 30, 1997, including the report of
PricewaterhouseCoopers LLP dated November 25, 1997, are incorporated
by reference into the Statement of Additional Information from
Form N-30D filed on December 1, 1997 with Accession
Number 0000935069-97-000205.
Schedule of Investments
Statement of Assets and Liabilities
Statement of Operations
Statement of Changes in Net Assets
Financial Highlights
Notes to Financial Statements
(v) The following audited financial statements for the S&P 500 Index
Portfolio of SEI Index Funds for the fiscal year ended March 31, 1998,
including the report of Arthur Andersen LLP dated May 8, 1998, are
incorporated by reference into the Statement of Additional Information
from Form N-30D filed on May 28, 1998 with Accession Number
0000935069-98-000088.
Schedule of Investments
Statement of Net Assets and Liabilities
Statement of Operations
Statement of Changes in Net Assets
Financial Highlights
Notes to Financial Statements
(1) Registrant's Declaration of Trust dated September 9, 1991 originally
filed with Registrant's Registration Statement on Form N-1A (File No.
33-44712), filed with the Securities and Exchange Commission on
December 23, 1991.*
(2) Registrant's By-laws originally filed with Registrant's Registration
Statement on Form N-1A (File No. 33- 44712), with the Securities and
Exchange Commission on December 23, 1991.*
(3) Not Applicable.
(4) Not Applicable.
(5)(a) Administration Agreement between Registrant and SEI Financial
Management Corporation dated February 28, 1992 as amended May 25, 1996
and December 1, 1996.**
(5)(b) Registrant's Consent to Assignment and Assumption dated June 1, 1996
of the Administration Contract dated February 28, 1992, as amended May
25, 1993.**
(5)(c) Investment Advisory Agreement between Registrant and United Jersey
Bank Investment Management Division dated April 28, 1996.**
(5)(d) Investment Advisory Agreement dated April 28, 1996 between Registrant
and United Jersey Bank Investment Management Division (the "Advisor")
with respect to the International Growth Portfolio.**
C-2
<PAGE>
(5)(e) Investment Sub-Advisory Agreement dated April 28, 1996 between the
Advisor and Wellington Management Company, LLP.**
(5)(f) Transfer Agent Agreement originally filed with Post-Effective
Amendment No. 1 to Registrant's Registration Statement on Form N-1A
(File No. 33-44712) with the Securities and Exchange Commission on
September 24, 1992.*
(5)(g) Form of Transfer Agent Agreement between Registrant and State Street
Bank and Trust Company.****
(5)(h) Amended and Restated Schedule to the Investment Advisory Agreement
dated April 28, 1996.*****
(5)(i) Amended and Restated Schedule to the Administration Agreement dated
February 28, 1992.*****
(5)(j) Investment Sub-Advisory Agreement dated August 31, 1998 between the
Advisor and Vontobel USA Inc. is filed herewith.
(6)(a) Distribution Agreement between Registrant and SEI Financial Services
Company dated February 28, 1992.*
(6)(b) Distribution and Agreement-Class B Shares between Registrant and SEI
Financial Services Company dated February 20, 1997.***
(7) Not Applicable.
(8)(a) Custodian Agreement dated February 28, 1992 between Registrant and
United Jersey Bank originally filed with Post-Effective Amendment No.
1 to Registrant's Registration Statement on Form N-1A (File No. 33-
44712), with the Securities and Exchange Commission on September 24,
1992.*
(8)(b) Custodian Agreement dated April 22, 1992 between United Jersey Bank
and The Bank of California, National Association originally filed
with Post-Effective Amendment No. 5 to Registrant's Registration
Statement on Form N-1A (File No. 33-44712), with the Securities and
Exchange Commission on February 10, 1995.*
(9) Not Applicable.
(10) Opinion and Consent of Counsel originally filed with Pre-Effective
Amendment No. 2 to Registrant's Registration Statement on Form N-1A
(File No. 33-44712), with the Securities and Exchange Commission on
March 27, 1992.*
(11) Consent of Arthur Andersen LLP with respect to the Trust is filed
herewith.
(11)(a) Consent of PricewaterhouseCoopers LLP with respect to SEI
Institutional Managed Trust is filed herewith.
(11)(b) Consent of Arthur Andersen LLP with respect to SEI Index Funds is
filed herewith.
(12) Not Applicable.
(13) Not Applicable.
(14) Not Applicable.
(15)(a) Distribution Plan-Class A (formerly Class B).**
(15)(b) Distribution Plan-U.S. Treasury Securities Plus Money Market Fund.*
(15)(c) Amended and Restated Rule 18f-3 Multiple Class Plan dated August 11,
1998 is filed herewith.
(15)(d) Distribution Plan-Class B Shares dated February 20, 1997.***
(16) Performance Quotation Computation.
(24) Powers of Attorney for Robert A. Nesher, Ray Konrad, Arthur L. Berman,
Christine H. Yackman, James B. Grecco, Thomas D. Sayles, Jr. and Mark
E. Nagle.****
(27) Financial Data Schedules are filed herewith.
- ------------------------------------------
* Incorporated by reference to Post-Effective Amendment No. 9, as filed on
November 13, 1996.
** Incorporated by reference to Post-Effective Amendment No. 10, as filed on
February 28, 1997.
*** Incorporated by reference to Post-Effective Amendment No. 11, as filed on
April 30, 1997.
**** Incorporated by reference to Post-Effective Amendment No. 15, as filed on
January 30, 1998.
***** Incorporated by reference to Post-Effective Amendment No. 16, as filed on
April 30, 1998.
Item 25. Persons Controlled by or under Common Control with Registrant
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See the Prospectuses and the Statement of Additional Information regarding
the Trust's control relationships. The Administrator is a subsidiary of SEI
Corporation which also controls the distributor of the Registrant, SEI
Investments Distribution Co., and other corporations engaged in providing
various financial and record keeping services, primarily to bank trust
departments, pension plan sponsors, and investment managers.
Item 26. Number of Holders of Securities:
As of August 21, 1998,
Number of
Title and Class Record Holders
--------------- --------------
Units of beneficial interest, without par value--
U.S. Treasury Securities Money Market Fund--Class A......... 59
U.S. Treasury Securities Money Market Fund--Class I......... 8
U.S. Treasury Securities Plus Money Market Fund............ 209
Prime Obligation Money Market Fund--Class A................ 225
Prime Obligation Money Market Fund--Class B................. 7
Prime Obligation Money Market Fund--Class I................. 397
Prime Obligation Money Market Fund--Class S................. 1
Tax-Exempt Money Market Fund--Class A....................... 65
Tax-Exempt Money Market Fund--Class I....................... 129
Fixed Income Fund--Class A.................................. 254
Fixed Income Fund--Class B.................................. 113
Fixed Income Fund--Class I.................................. 326
New Jersey Municipal Securities Fund--Class A............... 576
New Jersey Municipal Securities Fund--Class I............... 135
Pennsylvania Municipal Securities Fund--Class A............. 15
Pennsylvania Municipal Securities Fund--Class I............. 7
Intermediate-Term Government Securities Fund--Class A....... 74
Intermediate-Term Government Securities Fund--Class I....... 77
Equity Value Fund--Class A.................................. 834
Equity Value Fund--Class B..................................1,530
Equity Value Fund--Class I.................................. 194
Equity Income Fund--Class A................................. 841
Equity Income Fund--Class B.................................1,696
Equity Income Fund--Class I................................. 193
Mid Cap Fund--Class A....................................... 319
Mid Cap Fund--Class I....................................... 82
Balanced Fund--Class A...................................... 663
Balanced Fund--Class B......................................1,019
Balanced Fund--Class I...................................... 8
International Equity Fund--Class A.......................... 109
International Equity Fund--Class B.......................... 40
International Equity Fund--Class I.......................... 193
Equity Growth Fund--Class A................................. 57
Equity Growth Fund--Class B................................. 402
Equity Growth Fund--Class I................................. 119
Institutional Select Money Market Fund...................... 2
C-4
<PAGE>
Item 27. Indemnification:
Article VIII of the Declaration of Trust filed as Exhibit 1 to the
Registration Statement is incorporated by reference. Insofar as indemnification
for liabilities arising under the Securities Act of 1933 may be permitted to
trustees, directors, officers and controlling persons of the Registrant by the
Registrant pursuant to the Declaration of Trust or otherwise, the Registrant is
aware that in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Act and, therefore,
is unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by trustees, directors, officers or controlling persons of the Registrant
in connection with the successful defense of any act, suit or proceeding) is
asserted by such trustees, directors, officers or controlling persons in
connection with the shares being registered, the Registrant will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act will be
governed by the final adjudication of such issues.
Item 28. Business and Other Connections of Investment Advisor:
Other business, profession, vocation, or employment of a substantial
nature in which each director or principal officer of the Advisor is or has
been, at any time during the last two fiscal years, engaged for his own account
or in the capacity of a director, officer, employee, partner or trustee are as
follows:
<TABLE>
<CAPTION>
Name and Position Name of Connection with
with Investment Advisor Other Company Other Company
----------------------- ------------- ---------------
<S> <C> <C>
Directors:
T. Joseph Semrod, Chairman, Chief
Executive Officer & Director................ Summit Bancorp Chairman & CEO
Robert G. Cox, President & Director......... Summit Bancorp President
John G. Collins, Vice Chairman &
Director.................................... Summit Bancorp Vice Chairman
Bjorn Ahlstrom, Director.................... Volvo North America --
Corporation, Retired
Robert L. Boyle, Director................... William H. Hintelmann Firm Representative
James C. Brady, Jr., Director............... Mill House Associates, L.P. Partner
Barry D. Brown, Director.................... Princeton Insurance Co. Chairman
T.J. Dermot Dunphy, Director................ Sealed Air Corporation Chairman & CEO
Anne Evans Estabrook, Director.............. Elberon Development Co. Owner
</TABLE>
C-5
<PAGE>
<TABLE>
<CAPTION>
Name and Position Name of Connection with
with Investment Advisor Other Company Other Company
----------------------- ------------- ---------------
<S> <C> <C>
Directors:
Elinor J. Ferdon, Director.................. Girl Scouts of the USA National President
Samuel Gerstein, Esq., Director............. Gerstein, Cohen & Grayson Partner
Richard H. Goldberger, Director............. Linda's Flame Roasted Chicken Chairman
Robert S. Hekemian, Director................ Hekemian & Co., Inc. Chairman & CEO
Thomas C. Jamieson, Jr., Esq., Director..... Jamieson, Moore, Peskin & Chairman & President
Spicer, PA
Vincent P. Langone, Director................ L&S Incorporated --
Francis J. Mertz, Director.................. Fairleigh Dickinson University President
George L. Miles, Jr., Director.............. WQED Pittsburgh President & CEO
Bertram B. Miller, Director................. B.B. Miller & Company President
Raymond Silverstein, Director............... Alloy, Silverstein, Shapiro, Consultant
Adams, Mulford & Co.
Orin R. Smith, Director..................... Engelhard Corp. Chairman & CEO
Sylvester L. Sullivan, Director............. Car Rentals, Inc. President
Joseph M. Tabak, Director................... JPC Enterprises, Inc. President & CEO
Robert A. Woodruff, Director................ Woodruff Oil Company President
</TABLE>
Vontobel USA Inc. ("Vontobel") is the investment sub-advisor for the
International Equity Fund. The principal address of Vontobel is 450 Park Avenue,
New York, NY 10022.
The list required by this Item 28 of officers and directors of the
Adviser, together with information as to any other business, profession,
vocation or employment of substantial nature engaged in by such officers and
directors during the past two years, is incorporated by reference to Schedules A
and D of Form ADV filed by the Adviser pursuant to the Advisers Act (SEC File
No. 801-15908).
C-6
<PAGE>
Item 29. Principal Underwriters:
(a) Furnish the name of each investment company (other than the Registrant)
for which each principal underwriter currently distributing the
securities of the Registrant also acts as a principal underwriter,
distributor or investment adviser.
Registrant's distributor, SEI Investments Distribution Co.
(the "Distributor"), acts as distributor for:
SEI Daily Income Trust July 15, 1982
SEI Liquid Asset Trust November 29, 1982
SEI Tax Exempt Trust December 3, 1982
SEI Index Funds July 10, 1985
SEI Institutional Managed Trust January 22, 1987
SEI International Trust August 30, 1988
The Advisors' Inner Circle Fund November 14, 1991
CUFUND May 1, 1992
STI Classic Funds May 29, 1992
CoreFunds, Inc. October 30, 1992
First American Funds, Inc. November 1, 1992
First American Investment Funds, Inc. November 1, 1992
The Arbor Fund January 28, 1993
Boston 1784 Funds(R) June 1, 1993
The PBHG Funds, Inc. July 16, 1993
Marquis Funds(R) August 17, 1993
Morgan Grenfell Investment Trust January 3, 1994
The Achievement Funds Trust December 27, 1994
Bishop Street Funds January 27, 1995
CrestFunds, Inc. March 1, 1995
STI Classic Variable Trust August 18, 1995
ARK Funds November 1, 1995
Monitor Funds January 11, 1996
FMB Funds, Inc. March 1, 1996
SEI Asset Allocation Trust April 1, 1996
TIP Funds April 28, 1996
SEI Institutional Investments Trust June 14, 1996
First American Strategy Funds, Inc October 1, 1996
HighMark Funds February 15, 1997
Armada Funds March 8, 1997
PBHG Insurance Series Fund, Inc. April 1, 1997
The Expedition Funds June 9, 1997
TIP Institutional Funds January 1, 1998
Oak Associates Funds February 27, 1998
The Nevis Funds June 29, 1998
The Distributor provides numerous financial services to investment
managers, pension plan sponsors, and bank trust departments. These
services include portfolio evaluation, performance measurement and
consulting services ("Funds Evaluation") and automated execution,
clearing and settlement of securities transactions ("MarketLink").
(b) Furnish the Information required by the following table with respect to
each director, officer or partner of each principal underwriter named
in the answer to Item 21 of Part B. Unless otherwise noted, the
business address of each director or officer is Oaks, PA 19456.
C-7
<PAGE>
<TABLE>
<S> <C> <C>
Alfred P. West, Jr. Director, Chairman of the Board of Directors --
Henry H. Greer Director --
Carmen V. Romeo Director --
Mark J. Held President & Chief Operating Officer --
Gilbert L. Beebower Executive Vice President --
Richard B. Lieb Executive Vice President --
Dennis J. McGonigle Executive Vice President --
Robert M. Silvestri Chief Financial Officer & Treasurer --
Leo J. Dolan, Jr. Senior Vice President --
Carl A. Guarino Senior Vice President --
Larry Hutchison Senior Vice President --
Jack May Senior Vice President --
Hartland J. McKeown Senior Vice President --
Barbara J. Moore Senior Vice President --
Kevin P. Robins Senior Vice President & General Counsel Vice President &
Assistant Secretary
Patrick K. Walsh Senior Vice President --
Robert Aller Vice President --
Gordon W. Carpenter Vice President --
Todd Cipperman Vice President & Assistant Secretary Vice President &
Assistant Secretary
S. Courtney E. Collier Vice President & Assistant Secretary --
Robert Crudup Vice President & Managing Director --
Barbara Doyne Vice President --
Jeff Drennen Vice President --
Vic Galef Vice President & Managing Director --
Lydia A. Gavalis Vice President & Assistant Secretary Vice President &
Assistant Secretary
Greg Gettinger Vice President & Assistant Secretary --
Kathy Heilig Vice President Vice President &
Assistant Secretary
Jeff Jacobs Vice President --
Samuel King Vice President --
Kim Kirk Vice President & Managing Director --
John Krzeminski Vice President & Managing Director --
Carolyn McLaurin Vice President & Managing Director --
W. Kelso Morrill Vice President --
Mark Nagle Vice President President
Joanne Nelson Vice President --
Joseph M. O'Donnell Vice President & Assistant Secretary Vice President &
Assistant Secretary
Sandra K. Orlow Vice President & Secretary Vice President &
Assistant Secretary
Cynthia M. Parrish Vice President & Assistant Secretary --
Donald Pepin Vice President & Managing Director --
Kim Rainey Vice President --
Rob Redican Vice President --
Maria Rinehart Vice President --
Mark Samuels Vice President & Managing Director --
Steve Smith Vice President --
Daniel Spaventa Vice President --
</TABLE>
C-8
<PAGE>
<TABLE>
<S> <C> <C>
Kathryn L. Stanton Vice President & Assistant Secretary Vice President &
Assistant Secretary
Lynda J. Striegel Vice President & Assistant Secretary Vice President &
Assistant Secretary
Lori L. White Vice President & Assistant Secretary --
Wayne M. Withrow Vice President & Managing Director --
</TABLE>
Item 30. Location of Accounts and Records:
Books or other documents required to be maintained by Section 31(a) of
the Investment Company Act of 1940, and the rules promulgated thereunder, are
maintained as follows:
(a) With respect to Rules 31a-1(a); 31a-1(b)(1); (2)(a) and
(b); (3); (6); (8); (12); and 31a-1(d), the required books and records
are maintained at the offices of Registrant's Custodian:
Summit Bank
210 Main Street
Hackensack, NJ 07601
Union Bank of California Global Custody
475 Sansome Street
11th Floor
San Francisco, CA 94111
(b)/(c) With respect to Rules 31a-1(a); 31a-1(b)(1), (4);
(2)(C) and (D); (4); (5); (6); (8); (9); (10); (11); and 31a-1(f), the
required books and records are maintained at the offices of
Registrant's Administrator:
SEI Fund Resources
Oaks, PA 19456
(c) With respect to Rules 31a-1(b)(5), (6), (9) and (10) and
31a-1(f), the required books and records are maintained at the
principal offices of the Registrant's Advisor or Sub-Advisor:
Summit Bank Investment Management Division,
a division of Summit Bank
210 Main Street
Hackensack, NJ 07601
Vontobel USA Inc.
450 Park Avenue
New York, NY 10022
C-9
<PAGE>
Item 31. Management Services: None.
Item 32. Undertakings:
Registrant hereby undertakes that whenever shareholders meeting the
requirements of Section 16(c) of the Investment Company Act of 1940, as amended
(the "1940 Act"), inform the Board of Trustees of their desire to communicate
with shareholders of the Trust, the Trustees will inform such shareholders as to
the approximate number of shareholders of record and the approximate costs of
mailing or afford said shareholders access to a list of shareholders.
Registrant undertakes to call a meeting of shareholders for the purpose
of voting upon the question of removal of a Trustee(s) when requested in writing
to do so by the holders of at least 10% of Registrant's outstanding shares and
in connection with such meetings to comply with the provisions of Section 16(c)
of the 1940 Act relating to shareholder communications.
Registrant hereby undertakes to furnish each person to whom a
prospectus is delivered with a copy of the Registrant's latest Annual Report to
Shareholders, upon request and without charge.
C-10
<PAGE>
NOTICE
A copy of the Agreement and Declaration of Trust for The Pillar Funds
is on file with the Secretary of State of The Commonwealth of Massachusetts and
notice is hereby given that this Registration Statement has been executed on
behalf of the Trust by an officer of the Trust as an officer and by its Trustees
as trustees and not individually and the obligations of or arising out of this
Registration Statement are not binding upon any of the Trustees, officers, or
shareholders individually but are binding only upon the assets and property of
the Trust.
C-11
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, and the
Investment Company Act of 1940, as amended, the Registrant certifies that it
meets all of the requirements for the effectiveness of this Registration
Statement pursuant to Rule 485(b) under the Securities Act of 1933 and has duly
caused this Post-Effective Amendment No. 18 to the Registration Statement No.
33-44712 to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Oaks, Commonwealth of Pennsylvania on the 28th day of
August, 1998.
THE PILLAR FUNDS
By: /s/ Mark E. Nagle
-------------------------------
Mark E. Nagle
President
Pursuant to the requirements of the Securities Act of 1933, this
Amendment to the Registration Statement has been signed below by the following
persons in the capacity and on the dates indicated.
* Trustee August 28, 1998
- ----------------------------------
Arthur L. Berman
* Trustee August 28, 1998
- ----------------------------------
Ray Konrad
* Trustee August 28, 1998
- ----------------------------------
Robert A. Nesher
* Trustee August 28, 1998
- ----------------------------------
Christine H. Yackman
* Trustee August 28, 1998
- ----------------------------------
James B. Grecco
* Trustee August 28, 1998
- ----------------------------------
Thomas D. Sayles, Jr.
/s/ Mark E. Nagle President August 28, 1998
- ----------------------------------
Mark E. Nagle
/s/ Christopher F. Salfi Controller & August 28, 1998
- ---------------------------------- Chief Financial
Christopher F. Salfi Officer
*By: /s/ Mark E. Nagle
-----------------------------
Mark E. Nagle
Attorney-in-Fact
C-12
<PAGE>
EXHIBIT INDEX
EX-99.B1 Registrant's Declaration of Trust dated September 9, 1991
originally filed with Registrant's Registration Statement on Form
N-1A (File No. 33-44712), filed with the Securities and Exchange
Commission on December 23, 1991.*
EX-99.B2 Registrant's By-laws originally filed with Registrant's
Registration Statement on Form N-1A (File No. 33-44712), with the
Securities and Exchange Commission on December 23, 1991.*
EX-99.B5(a) Administration Agreement between Registrant and SEI Financial
Management Corporation dated February 28, 1992, as amended May
25, 1996 and December 1, 1996.**
EX-99.B5(b) Registrant's Consent to Assignment and Assumption dated June 1,
1996 of the Administration Contract dated February 28, 1992, as
amended May 25, 1993.**
EX-99.B5(c) Investment Advisory Agreement between Registrant and United
Jersey Bank Investment Management Division dated April 28,
1996.**
EX-99.B5(d) Investment Advisory Agreement dated April 28, 1996 between
Registrant and United Jersey Bank Investment Management Division
(the "Advisor") with respect to the International Growth
Portfolio.**
EX-99.B5(e) Investment Sub-Advisory Agreement between the Advisor and
Wellington Management Company, LLP.**
EX-99.B5(f) Transfer Agent Agreement originally filed with Post-Effective
Amendment No. 1 to Registrant's Registration Statement on Form
N-1A (File No. 33-44712) with the Securities and Exchange
Commission on September 24, 1992.*
EX-99.B5(g) Form of Transfer Agent Agreement between Registrant and State
Street Bank and Trust Company.****
EX-99.B5(h) Amended and Restated Schedule to the Investment Advisory
Agreement dated April 28, 1996.*****
EX-99.B5(i) Amended and Restated Schedule to the Administration Agreement
dated February 28, 1992.*****
EX-99.B5(j) Investment Sub-Advisory Agreement dated August 31, 1998 between
the Advisor and Vontobel USA Inc. is filed herewith.
<PAGE>
Exhibit Name
------- ----
EX-99.B6(a) Distribution Agreement between Registrant and SEI Financial
Services Company dated February 28, 1992, as amended May 25,
1993, originally filed with Post-Effective Amendment No. 1 to
Registrant's Registration Statement on Form N-1A (File No.
33-44712) with the Securities and Exchange Commission on
September 24, 1992.*
EX-99.B6(b) Distribution Agreement-Class B Shares between Registrant and SEI
Financial Services Company dated February 20, 1997.***
EX-99.B6(a) Distribution Agreement between Registrant and SEI Financial
Services Company dated February 28, 1992, as amended May 25,
1993, originally filed with Post-Effective Amendment No. 1 to
Registrant's Registration Statement on Form N-1A (File No.
33-44712) with the Securities and Exchange Commission on
September 24, 1992.*
EX-99.B6(b) Distribution Agreement-Class B Shares between Registrant and SEI
Financial Services Company dated February 20, 1997.***
EX-99.B8(a) Custodian Agreement dated February 28, 1992 between Registrant
and United Jersey Bank originally filed with Post-Effective
Amendment No. 1 to Registrant's Registration Statement on Form
N-1A (File No. 33-44712), with the Securities and Exchange
Commission on September 24, 1992.*
EX-99.B8(b) Custodian Agreement dated April 22, 1992 between United Jersey
Bank and The Bank of California, National Association originally
filed with Post-Effective Amendment No. 5 to Registrant's
Registration Statement on Form N-1A (File No. 33-44712), with the
Securities and Exchange Commission on February 10, 1995.*
EX-99.B10 Opinion and Consent of Counsel originally filed with
Pre-Effective Amendment No. 2 to Registrant's Registration
Statement on Form N-1A (File No. 33-44712) with the Securities
and Exchange Commission on March 27, 1992.*
EX-99.B11 Consent of Arthur Andersen LLP with respect to the Trust is filed
herewith.
EX-99.B11(a) Consent of PricewaterhouseCoopers LLP with respect to SEI
Institutional Managed Trust is filed herewith.
EX-99.B11(b) Consent of Arthur Andersen LLP with respect to SEI Index Funds is
filed herewith.
EX-99.B15(a) Distribution Plan-Class A (formerly Class B) is incorporated by
reference to Post-Effective Amendment No. 10.**
<PAGE>
Exhibit Name
------- ----
EX-99.B15(b) Distribution Plan-U.S. Treasury Securities Plus Money Market Fund
originally filed with Post-Effective Amendment No. 2 to
Registrant's Registration Statement on Form N-1A (File No.
33-44712), filed with the Securities and Exchange Commission on
March 1, 1993.*
EX-99.B15(c) Amended and Restated Rule 18f-3 Multiple Class Plan dated
August 11, 1998 is filed herewith.
EX-99.B15(d) Distribution Plan-Class B Shares dated February 20, 1997.***
EX-99.B16 Performance Quotation Computation.
EX-99.B24 Powers of Attorney for Robert A. Nesher, Ray Konrad, Arthur L.
Berman, Christine H. Yackman, James B. Grecco, Thomas D. Sayles,
Jr. and Mark E. Nagle.****
EX-99.B27 Financial Data Schedules are filed herewith.
- ------------
* Incorporated by reference to Post-Effective Amendment No. 9, as filed
on November 13, 1996.
** Incorporated by reference to Post-Effective Amendment No. 10, as filed
on February 28, 1997.
*** Incorporated by reference to Post-Effective Amendment No. 11, as filed
on April 30, 1997.
**** Incorporated by reference to Post-Effective Amendment No. 15, as filed
on January 30, 1998.
***** Incorporated by reference to Post-Effective Amendment No. 15, as filed
on April 30, 1998.
INVESTMENT SUB-ADVISORY AGREEMENT
AGREEMENT made this 31st day of August, 1998, between Summit Bank
Investment Management Division, a division of Summit Bank (the "Advisor") and
Vontobel USA Inc. (the "Sub-Advisor").
WHEREAS, The Pillar Funds, a Massachusetts business trust (the "Trust"), is
registered as an open-end management investment company under the Investment
Company Act of 1940, as amended (the "1940 Act"); and
WHEREAS, the Advisor has entered into an Investment Advisory Agreement
dated April 28, 1995 (the "Advisory Agreement") with the Trust, pursuant to
which the Advisor will act as investment advisor to the investment portfolio
identified on Schedule A hereto (the "Fund"), which is a series of the Trust;
and
WHEREAS, the Advisor, with the approval of the Trust, desires to retain the
Sub-Advisor to provide investment advisory services to the Advisor in connection
with the management of the Fund, and the Sub-Advisor is willing to render such
investment advisory services.
NOW, THEREFORE, the parties hereto agree as follows:
1. Duties of the Sub-Advisor. Subject to supervision by the Advisor and the
Trust's Board of Trustees, the Sub-Advisor shall manage all of the
securities and other assets of the Fund entrusted to it hereunder (the
"Assets"), including the purchase, retention and disposition of the Assets,
in accordance with the Fund's investment objective, policies and
restrictions as stated in the Fund's prospectus and statement of additional
information, as currently in effect and as amended or supplemented from
time to time (referred to collectively as the "Prospectus"), and subject to
the following:
(a) The Sub-Advisor shall, in consultation with and subject to the direction of
the Advisor, determine from time to time what Assets will be purchased,
retained or sold by the Fund, and what portion of the Assets will be
invested or held uninvested in cash.
(b) In the performance of its duties and obligations under this Agreement, the
Sub-Advisor shall act in conformity with the Trust's Declaration of Trust
(as defined herein) and the Prospectus and with the instructions and
directions of the Advisor and of the Board of Trustees of the Trust and
will conform to and comply with the requirements of the 1940 Act, the
Internal Revenue Code of 1986, and all other applicable federal and state
laws and regulations, as each is amended from time to time.
(c) The Sub-Advisor shall determine the Assets to be purchased or sold by the
Fund as provided in subparagraph (a) and will place orders with or through
such persons, brokers or dealers to carry out the policy with respect to
brokerage set forth in the Fund's Registration Statement (as defined
herein) and Prospectus or as the Board of Trustees or the Advisor may
direct from time to time, in conformity with federal securities laws. In
executing Fund
<PAGE>
transactions and selecting brokers or dealers, the Sub-Advisor will use its
best efforts to seek on behalf of the Fund the best overall terms
available. In assessing the best overall terms available for any
transaction, the Sub-Advisor shall consider all factors that it deems
relevant, including the breadth of the market in the security, the price of
the security, the financial condition and execution capability of the
broker or dealer, and the reasonableness of the commission, if any, both
for the specific transaction and on a continuing basis. In evaluating the
best overall terms available, and in selecting the broker-dealer to execute
a particular transaction, the Sub-Advisor may also consider the brokerage
and research services provided (as those terms are defined in Section 28(e)
of the Securities Exchange Act of 1934). Consistent with any guidelines
established by the Board of Trustees of the Trust, the Sub-Advisor is
authorized to pay to a broker or dealer who provides such brokerage and
research services a commission for executing a Fund transaction for the
Fund which is in excess of the amount of commission another broker or
dealer would have charged for effecting that transaction if, but only if,
the Sub-Advisor determines in good faith that such commission was
reasonable in relation to the value of the brokerage and research services
provided by such broker or dealer -- viewed in terms of that particular
transaction or terms of the overall responsibilities of the Sub-Advisor to
the Fund. In addition, the Sub-Advisor is authorized to allocate purchase
and sale orders for securities to brokers or dealers (including brokers and
dealers that are affiliated with the Advisor, Sub-Advisor or the Trust's
principal underwriter) to take into account the sale of shares of the Trust
if the Sub-Advisor believes that the quality of the transaction and the
commission are comparable to what they would be with other qualified firms.
In no instance, however, will the Fund's Assets be purchased from or sold
to the Advisor, Sub-Advisor, the Trust's principal underwriter, or any
affiliated person of either the Trust, Advisor, the Sub-Advisor or the
principal underwriter, acting as principal in the transaction, except to
the extent permitted by the Securities and Exchange Commission ("SEC") and
the 1940 Act.
(d) The Sub-Advisor shall maintain all books and records with respect to
transactions involving the Assets required by subparagraphs (b)(5), (6),
(7), (9), (10) and (11) and paragraph (f) of Rule 31a-1 under the 1940 Act.
The Sub-Advisor shall provide to the Advisor or the Board of Trustees such
periodic and special reports, balance sheets or financial information, and
such other information with regard to its affairs as the Advisor or Board
of Trustees may reasonably request.
The Sub-Advisor shall keep the books and records relating to the Assets
required to be maintained by the Sub-Advisor under this Agreement and shall
timely furnish to the Advisor all information relating to the Sub-Advisor's
services under this Agreement needed by the Advisor to keep the other books
and records of the Fund required by Rule 31a-1 under the 1940 Act. The
Sub-Advisor shall also furnish to the Advisor any other information
relating to the Assets that is required to be filed by the Advisor or the
Trust with the SEC or sent to shareholders under the 1940 Act (including
the rules adopted thereunder) or any exemptive or other relief that the
Advisor or the Trust obtains from the SEC. The Sub-Advisor agrees that all
records that it maintains on behalf of the Fund are property of the Fund
and the Sub- Advisor will surrender promptly to the Fund any of such
records upon the Fund's request; provided, however, that the Sub-Advisor
may retain a copy of such records. In addition, for
2
<PAGE>
the duration of this Agreement, the Sub-Advisor shall preserve for the
periods prescribed by Rule 31a-2 under the 1940 Act any such records as are
required to be maintained by it pursuant to this Agreement, and shall
transfer said records to any successor sub-advisor upon the termination of
this Agreement (or, if there is no successor sub-advisor, to the Advisor).
(e) The Sub-Advisor shall report regularly to the Advisor and will make
appropriate persons available for the purpose of reviewing at reasonable
times with representatives of the Advisor and the Board of Trustees of the
Trust the management of the Fund, including, without limitation, review of
the general investment strategy of the Fund, the performance of the Fund in
relation to standard industry indices, interest rate considerations and
general conditions affecting the marketplace and will provide various other
reports from time to time as reasonably requested by the Advisor;
(f) The Sub-Advisor shall treat confidentially and as proprietary information
of the Trust all such records and other information relative to the Trust
maintained by the Sub-Advisor, and will not use such records and
information for any purpose other than performance of its responsibilities
and duties hereunder, except after prior notification to and approval in
writing by the Trust, which approval shall not be unreasonably withheld and
may not be withheld where the Sub-Advisor may be exposed to civil or
criminal contempt proceeding for failure to comply, when requested to
divulge such information by duly constituted authorities, or when so
requested by the Trust.
(g) The Sub-Advisor shall provide the Fund's custodian on each business day
with information relating to all transactions concerning the Fund's Assets
and shall provide the Advisor with such information upon request of the
Advisor.
(h) The investment management services provided by the Sub-Advisor under this
Agreement are not to be deemed exclusive and the Sub-Advisor shall be free
to render similar services to others, as long as such services do not
impair the services rendered to the Advisor or the Trust.
(i) The Sub-Advisor shall promptly notify the Advisor of any financial
condition that is likely to impair the Sub-Advisor's ability to fulfill its
commitment under this Agreement.
(j) The Sub-Advisor shall review all proxy solicitation materials and be
responsible for voting and handling all proxies in relation to the
securities held in the Fund. The Advisor shall instruct the custodian and
other parties providing services to the Fund to promptly forward
misdirected proxies to the Sub-Advisor.
Services to be furnished by the Sub-Advisor under this Agreement may be
furnished through the medium of any of the Sub-Advisor's directors,
officers or employees.
3
<PAGE>
For all purposes of this Agreement, the Sub-Advisor shall be deemed to be
an independent contractor, and shall have no authority to act as an agent
for the Advisor or Trust in any manner or in any respect.
2. Duties of the Advisor. The Advisor shall continue to have responsibility
for all services to be provided to the Fund pursuant to the Advisory
Agreement and shall oversee and review the Sub-Advisor's performance of its
duties under this Agreement; provided, however, that in connection with its
management of the Assets, nothing herein shall be construed to relieve the
Sub-Advisor of responsibility for compliance with the Trust's Declaration
of Trust (as defined herein), the Prospectus, the instructions and
directions of the Board of Trustees of the Trust, the requirements of the
1940 Act, the Internal Revenue Code of 1986, and all other applicable
federal and state laws and regulations, as each is amended from time to
time.
3. Delivery of Documents. The Advisor has furnished the Sub-Advisor with
copies properly certified or authenticated of each of the following
documents:
(a) The Trust's Agreement and Declaration of Trust, as filed with the
Secretary of State of the Commonwealth of Massachusetts (such
Agreement and Declaration of Trust, as in effect on the date of this
Agreement and as amended from time to time, herein called the
"Declaration of Trust");
(b) By-Laws of the Trust (such By-Laws, as in effect on the date of this
Agreement and as amended from time to time, are herein called the
"By-Laws");
(c) Prospectus(es) of the Fund.
4. Compensation to the Sub-Advisor. For the services to be provided and the
expense assumed by the Sub-Advisor pursuant to this Agreement, the Advisor
will pay the Sub-Advisor, and the Sub-Advisor agrees to accept as full
compensation therefor, a sub-advisory fee at the rate specified in the
Schedule(s) which is attached hereto and made part of this Agreement. The
fee will be calculated based on the average daily net assets of the Fund
and will be paid to the Sub-Advisor monthly. Except as may otherwise be
prohibited by law or regulation (including any then current SEC staff
interpretation), the Sub-Advisor may, in its discretion and from time to
time, waive a portion of its fee.
5. Liability. The Sub-Advisor shall not be liable for any error of judgment or
for any loss suffered by the Fund or the Advisor in connection with the
performance of its obligations under this Agreement, except a loss
resulting from a breach of fiduciary duty with respect to the receipt of
compensation for services (in which case any award of damages shall be
limited to the period and the amount set forth in Section 36(b)(3) of the
1940 Act), or a loss resulting from willful misfeasance, bad faith or gross
negligence on the Sub-Advisor's part in the performance of its duties or
from reckless disregard of its obligations and duties under this Agreement,
except as may otherwise be provided under provisions of applicable state
law which cannot be waived or modified hereby.
4
<PAGE>
6. Duration and Termination. This Agreement shall become effective upon its
approval by the Trust's Board of Trustees and by the vote of a majority of
the outstanding voting securities of the Fund. This Agreement shall
continue in effect for a period of more than two years from the date hereof
only so long as continuance is specifically approved at least annually in
conformance with the 1940 Act; provided, however, that this Agreement may
be terminated with respect to the Fund (a) by the Fund at any time, without
the payment of any penalty, by the vote of a majority of Trustees of the
Trust or by the vote of a majority of the outstanding voting securities of
the Fund, (b) by the Advisor at any time, without the payment of any
penalty, on not more than 60 days' nor less than 30 days' written notice to
the Sub-Advisor, or (c) by the Sub-Advisor at any time, without the payment
of any penalty, on 90 days' written notice to the Advisor. This Agreement
shall terminate automatically and immediately in the event of its
assignment, or in the event of a termination of the Advisor's agreement
with the Trust. As used in this Section 6, the terms "assignment" and "vote
of a majority of the outstanding voting securities" shall have the
respective meanings set forth in the 1940 Act and the rules and regulations
thereunder, subject to such exceptions as may be granted by the SEC under
the 1940 Act.
7. Governing Law. This Agreement shall be governed by the internal laws of the
Commonwealth of Massachusetts, without regard to conflict of law
principles; provided, however, that nothing herein shall be construed as
being inconsistent with the 1940 Act.
8. Severability. Should any part of this Agreement be held invalid by a court
decision, statute, rule or otherwise, the remainder of this Agreement shall
not be affected thereby. This Agreement shall be binding upon and shall
inure to the benefit of the parties hereto and their respective successors.
9. Amendment. The terms or provisions of this Agreement may be amended,
modified or waived in writing if such amendment, modification or waiver is
signed by both parties hereto; provided that an amendment, modification or
waiver shall not become effective until approved by vote of a majority of
the (a) Trust's Trustees, including by a majority of the Independent
Trustees, and (b) Fund's outstanding voting securities if shareholder
approval is required by the 1940 Act and/or the rules and regulations
thereunder.
10. Notice. Any notice, advice or report to be given pursuant to this Agreement
shall be deemed sufficient if delivered or mailed by registered, certified
or overnight mail, postage prepaid addressed by the party giving notice to
the other party at the last address furnished by the other party:
To the Advisor at: Summit Bank
Attn: Pillar Funds' Product Manager
210 Main Street
Hackensack, NJ 07601
5
<PAGE>
To the Sub-Advisor at: Vontobel USA Inc.
Attn: Henry Schlegel, President &
Chief Executive Officer
450 Park Avenue
New York, NY 10022
11. Entire Agreement. This Agreement embodies the entire agreement and
understanding between the parties hereto, and supersedes all prior
agreements and understandings relating to this Agreement's subject matter.
This Agreement may be executed in any number of counterparts, each of which
shall be deemed to be an original, but such counterparts shall, together,
constitute only one instrument.
A copy of the Declaration of Trust is on file with the Secretary of State
of the Commonwealth of Massachusetts, and notice is hereby given that the
obligations of this instrument are not binding upon any of the Trustees,
officers or shareholders of the Fund or the Trust.
Where the effect of a requirement of the 1940 Act reflected in any
provision of this Agreement is altered by a rule, regulation or order of the
SEC, whether of special or general application, such provision shall be deemed
to incorporate the effect of such rule, regulation or order.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers designated below as of the day and year first written
above.
Summit Bank Investment Management Vontobel USA Inc.
Division
By: /s/ Richard E. Mansfield Jr. By: /s/ Henry Schlegel
---------------------------- --------------------------
Name: Richard E. Mansfield Jr. Name: Henry Schlegel
---------------------------- --------------------------
Title: Senior Vice President Title: President & CEO
---------------------------- --------------------------
6
<PAGE>
Schedule A
to the
Sub-Advisory Agreement
between
Summit Bank Investment Management Division
and
Vontobel USA. Inc.
Pursuant to Article 4, the Advisor shall pay the Sub-Advisor compensation at an
annual rate as follows:
International Equity Fund .60% of the average daily net assets of the Fund
up to and including $50 million; .45% of the
average daily net assets of the Fund in excess of
$50 million up to and including $150 million; and
.30% of the average daily net assets of the Fund
in excess of $150 million.
7
As independent public accountants, we hereby consent to the incorporation by
reference in this registration statement of our report dated February 6, 1998,
on the December 31, 1997 financial statements of The Pillar Funds, included in
the previously filed Form N-30D dated February 25, 1998, and to all references
to our firm included in or made part of this Post-Effective Amendment No. 18 to
the Registration Statement File No. 33-44712.
/s/ Arthur Andersen LLP
Philadelphia, Pennsylvania
August 27, 1998
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectuses and
Statement of Additional Information constituting parts of this Post-Effective
Amendment No. 18 to the registration statement on Form N-1A of The Pillar Funds
(the "Registration Statement") of our report dated November 25, 1997, relating
to the financial statements and financial highlights of High Yield Bond
Portfolio (a separately managed portfolio of SEI Institutional Managed Trust,
hereafter referred to as the "Trust") appearing in the September 30, 1997 Annual
Report to Shareholders of the Trust, which are also incorporated by reference
into the Registration Statement. We also consent to the references to us under
the heading "Financial Highlights" in the Prospectuses and under the heading
"Experts" in the Statement of Additional Information.
/s/ PricewaterhouseCoopers LLP
- ------------------------------
PricewaterhouseCoopers LLP
Philadelphia, PA
August 27, 1998
As independent public accountants, we hereby consent to the incorporation by
reference in this registration statement of our report dated May 8, 1998, on the
March 31, 1998 financial statements of the S&P 500 Index Portfolio of the SEI
Index Funds, included in the previously filed Form N-30D of SEI Index Funds
dated May 28, 1998, and to all references to our firm included in or made part
of the Pillar Funds Post-Effective Amendment No. 18 to the Registration
Statement File No. 33-44712.
/s/ Arthur Andersen LLP
Philadelphia, Pennsylvania
August 27, 1998
THE PILLAR FUNDS
Amended and Restated
Rule 18f-3
Multiple Class Plan
August 11, 1998
The Pillar Funds (the "Trust"), a registered investment company that currently
consists of a number of separately managed funds, has elected to rely on Rule
18f-3 under the Investment Company Act of 1940, as amended (the "1940 Act"), in
offering multiple classes of shares in each fund listed on Schedule A hereto
(each a "Fund" and together the "Funds").
A. Attributes of Share Classes
1. The rights of each class of shares of the Funds shall be as set forth in
the respective Certificate of Class Designation for each class (each a
"Certificate") as each such Certificate is approved by the Trust's Board of
Trustees and as attached hereto as Exhibits.
2. With respect to each class of shares created hereunder, each share of a
Fund will represent an equal pro rata interest in the Fund and will have
identical terms and conditions, except that: (i) each new class will have a
different class name (or other designation) that identifies the class as
separate from any other class; (ii) each class will be offered and sold only to
investors meeting the qualifications set forth in the Certificate and disclosed
in the Trust's Prospectuses; (iii) each class will separately bear any
distribution fees and any shareholder service fees that are payable in
connection with a distribution plan or a distribution and shareholder service
plan adopted pursuant to Rule 12b-1 under the 1940 Act (a "Distribution Plan"),
and separately bear any other service fees ("service fees") that are payable
under any service agreement entered into with respect to that class which are
not contemplated by or within the scope of the Distribution Plan; (iv) each
class may bear, consistent with rulings and other published statements of
position by the Internal Revenue Service, the expenses of the Fund's operations
which are directly attributable to such class ("Class Expenses"); and (v)
shareholders of each class will have exclusive voting rights regarding any
matter submitted to shareholders that relates solely to such class (such as a
Distribution Plan or service agreement relating to such class), and will have
separate voting rights on any matter submitted to shareholders in which the
interests of that class differ from the interests of any other class.
B. Expense Allocations
With respect to each Fund, the expenses of each class shall be allocated as
follows: (i) any Rule 12b-1 fees or shareholder service fees relating to a
particular class of shares associated with a Distribution Plan or other service
fees relating to a particular class of shares are (or will
1
<PAGE>
be) borne exclusively by that class; (ii) any incremental transfer agency fees
relating to a particular class are (or will be) borne exclusively by that class;
and (iii) Class Expenses relating to a particular class are (or will be) borne
exclusively by that class.
Non-class specific expenses shall be allocated in accordance with Rule
18f-3(c).
C. Amendment of Plan; Periodic Review
This Plan must be amended to properly describe (through additional exhibits
hereto) each new class of shares upon its approval by the Board.
The Board of Trustees of the Trust, including a majority of the Trustees
who are not "interested persons" of the Trust as defined in the 1940 Act, must
review this Plan at least annually for its continued appropriateness, and must
approve any material amendment of the Plan as it relates to any class of any
Fund covered by the Plan. In approving any material amendment to the Plan, the
Trustees, including a majority of the Trustees who are not interested persons of
the Trust, must find that the amendment is in the best interests of each class
individually and the Trust as a whole.
2
<PAGE>
Schedule A
The Pillar Funds
Schedule A
to
Amended and Restated
Rule 18f-3
Multiple Class Plan
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
CLASS
--------------------------------------------------------
MONEY MARKET FUNDS A B I S N/A
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
U.S. Treasury Securities Money Market Fund X X
- ----------------------------------------------------------------------------------------------------------------------------------
Prime Obligation Money Market Fund X X X X
- ----------------------------------------------------------------------------------------------------------------------------------
Tax-Exempt Money Market Fund X X
- ----------------------------------------------------------------------------------------------------------------------------------
U.S. Treasury Securities Plus Money Market Fund X
- ----------------------------------------------------------------------------------------------------------------------------------
Institutional Select Money Market Fund X
- ----------------------------------------------------------------------------------------------------------------------------------
NON-MONEY MARKET FUNDS
- ----------------------------------------------------------------------------------------------------------------------------------
Short-Term Investment Fund X X
- ----------------------------------------------------------------------------------------------------------------------------------
Fixed Income Fund X X X
- ----------------------------------------------------------------------------------------------------------------------------------
New Jersey Municipal Securities Fund X X
- ----------------------------------------------------------------------------------------------------------------------------------
Pennsylvania Municipal Securities Fund X X
- ----------------------------------------------------------------------------------------------------------------------------------
Intermediate-Term Government Securities Fund X X
- ----------------------------------------------------------------------------------------------------------------------------------
GNMA Fund X X
- ----------------------------------------------------------------------------------------------------------------------------------
Equity Growth Fund X X X
- ----------------------------------------------------------------------------------------------------------------------------------
Equity Value Fund X X X
- ----------------------------------------------------------------------------------------------------------------------------------
Equity Income Fund X X X
- ----------------------------------------------------------------------------------------------------------------------------------
Mid Cap Fund X X
- ----------------------------------------------------------------------------------------------------------------------------------
Balanced Fund X X X
- ----------------------------------------------------------------------------------------------------------------------------------
International Equity Fund X X X
- ----------------------------------------------------------------------------------------------------------------------------------
High Yield Bond Fund X X X
- ----------------------------------------------------------------------------------------------------------------------------------
Equity Index Fund X X X
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
3
<PAGE>
Exhibit A
THE PILLAR FUNDS
CERTIFICATE OF CLASS DESIGNATION
Class A Shares
(Formerly, Class B Shares)
1. Class-Specific Distribution Arrangements; Other Expenses.
---------------------------------------------------------
Class A Shares of the Funds are offered to all persons. Class A Shares of
the Money Market Funds (as identified on Schedule A) are sold without a
sales charge and Class A Shares of the Non-Money Market Funds (as
identified on Schedule A) are sold with a front end sales charge as
indicated in the following tables. Additionally, Class A Shares of the
Funds are subject to a .25% Rule 12b-1 fee.
The following tables show the regular sales charge on Class A Shares of the
Funds to a "single purchaser" (defined below) together with the reallowance
paid to dealers and the agency commission paid to brokers (collectively,
the "commission"):
The Fixed Income Fund and High Yield Bond Fund:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Amount of Purchase Sales Charge as a Sales Charge as a Reallowance and Brokerage
Percentage of Offering Percentage of Net Commission as Percentage of
Price Amount Invested Offering Price
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
$0-99,999 4.25% 4.44% 4.00%
- ------------------------------------------------------------------------------------------------------------------------------------
$100,000-249,999 3.75% 3.90% 3.50%
- ------------------------------------------------------------------------------------------------------------------------------------
$250,000-499,999 2.75% 2.83% 2.50%
- ------------------------------------------------------------------------------------------------------------------------------------
$500,000-999,999 2.00% 2.04% 1.75%
- ------------------------------------------------------------------------------------------------------------------------------------
$1,000,000 and above* 0.00% 0.00% 0.00%**
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The New Jersey Municipal Securities and Pennsylvania Municipal Securities Funds:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Amount of Purchase Sales Charge as a Sales Charge as a Reallowance and Brokerage
Percentage of Offering Percentage of Net Amount Commission as Percentage
Price Invested of Offering Price
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
$0-249,999 3.00% 3.10% 2.70%
- ------------------------------------------------------------------------------------------------------------------------------------
$250,000-499,999 2.00% 2.05% 1.80%
- ------------------------------------------------------------------------------------------------------------------------------------
$500,000-999,999 1.00% 1.01% 0.90%
- ------------------------------------------------------------------------------------------------------------------------------------
$1,000,000 and above* 0.00% 0.00% 0.00%**
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
The Equity Growth, Equity Value, Equity Income, International Equity,
Equity Index and Balanced Funds:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Amount of Purchase Sales Charge as a Sales Charge as a Percentage Reallowance and Brokerage
Percentage of Offering of Net Amount Invested Commission as Percentage of
Price Offering Price
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
$0-49,999 5.50% 5.82% 5.00%
- ------------------------------------------------------------------------------------------------------------------------------------
$50,000-99,999 4.75% 4.99% 4.25%
- ------------------------------------------------------------------------------------------------------------------------------------
$100,000-249,999 3.75% 3.90% 3.25%
- ------------------------------------------------------------------------------------------------------------------------------------
$250,000-499,999 2.75% 2.83% 2.50%
- ------------------------------------------------------------------------------------------------------------------------------------
$500,000-999,999 2.00% 2.04% 1.75%
- ------------------------------------------------------------------------------------------------------------------------------------
$1,000,000 and above* 0.00% 0.00% 0.00%**
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The Intermediate-Term Government Securities and Mid Cap Funds:
<TABLE>
- ------------------------------------------------------------------------------------------------------------------------------------
Amount of Purchase Sales Charge as a Sales Charge as a Percentage Reallowance and Brokerage
Percentage of Offering of Net Amount Invested Commission as Percentage of
Price Offering Price
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
$0-99,999 4.00% 4.17% 3.50%
- ------------------------------------------------------------------------------------------------------------------------------------
$100,000-249,999 3.00% 3.09% 2.70%
- ------------------------------------------------------------------------------------------------------------------------------------
$250,000-499,999 2.00% 2.04% 1.80%
- ------------------------------------------------------------------------------------------------------------------------------------
$500,000-999,999 1.00% 1.01% 0.90%
- ------------------------------------------------------------------------------------------------------------------------------------
$1,000,000 and above 0.00% 0.00% 0.00%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The GNMA Fund:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Amount of Purchase Sales Charge as a Sales Charge as a Percentage Reallowance and Brokerage
Percentage of Offering of Net Amount Invested Commission as Percentage of
Price Offering Price
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
$0-249,999 3.00% 3.09% 2.70%
- ------------------------------------------------------------------------------------------------------------------------------------
$250,000-499,999 2.00% 2.04% 1.80%
- ------------------------------------------------------------------------------------------------------------------------------------
$500,000-999,999 1.00% 1.01% 0.90%
- ------------------------------------------------------------------------------------------------------------------------------------
$1,000,000 and above 0.00% 0.00% 0.00%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
A-2
<PAGE>
* Purchases of $1,000,000 or more are at net asset value. However, a contingent
deferred sales charge will be imposed on such investments in the event such
shares are redeemed within 12 months from the date they were purchased. The
contingent deferred sales charge will be imposed at the rate of 1.00% of the
lesser of the current market value of the shares redeemed or the total cost of
such shares and is payable to the Distributor. In determining whether a
contingent deferred sales charge is payable, and, if so, the amount of the
charge, it is assumed that shares not subject to such charge are the first
redeemed.
** There is no initial sales charge on purchases of $1,000,000 or more; however,
the Distributor may pay a dealer concession and/or advance a service fee on such
transactions.
From time to time, some financial institutions, including Summit Bank and its
affiliates, may be reallowed up to the entire sales charge imposed on the
purchase of Class A Shares. Firms that receive a reallowance of the entire sales
charge may be considered underwriters for purposes of federal securities laws.
Commission rates may vary among the Funds.
Right of Accumulation
A "single purchaser" (defined below) may benefit from the reduced sales charges
set forth in the foregoing tables for current purchases by adding the amount of
any current purchase with the market value of the Fund that the purchaser
already owns. The calculation of the sales charge for the current purchase will
be based on the combined amount. A single purchaser can also combine purchases
of Class A Shares of different Funds if those Funds are subject to a sales
charge.
The term "single purchaser" refers to (i) an individual, (ii) an individual and
spouse purchasing shares of an Eligible Fund (defined below) for their own
account or for trust or custodial accounts for 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. To be entitled to a reduced sales charge
based upon shares already owned, the investor must ask the Distributor for such
entitlement at the time of purchase and provide the account number(s) of the
investor and, if applicable, the investor and spouse, their minor children, and
give the ages of such children. A Fund may amend or terminate this right of
accumulation at any time prior to subsequent purchases.
Letter of Intent
A single purchaser may obtain a reduced sales charge by means of a written
Letter of Intent (a "Letter") that expresses the investor's intention to invest
a specified amount within a 13-month period, which if invested at one time,
would qualify for a reduced sales charge.
A Letter is not a binding obligation upon the investor to purchase the full
amount indicated. An investor must invest, or have already invested, at least
$1,000 in Class A Shares of each applicable Fund when the Letter is submitted.
Only those Funds which are subject to a sales charge are eligible to be counted
towards the amount indicated in the Letter. Five percent of the shares purchased
under a Letter will be held in escrow (while remaining registered in the name of
the investor) to secure
A-3
<PAGE>
payment of the higher sales charge that would have been applicable to the shares
actually purchased if the investor fails to purchase the amount indicated in the
Letter. In such a case, escrowed shares will be involuntarily redeemed to pay
any additional sales charge. When the full amount indicated in the Letter has
been purchased, the escrowed shares will be released. A Letter may include
purchases of shares made within 90 days prior to the date the investor signs the
Letter; however, the 13-month period during which the Letter is in effect will
begin on the date of the earliest purchase.
Other Circumstances
No sales charge is imposed on Class A Shares of a Fund: (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
arrangement with the Distributor, for their own account or for retirement plans
for their employees; (iii) 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 or for retirement plans for their employees; (iv) sold to
present or retired employees of Summit Bancorp, or one of its affiliates and/or
spouses of such employees; (v) sold to present employees of any entity that is a
current service provider to the Trust; (vi) sold to any qualified customer who
has entered into an agreement with Summit Bank, its affiliates or correspondent
banks; (vii) sold to present or retired Trustees of the Trust and their
immediate families; (viii) sold to present or retired Directors of Summit
Bancorp or its affiliates, and their immediate families; (ix) sold to beneficial
owners of Class I Shares whose interests are converted into Class A Shares; (x)
purchased within 90 days of a redemption of Class A Shares of a non-money market
Fund (only to the amount of such redemption); or (xi) sold to 401(k) plans that
have entered into service arrangements with Summit Bank, its affiliates or
correspondent banks.
2. Eligibility of Purchasers
-------------------------
The minimum initial investment is $1,000; however, the minimum initial
investment may be waived at the Distributor's discretion. For investments made
through the Automatic Investment Plan, the minimum initial and subsequent
investments must be at least $50.
3. Exchange Privileges
-------------------
Each portfolio of the Trust, other than the U.S. Treasury Securities Plus Money
Market Fund and the Institutional Select Money Market Fund , (collectively, the
"Eligible Funds") is eligible for exchange with any other Eligible Fund.
Class A Shares of an Eligible Fund may be exchanged only for Class A Shares of
another Eligible Fund, usually without paying an additional sales charge.
However, exchanges from Class A Shares of an Eligible Money Market Fund, which
were purchased directly, to Class A Shares of an Eligible Non-Money Market Fund
are made at net asset value plus the appropriate sales load for that Eligible
Non-Money Market Fund.
A-4
<PAGE>
4. Voting Rights
-------------
Each Class A shareholder will have one vote for each full Class A Share held and
a fractional vote for each fractional Class A Share held. Class A shareholders
will have exclusive voting rights regarding any matter submitted to shareholders
that relates solely to Class A Shares (such as a distribution plan or service
agreement relating to Class A Shares), and will have separate voting rights on
any other matter submitted to shareholders in which the interests of the Class A
shareholders differ from the interests of holders of any other class.
5. Conversion Rights
-----------------
Class A Shares do not have a conversion feature.
A-5
<PAGE>
Exhibit B
THE PILLAR FUNDS
CERTIFICATE OF CLASS DESIGNATION
Class B Shares
1. Class-Specific Distribution Arrangements; Other Expenses.
---------------------------------------------------------
Class B Shares of the Funds are offered to all persons. Class B Shares
of the Funds are sold without a front-end sales charge, but are subject to a
contingent deferred sales charge. Additionally, Class B Shares of the Funds are
subject to a .75% Rule 12b-1 fee and a .25% shareholder service fee. Class B
Shares of the Prime Obligation Money Market Fund may only be obtained through
exchange or through purchases by participants in the Systematic Exchange
Program.
If Class B Shares are redeemed within seven years of purchase, a
Shareholder will be subject to a contingent deferred sales charge at the rates
set forth below. This charge is assessed on an amount equal to the lesser of the
then-current market value or the cost of the shares being redeemed. Accordingly,
no sales charge is imposed on increases in net asset value above the initial
purchase price. In addition, no charge is assessed on shares derived from
reinvestment of dividends or capital gain distributions.
Contingent Deferred Sales Charge ("CDSC") as a Percentage
of Dollar Amount Subject to Change
- --------------------------------------------------------------------------------
Years Since Purchase
- --------------------------------------------------------------------------------
1 5.50%
- --------------------------------------------------------------------------------
2 5.00%
- --------------------------------------------------------------------------------
3 4.00%
- --------------------------------------------------------------------------------
4 3.00%
- --------------------------------------------------------------------------------
5 2.00%
- --------------------------------------------------------------------------------
6 1.00%
- --------------------------------------------------------------------------------
7 0.00%
- --------------------------------------------------------------------------------
8 0.00%
- --------------------------------------------------------------------------------
<PAGE>
In determining whether a particular redemption is subject to a CDSC, it is
assumed that Class B Shares are redeemed in the following order: (i) shares held
for over six years or shares acquired through reinvested dividends or capital
gain distributions and (ii) shares held longest during the six year period. This
method should result in the lowest possible sales charge.
Purchases will age based on the trade date of purchase. For example, a purchase
made on January 5 will be one year old on January 5 of the following year.
For purposes of determining the "age" of exchanged shares, exchanges will be
treated as a transaction involving a redemption of the original Eligible Fund
followed by a purchase of the new Eligible Fund. Therefore, shares will be
exchanged in the same order as determined by the aging hierarchy above (See
"Aging Schedule"). The aging of Class B Shares will continue uninterrupted
regardless of an exchange.
The CDSC is waived on redemption of shares (i) following the death or disability
(as defined in the Code) of a Shareholder, or (ii) to the extent that the
redemption represents a minimum required distribution from an individual
retirement account or other retirement plan to a Shareholder who has attained
the age of 70 1/2. In addition, Shareholders who automatically reinvest their
dividends and distributions may redeem up to 10% of the value of their shares
each year without imposition of the CDSC. A Shareholder, or his or her
representative, must notify the Transfer Agent prior to the time of redemption
that the Shareholder is eligible for any waiver.
The CDSC is also waived on redemptions of shares held by Trustees, employees and
sales representatives of the Trust, the Distributor, or affiliates of the Trust
or the Distributor, and their immediate family members; employees of any
financial institution that sells shares of the Trust pursuant to a sales
agreement with the Distributor; and spouses and children under the age of 21 of
the aforementioned persons. Also, no CDSC will be imposed on the redemption of
shares originally purchased through a bank trust department, an investment
adviser registered under the Investment Advisers Act of 1940, or retirement
plans where the third party administrator has entered into certain arrangements
with the Distributor or any other financial institution, to the extent that no
payments were advanced for purchases made through such entities.
Additionally, shareholders of any mutual fund not affiliated with the Trust who
have paid a sales charge in that mutual fund may purchase Class B Shares of the
Trust, in an amount equal to the proceeds of the redemption of such unaffiliated
shares, by submitting such proceeds to the Distributor together with evidence of
the payment of a sales charge and the source of such proceeds. Purchases must
take place within 30 days of the redemption of the unaffiliated shares. Class B
Shares issued pursuant to this offer will not be subject to a CDSC.
B-2
<PAGE>
2. Eligibility of Purchasers
-------------------------
The minimum initial investment is $1,000; however, the minimum initial
investment may be waived at the Distributor's discretion. For investments made
through the Automatic Investment Plan, the minimum initial and subsequent
investments must be at least $50.
3. Exchange Privileges
-------------------
Class B Shares of each Fund may be exchanged for Class B Shares of each other
Fund of the Trust which offers Class B Shares in accordance with the procedures
disclosed in the Fund's Prospectus and subject to any applicable limitations
resulting from the closing of Funds to new investors.
4. Voting Rights
-------------
Each Class B shareholder will have one vote for each full Class B Share held and
a fractional vote for each fractional Class B Share held. Class B shareholders
will have exclusive voting rights regarding any matter submitted to shareholders
that relates solely to Class B Shares (such as a distribution plan or service
agreement relating to Class B Shares), and will have separate voting rights on
any other matter submitted to shareholders in which the interests of the Class B
shareholders differ from the interests of holders of any other class.
5. Conversion Rights
-----------------
Class B Shares of a Fund will automatically convert into Class A Shares of that
Fund without a sales charge after eight years from the acquisition of the Class
B Shares. The conversion will take place at the respective net asset values of
each of the classes. At that time the Shares will no longer be subject to the
higher distribution and service fees. When Class B Shares of a Fund convert, any
other Class B Shares that were acquired by the reinvestment of dividends and
distributions attributable to such Shares will also convert into Class A Shares.
Conversions are not taxable events to Shareholders.
B-3
<PAGE>
Exhibit C
THE PILLAR FUNDS
CERTIFICATE OF CLASS DESIGNATION
Class I Shares
(Formerly, Class A Shares)
1. Class-Specific Distribution Arrangements; Other Expenses.
---------------------------------------------------------
Class I Shares of the Funds are sold without a sales charge.
2. Eligibility of Purchasers
-------------------------
The Trust's Class I Shares are offered without distribution fees to: (i)
institutional investors (including Summit Bank, its affiliates and correspondent
banks) for the investment of their own funds; (ii) any individual or institution
(including Summit Bank, its affiliates and correspondent banks) for the
investment of funds held by such individual or institution in a fiduciary,
agency, custodial or other representative capacity, if such individual or
institution is able to provide complete shareholder recordkeeping services with
respect to shares purchased and held in such capacity; and (iii) any "qualified
customer" who has entered into an agreement with Summit Bank, its affiliates or
correspondent banks ("Qualified Customers"). The minimum initial investment in
the Trust for Qualified Customers is $10,000. All subsequent purchases must be
at least $1,000.
3. Exchange Privileges
-------------------
Class I Shares of each Fund may be exchanged for Class I Shares of each other
Fund of the Trust in accordance with the procedures disclosed in the Fund's
Prospectus and subject to any applicable limitations resulting from the closing
of Funds to new investors.
4. Voting Rights
-------------
Each Class I shareholder will have one vote for each full Class I Share held and
a fractional vote for each fractional Class I Share held. Class I shareholders
will have exclusive voting rights regarding any matter submitted to shareholders
that relates solely to Class I Shares (such as a distribution plan or service
agreement relating to Class I Shares), and will have separate voting rights on
any other matter submitted to shareholders in which the interests of the Class I
shareholders differ from the interests of holders of any other class.
5. Conversion Rights
-----------------
Class I Shares do not have a conversion feature.
<PAGE>
Exhibit D
THE PILLAR FUNDS
CERTIFICATE OF CLASS DESIGNATION
Class S Shares
1. Class-Specific Distribution Arrangements; Other Expenses.
---------------------------------------------------------
Class S Shares of the Funds are sold without a sales charge. Additionally, Class
S Shares are subject to a .60% Rule 12b-1 fee.
2. Eligibility of Purchasers
-------------------------
The Trust's Class S Shares are offered without distribution fees to cash sweep
customers of Summit Bank. There are no minimum initial or subsequent investment
levels.
3. Exchange Privileges
-------------------
Class S Shares of each Fund may be exchanged for Class S Shares of each other
Fund of the Trust, if any, in accordance with the procedures disclosed in the
Fund's Prospectus and subject to any applicable limitations resulting from the
closing of Funds to new investors.
4. Voting Rights
-------------
Each Class S shareholder will have one vote for each full Class S Share held and
a fractional vote for each fractional Class S Share held. Class S shareholders
will have exclusive voting rights regarding any matter submitted to shareholders
that relates solely to Class S Shares (such as a distribution plan or service
agreement relating to Class S Shares), and will have separate voting rights on
any other matter submitted to shareholders in which the interests of the Class S
shareholders differ from the interests of holders of any other class.
5. Conversion Rights
-----------------
Class S Shares do not have a conversion feature.
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<CIK> 0000882303
<NAME> THE PILLAR FUNDS
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<NAME> THE PILLAR FUNDS
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<NAME> THE PILLAR FUNDS
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<NAME> THE PILLAR FUNDS
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