<PAGE>
THE GLENMEDE FUND, INC.
THE GLENMEDE PORTFOLIOS
Prospectus
February 28, 1999
Money Market Portfolios
Government Cash Portfolio
Tax-Exempt Cash Portfolio
Bond Portfolios
Core Fixed Income Portfolio
Muni Intermediate Portfolio
New Jersey Muni Portfolio
Investment Advisor
The Glenmede Trust Company
The Securities and Exchange Commission has not approved or disapproved the
Portfolios' securities or determined if this prospectus is accurate or
complete. It is a criminal offense to state otherwise.
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TABLE OF CONTENTS
RISK/RETURN SUMMARY.........................................................3
INVESTMENTS................................................................11
PRICE OF PORTFOLIO SHARES..................................................15
PURCHASE OF SHARES.........................................................15
REDEMPTION OF SHARES.......................................................15
ADDITIONAL INFORMATION ON THE PURCHASE AND REDEMPTION OF
SHARES OF THE PORTFOLIOS.................................................16
DIVIDENDS AND DISTRIBUTIONS................................................16
TAXES......................................................................16
MANAGEMENT OF THE PORTFOLIOS...............................................18
GENERAL INFORMATION........................................................18
FINANCIAL HIGHLIGHTS.......................................................19
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RISK/RETURN SUMMARY
Money Market Portfolios
<TABLE>
<CAPTION>
Investment Goals Principal Investments
<S> <C> <C>
Government Cash Current interest income Money market instruments issued by
Portfolio the U.S. Treasury or U.S. Government-related
agencies, and repurchase agreements secured
by such instruments.
Tax-Exempt Cash Current interest income Tax-exempt money market
Portfolio exempt from Federal instruments.
income taxes
</TABLE>
Bond Portfolios
Side-Note:
Important Concept
Total return consists of net income (dividend and
interest income from portfolio securities less expenses
of the Portfolio) and capital gains and
losses, both realized and unrealized, from portfolio
securities.
<TABLE>
<CAPTION>
Investment Goals Principal Investments
<S> <C> <C>
Core Fixed Income Long-term total return U.S. Government and agency issued securities,
Portfolio U.S. agency issued mortgage-backed securities
and investment grade corporate bonds. The
Portfolio also invests in repurchase agreements
and may enter into reverse repurchase
agreements.
Muni Intermediate High level of current Intermediate and long-term tax-exempt
Portfolio income exempt from obligations of the Commonwealth of
Federal income tax Pennsylvania and its political subdivisions,
agencies, instrumentality's and authorities.
New Jersey Muni High level of current Intermediate and long-term tax-exempt
Portfolio income exempt from obligations of the State of New Jersey and its
Federal income tax political subdivisions, agencies, instrumentali-
ties and authorities.
</TABLE>
3
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<TABLE>
<S> <C>
Principal Risks of Investing
All Portfolios An investment in a Portfolio is not a deposit of The
Glenmede Trust Company and is not insured or guaranteed
by the Federal Deposit Insurance Corporation or any other
government agency.
All Bond Portfolios The value of fixed income securities tends to fluctuate with
changes in interest rates. Generally, their value will decrease
when interest rates rise and increase when interest rates fall.
Fixed income securities are also subject to the risk that an
issuer will be unable to make principal and interest
payments when due. Therefore, you could lose money by
investing in the Portfolios.
Fixed income securities with longer maturities are more
susceptible to interest rate fluctuations than those with
shorter maturities. Therefore, the risk of interest rate
fluctuation is greater to the extent that the Portfolios invest
in long-term securities.
Core Fixed Income Portfolio The Core Fixed Income Portfolio may make loans through
collateralized repurchase agreements. It may also borrow
money through reverse repurchase agreements. Although
loans made by the Portfolio are collateralized with the
borrower's securities, the Portfolio could suffer a loss if the
borrower defaults on its obligation to buy the securities back
under the terms of the repurchase agreement.
The Core Fixed Income Portfolio is subject to prepayment
risk. Prepayment risk is the risk that a debt security may be
paid off and the proceeds returned to the Portfolio earlier
than anticipated. Depending on market conditions, the
proceeds may be reinvested at lower interest rates.
Muni Portfolios The Muni Intermediate Portfolio and New Jersey Muni
Portfolio are subject to additional risks. Because the Muni
Intermediate Portfolio invests primarily in Pennsylvania
municipal obligations and the New Jersey Muni Portfolio
invests primarily in New Jersey municipal obligations, they
are classified as non-diversified. This means that each
Portfolio may invest a greater percentage of its assets in a
particular issuer, and that a Portfolio's performance will be
dependent upon a smaller category of securities than is a
diversified portfolio. Accordingly, each Portfolio may
experience greater fluctuations in net asset value and may
have greater risk of loss.
The Muni Intermediate Portfolio and the New Jersey Muni
Portfolio are each especially susceptible to the economic,
political and regulatory events that affect Pennsylvania and
New Jersey, respectively.
Each of the Muni Portfolios is subject to call risk. Call risk
is the risk that changes in interest rates may cause certain
municipal securities to be paid off much sooner or later than
expected, which could adversely affect a Portfolio's value.
</TABLE>
4
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<TABLE>
<S> <C>
All Money Market Portfolios Although these Portfolios invest in money market
instruments which the Advisor believes present minimal
credit risks at the time of purchase, there is a risk that an
issuer may not be able to make principal and interest
payments when due. Although the Portfolios seek to preserve
the value of your investment at $1.00 per share, it is
possible to lose money by investing in the Portfolios.
The Government Cash Portfolio may make loans through
collateralized repurchase agreements. Although loans made
by the Portfolio are collateralized with the borrower's
securities, the Portfolio could suffer a loss if the borrower
defaults on its obligation to buy the securities back under the
terms of the repurchase agreement.
Who may want to invest in the
Bond Portfolios The Bond Portfolios may be appropriate for investors who
seek a regular stream of income with higher potential returns
than money market funds and are also willing to accept
some risk.
Money Market Portfolios The Money Market Portfolios may be appropriate for
investors who seek monthly income with minimal risk to
principal. The Portfolios are not appropriate for investors
who are seeking a high level of monthly income or
long-term total return.
Bar Charts and Performance Tables The Bar Charts and Tables below show the Portfolios'
annual returns and their long-term performance. The Bar
Charts show how the performance of the Portfolios has
varied from year to year. The Tables show how each
Portfolio's average annual returns for one, five and ten years
compare to those of selected market indices. The Bar Charts
and Performance Tables assume reinvestment of dividends
and distributions. The Portfolios' past performance does not
necessarily indicate how they will perform in the future.
</TABLE>
5
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Government Cash Portfolio
1989 9.42%
1990 8.32%
1991 6.13%
1992 3.85%
1993 3.18%
1994 4.19%
1995 5.92%
1996 5.40%
1997 5.58%
1998 5.51%
During the periods shown in the Bar Chart, the highest quarterly return
was 2.48% (for the quarter ended June 30, 1989) and the lowest quarterly return
was .78% (for the quarter ended June 30, 1993).
Tax-Exempt Cash Portfolio
1989 6.46%
1990 5.87%
1991 4.53%
1992 3.07%
1993 2.22%
1994 2.70%
1995 3.83%
1996 3.33%
1997 3.51%
1998 3.30%
During the periods shown in the Bar Chart, the highest quarterly return
was 1.71% (for the quarter ended June 30, 1989) and the lowest quarterly return
was .53% (for the quarter ended March 31, 1994).
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Core Fixed Income Portfolio
1989 12.95%
1990 10.25%
1991 15.02%
1992 6.74%
1993 8.84%
1994 -2.35%
1995 14.45%
1996 3.88%
1997 9.68%
1998 9.08%
During the periods shown in the Bar Chart, the highest quarterly return
was 6.34% (for the quarter ended June 30, 1989) and the lowest quarterly return
was -2.54% (for the quarter ended March 31, 1994).
Muni Intermediate Portfolio
1993 8.99%
1994 -4.44%
1995 13.69%
1996 4.36%
1997 7.15%
1998 5.57%
During the periods shown in the Bar Chart, the highest quarterly return
was 6.22% (for the quarter ended March 31, 1995) and the lowest quarterly
return was -3.39% (for the quarter ended March 31, 1994).
7
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New Jersy Muni Portfolio
1994 -5.44%
1995 15.03%
1996 4.13%
1997 7.00%
1998 5.67%
During the periods shown in the Bar Chart, the highest quarterly return
was 3.39% (for the quarter ended June 30, 1995) and the lowest quarterly return
was -4.17% (for the quarter ended March 31, 1994).
The Portfolios' Average Annual Total
Returns for the Periods Ended
December 31, 1998
Money Market Portfolios
- --------------------------------------------------------------------------------
Past 1 Past 5 Past 10
Year Years Years
- --------------------------------------------------------------------------------
Government Cash Portfolio 5.51% 5.32% 5.73%
- --------------------------------------------------------------------------------
IBC's U.S. Government and 4.79% 4.61% 5.06%
Agencies Money Fund Average(TM)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Past 1 Past 5 Past 10
Year Years Years
- --------------------------------------------------------------------------------
Tax-Exempt Cash Portfolio 3.30% 3.33% 3.87%
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IBC's Stock Broker and General 2.89% 2.89% 3.41%
Purpose Tax-Free Average(TM)
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- --------------------------------------------------------------------------------
o IBC's U.S. Government and Agencies Money Fund Average(TM) is comprised of
money market funds investing in U.S. treasury securities and government agency
obligations.
o IBC's Stock Broker and General Purpose Tax-Free Average(TM) is comprised of
money market funds investing in fixed-income securities issued by state and
local governments. Generally, interest payments on securities qualify for
exemption from Federal income taxes. Funds may also own municipal securities
subject to the alternative minimum tax.
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Bond Portfolios
- --------------------------------------------------------------------------------
Past 1 Past 5 Past 10
Year Years Years
- --------------------------------------------------------------------------------
Core Fixed Income Portfolio 9.08% 6.79% 8.74%
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Lehman Brothers Aggregate 8.69% 7.27% 9.26%
Bond Index
- --------------------------------------------------------------------------------
Lipper Intermediate U.S. 8.14% 6.12% 7.64%
Government Fund Index
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Since
Past 1 Past 5 June 5,
Year Years 1992
- --------------------------------------------------------------------------------
Muni Intermediate Portfolio 5.57% 5.10% 5.74%
- --------------------------------------------------------------------------------
Lehman Brothers Municipal 5.84% 5.28% 6.21%
5-Year Bond Index
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Lipper Intermediate Municipal 5.59% 5.12% 6.25%
Debt Fund Index
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Since
Past 1 Past 5 November 1,
Year Years 1993
- --------------------------------------------------------------------------------
New Jersey Muni Portfolio 5.67% 5.07% 4.97%
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Lehman Brothers Municipal 5.84% 5.28% 5.36%
5-Year Bond Index
- --------------------------------------------------------------------------------
Lipper New Jersey Municipal Debt 5.72% 5.31% 5.39%
Fund Index
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o The Lehman Brothers Aggregate Bond Index is an unmanaged index made up of the
Lehman Brothers Government Corporate Bond, Mortgage Backed Securities, and
Asset Backed Securities Indexes.
o The Lipper Intermediate U.S. Government Fund Index is an unmanaged index
comprised of the 30 largest funds in the Lipper Intermediate U.S. Government
Fund Average. The Average consists of funds that invest at least 65% of their
assets in securities issued or guaranteed by the U.S. government, its agencies
or instrumentalities with dollar-weighted average maturities of 5 to 10 years.
o The Lehman Brothers Municipal 5-Year Bond Index is an unmanaged total return
performance benchmark for the short-intermediate, investment-grade tax-exempt
bond market.
o The Lipper Intermediate Municipal Debt Fund Index is comprised of the 30
largest funds in the Lipper Intermediate Municipal Debt Fund Average. The
Average consists of funds that invest in municipal debt issues with
dollar-weighted average maturities of 5 to 10 years.
o The Lipper New Jersey Municipal Debt Fund Index is comprised of the 10 largest
funds in the Lipper New Jersey Municipal Debt Fund Average. The Average
consists of funds that invest only in securities that are exempt from taxation
in New Jersey or cities in New Jersey.
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Fees and Expenses of the Portfolios
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Portfolios.
<TABLE>
<CAPTION>
Money Market Portfolios
-----------------------------------------
Tax-
Government Exempt
Cash Cash
Portfolio Portfolio
------------ -----------
<S> <C> <C> <C> <C>
Shareholder Fees (fees paid
directly from your investment)
Maximum Account Fee 1.00% 1.00%
(annual percentage of assets
under management)+
Annual Portfolio Operating Expenses
(expenses that are deducted
from Portfolio assets)
Management Fees .00% .00%
Other Expenses .11% .13%
Operating Expenses .11% .13%
Interest Expenses -- --
- -------------------------------
Total Annual Portfolio
Operating Expenses .11% .13%
==== ====
<CAPTION>
Bond Portfolios
----------------------------------------------------------------
New
Core Fixed Muni Jersey
Income Intermediate Muni
Portfolio Portfolio Portfolio
------------ -------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Shareholder Fees (fees paid
directly from your investment)
Maximum Account Fee 1.00 % 1.00% 1.00%
(annual percentage of assets
under management)+
Annual Portfolio Operating
Expenses
(expenses that are deducted
from Portfolio assets)
Management Fees .00 % .00% .00%
Other Expenses .99%* .30% .30%
Operating Expenses .11% .30% .30%
Interest Expenses .88% -- --
- -------------------------------
Total Annual Portfolio
Operating Expenses .99%* .30% .30%
===== ==== ====
</TABLE>
+ The Portfolios described in this prospectus do not pay any advisory fees to
The Glenmede Trust Company, the investment advisor of the Funds (the
"Advisor"), or its affiliates ("Affiliates"). However, investors in these
Portfolios must be clients of the Advisor, its Affiliates or certain
financial institutions, or must be certain employee benefit plans. The
"Maximum Account Fee" in the above table is the current maximum annual fee
that the Advisor or an Affiliate would charge its clients directly for
fiduciary, trust and/or advisory services (e.g., personal trust, estate,
advisory, tax and custodian services). The actual annual fees charged by the
Advisor and Affiliates for such services vary depending on a number of
factors, including the particular services provided to the client, but are
generally lower than 1% of the client's assets under management. Investors
may also have to pay various fees to others to become shareholders of the
Portfolios. See "Purchase of Shares."
* "Other Expenses" includes interest expenses of the Core Fixed Income
Portfolio. If such interest expenses were not included, "Total Annual
Portfolio Operating Expenses" would be 0.11% for the Core Fixed Income
Portfolio.
<PAGE>
Example
This Example is intended to help you compare the cost of investing in the
Portfolios with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Portfolios for the time
periods indicated and then redeem all of your shares at the end of those
periods. The Example also assumes that your investment has a 5% return each
year and that the Portfolios' operating expenses remain the same. Although your
actual costs may be higher or lower, based on these assumptions your costs
would be:
<TABLE>
<CAPTION>
Money Market Portfolios Bond Portfolios
- ------------------------------------------- -------------------------------------------
Government Tax-Exempt Core Fixed Muni New Jersey
Cash Cash Income Intermediate Muni
Portfolio Portfolio Portfolio Portfolio Portfolio
<S> <C> <C> <C> <C> <C>
One Year $ 11 $ 13 $ 101 $ 31 $ 31
- ------------- ---- ---- ------ ---- ----
Three Years $ 35 $ 42 $ 315 $ 97 $ 97
- ------------- ---- ---- ------ ---- ----
Five Years $ 62 $ 74 $ 547 $169 $169
- ------------- ---- ---- ------ ---- ----
Ten Years $ 41 $165 $1,213 $381 $381
</TABLE>
10
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INVESTMENTS
Objective and Principal Strategies
To help you decide which Portfolio is appropriate for you, this section
looks more closely at the Portfolios' investment objectives and policies. You
should carefully consider your own investment goals, time horizon and risk
tolerance before investing in a Portfolio.
Each Portfolio's investment objective may be changed by the Board members
without shareholder approval.
Money Market Portfolios
Government Cash Portfolio
The investment objective of the Government Cash Portfolio is to provide
maximum current interest income consistent with the preservation of capital and
liquidity.
The Government Cash Portfolio invests in short-term securities issued by
the U.S. Treasury, U.S. Government agencies, or other agencies or
intrumentalities sponsored by the U.S. Government, and enters into repurchase
agreements secured by such instruments.
Tax-Exempt Cash Portfolio
The investment objective of the Tax-Exempt Cash Portfolio to provide
maximum current interest income exempt from Federal income taxes consistent
with the preservation of capital and liquidity.
The Tax-Exempt Cash Portfolio invests primarily in short-term, high
quality municipal obligations. Municipal obligations may include the following:
project notes, demand notes, short-term municipal obligations (including tax
anticipation notes, revenue anticipation notes, bond anticipation notes, tax
and revenue anticipation notes, construction loan notes, and short-term
discount notes), municipal bonds, variable rate demand notes, and non-rated
tax-exempt, privately placed securities. Under normal circumstances, the
Portfolio will invest at least 80% of its net assets in municipal obligations
which pay interest that is exempt from regular Federal income tax. The
Portfolio will use its best efforts to avoid investing any of its assets in
municipal obligations which pay interest that may be subject to Federal
alternative minimum tax.
Investment Duration and Quality:
Each Portfolio will invest in securities maturing within 13 months from
the date of purchase. While this limitation also applies to the Portfolio's
investments in repurchase agreements, securities collateralizing those
repurchase agreements may bear maturities exceeding 13 months. Each Portfolio
may also purchase bonds with longer final maturities if, pursuant to a demand
feature, they provide for redemption within 13 months from the date of
purchase.
The Portfolios may invest only in securities which the Advisor believes
present minimal credit risk at the time of purchase. Eligible securities are:
(i) securities rated in the two highest rating categories of a nationally
recognized statistical rating organization. If they are rated by more than one
such rating agency, at least one other rating agency must rate them in one of
its two highest categories; and (ii) unrated securities determined to be of
comparable quality at the time of purchase.
Bond Portfolios
Core Fixed Income Portfolio
The investment objective of the Core Fixed Income Portfolio is to provide
maximum, long-term total return consistent with reasonable risk to principal.
The Portfolio invests primarily in mortgage-backed securities and fixed
income securities issued by the U.S. Treasury, U.S. Government agencies, or
other agencies or instrumentalities sponsored by the U.S. Government
(collectively, "U.S. Government Securities"). The Portfolio may also invest in
privately issued mortgage-backed securities and debt obligations of domestic
and foreign companies. The Portfolio expects to achieve consistent results over
the long term. The weighted average maturity of the Portfolio is expected to be
between three and ten
11
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years. Under normal circumstances, at least 65% of the Portfolio's total assets
will be invested in U.S. Government Securities and repurchase agreements
collateralized by U.S. Government Securities. The Portfolio may take a
temporary defensive position that is inconsistent with its principal investment
strategy in response to adverse market, economic, political or other
conditions. Such investments may include short term debt instruments which meet
the Portfolio's quality criteria. To the extent the Portfolio is in a temporary
defensive position, it may not be able to meet its investment objective. The
net asset value of the Portfolio will fluctuate.
Securities which possess attractive projected total return profiles are
purchased in sectors which the Advisor deems as attractive on a relative value
basis. Securities are sold based on a relative value sector analysis and a
comparative projected versus actual return analysis.
The Portfolio may actively trade portfolio securities to achieve its
principal investment strategies. A high rate of portfolio turnover involves
correspondingly high transaction costs, which may adversely affect the
Portfolio's performance. High portfolio turnover may also result in the
realization of short-term capital gains. Distributions derived from such gains
will be treated as ordinary income for federal income tax purposes.
Muni Intermediate Portfolio and New Jersey Muni Portfolio
The investment objective of the Muni Intermediate and New Jersey Muni
Portfolios is to seek as high a level of current income exempt from Federal
income tax as is consistent with preservation of capital.
The New Jersey Muni Portfolio will invest at least 65% of its net assets
in intermediate and long-term tax-exempt obligations of the State of New Jersey
and its political subdivisions, agencies and authorities.
During normal market conditions, the Muni Intermediate Portfolio and New
Jersey Muni Portfolio will invest at least 80% of their net assets in
intermediate and long-term municipal obligations, which pay tax-exempt
interest. Each of the Portfolios may invest up to 20% of its net assets in
municipal obligations which pay interest which is exempt from regular Federal
income tax, but may be subject to Federal alternative minimum tax. The
Portfolios may take temporary defensive positions that are inconsistent with
their principal investment strategies in response to adverse market, economic,
political, or other conditions. Such investments may include taxable short-term
instruments. To the extent a Portfolio is in a temporary defensive position, it
may not be able to meet its investment objective.
The Muni Intermediate and New Jersey Muni Portfolios purchase municipal
securities that have the best relative value to other bonds of similar sector,
credit quality and maturity. Bonds are sold in the Portfolios if there is a
change in credit quality, duration objective or a need to raise funds to cover
redemptions.
Investment Duration and Quality:
Each Portfolio expects to maintain an average dollar weighted maturity of
3 to 10 years.
The Core Fixed Income Portfolio's investments in privately issued
mortgage-backed obligations, debt obligations of domestic and foreign
companies, and any other publicly or privately placed U.S. Government
Securities will be rated at least A by Standard & Poor's Ratings Group ("S&P")
or Moody's Investors Service, Inc. ("Moody's"). The Portfolio may invest in
unrated securities if they are determined to be of comparable quality at the
time of purchase.
The Muni Intermediate and New Jersey Muni Portfolios will invest in
securities that are rated at the time of purchase within the three highest
ratings assigned by Moody's (i.e., Aaa, Aa, A) or S&P (AAA, AA, A) in the case
of bonds, or rated SP-1 or higher by S&P or MIG-2 or higher by Moody's in the
case of notes. Each Portfolio may invest in unrated securities if they are
determined to be of comparable quality at the time of purchase. If a portfolio
security is reduced below the above rating, the Advisor will dispose of the
security in an orderly fashion as soon as practicable.
Risks
All Bond and Money Market Portfolios
The risks of investing in any of the Bond or Money Market Portfolios are
also described above in the Risk/Return Summary. The following supplements that
description.
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Interest Rate Risks
Generally, a fixed-income security will increase in value when interest
rates fall and decrease in value when interest rates rise. Longer-term
securities are generally more sensitive to interest rate changes than
shorter-term securities, but they usually offer higher yields to compensate
investors for the greater risks.
A bond Portfolio's average dollar-weighted maturity is a measure of how
the Portfolio will react to interest rate changes. The stated maturity of a
bond is the date when the issuer must repay the bond's entire principal value
to an investor. A bond's term to maturity is the number of years remaining to
maturity. A bond Portfolio does not have a stated maturity, but it does have an
average dollar-weighted maturity. This is calculated by averaging the terms to
maturity of bonds held by a Portfolio, with each maturity "weighted" according
to the percentage of net assets it represents.
Credit Risks
The risk that an issuer will be unable to make principal and interest
payments when due is known as "credit risk." U.S. Government Securities are
generally considered to be the safest type of investment in terms of credit
risk. Municipal obligations generally rank between U.S. Government Securities
and corporate debt securities in terms of credit safety. Corporate debt
securities, particularly those rated below investment grade, may present the
highest credit risk.
Ratings published by Rating Agencies are widely accepted measures of
credit risk. The lower a bond issue is rated by an agency, the more credit risk
it is considered to represent. Lower-rated bonds generally pay higher yields to
compensate investors for the greater risk.
Mortgage-Backed Obligations
The Core Fixed Income Portfolio may invest in mortgage-backed securities
(including collateralized mortgage obligations) that represent pools of
mortgage loans assembled for sale to investors by various government-related
organizations. These organizations include the Government National Mortgage
Association (whose obligations are guaranteed by the U.S. Government), and the
Federal National Mortgage Association and Federal Home Loan Mortgage
Corporation (whose obligations are not guaranteed by the U.S. Government).
Mortgage-backed securities provide a monthly payment consisting of interest and
principal payments. Additional payments may be made out of unscheduled
repayments of principal resulting from the sale of the underlying residential
property, refinancing or foreclosure. When interest rates are declining,
prepayments of principal on mortgage-backed securities may tend to increase due
to refinancing of mortgages. Any premium paid by the Portfolio on purchases of
mortgage-backed securities may be lost if an underlying mortgage is prepaid.
The yield of the Portfolio may be affected when it reinvests prepayments it
receives.
Debt Obligations
Debt obligations of domestic and foreign companies may include a broad
range of fixed and variable rate bonds, debentures and notes. The Core Fixed
Income Portfolio's shares are subject to the risk of market value fluctuations.
The market value of securities held by the Portfolio is expected to vary
according to factors such as changes in interest rates and changes in the
average weighted maturity of the Portfolio.
Municipal Revenue Obligations
The Tax-Exempt Cash, Muni Intermediate and New Jersey Muni Portfolios may
each invest 25% or more of its net assets in municipal obligations, which pay
interest and principal from revenues of similar projects. Each Portfolio may
also invest up to 20% of its total assets in taxable investments including
private activity bonds. Such investments involve risks presented by the laws
and economic conditions relating to such projects and bonds. These securities
do not carry the general obligation of the issuer and are not backed by taxing
power.
In many cases, the Internal Revenue Service has not ruled on whether the
interest received on a municipal obligation is tax-exempt. The Portfolios and
the Advisor rely on the opinion of bond counsel to the issuers at the time of
issuance and will not review the bases for them.
The Muni Intermediate and New Jersey Muni Portfolios invest primarily in
Pennsylvania Municipal and New Jersey Municipal Obligations, respectively. If
Pennsylvania or New Jersey or any of their political subdivisions, agencies,
instrumentalities and authorities were to suffer serious financial difficulties
that might jeopardize the ability to pay their obligations, the value of the
affected Portfolio could be adversely affected.
13
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Repurchase Agreements
The Government Cash and Core Fixed Income Portfolios may enter into
repurchase agreements with qualified brokers, dealers, banks and other
financial institutions deemed creditworthy by the Advisor. Such agreements can
be entered into for periods of one day or for a fixed term.
In a repurchase agreement, a Portfolio purchases a security and
simultaneously commits to resell that security at a future date to the seller
(a qualified bank or securities dealer) at an agreed upon price plus an agreed
upon market rate of interest (itself unrelated to the coupon rate or date of
maturity of the purchased security). The seller under a repurchase agreement
will be required to maintain the value of the securities which are subject to
the agreement and held by a Portfolio at not less than the agreed upon
repurchase price. If the seller defaults on its repurchase obligation, the
Portfolio holding such obligation suffers a loss to the extent that the
proceeds from a sale of the underlying securities (including accrued interest)
is less than the repurchase price (including accrued interest) under the
agreement. In the event that such a defaulting seller files for bankruptcy or
becomes insolvent, disposition of such securities by the Portfolio might be
delayed pending court action.
Reverse Repurchase Agreements
The Core Fixed Income Portfolio may enter into an agreement to sell a
security and simultaneously commit to repurchase that security at a future date
from the buyer. In effect, the Portfolio is temporarily borrowing funds at an
agreed upon interest rate from the purchaser of the security.
The Portfolio's investment of the proceeds of a reverse repurchase
agreement is the speculative factor known as leverage. The Portfolio may enter
into a reverse repurchase agreement only if the interest income from investment
of the proceeds is greater than the interest expense of the transaction and the
proceeds are invested for a period no longer than the term of the agreement.
The Portfolio will maintain liquid securities at least equal to the value of
its purchase obligations under these agreements. The Advisor will consider the
creditworthiness of the other party in determining whether the Portfolio will
enter into a reverse repurchase agreement.
The Portfolio is permitted to invest up to one-third of its total assets
in reverse repurchase agreements and securities lending transactions combined.
The use of reverse repurchase agreements involves certain risks. For
example, the securities acquired by the Portfolio with the proceeds of such an
agreement may decline in value and the market value of the securities sold by
the Portfolio may decline below the repurchase price. Neither eventuality
affects the Portfolio's responsibility to complete the transaction at full
value. The Portfolio will invest the proceeds of reverse repurchsae agreements
in overnight repurchase agreements.
Selection of Investments
The Advisor evaluates the rewards and risks presented by all securities
purchased by the Portfolios and how they may advance the Portfolios' investment
objective. It is possible, however, that these evaluations will prove to be
inaccurate.
Other Types of Investments
This Prospectus describes each Portfolio's principal investment
strategies, and the particular types of securities in which each Portfolio
principally invests. Each Portfolio may, from time to time, make other types of
investments and pursue other investment strategies in support of its overall
investment goal. These supplemental investment strategies--and the risks
involved--are described in detail in the Statement of Additional Information,
which is referred to on the Back Cover of this Prospectus.
Year 2000 Risks
Like other investment companies and financial service providers, the
Portfolios could be adversely affected if the computer systems used by the
Advisor and the Portfolios' other service providers do not properly process and
calculate date-related information and data beginning on January 1, 2000. This
is commonly known as the "Year 2000 Problem." The Year 2000 Problem arises
because most computer systems were designed only to recognize a two-digit year,
not a four-digit year. When the year 2000 begins, these computers may interpret
"00" as the year 1900 and either stop processing date-related computations or
process them incorrectly. These failures could have a negative impact on the
handling of securities trades, pricing and account services. The Advisor and
administrator are taking steps to address the Year 2000 Problem with respect to
the computer systems that they use and to ascertain
14
<PAGE>
that comparable steps are being taken by the Portfolios' other major service
providers. As of the date of this Prospectus, it is not anticipated that
shareholders will experience negative effects on their investment, or on the
services provided in connection therewith, as a result of the Year 2000
Problem. However, there can be no assurance that these steps will be
successful, or that interaction with other non-complying computer systems will
not adversely impact the Portfolios. In addition, to the extent that the
operations of issuers of securities held by a Portfolio are impaired by the
Year 2000 Problem, or prices of securities held by a Portfolio decline as a
result of real or perceived problems relating to the Year 2000, the value of
such Portfolio's shares may be materially affected.
PRICE OF PORTFOLIO SHARES
The price of shares issued by each Portfolio is based on net asset value
("NAV"). The NAV per share of the Money Market Portfolios is determined as of
12:00 noon (Eastern time) on each day that the New York Stock Exchange is open
for business (a "Business Day"). The NAV per share of the Core Fixed Income,
Muni Intermediate and New Jersey Muni Portfolios is determined as of the close
of regular trading hours of the Exchange on each Business Day currently 4:00
p.m. (Eastern time).
Government Cash and Tax-Exempt Cash Portfolios
For the purpose of calculating each Money Market Portfolio's NAV per
share, securities are valued at "amortized cost."
Bond Portfolios
Marketable fixed income securities are priced at market value. Debt
securities with remaining maturities of 60 days or less are valued at amortized
cost. The value of other assets and securities for which no quotations are
readily available (including restricted securities) is determined in good faith
at fair value using methods determined by the Board of Directors or the Board
of Trustees.
PURCHASE OF SHARES
Shares of each Portfolio are sold without a sales commission on a
continuous basis to the Advisor acting on behalf of its or an Affiliate's
clients ("Clients") and to other institutions (the "Institutions"), at the NAV
per share next determined after receipt of the purchase order by the transfer
agent. The minimum initial investment for each Portfolio is $25,000; the
minimum subsequent investment for each Portfolio is $1,000. The minimum initial
and subsequent investment requirements may be reduced or waived from time to
time. If you wish to purchase shares in the Funds, you should contact the
Advisor or your Institution.
Your broker/dealer may charge you for purchasing or selling shares of the
Portfolios. There is no transaction charge for shares purchased directly from
the Portfolios.
Shares purchased in the Money Market Portfolios before 12:00 noon (Eastern
time) begin earning dividends on the same business day provided Federal funds
are available to the particular Portfolio before 12:00 noon (Eastern time) that
day.
Purchases of a Portfolio's shares will be made in full and fractional
shares calculated to three decimal places. In the interest of economy and
convenience, certificates for shares will not be issued except upon your
written request. No certificates for fractional shares will be issued.
REDEMPTION OF SHARES
You may redeem shares of each Portfolio at any time, without cost, at the
NAV per share next determined after the transfer agent receives your redemption
request. Generally, a properly signed written request is all that is required.
If you wish to redeem shares, you should contact the Advisor or your
Institution.
You will ordinarily be paid your redemption proceeds within one business
day, but in no event more than seven days, after the transfer agent receives
your order. Redemption orders are effected at NAV per share next determined
after receipt of the order. The Funds may suspend the right of redemption or
postpone the date of payment under any emergency circumstances as determined by
the Securities and Exchange Commission (the "SEC").
15
<PAGE>
ADDITIONAL INFORMATION ON THE PURCHASE AND REDEMPTION
OF SHARES OF THE PORTFOLIOS
The Glenmede Fund, Inc. and The Glenmede Portfolios (together, the
"Funds") may appoint one or more entities as their agent to receive purchase
and redemption orders of shares of the Portfolios and cause these orders to be
transmitted, on a net basis, to the Funds' transfer agent. In these instances,
orders are effected at the NAV per share next determined after receipt of that
order by the entity, if the order is received by the Funds' transfer agent not
later than the next business morning.
DIVIDENDS AND DISTRIBUTIONS
The Portfolios have the following dividend and capital gains policies:
(a) The Money Market Portfolios declare dividends daily and normally
distribute substantially all of their net investment income to
shareholders monthly.
(b) The Core Fixed Income, Muni Intermediate and New Jersey Muni Portfolios
normally will distribute substantially all of their net investment
income to shareholders monthly.
The Portfolios normally distribute any realized net capital gains once a
year.
TAXES
Federal
Taxable Portfolios. Each Portfolio intends to distribute as dividends
substantially all of its investment company taxable income each year. Such
dividends will be taxable to you as ordinary income unless you are currently
exempt from Federal income taxes, whether you receive the distribution in cash
or reinvested in additional shares.
Dividends paid by the Portfolios will generally be taxable to you as
ordinary income or capital gains. Distributions by a Portfolio attributable to
its "net capital gain" (the excess of its net long-term capital gain -- i.e.,
gains or assets held more than 12 months -- over its net short-term capital
loss), if any, qualify as "capital gains distributions." These distributions
are taxable to you as long-term capital gain, regardless of how long you have
held shares and whether you receive such gains in cash or reinvested in
additional shares. For individuals, long-term capital gain is generally subject
to a maximum federal tax rate of 20%.
The investment objectives of the Bond and Money Market Portfolios will
generally cause their annual distributions to consist primarily of ordinary
income.
You may realize a capital gain or loss upon redemption or transfer of your
shares of the Core Fixed Income, Muni Intermediate and New Jersey Muni
Portfolios, depending upon the tax basis of your shares and their price at the
time of redemption or transfer.
The one major exception to these tax principles is that distributions on,
and sales, exchanges and redemptions of, shares held in an IRA (or other
tax-qualified plan) will not be currently taxable.
Tax-Exempt Cash, Muni Intermediate and New Jersey Muni Portfolios. You may
treat exempt-interest dividends as items of interest excludable from your gross
income under Section 103(a) of the Internal Revenue Code, unless under your
circumstances the exclusion would be disallowed. (See "Additional Information
Concerning Taxes" in the SAI.) Distributions of net income may be taxable to
you under state or local law as dividend income even though a substantial
portion of such distributions may be derived from interest on tax-exempt
obligations which, if realized directly, would be exempt from such income
taxes.
To the extent that dividends paid to you are derived from taxable interest
or from long-term or short-term capital gains, such dividends will be subject
to Federal income tax (whether such dividends are paid in cash or additional
shares) and may also be subject to state and local taxes.
If a Portfolio should hold certain private activity bonds issued after
August 7, 1986, shareholders must include, as an item of tax preference, the
portion of dividends paid by a Portfolio that is attributable to interest on
such bonds in their Federal alternative minimum taxable income for purposes of
determining liability (if any) for the
16
<PAGE>
alternative minimum tax. Corporate shareholders must also take all
exempt-interest dividends into account in determining certain adjustments for
Federal alternative minimum tax purposes. Shareholders receiving Social
Security benefits or railroad retirement benefits should note that all
exempt-interest dividends will be taken into account in determining the
taxability of such benefits.
Interest on indebtedness incurred by a shareholder to purchase or carry
such a Portfolio's shares generally is not deductible for Federal income tax
purposes if the Portfolio distbributes exempt-interest dividends during the
shareholder's taxable year.
Miscellaneous. If you are considering a purchase of shares of the Core
Fixed Income, Muni Intermediate and New Jersey Muni Portfolios, on or just
before the record date of a dividend, you should be aware that the amount of
the forthcoming dividend payment, although in effect a return of capital, will
be taxable to you. This is known as "buying into a dividend."
Dividends declared in October, November or December of any year payable to
shareholders of record on a specified date in such months will be deemed to
have been received by the shareholders and paid by a Portfolio on December 31,
in the event such dividends are paid during January of the following year.
Pennsylvania Tax Considerations
Shareholders of the Muni Intermediate Portfolio will not be subject to
Pennsylvania Personal Income Tax on distributions from the Portfolio
attributable to interest income from Pennsylvania Municipal Obligations held by
the Portfolio. The exemption from Pennsylvania Personal Income Tax also will
extend to interest on obligations of the United States, its territories and
certain of its agencies and instrumentalities (collectively, "Federal
Securities"). In addition, shareholders of the Portfolio who are Philadelphia
residents will not be subject to the Philadelphia School District Net Income
Tax on distributions from the Portfolio attributable to interest income from
Pennsylvania municipal obligations or Federal Securities.
Distributions derived from investments other than Pennsylvania Municipal
Obligations and Federal Securities and distributions from net realized capital
gains will be subject to the Pennsylvania Personal Income Tax and the
Philadelphia School District Tax, except that distributions attributable to
capital gains on investments held by the Portfolio for more than six months are
not subject to the Philadelphia School District Tax. Gain on the disposition of
a share of the Muni Intermediate Portfolio will be subject to Pennsylvania
Personal Income Tax and the School District Tax, except that gain realized with
respect to a share held for more than six months is not subject to the School
District Tax.
New Jersey Tax Considerations
It is anticipated that substantially all dividends paid by the New Jersey
Muni Portfolio will not be subject to New Jersey personal income tax. In
accordance with the provisions of New Jersey law, distributions paid by a
"qualified investment fund" will not be subject to the New Jersey personal
income tax to the extent that the distributions are attributable to income
received as interest or gain from New Jersey Municipal Obligations, or as
interest or gain from direct U.S. Government obligations. Distributions by a
qualified investment fund that are attributable to most other sources will be
subject to the New Jersey personal income tax. If the New Jersey Muni Portfolio
qualifies as a qualified investment fund under New Jersey law, any gain on the
redemption or sale of the Portfolio's shares will not be subject to the New
Jersey personal income tax. To be classified as a qualified investment fund, at
least 80% of the Portfolio's investment must consist of New Jersey Municipal
Obligations or direct U.S. Government obligations; it must have no investments
other than interest-bearing obligations, obligations issued at a discount, and
cash and cash items (including receivables) and financial options, futures and
forward contracts related to interest bearing obligations issued at a discount;
and it must satisfy certain reporting obligations and provide certain
information to its shareholders. Shares of the Portfolio are not subject to
property taxation by New Jersey or its political subdivisions. To the extent
that a shareholder is subject to state or local taxes outside New Jersey,
dividends earned by an investment in the New Jersey Muni Portfolio may
represent taxable income.
The New Jersey personal income tax is not applicable to corporations. For
all corporations subject to the New Jersey Corporation Business Tax, dividend
and distributions from a "qualified investment fund" are included in the
17
<PAGE>
net income tax base for purposes of computing the Corporation Business Tax.
Furthermore, any gain upon the redemption or sale of New Jersey Muni Portfolio
shares by a corporate shareholder is also included in the net income tax base
for purposes of computing the Corporation Business Tax.
Other State and Local Taxes
Other shareholders may be subject to state and local taxes on
distributions from the Funds. You should consult with your tax adviser with
respect to the tax status of distributions from the Funds in your state or
locality.
General
The foregoing summarizes some of the important tax considerations
generally affecting the Portfolios and their shareholders and is not intended
as a substitute for careful tax planning. Accordingly, you should consult your
tax advisers with specific reference to your own tax situation. You will be
advised at least annually as to the federal income tax consequences of
distributions made each year.
MANAGEMENT OF THE PORTFOLIOS
Investment Advisor
The Glenmede Trust Company with principal offices at One Liberty Place,
1650 Market Street, Suite 1200, Philadelphia, Pennsylvania 19103, serves as
investment advisor to the Portfolios. The Advisor, a limited purpose trust
company chartered in 1956, provides fiduciary and investment services to
endowment funds, foundations, employee benefit plans and other institutions and
individuals. The Advisor is a wholly-owned subsidiary of The Glenmede
Corporation. At December 31, 1998, the Advisor had over $14.4 billion in assets
in the accounts for which it serves in various capacities including as
executor, trustee or investment advisor.
Under its Investment Advisory Agreements with the Funds, the Advisor,
subject to the control and supervision of the particular Fund's Board and in
conformance with the stated investment objective and policies of each
Portfolio, manages the investment and reinvestment of the assets of each
Portfolio. It is the responsibility of the Advisor to make investment decisions
for the Portfolios and to place each Portfolio's purchase and sales orders.
The Advisor does not receive any fee from the Funds for its investment
services provided to the Portfolios. However, shareholders in the Funds who are
clients of the Advisor, or an Affiliate of the Advisor, pay fees which vary,
depending on the capacity in which the Advisor or the Affiliate provides them
with fiduciary and investment services (e.g., personal trust, estate
settlement, advisory and custodian services). Shareholders in the Funds who are
customers of other Institutions may pay fees to those Institutions.
Mary Ann B. Wirts, First Vice President and Manager of the Fixed Income
Division of the Advisor, has been the portfolio manager primarily responsible
for the management of the Tax-Exempt Cash Portfolio since that Portfolio
commenced operations on November 7, 1988. Since November 1, 1996, Mrs. Wirts
has also been the portfolio manager primarily responsible for the management of
the Government Cash Portfolio. Mrs. Wirts has been employed by the Advisor
since 1982.
Laura LaRosa is the portfolio manager primarily responsible for the
management of the Muni Intermediate and New Jersey Muni Portfolios. Ms. LaRosa
has been primarily responsible for the management of those Portfolios since
November 1994. Ms. LaRosa has been employed by the Advisor as a portfolio
manager since 1994. Prior to her employment with the Advisor in 1994, Ms.
LaRosa had been Vice President of Institutional Sales at Hopper Soliday,
Philadelphia.
Timothy M. Woolley, CFA is the portfolio manager primarily responsible for
the management of the Core Fixed Income Portfolio. Mr. Woolley has been
primarily responsible for the management of this Portfolio since January 1,
1998. Mr. Woolley is a Fixed Income Portfolio Manager and analyst specializing
in mortgage-backed securities. Mr. Woolley has been employed by the Advisor
since 1994. Prior to his employment with the Advisor in 1994, Mr. Woolley had
been with Meridian Capital Markets and Meridian Bank for five years, most
recently serving as Vice President specializing in mortgage research.
GENERAL INFORMATION
If you have any questions regarding the Portfolios contact the Funds at
the address or telephone number stated on the back cover page.
18
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights tables are intended to help you understand each
Portfolio's financial performance for the past 5 years. Certain information
reflects financial results for a single Portfolio share. The total returns in
the table represent the rate that an investor would have earned or lost on an
investment in each Portfolio (assuming reinvestment of all dividends and
distributions). This information has been audited by PricewaterhouseCoopers
LLP, whose report, along with the Portfolios' financial statements, are
included in the Annual Report, which is available upon request.
Core Fixed Income Portfolio*
(For a share outstanding throughout each year)
<TABLE>
<CAPTION>
Year Ended October 31,
-------------------------------------------------------------------------
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year .......... $ 10.46 $ 10.29 $ 10.36 $ 9.89 $ 10.84
-------- -------- -------- -------- --------
Income from Investment Operations:
Net Investment Income ....................... 0.64 0.68 0.66 0.69 0.64
Net Gain/Loss on Securities
(both realized and unrealized) ............. 0.24 0.17 ( 0.08) 0.46 ( 0.96)
-------- -------- -------- -------- --------
Total From Investment Operations ............ 0.88 0.85 0.58 1.15 ( 0.32)
-------- -------- -------- -------- --------
Less Distributions:
Dividends (from net investment income) ( 0.64) ( 0.68) ( 0.65) ( 0.68) ( 0.63)
Distributions (from capital gains) .......... -- -- -- -- --
-------- -------- -------- -------- --------
Total Distributions ......................... ( 0.64) ( 0.68) ( 0.65) ( 0.68) ( 0.63)
-------- -------- -------- -------- --------
Net Asset Value, End of Year ................ $ 10.70 $ 10.46 $ 10.29 $ 10.36 $ 9.89
======== ======== ======== ======== ========
Total Return1 ............................... 9.32% 8.63% 5.88% 12.06% ( 3.03)%
======== ======== ======== ======== ========
Ratios/Supplemental Data:
Net Assets, End of Year (in 000's) ......... $258,986 $266,733 $259,503 $342,874 $333,797
Ratio of Expenses to Average Net
Assets ................................... 0.11% 0.13% 0.16% 0.11% 0.12%
Ratio of Gross Expense to Average Net
Assets ................................... 0.99%** 0.43%** 0.16% 0.11% 0.14%**
Ratio of Net Income to Average Net
Assets ................................... 6.58% 6.67% 6.37% 6.67% 6.06%
Portfolio Turnover Rate .................... 93% 307% 47% 228% 165%
</TABLE>
- ------------
* The Intermediate Government Portfolio was renamed the Core Fixed Income
Portfolio effective September 25, 1997.
** The annualized operating expense ratios exclude interest expense. The ratios
including interest expense for the years ended October 31, 1998, October
31, 1997 and October 31, 1994 were 0.11%, 0.13% and 0.12%, respectively.
1 Total Return represents aggregate total return for the period indicated.
19
<PAGE>
Muni Intermediate Portfolio
(For a share outstanding throughout each year)
<TABLE>
<CAPTION>
Year Ended October 31,
-------------------------------------------------------------------
1998 1997 1996 1995 1994
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year .......... $ 10.40 $ 10.26 $ 10.32 $ 9.74 $ 10.59
------- ------- ------- ------- -------
Income from Investment Operations
Net Investment Income ....................... 0.51 0.52 0.53 0.53 0.53
Net Gain/(Loss) on Securities
(both realized and unrealized) ............. 0.16 0.14 ( 0.06) 0.58 ( 0.85)
------- ------- ------- ------- -------
Total From Investment Operations ............ 0.67 0.66 0.47 1.11 ( 0.32)
------- ------- ------- ------- -------
Less Distributions:
Dividends (from net investment income). ( 0.51) ( 0.52) ( 0.53) ( 0.53) ( 0.53)
------- ------- ------- ------- -------
Net Asset Value, End of Year ................ $ 10.56 $ 10.40 $ 10.26 $ 10.32 $ 9.75
======= ======= ======= ======= =======
Total Return1 ............................... 6.63% 6.69% 4.67% 11.76% ( 3.13)%
======= ======= ======= ======= =======
Ratios/Supplemental Data:
Net Assets, End of Year (in 000's) ......... $19,975 $19,219 $18,471 $18,096 $22,097
Ratio of Expenses to Average Net
Assets ................................... 0.30% 0.34% 0.32% 0.28% 0.25%
Ratio of Net Income to Average Net
Assets ................................... 4.88% 5.09% 5.16% 5.23% 4.78%
Portfolio Turnover Rate .................... 11% 21% 44% 28% 11%
</TABLE>
- ------------
1 Total Return represents aggregate total return for the period indicated.
20
<PAGE>
New Jersey Muni Portfolio
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Year Ended October 31,
----------------------------------------------------------------------
Period
Ended
October 31,
1998 1997 1996 1995 1994+
------------ ----------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period ............. $ 10.20 $ 9.97 $ 10.00 $ 9.22 $ 10.00
-------- -------- -------- -------- --------
Income from Investment Operations
Net Investment Income ............................ 0.44 0.44 0.44 0.41 0.32
Net Gain/(Loss) on Securities
(both realized and unrealized) .................. 0.23 0.23 ( 0.03) 0.78 ( 0.82)
-------- -------- --------- -------- --------
Total From Investment Operations ................. 0.67 0.67 0.41 1.19 ( 0.50)
-------- -------- --------- -------- --------
Less Distributions:
Dividends (from net investment income) ........... ( 0.44) ( 0.44) ( 0.44) ( 0.41) ( 0.28)
--------- -------- --------- -------- --------
Net Asset Value, End of Period ................... $ 10.43 $ 10.20 $ 9.97 $ 10.00 $ 9.22
========= ======== ========= ======== ========
Total Return1 .................................... 6.71% 6.90% 4.24% 13.25% ( 5.13) %
========= ======== ========= ======== ========
Ratios/Supplemental Data:
Net Assets, End of Period (in 000's) ............ $ 17,492 $ 12,117 $ 7,545 $ 5,932 $ 4,564
Ratio of Expenses to Average Net Assets ......... 0.30% 0.31% 0.24% 0.53% 0.60%*
Ratio of Net Income to Average Net Assets . 4.33% 4.42% 4.56% 4.30% 3.60%*
Portfolio Turnover Rate ......................... 7% 19% 33% 12% 65%
</TABLE>
- ------------
* Annualized.
+ The Portfolio commenced operations on November 1, 1993.
1 Total Return represents aggregate total return for the period indicated.
21
<PAGE>
Government Cash Portfolio
(For a share outstanding throughout each year)
<TABLE>
<CAPTION>
Year Ended October 31,
-----------------------------------------------------------------------
1998 1997 1996 1995 1994
------------ ------------ ------------ ------------ -----------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year ........... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------- ------- ------- ------- --------
Income from Investment Operations
Net Investment Income ........................ 0.051 0.054 0.053 0.059 0.038
Less Distributions:
Dividends (from net investment income) ....... ( 0.051) ( 0.054) ( 0.053) ( 0.059) ( 0.038)
-------- -------- -------- -------- --------
Net Asset Value, End of Year ................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ========
Total Return1 ................................ 5.63% 5.53% 5.46% 5.87% 3.78%
======== ======== ======== ======== ========
Ratios/Supplemental Data:
Net Assets, End of Year (in 000's) .......... $430,165 $451,038 $452,395 $408,605 $353,405
Ratio of Expenses to Average Net Assets ..... 0.11% 0.13% 0.16% 0.15% 0.11%
Ratio of Net Income to Average Net Assets 5.41% 5.39% 5.32% 5.71% 3.82%
</TABLE>
- ------------
1 Total Return represents aggregate total return for the period indicated.
22
<PAGE>
Tax-Exempt Cash Portfolio
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Year Ended October 31,
------------------------------------------------------------------------
1998 1997 1996 1995 1994
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year .......... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------- ------- ------- ------- -------
Income from Investment Operations
Net Investment Income ....................... 0.034 0.034 0.034 0.038 0.025
Less Distributions:
Dividends (from net investment income) (0.034) (0.034) (0.034) (0.038) (0.025)
-------- -------- -------- -------- --------
Net Asset Value, End of Year ................ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ========
Total Return1 ............................... 3.41% 3.46% 3.42% 3.76% 2.48%
======== ======== ======== ======== ========
Ratios/Supplemental Data:
Net Assets, End of Year (in 000's) ......... $375,924 $280,950 $224,999 $222,808 $222,985
Ratio of Expenses to Average Net
Assets ................................... 0.13% 0.14% 0.15% 0.15% 0.13%
Ratio of Net Income to Average Net
Assets ................................... 3.37% 3.40% 3.36% 3.69% 2.52%
</TABLE>
- ------------
1 Total Return represents aggregate total return for the period indicated.
23
<PAGE>
Where to find more information
More Portfolio information is available to you upon request and without charge:
Annual and Semi-Annual Report
The Annual and Semi-Annual Reports provide additional information about the
Portfolios' investments and performance. The Annual Report also contains a
discussion of the market conditions and investment strategies that
significantly affected the Portfolios' performance during the last fiscal year.
Statement of Additional Information (SAI)
The SAI includes additional information about the Portfolios' investment
policies, organization and management. It is legally part of this prospectus
(it is incorporated by reference).
You can get free copies of the Portfolios' Annual Report, Semi-Annual Report or
SAI. You may also request other information about the Portfolios, and make
inquiries.
Write to:
The Glenmede Fund/Portfolios
One South Street
Baltimore, MD 21202
By phone:
1-800-442-8299
Information about the Portfolios (including the Portfolios' SAI) can be
reviewed and copied at the Securities and Exchange Commission's Public
Reference Room in Washington, DC. Information about the operation of the Public
Reference Room may be obtained by calling the SEC at 1-800-SEC-0330. Reports
and other information about the Portfolios are available on the SEC's Internet
site at http://www.sec.gov. Copies of this information may be obtained, upon
payment of a duplicating fee, by writing the Public Reference Section of the
SEC, Washington, DC 20549-6009.
The Glenmede Fund, Inc. Investment Company Act File No. is 811-5577
The Glenmede Portfolios Investment Company Act File No. is 811-6578
<PAGE>
THE GLENMEDE FUND, INC.
THE GLENMEDE PORTFOLIOS
(800) 442-8299
STATEMENT OF ADDITIONAL INFORMATION
February 28, 1999
This Statement of Additional Information is not a prospectus but should
be read in conjunction with The Glenmede Fund, Inc.'s ("Glenmede Fund") and The
Glenmede Portfolios' ("Glenmede Portfolios" and, collectively with Glenmede
Fund, the "Funds") Prospectuses dated February 28, 1999, as amended or
supplemented from time to time (the "Prospectuses"). No investment in shares of
a Portfolio should be made without first reading the Prospectus of such
Portfolio. This Statement of Additional Information is for the Government Cash,
Tax-Exempt Cash, Core Fixed Income, International, Tax Managed Equity, Small
Capitalization Equity (Advisor Shares and Institutional Shares), Large Cap
Value, Muni Intermediate, New Jersey Muni, Institutional International, Emerging
Markets and Global Equity Portfolios. This Statement of Additional Information
is incorporated by reference in its entirety into each Prospectus. The Funds'
audited financial statements and financial highlights appearing in the 1998
Annual Report to Shareholders are incorporated by reference into this Statement
of Additional Information. A copy of the Funds' Prospectuses and Annual Report
are available without charge, upon request, by calling the Funds at the above
telephone number.
Capitalized terms used in this Statement of Additional Information and
not otherwise defined have the same meanings given to them in the Funds'
Prospectuses.
Table of Contents Page
THE FUNDS............................................................. 1
INVESTMENT STRATEGIES................................................. 1
COMMON INVESTMENT POLICIES AND RISKS.................................. 10
PRICE OF PORTFOLIO SHARES............................................. 16
PURCHASE OF SHARES.................................................... 18
REDEMPTION OF SHARES.................................................. 18
SHAREHOLDER SERVICES.................................................. 19
PORTFOLIO TURNOVER.................................................... 19
INVESTMENT LIMITATIONS................................................ 19
MANAGEMENT OF THE FUNDS............................................... 22
INVESTMENT ADVISORY AND OTHER SERVICES................................ 24
PORTFOLIO TRANSACTIONS................................................ 28
ADDITIONAL INFORMATION CONCERNING TAXES............................... 30
PERFORMANCE CALCULATIONS.............................................. 41
GENERAL INFORMATION................................................... 47
FINANCIAL STATEMENTS.................................................. 49
OTHER INFORMATION..................................................... 49
APPENDIX -- DESCRIPTION OF SECURITIES AND RATINGS.....................A-1
<PAGE>
THE FUNDS
Glenmede Fund was organized as a Maryland corporation on June 30, 1988.
Glenmede Fund's Articles of Incorporation authorize its Board of Directors to
issue 2,500,000,000 shares of common stock, with a $.001 par value. The Board
has the power to subdivide these shares into one or more investment portfolios
("Portfolios") from time to time. The Board also has the power to designate
separate classes of shares within the same Portfolio. Currently, Glenmede Fund
is offering shares of the following ten Portfolios: International Equity
Portfolio, Large Cap Value Portfolio, Small Capitalization Equity Portfolio
(Advisor Shares and Institutional Shares), Tax Managed Equity Portfolio,
Government Cash Portfolio, Tax-Exempt Cash Portfolio, Core Fixed Income
Portfolio, Emerging Markets Portfolio, Global Equity Portfolio and Institutional
International Portfolio.
Glenmede Portfolio was organized as a Massachusetts business trust on
March 3, 1992. Glenmede Portfolios' Master Trust Agreement authorizes its Board
of Trustees to issue an unlimited number of shares of beneficial interest with a
$.001 par value. The Board has the power to subdivide these shares into one or
more investment portfolios (Sub-Trusts) from time to time. Currently, Glenmede
Portfolios is offering shares of two Sub-Trusts, the Muni Intermediate and New
Jersey Muni Portfolios.
Each Fund is an open-end, management investment company. The
International, Large Cap Value, Small Capitalization Equity, Tax Managed Equity,
Core Fixed Income, Government Cash, Tax-Exempt Cash, Institutional
International, Emerging Markets and Global Equity Portfolios are diversified
Portfolios of Glenmede Fund. The Muni Intermediate and New Jersey Muni
Portfolios are non-diversified Portfolios of the Glenmede Portfolios.
On February 27, 1997, the Model Equity Portfolio changed its name to
the Large Cap Value Portfolio. On September 25, 1997, the Intermediate
Government Portfolio changed its name to the Core Fixed Income Portfolio. On
August 20, 1998, the Equity Portfolio changed its name to the Tax Managed Equity
Portfolio. References in this Statement of Additional Information are to a
Portfolio's current name.
On March 1, 1991 the Small Capitalization Equity Portfolio commenced
operations offering a single class of shares. On January 1, 1998, the Small
Capitalization Equity Portfolio began to offer a second class of shares known as
"Institutional Shares." The original class of shares has been designated as
"Advisor Shares." Historical information concerning expenses and performance
prior to January 1, 1998 is that of the Advisor Shares.
INVESTMENT STRATEGIES
The following investment strategies supplement those set forth in the
Funds' Prospectuses. Unless specified below and except as described under
"Investment Limitations," the following investment strategies are not
fundamental and a particular Fund's Board may change such strategies without
shareholder approval.
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Government Cash Portfolio
During normal market conditions, the Portfolio will invest at least 65%
of its total assets in short-term U.S. dollar denominated money market
instruments issued by the U.S. Treasury, U.S. Government agencies, or other
agencies, enterprises or instrumentalities sponsored by the U.S. Government, and
repurchase agreements secured by such instruments.
The Portfolio may invest in the following Eligible Securities: (i)
straight-debt and mortgage-backed obligations issued by the U.S. Government or
its sponsored agencies, enterprises or instrumentalities; (ii) securities of
international institutions (e.g., Asian Development Bank, Export-Import Bank,
Inter American Development Bank, International Bank for Reconstruction and
Development, Government Trust Certificates, Private Export Funding Corp. and
Agency for International Development) which are not direct obligations of the
U.S. Government but which involve governmental agencies, instrumentalities or
enterprises (such investments will represent no more than 25% of the Portfolio's
total assets); and (iii) any publicly or privately placed, unrated securities
issued by the U.S. Government, its agencies, enterprises or instrumentalities,
including floating and variable rate securities, which, in the Advisor's
opinion, are equivalent in credit quality to securities rated AAA by Standard &
Poor's Ratings Group ("S&P") or Aaa by Moody's Investors Service, Inc.
("Moody's"). Additionally, the Portfolio may enter into reverse repurchase
agreements.
Tax-Exempt Cash Portfolio
Municipal obligations in which the Portfolio may invest include the
following Eligible Securities: project notes, demand notes, short-term municipal
obligations (including tax anticipation notes, revenue anticipation notes, bond
anticipation notes, tax and revenue anticipation notes, construction loan notes,
and short-term discount notes) rated SP-1+ or SP-1 by S&P or MIG-1 by Moody's;
tax-exempt commercial paper rated A-1+ or A-1 by S&P or Prime-1 by Moody's;
municipal bonds with a remaining effective maturity of 13 months or less, rated
AA or better by S&P or Aa or better by Moody's; variable rate demand notes rated
"VMIG-1" by Moody's; and any non-rated tax-exempt, privately placed securities
which, in the Advisor's opinion, are equivalent in credit quality to an AA or
Aa-rated security as determined by S&P or Moody's, respectively.
The two principal classifications of municipal obligations are "general
obligation" securities and "revenue" securities. General obligation securities
are secured by the issuer's pledge of its full faith, credit and taxing power
for the payment of principal and interest. Revenue securities are payable only
from the revenues derived from a particular facility or class of facilities or,
in some cases, from the proceeds of a special or specific excise tax or other
specific revenue source such as the user of the facility being financed. Revenue
securities include private activity bonds which are not payable from the
unrestricted revenues of the issuer. Consequently, the credit quality of private
activity bonds is usually directly related to the credit standing of the
corporate user of the facility involved.
Municipal obligations may also include "moral obligation" bonds, which
are normally issued by special purpose public authorities. If the issuer of
moral obligation bonds is unable to meet its debt service obligations from
current revenues, it may draw on a reserve fund, the restoration of which is a
moral commitment but not a legal obligation of the state or municipality which
created the issuer.
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The municipal obligations in which the Portfolio invests may include
variable rate demand notes. Such notes are frequently not rated by credit rating
agencies, but unrated notes will be purchased by the Portfolio if they are
comparable in quality at the time of the purchase to rated Eligible Securities
as determined by the Advisor. Where necessary to ensure that a note is an
Eligible Security, the Portfolio will require that the issuer's obligation to
pay the principal of the note be backed by an unconditional bank letter or line
of credit, guarantee or commitment to lend. While there may be no active
secondary market with respect to a particular variable rate demand note
purchased by the Portfolio, the Portfolio may, upon the notice specified in the
note, demand payment of the principal of the note at any time or during
specified periods not exceeding 13 months, depending upon the instrument
involved. The absence of such an active secondary market, however, could make it
difficult for the Portfolio to dispose of a variable rate demand note if the
issuer defaulted on its payment obligation or during the periods that the
Portfolio is not entitled to exercise its demand rights. The Portfolio could,
for this or other reasons, suffer a loss to the extent of the default. The
Portfolio invests in variable rate demand notes only when the Advisor deems the
investment to involve minimal credit risk. The Advisor also monitors the
continuing creditworthiness of issuers of such notes and parties providing
credit enhancement to determine whether the Portfolio should continue to hold
the notes.
Core Fixed Income Portfolio
The Portfolio may invest in the following securities: (i) straight-debt
and mortgage-backed obligations issued by the U.S. Government or its sponsored
agencies, enterprises or instrumentalities; (ii) securities of international
institutions which are not direct obligations of the U.S. Government but which
involve governmental agencies, enterprises or instrumentalities; (iii) any other
publicly or privately placed, unrated securities issued by the U.S. Government,
its agencies, enterprises or instrumentalities, which, in the Advisor's opinion,
are equivalent in credit quality to securities rated at least A by S&P or
Moody's; (iv) mortgage-backed and asset-backed obligations which are privately
issued with a rating of at least A by S&P or Moody's or which if unrated, are in
the Advisor's opinion equivalent in credit quality to securities so rated; and
(v) debt obligations of domestic and foreign companies rated at least A by S&P
or Moody's or which if unrated, are in the Advisor's opinion equivalent in
credit quality to securities so rated. Any of the above securities may be
variable or floating rate. Under normal circumstances, the Portfolio will invest
no more than 35% of the value of its total assets in the securities described in
(ii) and (v) of the first sentence of this paragraph.
The Portfolio's securities held subject to repurchase agreements may
have stated maturities exceeding 13 months, however, the Advisor currently
expects that repurchase agreements will mature in less than 13 months.
Asset-Backed Securities. The Core Fixed Income Portfolio may invest in
asset-backed securities consisting of undivided fractional interests in pools of
consumer loans or receivables held in a trust. Examples include certificates for
automobile receivables and credit card receivables. Payments of principal and
interest on the loans or receivables are passed through to certificate holders.
Asset-backed securities are not issued or guaranteed by the U.S. Government or
its agencies or instrumentalities, however, they may be guaranteed up to a
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certain amount by a private issuer through a letter of credit. Payment on
asset-backed securities of private issuers is typically supported by some form
of credit enhancement, such as a letter of credit, surety bond, limited
guaranty, or subordination. The extent of credit enhancement varies, but usually
amounts to only a fraction of the asset-backed security's par value until
exhausted. Ultimately, asset-backed securities are dependent upon payment of the
consumer loans or receivables by individuals, and the certificate holder
frequently has no recourse to the entity that originated the loans or
receivables.
An asset-backed security's underlying assets may be prepaid with the
result of shortening the certificate's weighted average life. Prepayment rates
vary widely and may be affected by changes in market interest rates. It is not
possible to accurately predict the average life of a particular pool of loans or
receivables. The proceeds of prepayments received by the Portfolio must be
reinvested in securities whose yields reflect interest rates prevailing at the
time. Thus, the Portfolio's ability to maintain a portfolio which includes
high-yielding asset-backed securities will be adversely affected to the extent
reinvestments are in lower yielding securities. The actual maturity and realized
yield will therefore vary based upon the prepayment experience of the underlying
asset pool and prevailing interest rates at the time of prepayment. Asset-backed
securities may be subject to greater risk of default during periods of economic
downturn than other instruments. Also, while the secondary market for
asset-backed securities is ordinarily quite liquid, in times of financial stress
the secondary market may not be as liquid as the market for other types of
securities, which could result in the Portfolio's experiencing difficulty in
valuing or liquidating such securities.
Muni Intermediate and New Jersey Muni Portfolios
The Portfolios' investments in municipal obligations may also include
tax-exempt commercial paper rated A-1 or higher by S&P or Prime-1 or higher by
Moody's.
For a description of the two principal classifications of municipal
obligations, "general obligation" securities and "revenue" securities, see the
"Tax-Exempt Cash Portfolio" above.
During temporary defensive periods, each Portfolio may invest without
limitation in obligations which are not municipal obligations and may hold
without limitation uninvested cash reserves. Such securities may include,
without limitation, bonds, notes, variable rate demand notes and commercial
paper, provided such securities are rated within the relevant categories
applicable to municipal obligations as set forth above and in the Portfolios'
prospectus under the heading "Bond Portfolios--Investment Duration and Quality,"
or if unrated, are of comparable quality as determined by the Advisor.
Additionally, each Portfolio may invest, without limitation, in other
non-municipal debt obligations, such as bank obligations which are also of
comparable quality as determined by the Advisor. Furthermore, each Portfolio may
acquire "stand-by commitments" with respect to municipal obligations held by it.
Under a stand-by commitment, a dealer agrees to purchase, at the Portfolio's
option, specified municipal obligations at a specified price. Each Portfolio
will acquire stand-by commitments solely to facilitate portfolio liquidity and
does not intend to exercise its rights thereunder for trading purposes.
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International Portfolio
The Portfolio may purchase shares of closed-end investment companies
which invest chiefly in the shares of companies located outside the U.S., and
U.S. or foreign securities convertible into foreign common stock.
The Portfolio intends to remain, for the most part, fully invested in
equity securities of companies located outside of the United States. However,
the Portfolio may invest a portion of its assets (up to 35% under normal
circumstances) in the following fixed income and money market securities:
obligations of the U.S. Government and its guaranteed or sponsored agencies,
including shares of open-end or closed-end investment companies which invest in
such obligations (such shares will be purchased within the limits prescribed by
the 1940 Act and would subject a shareholder of the Portfolio to expenses of the
other investment company in addition to the expenses of the Portfolio);
short-term money market instruments issued in the U.S. or abroad, denominated in
dollars or any foreign currency, including short-term certificates of deposit
(including variable rate certificates of deposit), time deposits with a maturity
no greater than 180 days, bankers acceptances, commercial paper rated A-1 by S&P
or Prime-1 by Moody's, or in equivalent money market securities; and high
quality fixed income securities denominated in U.S. dollars, any foreign
currency, or a multi-national currency unit such as the European Currency Unit.
Large Cap Value Portfolio
From time to time, the Advisor may revise its equity computer model
programs to maintain or enhance the Portfolio's performance.
The Portfolio intends to remain, for the most part, fully invested in
equity securities which may include American Depository Receipts ("ADRs") listed
on the New York Stock Exchange. The Portfolio will not engage in "market timing"
transactions. However, for temporary purposes this Portfolio may invest a
portion of its assets (up to 20%) in short-term money market instruments issued
by U.S. or foreign issuers, denominated in dollars or any foreign currency,
including short-term certificates of deposit (including variable rate
certificates of deposit), time deposits with a maturity no greater than 180
days, bankers acceptances, commercial paper rated A-1 by S&P or Prime-1 by
Moody's, or in similar money market securities.
Small Capitalization Equity Portfolio
The Portfolio may invest in securities located outside the United
States.
Under normal market conditions, at least 65% of the Portfolio's total
assets will be invested in equity securities of companies with market
capitalizations, at the time of purchase, that are below the maximum
capitalization permitted for a stock in the Russell 2000 Index. However, if
warranted in the judgement of the Advisor, the Portfolio may invest a portion of
its assets (up to 20% under normal circumstances) in preferred stocks and
convertible debentures with a minimum rating of BBB by S&P or Baa by Moody's,
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and the following fixed income and money market securities: obligations of the
U.S. Government and its guaranteed or sponsored agencies, including shares of
open-end or closed-end investment companies which invest in such obligations
(such shares will be purchased within the limits prescribed by the 1940 Act and
would subject a shareholder of the Portfolio to expenses of the other investment
company in addition to the expenses of the Portfolio; short-term money market
instruments issued in the U.S. or abroad, denominated in dollars or any foreign
currency, including short-term certificates of deposit (including variable rate
certificates of deposit), time deposits with a maturity no greater than 180
days, bankers acceptances, commercial paper rated A-1 by S&P or Prime-1 by
Moody's, or in equivalent money market securities; and high quality fixed income
securities denominated in U.S. dollars, any foreign currency, or a
multi-national currency unit such as the European Currency Unit.
The Portfolio's holdings will tend to be characterized by relatively
low price-to-earnings ratios. There is no mandated income requirement for
securities held by the Portfolio. The Portfolio generally will be more volatile
and have a higher expected growth rate than the overall market. In certain
periods, the Portfolio may fluctuate independently of broad, larger
capitalization indices such as the S&P 500.
Tax Managed Equity Portfolio
The Portfolio expects to have a low portfolio turnover rate relative to
other funds with similar investment objectives. It is impossible to predict the
impact of such a strategy on the realization of gains and losses. Additionally,
the Portfolio reserves the right to sell securities irrespective of how long
they have been held.
The Portfolio may sell a particular security, even though it may
realize a short-term capital gain, if the value of that security is believed to
have reached its peak or is expected to decline before the Portfolio would have
held it for the long-term holding period. The Portfolio may also be required to
sell securities in order to generate cash to pay expenses or satisfy shareholder
redemptions. Certain equity and other securities held by the Portfolio will
produce ordinary taxable income on a regular basis.
The Portfolio intends to remain, for the most part, fully invested in
equity securities, which may include securities of companies located outside the
United States, and will not engage in "market timing" transactions. However, the
Portfolio may invest a portion of its assets (up to 20% under normal
circumstances) in preferred stocks, convertible debentures, and the following
fixed income and money market securities: obligations of the U.S. Government and
its guaranteed or sponsored agencies, including shares of open-end or closed-end
investment companies which invest in such obligations (such shares will be
purchased within the limits prescribed by the 1940 Act and would subject a
shareholder of the Portfolio to expenses of the other investment company in
addition to the expenses of the Portfolio); short-term money market instruments
issued in the U.S. or abroad, denominated in dollars or any foreign currency,
including short-term certificates of deposit (including variable rate
certificates of deposit), time deposits with a maturity no greater than 180
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days, bankers acceptances, commercial paper rated A-1 by S&P or Prime-1 by
Moody's, or in equivalent money market securities; and high quality fixed income
securities denominated in U.S. dollars, any foreign currency, or a
multi-national currency unit such as the European Currency Unit.
The Portfolio may also purchase or write call and put options on
appropriate securities or securities indices. The aggregate value of the
Portfolio's assets subject to options written may not exceed 50% of its total
assets (taken at market value on the date written) and the aggregate premiums on
options purchased by the Portfolio will not exceed 50% of its total assets.
Options can attempt to enhance return through price appreciation of the option,
increase income, hedge to reduce overall portfolio risk, and/or hedge to reduce
individual security risk. Additionally, the Portfolio may also enter into
closing sale transactions in order to realize gains or minimize losses on
options it has purchased.
Purchasing Options. The Portfolio will normally purchase call options
in anticipation of an increase in the market value of securities of the type in
which it may invest. The purchase of a call option entitles the Portfolio, in
return for the premium paid, to purchase specified securities at a specified
price during the option period. The Portfolio will ordinarily realize a gain if,
during the option period, the value of such securities exceeds the sum of the
exercise price, the premium paid and transaction costs; otherwise the Portfolio
will realize either no gain or a loss on the purchase of the call option.
The Portfolio will normally purchase put options in anticipation of a
decline in the market value of securities in its portfolio or in securities in
which it may invest. The purchase of a put option entitles the Portfolio, in
exchange for the premium paid, to sell specified securities at a specified price
during the option period. The purchase of puts is designed to offset or hedge
against a decline in the market value of the Portfolio's securities. Put options
may also be purchased by the Portfolio for the purpose of affirmatively
benefiting from a decline in the price of securities which it does not own. The
Portfolio will ordinarily realize a gain if, during the option period, the value
of the underlying securities decreases below the exercise price sufficiently to
more than cover the premium and transaction costs; otherwise the Portfolio will
realize either no gain or a loss on the purchase of the put option. Gains and
losses on the purchase of put options will tend to be offset by countervailing
changes in the value of the underlying portfolio securities.
The Portfolio will purchase put and call options on securities indices
for the same purposes as it will purchase options on individual securities.
Writing Covered Options. The Portfolio may write covered call and put
options on any securities in which it may invest. A call option written by the
Portfolio obligates the Portfolio to sell specified securities to the holder of
the option at a specified price if the option is exercised at any time before
the expiration date. All call options written by the Portfolio will be covered,
which means that the Portfolio will own the securities subject to the option as
long as the option is outstanding or the Portfolio will use the other methods
described below. The Portfolio's purpose in writing covered call options is to
realize greater income than would be realized on portfolio securities
transactions alone. However, the Portfolio foregoes the opportunity to profit
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from an increase in the market price of the underlying security that exceeds the
exercise price of the call option.
A put option written by the Portfolio obligates the Portfolio to
purchase specified securities from the option holder at a specified price if the
option is exercised at any time before the expiration date. All put options
written by the Portfolio will be covered, which means that the Portfolio will
segregate cash or liquid assets with a value at least equal to the exercise
price of the put option. The purpose of writing such options is to generate
additional income for the Portfolio. However, in return for the option premium,
the Portfolio accepts the risk that it may be required to purchase the
underlying securities at a price in excess of the securities' market value at
the time of purchase.
Call and put options written by the Portfolio will also be considered
to be covered to the extent that the Portfolio's liabilities under such options
are wholly or partially offset by its rights under call and put options
purchased by the Portfolio.
In addition, a written call option or put option may be covered by
segregating cash or liquid assets, by entering into an offsetting forward
contract and/or by purchasing an offsetting option which, by virtue of its
exercise price or otherwise, reduces the Portfolio's net exposure on its written
option position.
The Portfolio may also write covered call and put options on any
securities index composed of securities in which it may invest. Options on
securities indices are similar to options on securities, except that the
exercise of securities index options requires cash payments and does not involve
the actual purchase or sale of securities. In addition, securities index options
are designed to reflect price fluctuations in a group of securities or segment
of the securities market rather than price fluctuations in a single security.
The Portfolio may cover call options on a securities index by owning
securities whose price changes are expected to be similar to those of the
underlying index, or by having an absolute and immediate right to acquire such
securities without additional cash consideration (or for additional cash
consideration segregated by the Portfolio) upon conversion or exchange of other
securities in its portfolio. The Portfolio may cover call and put options on a
securities index by segregating cash or liquid assets with a value equal to the
exercise price.
The Portfolio may terminate its obligations under an exchange traded
call or put option by purchasing an option identical to the one it has written.
Obligations under over-the-counter options may be terminated only by entering
into an offsetting transaction with the counterparty to such option. Such
purchases are referred to as "closing purchase transactions."
Institutional International Portfolio
The securities which the Portfolio may purchase include the following:
common stocks of companies located outside the U.S.; shares of closed-end
investment companies which invest chiefly in the shares of companies located
outside the U.S. (such shares will be purchased by the Portfolio within the
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limits prescribed by the 1940 Act); and U.S. or foreign securities convertible
into foreign common stock.
The Portfolio intends to remain, for the most part, fully invested in
equity securities of companies located outside of the United States. However,
the Portfolio may invest a portion of its assets (up to 20% under normal
circumstances) in the following fixed income and money market securities:
obligations of the U.S. Government and its guaranteed or sponsored agencies,
including shares of open-end or closed-end investment companies which invest in
such obligations (such shares will be purchased within the limits prescribed by
the 1940 Act and would subject a shareholder of the Portfolio to expenses of the
other investment company in addition to the expenses of the Portfolio);
short-term money market instruments issued in the U.S. or abroad, denominated in
dollars or any foreign currency, including short-term certificates of deposit
(including variable rate certificates of deposit), time deposits with a maturity
no greater than 180 days, bankers acceptances, commercial paper rated A-1 by S&P
or Prime-1 by Moody's, or in equivalent money market securities; and high
quality fixed income securities denominated in U.S. dollars, any foreign
currency, or a multi-national currency unit such as the European Currency Unit.
The Portfolio may also enter into forward currency exchange contracts
only to hedge against uncertainty in the level of future foreign exchange rates
in the purchase and sale of investment securities; it may not enter into such
contracts for speculative purposes.
Emerging Markets Portfolio
For long-term growth of capital, the Portfolio may invest up to 35% of
its total assets in debt securities (defined as bonds, notes, debentures,
commercial paper, certificates of deposit, time deposits and bankers'
acceptances) which are rated at least Baa by Moody's or BBB by S&P or are
unrated debt securities deemed to be of comparable quality by the Sub-Advisor.
Certain debt securities can provide the potential for long-term growth of
capital based on various factors such as changes in interest rates, economic and
market conditions, improvement in an issuer's ability to repay principal and pay
interest, and ratings upgrades. Additionally, convertible bonds can provide the
potential for long-term growth of capital through the conversion feature, which
enables the holder of the bond to benefit from increases in the market price of
the securities into which they are convertible. However, there can be no
assurances that debt securities or convertible bonds will provide long-term
growth of capital.
The Portfolio may lend its portfolio securities. Additionally, the
Portfolio may invest in European Depositary Receipts ("EDRs"), and may enter
into forward foreign currency contracts and reverse repurchase agreements. When
deemed appropriate by the Sub-Advisor, the Portfolio may invest cash balances in
repurchase agreements and other money market investments to maintain liquidity
in an amount to meet expenses or for day-to-day operating purposes.
When the Sub-Advisor believes that market conditions warrant, the
Portfolio may adopt a temporary defensive position and may invest up to 100% of
its total assets in the following high-quality (that is, rated Prime-1 by
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Moody's or A or better by S&P or, if unrated, of comparable quality as
determined by the Sub-Advisor) money market securities, denominated in U.S.
dollars or in the currency of any foreign country, issued by entities organized
in the United States or any foreign country: short-term (less than twelve months
to maturity) and medium-term (not greater than five years to maturity)
obligations issued or guaranteed by the U.S. Government or the governments of
foreign countries, their agencies or instrumentalities; finance company and
corporate commercial paper, and other short-term corporate obligations;
obligations (including certificates of deposit, time deposits and bankers'
acceptances) of banks; and repurchase agreements with banks and broker-dealers
with respect to such securities. The Portfolio also may purchase shares of
closed-end investment companies which invest chiefly in the shares of companies
located outside the U.S. (such shares will be purchased by the Portfolio within
the limits prescribed by the 1940 Act).
Global Equity Portfolio
The Portfolio intends to remain, for the most part, fully invested in
equity securities and securities convertible into equity securities. However,
the Portfolio may invest a portion of its assets (up to 20% under normal
circumstances) in the following fixed income and money market securities:
obligations of the U.S. Government and its guaranteed or sponsored agencies,
including shares of open-end or closed-end investment companies which invest in
such obligations (such shares will be purchased within the limits prescribed by
the 1940 Act and would subject a shareholder of the Portfolio to expenses of the
other investment company in addition to the expenses of the Portfolio);
short-term money market instruments issued in the U.S. or abroad, denominated in
dollars or any foreign currency, including short-term certificates of deposit
(including variable rate certificates of deposit), time deposits with a maturity
no greater than 180 days, bankers acceptances, commercial paper rated A-1 by S&P
or Prime-1 by Moody's, or in equivalent money market securities; and high
quality fixed income securities denominated in U.S. dollars, any foreign
currency, or a multi-national currency unit such as the European Currency Unit.
The Portfolio may also enter into forward currency exchange contracts
only to hedge against uncertainty in the level of future foreign exchange rates
in the purchase and sale of investment securities; it may not enter into such
contracts for speculative purposes. Additionally, the Portfolio may enter into
reverse repurchase agreements.
COMMON INVESTMENT POLICIES AND RISKS
Repurchase Agreements
Each Portfolio may enter into repurchase agreements with qualified
brokers, dealers, banks and other financial institutions deemed creditworthy by
the Advisor. Under normal circumstances, however, the International, Large Cap
Value, Small Capitalization Equity, Tax Managed Equity, Muni Intermediate and
New Jersey Muni Portfolios will not enter into repurchase agreements if entering
into such agreements would cause, at the time of entering into such agreements,
more than 20% of the value of the total assets of the particular Portfolio to be
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subject to repurchase agreements. The International Portfolio will generally
enter into repurchase transactions to invest cash reserves and for temporary
defensive purposes.
In effect, by entering into a repurchase agreement, a Portfolio is
lending its funds to the seller at the agreed upon interest rate, and receiving
a security as collateral for the loan. Such agreements can be entered into for
periods of one day (overnight repo) or for a fixed term (term repo). Repurchase
agreements are a common way to earn interest income on short-term funds.
In a repurchase agreement, a Portfolio purchases a security and
simultaneously commits to resell that security at a future date to the seller (a
qualified bank or securities dealer) at an agreed upon price plus an agreed upon
market rate of interest (itself unrelated to the coupon rate or date of maturity
of the purchased security). The seller under a repurchase agreement will be
required to maintain the value of the securities which are subject to the
agreement and held by a Portfolio at not less than the agreed upon repurchase
price.
If the seller defaulted on its repurchase obligation, a Portfolio
holding such obligation would suffer a loss to the extent that the proceeds from
a sale of the underlying securities (including accrued interest) were less than
the repurchase price (including accrued interest) under the agreement. In the
event that such a defaulting seller filed for bankruptcy or became insolvent,
disposition of such securities by a Portfolio might be delayed pending court
action.
Repurchase agreements that do not provide for payment to a Portfolio
within seven days after notice without taking a reduced price are considered
illiquid securities.
Borrowing
As a temporary measure for extraordinary or emergency purposes, each
Portfolio may borrow money from banks. However, none of the Portfolios will
borrow money for speculative purposes. If the market value of a Portfolio's
securities should decline, the Portfolio may experience difficulty in repaying
the borrowing.
Securities Lending
Each Portfolio may lend its portfolio securities with a value of up to
one-third of its total assets (including the value of the collateral for the
loans) to qualified brokers, dealers, banks and other financial institutions who
need to borrow securities in order to complete certain transactions, such as
covering short sales, avoiding failures to deliver securities or completing
arbitrage operations. By lending its investment securities, a Portfolio attempts
to increase its income through the receipt of interest on the loan. Any gain or
loss in the market price of the securities loaned that might occur during the
term of the loan would be for the account of the Portfolio. A Portfolio may lend
its portfolio securities only when the terms, the structure and the aggregate
amount of such loans are not inconsistent with the 1940 Act or the rules and
regulations or interpretations of the SEC thereunder. All relevant facts and
circumstances, including the creditworthiness of the broker, dealer or
institution, will be considered by the Advisor in making decisions with respect
to the lending of securities, subject to review by the particular Fund's Board.
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There is the risk that when lending portfolio securities, the
securities may not be available to a Portfolio on a timely basis. Therefore, a
Portfolio may lose the opportunity to sell the securities at a desirable price.
Such loans would also involve risks of delay in receiving additional collateral
in the event the value of the collateral decreased below the value of the
securities loaned or even the loss of rights to the collateral should the
borrower of the securities fail financially. Additionally, in the event that a
borrower of securities would file for bankruptcy or become insolvent,
disposition of the securities may be delayed pending court action. A Portfolio
may, from time to time, pay negotiated fees in connection with the lending of
securities.
"When Issued," "Delayed Settlement," and Forward Delivery Securities
Each Portfolio may purchase and sell securities on a "when issued,"
"delayed settlement" or "forward delivery" basis. "When issued" or "forward
delivery" refers to securities whose terms and indenture are available and for
which a market exists, but which are not available for immediate delivery. When
issued or forward delivery transactions may be expected to occur one month or
more before delivery is due. Delayed settlement is a term used to describe
settlement of a securities transaction in the secondary market which will occur
sometime in the future. No payment or delivery is made by a Portfolio in a when
issued, delayed settlement or forward delivery transaction until the Portfolio
receives payment or delivery from the other party to the transaction. A
Portfolio will maintain a separate account of cash, U.S. Government securities
or other high grade debt obligations at least equal to the value of purchase
commitments until payment is made. Such segregated securities will either mature
or, if necessary, be sold on or before the settlement date. Although a Portfolio
receives no income from the above described securities prior to delivery, the
market value of such securities is still subject to change.
A Portfolio will engage in when issued transactions to obtain what is
considered to be an advantageous price and yield at the time of the transaction.
When a Portfolio engages in when issued, delayed settlement or forward delivery
transactions, it will do so for the purpose of acquiring securities consistent
with its investment objective and policies and not for the purpose of
speculation. Each Portfolio's when issued, delayed settlement and forward
delivery commitments are not expected to exceed 25% of its total assets absent
unusual market circumstances, and each Portfolio will only sell securities on
such a basis to offset securities purchased on such a basis.
Securities purchased or sold on a "when issued," "delayed settlement"
or "forward delivery" basis are subject to changes in value based upon changes
in the general level of interest rates. In when-issued and delayed settlement
transactions, a Portfolio relies on the seller to complete the transaction; the
seller's failure to do so may cause a Portfolio to miss a advantageous price or
yield.
Investment Company Securities
In connection with the management of their daily cash positions, the
Portfolios (other than the Emerging Markets Portfolio) may each invest in
securities issued by other open-end investment companies which invest in the
obligations of the U.S. Government and its guaranteed or sponsored agencies. In
addition, the International, Institutional International and Emerging Markets
Portfolios may each invest in shares of closed-end investment companies which
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invest chiefly in the shares of companies located outside of the U.S. Except as
otherwise permitted under the 1940 Act, each Portfolio limits its investments so
that, as determined immediately after a securities purchase is made: (a) not
more than 5% of the value of its total assets will be invested in the securities
of any one investment company; (b) not more than 10% of the value of its total
assets will be invested in the aggregate in the securities of investment
companies as a group; and (c) not more than 3% of the outstanding voting stock
of any one investment company will be owned by the Portfolio. As a shareholder
of another investment company, the Portfolio would bear its pro rata portion of
the other investment company's advisory fees and other expenses, in addition to
the expenses the Portfolio bears directly in connection with its own operations.
Furthermore, the investment company securities in which a Portfolio invests may
decline in value.
Illiquid Securities
The Portfolios (other than the Emerging Markets and Global Equity
Portfolios) will not invest more than 10% of their respective net assets in
securities that are illiquid. The Emerging Markets and Global Equity Portfolios
will not invest more than 15% of their respective net assets in securities that
are illiquid. These securities are subject to the risk that should a Portfolio
need to dispose of such securities, there may not be a ready market or the
Portfolio may have to sell such securities at an undesirable price.
Stand-by Commitments
The Muni Intermediate and New Jersey Muni Portfolios may acquire
stand-by commitments which may increase the cost, and thereby reduce the yield,
of the municipal obligation to which such commitment relates.
Foreign Securities
The International, Tax Managed Equity, Small Capitalization Equity,
Large Cap Value, Institutional International, Emerging Markets and Global Equity
Portfolios may invest in foreign securities. Such investments may involve higher
costs than investments in U.S. securities, including higher transaction costs
and additional taxes by foreign governments. Foreign investments may also
present additional risks associated with currency exchange rates, differences in
accounting, auditing and financial reporting standards, holding securities in
domestic and foreign custodian banks and depositories, less complete financial
information about the issuers, less market liquidity, and political instability.
Future political and economic developments, the possible imposition of
withholding taxes on dividends, the possible seizure or nationalization of
foreign holdings, the possible establishment of exchange controls, or the
adoption of other governmental restrictions, might adversely affect the payment
of dividends or principal and interest on foreign obligations.
Foreign securities markets also have different clearance and settlement
procedures, and in certain markets there have been times when settlements have
been unable to keep pace with the volume of securities transactions, making it
difficult to conduct such transactions. Delays in settlement could result in
temporary periods when assets of a Portfolio are uninvested and no return is
earned. The inability of a Portfolio to make intended security purchases due to
these and other settlement problems could cause such Portfolio to miss
attractive investment opportunities. Inability to dispose of portfolio
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securities due to settlement problems could result in losses to a Portfolio due
to subsequent declines in value of the portfolio security or, if the Portfolio
has entered into a contract to sell the security, could result in possible
liability to the purchaser. Additionally, a Portfolio may encounter difficulties
or be unable to pursue legal remedies and obtain judgments in foreign courts.
Although the Portfolios may invest in securities denominated in foreign
currencies, the Portfolios value their securities and other assets in U.S.
dollars. As a result, the NAV of the Portfolios' shares may fluctuate with U.S.
dollar exchange rates as well as with price changes of a Portfolio's securities
in the various local markets and currencies. Thus, an increase in the value of
the U.S. dollar compared to the currencies in which the Portfolios make their
investments could reduce the effect of increases and magnify the effect of
decreases in the prices of the Portfolios' securities in their local markets.
Conversely, a decrease in the value of the U.S. dollar will have the opposite
effect of magnifying the effect of increases and reducing the effect of
decreases in the prices of the Portfolios' securities in their local markets. In
addition to favorable and unfavorable currency exchange rate developments, the
Portfolios are subject to the possible imposition of exchange control
regulations or freezes on convertibility of currency.
The Emerging Markets and Global Equity Portfolios may invest in
emerging market countries. Developing countries may impose restrictions on a
Portfolio's ability to repatriate investment income or capital. Even where there
is no outright restriction on repatriation of investment income or capital, the
mechanics of repatriation may affect certain aspects of the operations of the
Portfolio. For example, funds may be withdrawn from the People's Republic of
China only in U.S. or Hong Kong dollars and only at an exchange rate established
by the government once each week.
Some of the currencies in emerging markets have experienced
devaluations relative to the U.S. dollar, and major adjustments have been made
periodically in certain of such currencies. Certain developing countries face
serious exchange constraints.
Lastly, governments of some developing countries exercise substantial
influence over many aspects of the private sector. In some countries, the
government owns or controls many companies, including the largest in the
country. As such, government actions in the future could have a significant
effect on economic conditions in developing countries in these regions, which
could affect private sector companies, a Portfolio and the value of its
securities. Furthermore, certain developing countries are among the largest
debtors to commercial banks and foreign governments. Trading in debt obligations
issued or guaranteed by such governments or their agencies and instrumentalities
involves a high degree of risk.
Depositary Receipts
The International, Large Cap Value, Institutional International,
Emerging Markets and Global Equity Portfolios may purchase certain sponsored or
unsponsored depositary receipts. In sponsored programs, an issuer has made
arrangements to have its securities traded in the form of depositary receipts.
For purposes of a Portfolio's investment policies, the Portfolio's investments
in depositary receipts will be deemed to be investments in the underlying
securities. In unsponsored programs, the issuer may not be directly involved in
the creation of the program. Although regulatory requirements with respect to
sponsored and unsponsored programs are generally similar, in some cases it may
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be easier to obtain financial information from an issuer that has participated
in the creation of a sponsored program. Accordingly, there may be less
information available regarding issuers of securities underlying unsponsored
programs and there may not be a correlation between such information and the
market value of the depositary receipts.
The International, Large Cap Value, Institutional International, Global
Equity and Emerging Markets Portfolios may invest in American Depository
Receipts ("ADRs"). ADRs are depository receipts issued in registered form by a
U.S. bank or trust company evidencing ownership of underlying securities issued
by a foreign company. ADRs may be listed on a national securities exchange or
may be traded in the over-the-counter market. ADR prices are denominated in U.S.
dollars although the underlying securities are denominated in a foreign
currency.
The Emerging Markets and Global Equity Portfolios may also purchase
European Depository Receipts ("EDRs") and Global Depository Receipts ("GDRs")
which are designed for use in either foreign or domestic exchanges and their
respective over-the-counter markets. EDRs and GDRs are depository receipts
typically issued by foreign banks or trust companies, although they also may be
issued by U.S. banks or trust companies, and evidence ownership of underlying
securities issued by either a foreign or a United States corporation.
Generally, depositary receipts in registered form are designed for use
in the U.S. securities market and depositary receipts in bearer form are
designed for use in securities markets outside the United States. Depositary
receipts may not necessarily be denominated in the same currency as the
underlying securities into which they may be converted. Investments in ADRs,
EDRs and GDRs involve risks similar to those accompanying direct investments in
foreign securities.
Forward Foreign Exchange Contracts
The Institutional International, International, Emerging Markets and
Global Equity Portfolios may enter into forward foreign exchange contracts, but
such contracts may not be used for speculative purposes. A forward foreign
currency exchange contract involves an obligation to purchase or sell a specific
currency at a future date, which may be any fixed number of days from the date
of the contract as agreed by the parties, at a price set at the time of the
contract. In the case of a cancelable forward contract, the holder has the
unilateral right to cancel the contract at maturity by paying a specified fee.
The contracts are traded in the interbank market conducted directly between
currency traders (usually large commercial banks) and their customers. A forward
contract generally has no deposit requirement, and no commissions are charged at
any stage for trades. A foreign currency futures contract is a standardized
contract for the future delivery of a specified amount of a foreign currency at
a future date at a price set at the time of the contract. Foreign currency
futures contracts traded in the United States are designed by and traded on
exchanges regulated by the Commodity Futures Trading Commission (the "CFTC")
such as the New York Mercantile Exchange. The Portfolios would enter into
foreign currency futures contracts solely for hedging or other appropriate
investment purposes as defined in CFTC regulations.
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Forward foreign currency exchange contracts allow a Portfolio to hedge
the currency risk of portfolio securities denominated in a foreign currency.
This method of protecting the value of a Portfolio's investment securities
against a decline in the value of a currency does not eliminate fluctuations in
the underlying prices of the securities. It simply establishes a rate of
exchange at a future date. 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. Additionally, investments in foreign currency exchange
contracts involve other risks similar to those accompanying direct investments
in foreign securities.
Forward foreign currency exchange contracts differ from foreign
currency futures contracts in certain respects. For example, the maturity date
of a forward contract may be any fixed number of days from the date of the
contract agreed upon by the parties, rather than a predetermined date in any
given month. Forward contracts may be in any amounts agreed upon by the parties
rather than predetermined amounts. Also, forward foreign exchange contracts are
traded directly between currency traders so that no intermediary is required. A
forward contract generally requires no margin or other deposit.
At the maturity of a forward contract, a Portfolio may either accept or
make delivery of the currency specified in the contract, or at or prior to
maturity enter into a closing transaction involving the purchase or sale of an
offsetting contract. Closing transactions with respect to forward contracts are
usually effected with the currency trader who is a party to the original forward
contract.
Reverse Repurchase Agreements
The Government Cash, Core Fixed Income, Emerging Markets and Global
Equity Portfolios may enter into reverse repurchase agreements. In a reverse
repurchase agreement a Portfolio sells a security and simultaneously commits to
repurchase that security at a future date from the buyer. In effect, a Portfolio
is temporarily borrowing funds at an agreed upon interest rate from the
purchaser of the security, and the sale of the security represents collateral
for the loan. A Portfolio retains record ownership of the security and the right
to receive interest and principal payments on the security. At an agreed upon
future date, a Portfolio repurchases the security by remitting the proceeds
previously received, plus interest. In certain types of agreements, there is no
agreed upon repurchase date and interest payments are calculated daily, often
based on the prevailing overnight repurchase rate. These agreements, which are
treated as if reestablished each day, are expected to provide a Portfolio with a
flexible borrowing tool. Reverse repurchase agreements are considered to be
borrowings by a Portfolio under the 1940 Act.
A Portfolio's investment of the proceeds of a reverse repurchase
agreement is the speculative factor known as leverage. A Portfolio may enter
into a reverse repurchase agreement only if the interest income from investment
of the proceeds is greater than the interest expense of the transaction and the
proceeds are invested for a period no longer than the term of the agreement. A
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Portfolio will maintain liquid securities at least equal to its purchase
obligations under these agreements. The Advisor will consider the
creditworthiness of the other party in determining whether a Portfolio will
enter into a reverse repurchase agreement.
A Portfolio is permitted to invest up to one-third of each of its total
assets in reverse repurchase agreements and securities lending transactions.
Investments in reverse repurchase agreements and securities lending transactions
will be aggregated for purposes of this investment limitation.
The use of reverse repurchase agreements involves certain risks. For
example, the securities acquired by a Portfolio with the proceeds of such an
agreement may decline in value, although the Portfolio is obligated to repay the
proceeds. In addition, the market value of the securities sold by a Portfolio
may decline below the repurchase price, to which the Portfolio remains
committed.
Interest Rate Risks
The Portfolios may invest in fixed-income securities. Generally, a
fixed-income security will increase in value when interest rates fall and
decrease in value when interest rates rise. Longer-term securities are generally
more sensitive to interest rate changes than shorter-term securities, but they
usually offer higher yields to compensate investors for the greater risks.
Credit Risks
Because the Portfolios may invest in fixed-income securities, they are
subject to "credit risk"-- the risk that an issuer will be unable to make
principal and interest payments when due. U.S. Government Securities are
generally considered to be the safest type of investment in terms of credit
risk. Municipal obligations generally rank between U.S. Government Securities
and corporate debt securities in terms of credit safety. Corporate debt
securities, particularly those rated below investment grade, may present the
highest credit risk.
The Small Capitalization Equity and Emerging Markets Portfolios may
invest in securities which have the lowest rating in the investment grade
category (i.e., Baa by Moody's or BBB by S&P). Such securities are considered to
have some speculative characteristics and are more sensitive to economic change
than higher rated securities.
Ratings published by nationally recognized statistical rating
organizations are widely accepted measures of credit risk. The lower a bond
issue is rated by an agency, the more credit risk it is considered to represent.
Lower-rated bonds generally pay higher yields to compensate investors for the
greater risk.
U.S. Government Obligations
The Portfolios may invest in obligations issued or guaranteed by the
U.S. Government, its agencies or instrumentalities. Direct obligations of the
U.S. Government such as Treasury bills, notes and bonds are supported by its
full faith and credit. Indirect obligations issued by federal
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agencies and government-sponsored entities generally are not backed by the full
faith and credit of the U.S. Treasury. Some of these indirect obligations may be
supported by the right of the issuer to borrow from the Treasury; others are
supported by the discretionary authority of the U.S. government to purchase the
agency's obligations; still others are supported only by the credit of the
instrumentality.
PRICE OF PORTFOLIO SHARES
The NAV per share of each Portfolio is determined by dividing the total
market value of each Portfolio's investments and other assets, less liabilities,
by the total number of those shares outstanding.
Equity securities listed on a U.S. securities exchange for which market
quotations are readily available are valued at the last quoted sale price as of
the close of the exchange's regular trading hours on the day the valuation is
made. Price information on listed securities is taken from the exchange where
the security is primarily traded. Unlisted U.S. equity securities and listed
securities not traded on the valuation date for which market quotations are
readily available are valued not in excess of the asked prices or less than the
bid prices.
For the purpose of calculating the Government Cash and Tax-Exempt Cash
Portfolio's (collectively, the "Money Market Portfolios") NAV per share,
securities are valued by the "amortized cost" method of valuation, which does
not take into account unrealized gains or losses. The amortized cost method
involves valuing an instrument at its cost and thereafter assuming a constant
amortization to maturity of any discount or premium, regardless of the impact of
fluctuating interest rates on the market value of the instrument. While this
method provides certainty in valuation, it may result in periods during which
value, as determined by amortized cost, is higher or lower than the price the
Portfolio would receive if it sold the instrument.
The use of amortized cost and the maintenance of each Money Market
Portfolio's per share NAV at $1.00 is based on its election to operate under the
provisions of Rule 2a-7 under the 1940 Act. As a condition of operating under
that Rule, each Money Market Portfolio must maintain an average weighted
maturity of 90 days or less, purchase only instruments deemed to have remaining
maturities of 13 months or less, and invest only in securities which are
determined by the Advisor, pursuant to procedures established by the Board, to
present minimal credit risks and which are Eligible Securities, pursuant to
procedures established by the Board.
The Board has established procedures reasonably designed to stabilize the
NAV per share for the purposes of sales and redemptions at $1.00. These
procedures include daily review of the relationship between the amortized cost
value per share and a NAV per share based upon available indications of market
value.
In the event of a deviation of over 1/2 of 1% between a Money Market
Portfolio's NAV based upon available market quotations or market equivalents and
$1.00 per share based on amortized cost, the Board members will promptly
consider what action, if any, should be taken. The Board members also will take
such action as they deem appropriate to eliminate or to reduce to the extent
reasonably practicable any material dilution or other unfair results which might
arise from differences between the two. Such action may include redemption in
kind, selling
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instruments prior to maturity to realize capital gains or losses or to shorten
the average weighted maturity, exercising puts, withholding dividends, paying
distributions from capital or capital gains or utilizing a NAV per share as
determined by using available market quotations.
The NAV per share of each Money Market Portfolio will ordinarily remain at
$1.00, but each Portfolio's daily dividends will vary in amount. There can be no
assurance, however, that the Portfolios will maintain a constant NAV per share
of $1.00.
The Core Fixed Income, Muni Intermediate and New Jersey Muni Portfolios'
marketable fixed income securities are valued according to the broadest and most
representative market, which will ordinarily be the over-the-counter market, at
the most recent quoted bid price, or when stock exchange valuations are used, at
the latest quoted sale price on the day of valuation. If there is not such a
reported sale, the latest quoted bid price will be used. NAV includes interest
on fixed income securities which is accrued daily. In addition, bond and other
fixed income securities may be valued on the basis of prices provided by a
pricing service when the Advisor believes such prices reflect the fair market
value of such securities. The prices provided by a pricing service are
determined without regard to bid or last sale prices, but take into account
institutional size trading in similar groups of securities and any developments
related to specific securities. Debt securities with remaining maturities of 60
days or less are valued at amortized cost, pursuant to which (i) such securities
shall be valued initially at cost on the date of purchase or, in the case of
securities purchased with more than 60 days maturity, at their market or fair
value on the 61st day prior to maturity, and (ii) thereafter (absent unusual
circumstances), a constant proportionate amortization of any discount or premium
shall be assumed until maturity of the security.
Securities listed on a foreign exchange and unlisted foreign securities are
valued at the latest quoted sales price available when assets are valued. If a
subsequent occurrence is believed to have changed such value, however, the fair
value of those securities may be determined through consideration of other
factors by or under the direction of the Board. These securities may trade on
days when shares of a Portfolio are not priced; as a result, the NAV of shares
of such Portfolio may change on days when shareholders will not be able to
purchase or redeem the Portfolio's shares. Foreign currency amounts are
translated into U.S. dollars at the bid prices of such currencies against U.S.
dollars last quoted by a major bank.
The Muni Intermediate and New Jersey Muni Portfolios' municipal obligations
for which quotations are readily available are valued at the most recent quoted
bid price provided by investment dealers, provided that municipal obligations
may be valued on the basis of prices provided by a pricing service when such
prices are determined by the administrator to reflect the fair market value of
such municipal obligations. Municipal obligations for which market quotations
are not readily available are valued at fair market value as determined in good
faith by or under the direction of the Board. Debt obligations with remaining
maturities of 60 days or less are valued on the basis of amortized cost,
pursuant to which (i) such securities are valued initially at cost on the date
of purchase or, in the case of securities purchased with more than 60 days
maturity, at their market or fair value on the 61st day prior to maturity, and
(ii) thereafter (absent unusual circumstances), a constant proportionate
amortization of any discount or premium shall be assumed until maturity of the
security.
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PURCHASE OF SHARES
The purchase price of shares of each Portfolio is the NAV next determined
after receipt of the purchase order by the particular Fund. It is the
responsibility of the Advisor or Institutions to transmit orders for share
purchases to Investment Company Capital Corp. ("ICC"), the Funds' transfer
agent, and to deliver required funds to The Chase Manhattan Bank, N.A., the
Funds' custodian, on a timely basis.
Each Portfolio reserves the right in its sole discretion (i) to suspend the
offering of its shares, (ii) to reject purchase orders when in the judgment of
management such rejection is in the best interest of the particular Fund, and
(iii) to reduce or waive the minimum for initial and subsequent investments from
time to time.
At the discretion of the Funds, investors may be permitted to purchase
Portfolio shares by transferring securities to the Portfolio that meet the
Portfolios investment objectives and policies.
REDEMPTION OF SHARES
Redemption proceeds are normally paid in cash, although each Portfolio has
the right to limit each shareholder to cash redemptions of $250,000 or 1% of
such Portfolio's NAV, whichever is less, within a 90 day period. Any additional
redemption proceeds would be made in readily marketable securities.
SHAREHOLDER SERVICES
Shareholders may transfer shares of the Portfolios to another person. An
investor wishing to transfer shares should contact the Advisor.
PORTFOLIO TURNOVER
The Portfolios will not normally engage in short-term trading, but reserve
the right to do so. A high portfolio turnover rate can result in corresponding
increases in brokerage commissions; however, the Advisor, and the Sub-Advisor
(with respect to the Emerging Markets Portfolio), will not consider turnover
rate a limiting factor in making investment decisions consistent with that
Portfolio's investment objectives and policies.
INVESTMENT LIMITATIONS
Each Portfolio is subject to the following restrictions. The numbered
restrictions are fundamental policies and may not be changed without the
approval of the lesser of: (1) 67% of the voting securities of the affected
Portfolio present at a meeting if the holders of more than 50% of the
outstanding voting securities of the affected Portfolio are present or
represented by proxy, or (2) more than 50% of the outstanding voting securities
of the affected Portfolio. Each Portfolio will not:
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(1) invest in commodities or commodity contracts, except that each
Portfolio may invest in futures contracts and options;
(2) purchase or sell real estate, although it may purchase and sell
securities of companies which deal in real estate and may purchase and
sell securities which are secured by interests in real estate;
(3) make loans, except (i) by purchasing bonds, debentures or similar
obligations (including repurchase agreements, subject to the
limitation described in investment limitation (9) below, and money
market instruments, including bankers acceptances and commercial
paper, and selling securities on a when issued, delayed settlement or
forward delivery basis) which are publicly or privately distributed,
and (ii) by lending its portfolio securities to banks, brokers,
dealers and other financial institutions so long as such loans are not
inconsistent with the 1940 Act or the rules and regulations or
interpretations of the SEC thereunder;
(4) purchase on margin or sell short, except as specified above in
investment limitation (1);
(5) purchase more than 10% of any class of the outstanding voting
securities of any issuer;
(6) issue senior securities, except that a Portfolio may borrow money in
accordance with investment limitation (7) below, purchase securities
on a when issued, delayed settlement or forward delivery basis and
enter into reverse repurchase agreements;
(7) borrow money, except as a temporary measure for extraordinary or
emergency purposes, and then not in excess of 10% of its total assets
at the time of the borrowing (entering into reverse repurchase
agreements and purchasing securities on a when issued, delayed
settlement or forward delivery basis are not subject to this
investment limitation);
(8) pledge, mortgage, or hypothecate any of its assets to an extent
greater than 10% (15% in the case of the Emerging Markets and Global
Equity Portfolios) of its total assets at fair market value, except as
described in the Prospectus and this Statement of Additional
Information and in connection with entering into futures contracts,
but the deposit of assets in a segregated account in connection with
the writing of covered put and call options and the purchase of
securities on a when issued, delayed settlement or forward delivery
basis and collateral arrangements with respect to initial or variation
margin for futures contracts will not be deemed to be pledges of a
Portfolio's assets or the purchase of any securities on margin for
purposes of this investment limitation;
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(9) underwrite the securities of other issuers, or with respect to each
Portfolio other than the Global Equity Portfolio, invest more than an
aggregate of 10% (15% in the case of the Emerging Markets Portfolio)
of the total assets of the Portfolio, at the time of purchase, in
securities for which there are no readily available markets, including
repurchase agreements which have maturities of more than seven days
or, in the case of each Portfolio (other than the Emerging Markets
Portfolio), securities subject to legal or contractual restrictions on
resale;
(10) invest for the purpose of exercising control over management of any
company;
(11) invest its assets in securities of any investment company, except in
connection with mergers, acquisitions of assets or consolidations and
except as may otherwise be permitted by the 1940 Act;
(12) acquire any securities of companies within one industry if, as a
result of such acquisition, more than 25% of the value of the
Portfolio's total assets would be invested in securities of companies
within such industry; provided, however, that there shall be no
limitation on the purchase of obligations issued or guaranteed by the
U.S. Government, its agencies, enterprises or instrumentalities, and
(13) write or acquire options or interests in oil, gas or other mineral
exploration or development programs.
Each Portfolio, with the exception of the Muni Intermediate and New Jersey
Muni Portfolios, also will not:
(14) with respect as to 75% of its total assets, invest more than 5% of its
total assets at the time of purchase in the securities of any single
issuer (other than obligations issued or guaranteed by the U.S.
Government, its agencies, enterprises or instrumentalities).
Pursuant to Rule 2a-7 under the 1940 Act, each of the Government Cash
Portfolio and the Tax-Exempt Cash Portfolio may not invest more than 5% of its
total assets in securities of any one issuer (other than U.S. Government
securities, repurchase agreements collateralized by such obligations, certain
money market fund securities and securities subject to certain guarantees which
are issued by persons that, directly or indirectly, do not control and are not
controlled by or under common control with the issuer). Each of these portfolios
may, however, invest more than 5% of its total assets in First Tier Securities
(as defined in Rule 2a-7) of a single issuer for a period of three business days
after the purchase thereof. For the Government Cash Portfolio and the Tax-Exempt
Cash Portfolio compliance with the diversification provisions of Rule 2a-7 under
the 1940 Act will be deemed to be compliance with the diversification limitation
in paragraph (14).
Each of the Muni Intermediate and New Jersey Muni Portfolios is classified
as a "non-diversified" investment company under the 1940 Act, which means that
each Portfolio is not limited by the 1940 Act in the proportion of its assets
that it may invest in the securities of a single issuer. However, each Portfolio
intends to conduct its operations so as to qualify as a
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<PAGE>
"regulated investment company" for purposes of the Internal Revenue Code of
1986, as amended (the "Code"), which generally will relieve the Portfolio of any
liability for federal income tax to the extent its earnings are distributed to
shareholders. In order to qualify as a regulated investment company, the Code
requires, among other things, that at the end of each quarter, no more than 5%
of the value of a Portfolio's total assets may be invested in the securities of
any one issuer, and no more than 10% of the outstanding voting securities of
such issuer may be held by the Portfolio, except that (a) up to 50% of the value
of the Portfolio's total assets may be invested without regard to these
limitations, provided that no more than 25% of the value of the Portfolio's
total assets are invested in the securities of any one issuer (or two or more
issuers which the Portfolio controls and which are engaged in the same or
similar trades or businesses or related trades or businesses); (b) the foregoing
limitations do not apply to securities issued or guaranteed by the U.S.
Government, its agencies or instrumentalities; and (c) a Portfolio will be
considered to have violated these diversification requirements only if the
noncompliance results from an acquisition of securities during the quarter and
is not cured within 30 days after the end of the quarter.
If a percentage restriction is adhered to at the time an investment is
made, a later increase in percentage resulting from a change in value or assets
will not constitute a violation of such restriction.
If a Portfolio's borrowings are in excess of 5% (excluding overdrafts) of
its total net assets, additional portfolio purchases will not be made until the
amount of such borrowing is reduced to 5% or less.
With respect to the International, Large Cap Value, Small Capitalization
Equity, Tax Managed Equity, Institutional International, Emerging Markets and
Global Equity Portfolios, borrowings including reverse repurchase agreements and
securities purchased on a when issued, delayed settlement or forward delivery
basis may not exceed 33 1/3% of each Portfolio's total net assets.
With respect to investment limitations (7) and (8), the Institutional
International, Emerging Markets and Global Equity Portfolios may borrow money as
a temporary measure for extraordinary or emergency purposes, enter into reverse
repurchase agreements and purchase securities on a when-issued, delayed
settlement or forward delivery basis, which activities may involve a borrowing,
provided that the aggregate of such borrowings shall not exceed 33 1/3% of the
value of each Portfolio's total assets (including the amount borrowed) less
liabilities (other than borrowings) and may pledge up to 33 1/3% of the value of
its total assets to secure borrowings.
As a matter of policy which may be changed by the particular Fund's Board
without shareholder approval, with respect to limitation (12), Portfolios other
than the Government Cash Portfolio and the Tax-Exempt Cash Portfolio will not
invest more than 25% of the value of their respective total assets in
instruments issued by U.S. banks.
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<PAGE>
In addition, with respect to investment limitation (12), (a) there is no
limitation with respect to (i) instruments issued or guaranteed by the United
States, any state, territory or possession of the United States, the District of
Columbia or any of their authorities, agencies, instrumentalities or political
subdivisions, and (ii) repurchase agreements secured by the instruments
described in clause (i); (b) wholly-owned finance companies will be considered
to be in the industries of their parents if their activities are primarily
related to financing the activities of the parents; and (c) utilities will be
divided according to their services; for example, gas, gas transaction, electric
and gas, electric and telephone will each be considered a separate industry.
With regard to limitation (13), the purchase of securities of a
corporation, a subsidiary of which has an interest in oil, gas or other mineral
exploration or development programs shall not be deemed to be prohibited by the
limitation.
MANAGEMENT OF THE FUNDS
Each Fund's officers, under the supervision of the particular Board, manage
the day-to-day operations of the Fund. The Board members set broad policies for
each Fund and choose its officers.
Board Members and Officers
The business and affairs of each of the Funds are managed under the
direction of its Board. The following is a list of the Board members and
officers of each of the Funds and a brief statement of their principal
occupations during the past five years:
<TABLE>
<CAPTION>
Name and Address Age Principal Occupation During Past Five Years
- --------------------------- --- -------------------------------------------
<S> <C> <C>
H. Franklin Allen, Ph.D. 42 Director of Glenmede Fund; Trustee of The Glenmede
Finance Department Portfolios; Nippon Life Professor of Finance and Economics;
The Wharton School Professor of Finance and Economics from 1990-1996; Vice Dean and
University of Pennsylvania Director of Wharton Doctoral Programs from 1990-1993. He has been
Philadelphia, PA 19104-6367 employed by The University of Pennsylvania since 1980.
Willard S. Boothby, Jr. 77 Director of Glenmede Fund; Trustee of The Glenmede
600 East Gravers Lane Portfolios; Director, Penn Engineering & Manufacturing Corp.;
Wyndmoor, PA 19118 Former Director of Georgia-Pacific Corp.; Former Managing Director
of Paine Webber, Inc.
John W. Church, Jr.* 66 Chairman and Director of Glenmede Fund; Chairman and Trustee of The
44 Wistar Road Glenmede Portfolios; Retired, formerly the Executive Vice President
Villanova, PA 19085 and Chief Investment Officer of The Glenmede Trust Company from
1979 - 1997.
Francis J. Palamara 73 Director of Glenmede Fund; Trustee of The Glenmede
P.O. Box 44024 Portfolios; Trustee of Gintel Fund; Director of XTRA Corporation;
Phoenix, AZ 85064-4024 Former Executive Vice President--Finance of ARAMARK, Inc.
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Name and Address Age Principal Occupation During Past Five Years
- --------------------------- --- -------------------------------------------
<S> <C> <C>
G. Thompson Pew, Jr.* 56 Director of Glenmede Fund; Trustee of The Glenmede Portfolios;
310 Caversham Road Director of The Glenmede Trust Company; Former Director of
Bryn Mawr, PA 19010 Brown & Glenmede Holdings, Inc.; Former Co-Director, Principal
and Officer of Philadelphia Investment Banking Co.; Former Director
and Officer of Valley Forge Administrative Services Company.
Mary Ann B. Wirts 47 President of Glenmede Fund and the Glenmede Portfolios; First Vice
One Liberty Place President and Manager of The Fixed Income Division of The Glenmede
1650 Market Street, Suite 1200 Trust Company. She has been employed by The Glenmede Trust Company
Philadelphia, PA 19103 since 1982.
Kimberly C. Osborne 33 Executive Vice President of Glenmede Fund and the Glenmede
One Liberty Place Portfolios; Vice President of The Glenmede Trust Company. She has
1650 Market Street, Suite 1200 been employed by The Glenmede Trust Company since 1993. From
Philadelphia, PA 19103 1992-1993, she was a Client Service Manager with Mutual Funds
Service Company and from 1987-1992, she was a Client
Administrator with The Vanguard Group, Inc.
Michael P. Malloy 39 Secretary of Glenmede Fund; Partner in the law firm of Drinker
Philadelphia National Bank Building Biddle & Reath LLP.
1345 Chestnut Street
Philadelphia, PA 19107-3496
Edward J. Veilleux 55 Assistant Secretary of Glenmede Fund and the Glenmede Portfolios;
One South Street Principal, BT Alex. Brown Inc.; Executive Vice President of ICC.
Baltimore, MD 21202
Joseph A. Finelli 42 Treasurer of Glenmede Fund and the Glenmede Portfolios. He has
One South Street been a Vice President of B.T. Alex. Brown Inc. since 1995. Prior
Baltimore, MD 21202 thereto, he was Vice President and Treasurer of The Delaware Group.
</TABLE>
- --------------
*Board members Church and Pew are "interested persons" of Glenmede Fund as that
term is defined in the 1940 Act.
Remuneration of Board Members
Glenmede Fund pays each Board member, other than officers of the Advisor,
an annual fee of $8,000 plus $1,250 for each Board meeting attended and each
Board Valuation Committee meeting attended (unless such meeting was held in
conjunction with a Board meeting) and out-of-pocket expenses incurred in
attending Board meetings. Glenmede Portfolios pays each Board member, other than
officers of the Advisor, an annual fee of $1,000 per year and out-of-pocket
expenses incurred in attending Board meetings. Officers of the Funds receive no
compensation as officers from the Funds.
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<PAGE>
Set forth in the table below is the compensation received by Board members
for the fiscal year ended October 31, 1998.
<TABLE>
<CAPTION>
Pension or
Retirement Estimated
Aggregate Aggregate Benefits Annual Total
Compensation Compensation Total Benefits Compensation
Name of from from Glenmede Part of the Upon from the
Person, Position Glenmede Fund Portfolios Funds' Expense Retirement Funds
---------------- ------------- ---------- -------------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Dr. H. Franklin Allen, Ph.D., $14,197 $1,054 None None $15,250
Director/Trustee
Willard S. Boothby, Jr., $12,946 $1,054 None None $14,000
Director/Trustee
John W. Church, Jr. $15,446 $1,054 None None $16,500
Director/Trustee
Francis J. Palamara, $12,946 $1,054 None None $14,000
Director/Trustee
G. Thompson Pew, Jr., $14,197 $1,054 None None $15,250
Director/Trustee
</TABLE>
INVESTMENT ADVISORY AND OTHER SERVICES
Investment Advisor
The Advisor, The Glenmede Trust Company, a limited purpose trust company
chartered in 1956, provides fiduciary and investment services to endowment
funds, foundations, employee benefit plans and other institutions and
individuals. The Advisor is the wholly-owned subsidiary of The Glenmede
Corporation (the "Corporation") whose shares are closely held by 79
shareholders. The Corporation has a nine person Board of Directors which, at
December 31, 1998, collectively, owned 98.67% of the Corporation's voting shares
and 36.18% of the Corporation's total outstanding shares. The members of the
Board and their respective interests in the Corporation at December 31, 1998 are
as follows:
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<PAGE>
The Glenmede Corporation Percent of Percent of
Board of Directors Voting Shares Total Shares
- ------------------ ------------- ------------
Susan W. Catherwood................. 10.83% 1.16%
Richard F. Pew...................... 10.83% 1.00%
Thomas W. Langfitt, M.D............. 11.07% 8.87%
Arthur E. Pew III................... 10.83% 1.00%
J. Howard Pew, II................... 10.83% 1.35%
J. N. Pew, III...................... 11.07% 5.06%
J. N. Pew, IV....................... 11.07% 1.36%
R. Anderson Pew..................... 11.07% 5.64%
Ethel Benson Wister................. 11.07% 10.74%
------ ------
98.67% 36.18%
As noted in the Prospectuses, the Advisor does not receive any fee from the
Government Cash, Tax-Exempt Cash, Core Fixed Income, International, Tax Managed
Equity, Large Cap Value, Muni Intermediate and New Jersey Muni Portfolios for
its investment services.
The Advisor is entitled to receive a fee from the Small Capitalization
Equity Portfolio for its investment services calculated daily and payable
monthly, at an annual rate of .55% of the Portfolio's average daily net assets.
Prior to January 1, 1998, the Advisor did not receive any fee from the Small
Capitalization Equity Portfolio for its investment services. For the period
January 1, 1998 to October 31, 1998, the Small Capitalization Equity Portfolio
paid the Advisor fees of $1,965,405.
The Advisor is entitled to receive a fee from the Institutional
International Portfolio for its services, calculated daily and payable monthly,
at the annual rate of .75% of the Portfolio's average daily net assets. The
Advisor has agreed to waive its fees to the extent necessary to ensure that the
Institutional International Portfolio's annual total operating expenses do not
exceed 1.00% of average net assets. There were no waivers necessary for the
fiscal years ended October 31, 1998, 1997 and 1996, respectively. During the
fiscal years ended October 31, 1998, 1997 and 1996, the Institutional
International Portfolio paid the Advisor advisory fees of $718,993, $564,533 and
$382,491, respectively.
Effective November 1, 1996, the Advisor is entitled to receive a fee from
the Emerging Markets Portfolio for its services, calculated daily and payable
monthly, at the annual rate of .75% of the Portfolio's average daily net assets,
and the Sub-Advisor is entitled to receive a fee from the Emerging Markets
Portfolio for its services, calculated daily and payable monthly, at the annual
rate of .50% of the Portfolio's average daily net assets. Prior to November 1,
1996, the Advisor and Sub-Advisor were entitled to receive fees from the
Emerging Markets Portfolio for their services, calculated daily and payable
monthly at the annual rate of .50% and .75%, respectively, of the Portfolio's
average daily net assets. For the fiscal years ended October 31, 1998, 1997 and
1996, the Emerging Markets Portfolio paid the Advisor advisory fees of
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<PAGE>
$570,667, $794,794 and $331,946, respectively, and paid the Sub-Advisor
sub-advisory fees of $380,444, $529,863 and $498,632, respectively.
The Advisor is entitled to receive a fee from the Global Equity Portfolio
for its investment services, calculated daily and payable monthly, at the annual
rate of .70% of the Portfolio's average daily net assets. For the period
November 4, 1997 (commencement of operations) to October 31, 1998, the Global
Equity Portfolio paid the Advisor advisory fees of $178,727.
Additionally, many shareholders in the Portfolios are clients of the
Advisor or an Affiliate and, as clients, pay fees which vary depending on the
capacity in which the Advisor or Affiliate provides fiduciary and investment
services to the particular client. Such services may include personal trust,
estate settlement, advisory and custodian services. For example, for advisory
services, the Advisor charges its clients up to 1% on the first $1 million of
principal, .60% on the next $1 million of principal, .50% on the next $3 million
of principal and .40% on the next $5 million of principal, with a minimum annual
fee of $10,000. For accounts in excess of $10 million of principal, the fee
would be determined by special analysis.
Administrative, Transfer Agency and Dividend Paying Services
ICC, One South Street, Baltimore, Maryland 21202, serves as the Funds'
administrator, transfer agent and dividend paying agent pursuant to a Master
Services Agreement, and in those capacities supervises all aspects of the Funds'
day-to-day operations, other than management of the Funds' investments. ICC is
an indirect subsidiary of Bankers Trust New York Corporation. For its services
as administrator, transfer agent and dividend paying agent, ICC is entitled to
receive fees from the Funds equal to .12% of the first $100 million of the
combined net assets of the Funds; .08% of the next $150 million of the combined
net assets of the Funds; .04% of the next $500 million of the combined net
assets of the Funds; and .03% of the combined net assets of the Funds over $750
million. For the fiscal year ended October 31, 1998, ICC received fees at the
rate of .04% of the Government Cash Portfolio's average net assets; .04% of the
Tax-Exempt Cash Portfolio's average net assets; .04% of the Core Fixed Income
Portfolio's average net assets; .04% of the International Portfolio's average
net assets; .04% of the Tax Managed Equity Portfolio's average net assets; .04%
of the Small Capitalization Equity Portfolio's average net assets; .04% of the
Large Cap Value Portfolio's average net assets; .04% of the Muni Intermediate
Portfolio's average net assets; .04% of the New Jersey Muni Portfolio's average
net assets; .04% of the Emerging Markets Portfolio's average net assets; and
.04% of the Institutional International Portfolio's average net assets. For the
period November 4, 1997 (commencement of operations) to October 31, 1998, ICC
received fees at the rate of .04% of the Global Equity Portfolio's average net
assets
For the fiscal year ended October 31, 1998, the Funds paid ICC fees of
$172,208 for the Government Cash Portfolio, $109,335 for the Tax-Exempt Cash
Portfolio, $93,997 for the Core Fixed Income Portfolio, $430,419 for the
International Portfolio, $58,477 for the Tax Managed Equity Portfolio, $171,862
for the Small Capitalization Equity Portfolio, $27,783 for the Large Cap Value
Portfolio, $7,047 for the Muni Intermediate Portfolio, $5,131 for the New Jersey
Muni Portfolio, $28,180 for the Emerging Markets Portfolio and $36,343
for the Institutional International Portfolio. For the period November 4, 1997
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<PAGE>
(commencement of operations) to October 31, 1998, ICC received fees of $9,297
for the Global Equity Portfolio.
For the fiscal year ended October 31, 1997, the Funds paid ICC fees of
$178,351 for the Government Cash Portfolio, $99,450 for the Tax-Exempt Cash
Portfolio, $101,654 for the Core Fixed Income Portfolio, $342,102 for the
International Portfolio, $45,406 for the Tax Managed Equity Portfolio, $144,610
for the Small Capitalization Equity Portfolio, $24,893 for the Large Cap Value
Portfolio, $7,183 for the Muni Intermediate Portfolio, $3,821 for the New Jersey
Muni Portfolio, $40,354 for the Emerging Markets Portfolio and $28,484 for the
Institutional International Portfolio.
For the fiscal year ended October 31, 1996, the Funds paid ICC fees of
$183,151 for the Government Cash Portfolio, $95,073 for the Tax-Exempt Cash
Portfolio, $110,811 for the Core Fixed Income Portfolio, $216,069 for the
International Portfolio, $33,415 for the Tax Managed Equity Portfolio, $101,413
for the Small Capitalization Equity Portfolio, $12,716 for the Large Cap Value
Portfolio, $7,474 for the Muni Intermediate Portfolio and $2,571 for the New
Jersey Muni Portfolio, $25,712 for the Emerging Markets Portfolio and $20,500
for the Institutional International Portfolio.
Shareholder Services Plan
Glenmede Portfolios has adopted a Shareholder Servicing Plan effective
January 1, 1995 and Glenmede Fund has adopted an Amended and Restated
Shareholder Servicing Plan (collectively the "Plans") effective January 1, 1998
under which the Funds may pay a fee to broker/dealers, banks and other financial
institutions (including the Advisor and its affiliates) that are dealers of
record or holders of record or which have a servicing relationship ("Servicing
Agents") with the beneficial owners of shares in any of the Portfolios. As of
the date of this Statement of Additional Information, the Institutional
International, Emerging Markets and Global Equity Portfolios are not subject to
the Plans and, accordingly, pay no shareholder servicing fees. Under the Plans,
Servicing Agents enter into Shareholder Servicing Agreements (the "Agreements")
with the Funds. Pursuant to such Agreements, Servicing Agents provide
shareholder support services to their clients ("Customers") who beneficially own
shares of the Portfolios. The fee, which is at an annual rate of .05% (.25% for
Advisor Shares of the Small Capitalization Equity Portfolio), is computed
monthly and is based on the average daily net assets of the shares beneficially
owned by Customers of such Servicing Agents. For the period November 1, 1997
through December 31, 1997, Advisor Shares of the Small Capitalization Equity
Portfolio paid shareholder servicing fees at an annual rate of .05% of average
daily net assets. All expenses incurred by the Portfolios in connection with the
Agreements and the implementation of the Plans shall be borne entirely by the
holders of the shares of the particular Portfolio involved and will result in an
equivalent increase to each Portfolio's Total Annual Portfolio Operating
Expenses.
The services provided by the Servicing Agents under the Agreements may
include aggregating and processing purchase and redemption requests from
Customers and transmitting purchase and redemption orders to the transfer agent;
providing Customers with a service that invests the assets of their accounts in
shares pursuant to specific or pre-authorized instructions; processing dividend
and distribution payments from the Funds on behalf of Customers; providing
information periodically to Customers showing their positions; arranging for
bank
-29-
<PAGE>
wires; responding to Customers' inquiries concerning their investments;
providing sub-accounting with respect to shares beneficially owned by Customers
or the information necessary for sub-accounting; if required by law, forwarding
shareholder communications (such as proxies, shareholder reports, annual and
semi-annual financial statements and dividend, distribution and tax notices) to
Customers; and providing such other similar services as may be reasonably
requested.
The Advisor has entered into an Agreement with the Funds and provides
shareholder support services to their clients who beneficially own shares of
certain Portfolios listed below. Shareholder servicing fees payable to the
Advisor for the fiscal year ended October 31, 1998 for the Government Cash,
Tax-Exempt Cash, Core Fixed Income, Muni Intermediate, New Jersey Muni, Tax
Managed Equity, International, Small Capitalization Equity (Advisor Shares) and
Large Cap Value Portfolios were $232,765, $147,783, $130,578, $9,527, $7,046,
$79,117, $621,378, $61,795 and $37,371, respectively.
Shareholder servicing fees payable to the Advisor for the period January 1,
1998 (commencement of operations of Institutional Shares) to October 31, 1998
for the Small Capitalization Equity Portfolio (Institutional Shares) were
$1,270.
Shareholder servicing fees payable for the fiscal year ended October 31,
1997 for the Government Cash, Tax-Exempt Cash, Core Fixed Income, Muni
Intermediate, New Jersey Muni, Tax Managed Equity, International, Small
Capitalization Equity and Large Cap Value Portfolios were $233,912, $130,408,
$129,813, $9,418, $5,023, $59,674, $448,678, $189,976 and $32,710, respectively.
Shareholder servicing fees payable for the fiscal year ended October 31,
1996 for the Government Cash, Tax-Exempt Cash, Core Fixed Income, Muni
Intermediate, New Jersey Muni, Tax Managed Equity, International, Small
Capitalization Equity and Large Cap Value Portfolios were $226,624, $117,082,
$136,249, $9,135, $3,168, $42,934, $265,082, $125,390 and $15,789, respectively.
Custodian
Custody services are provided to each Portfolio by The Chase Manhattan
Bank, N.A., 3 Chase Metrotech Center, Brooklyn, New York 11245.
Distributor
Shares of the Funds are distributed continuously and are offered without a
sales load by ICC Distributors, Inc. ("ICC Distributors"), P.O. Box 7558,
Portland, Maine 04101, pursuant to Distribution Agreements between the Funds and
ICC Distributors. ICC Distributors receives no fee from the Funds for its
distribution services.
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<PAGE>
Independent Accountants
PricewaterhouseCoopers LLP, 2400 Eleven Penn Center, Philadelphia,
Pennsylvania 19103, serves as the Funds' independent accountants and will audit
their financial statements annually.
Counsel
Drinker Biddle & Reath LLP, 1345 Chestnut Street, Philadelphia,
Pennsylvania 19107-3496, serves as counsel to Funds.
Reports
Shareholders receive unaudited semi-annual financial statements and audited
annual financial statements.
PORTFOLIO TRANSACTIONS
The Investment Advisory Agreements and the Sub-Advisory Agreement authorize
the Advisor, and the Sub-Advisor (Emerging Markets Portfolio only), to select
the brokers or dealers that will execute the purchases and sales of investment
securities for each of the Portfolios and direct the Advisor or the Sub-Advisor
to use its best efforts to obtain the best available price and most favorable
execution with respect to all transactions for the Portfolios. The Advisor or
the Sub-Advisor may, however, consistent with the interests of a Portfolio,
select brokers on the basis of the research, statistical and pricing services
they provide to a Portfolio. Information and research received from such brokers
will be in addition to, and not in lieu of, the services required to be
performed by the Advisor or Sub-Advisor under the Investment Advisory Agreements
and the Sub-Advisory Agreement. A commission paid to such brokers may be higher
than that which another qualified broker would have charged for effecting the
same transaction, provided that such commissions are paid in compliance with the
Securities Exchange Act of 1934, as amended, and that the Advisor or Sub-Advisor
determines in good faith that such commission is reasonable in terms either of
the transaction or the overall responsibility of the Advisor or Sub-Advisor to a
Portfolio and the Advisor's or Sub-Advisor's other clients.
During the fiscal year ended October 31, 1998, the Tax Managed Equity,
International, Small Capitalization Equity, Large Cap Value, Institutional
International and Emerging Markets Portfolios paid $191,112, $889,483, $613,021,
$225,179, $89,805, and $630,185, in brokerage commissions, respectively. For the
period November 4, 1997 (commencement of operations) to October 31, 1998, the
Global Equity Portfolio paid $84,877 in brokerage commissions. During the fiscal
year ended October 31, 1997, the Tax Managed Equity, International, Small
Capitalization Equity, Large Cap Value, Institutional International
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<PAGE>
and Emerging Markets Portfolios paid $80,102, $1,256,020, $592,458, $171,033,
$21,782 and $118,807 in brokerage commissions, respectively. During the fiscal
year ended October 31, 1996, the Tax Managed Equity, International, Small
Capitalization Equity, Large Cap Value, Institutional International and Emerging
Markets Portfolios paid $99,329, $726,803, $487,995, $165,881, $40,839 and
$535,111 in brokerage commissions, respectively.
The Government Cash, Core Fixed Income, Muni Intermediate and New Jersey
Muni Portfolios do not currently expect to incur any brokerage commission
expense on transactions in their portfolio securities because debt instruments
are generally traded on a "net" basis with dealers acting as principal for their
own accounts without a stated commission. The price of the security, however,
usually includes a profit to the dealer.
Because shares of the Portfolios are not marketed through intermediary
brokers or dealers, it is not the Funds' practice to allocate brokerage or
effect principal transactions with dealers on the basis of sales of shares which
may be made through such firms. However, the Advisor may place portfolio orders
with qualified broker-dealers who refer clients to the Advisor.
Some securities considered for investment by each Portfolio may also be
appropriate for other clients served by the Advisor or Sub-Advisor. If the
purchase or sale of securities is consistent with the investment policies of a
Portfolio and one or more of these other clients served by the Advisor or
Sub-Advisor and is considered at or about the same time, transactions in such
securities will be allocated among the Portfolio and clients in a manner deemed
fair and reasonable by the Advisor or Sub-Advisor. While in some cases this
practice could have a detrimental effect on the price, value or quantity of the
security as far as a Portfolio is concerned, in other cases it is believed to be
beneficial to the Portfolios.
ADDITIONAL INFORMATION CONCERNING TAXES
General
The following summarizes certain additional tax considerations generally
affecting the Portfolios and their shareholders that are not described in the
Prospectus. No attempt is made to present a detailed explanation of the tax
treatment of the Portfolios or their shareholders, and the discussion here and
in the Prospectus is not intended as a substitute for careful tax planning.
Potential investors should consult their tax advisers with specific reference to
their own tax situation.
Each Portfolio is treated as a separate corporate entity under the Code,
and intends to qualify as a regulated investment company. Such qualification
generally relieves a Portfolio of liability for Federal income taxes to the
extent its earnings are distributed in accordance with the Code.
Qualification as a regulated investment company under the Code requires,
among other things, that each Portfolio distribute to its shareholders an amount
equal to at least the sum of 90% of its investment company taxable income and
90% of its tax-exempt income (if any) net of certain deductions for a taxable
year. (In general, a Portfolio's investment company taxable income will be the
sum of its net investment income, including interest and dividends, subject to
certain adjustments, and net short-term capital gain over net long-term capital
loss, if any, for
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<PAGE>
such year.) In addition, each Portfolio must satisfy certain requirements with
respect to the source of its income for a taxable year. At least 90% of the
gross income of each Portfolio must be derived from dividends, interest,
payments with respect to securities loans, gains from the sale or other
disposition of stock, securities or foreign currencies, and other income
(including, but not limited to, gains from options, futures, or forward
contracts) derived with respect to the Portfolio's business of investing in such
stock, securities or currencies. The Treasury Department may by regulation
exclude from qualifying income foreign currency gains which are not directly
related to a Portfolio's principal business of investing in stock or securities,
or options and futures with respect to stock or securities. Any income derived
by a Portfolio from a partnership or trust is treated for this purpose as
derived with respect to the Portfolio's business of investing in stock,
securities or currencies only to the extent that such income is attributable to
items of income which would have been qualifying income if realized by the
Portfolio in the same manner as by the partnership or trust.
Any distribution of the excess of net long-term capital gain over net
short-term capital loss is taxable to a shareholder as long-term capital gain,
regardless of how long the shareholder has held the distributing Portfolio's
shares and whether such distribution is received in cash or additional Portfolio
shares. Each Portfolio will designate such distributions as capital gain
dividends in a written notice mailed to shareholders within 60 days after the
close of the Portfolio's taxable year. Shareholders should note that, upon the
sale or exchange of Portfolio shares, if the shareholder has not held such
shares for more than six months, any loss on the sale or exchange of those
shares will be treated as long-term capital loss to the extent of the capital
gain dividends received with respect to the shares.
The following Portfolios have available capital loss carryforwards to
offset future net capital gains through the indicated expiration dates as
follows:
<TABLE>
<CAPTION>
Expiring Expiring Expiring Expiring Expiring Expiring Expiring Expiring
Portfolio in 1999 in 2000 in 2001 in 2002 in 2003 in 2004 in 2005 in 2006
- --------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Government Cash - - $127 $1,000 $26,819 - $7,815 -
Tax-Exempt Cash $18,922 - 19,079 8,905 27,815 $13 - $7,160
Core Fixed Income - - - 7,273,798 - - - -
Muni Intermediate - - - 188,697 549,436 2,107 42,723 -
New Jersey Muni - - - 56,594 21,708 11,660 - 1,721 -
International - - - - - - - 21,514,083
Institutional
International - - - - - - - 1,919,500
Emerging Markets - - - - - - - 32,230,980
Global Equity - - - - - - - 403,871
</TABLE>
If the Emerging Markets or Global Equity Portfolios retain net capital
gains for reinvestment, the Portfolios may elect to treat such amounts as having
been distributed to
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shareholders. As a result, the shareholders would be subject to tax on
undistributed net capital gains, would be able to claim their proportionate
share of the Federal income taxes paid by a Portfolio on such gains as a credit
against their own Federal income tax liabilities, and would be entitled to an
increase in their basis in their Portfolio shares.
If for any taxable year a Portfolio does not qualify for the special
Federal income tax treatment afforded regulated investment companies, all of its
taxable income will be subject to Federal income tax at regular corporate rates
(without any deduction for distributions to its shareholders). In such event,
dividend distributions (including amounts derived from interest on tax-exempt
obligations in the case of the Tax-Exempt Cash, Muni Intermediate and New Jersey
Muni Portfolios) would be taxable as ordinary income to shareholders to the
extent of the Portfolio's current and accumulated earnings and profits, and
would be eligible for the dividends received deduction for corporations.
International, Institutional International, Emerging Markets and Global Equity
Portfolios
Income received from sources within foreign countries may be subject to
withholding and other income or similar taxes imposed by such countries. If more
than 50% of the value of a Portfolio's total assets at the close of its taxable
year consists of stock or securities of foreign corporations, each Portfolio
will be eligible and intends to elect to "pass-through" to its shareholders the
amount of foreign taxes paid by it. Pursuant to this election, each shareholder
will be required to include in gross income (in addition to taxable dividends
actually received) his pro rata share of the foreign taxes paid by the
Portfolio, and will be entitled either to deduct (as an itemized deduction) his
pro rata share of foreign taxes in computing his taxable income or to use it as
a foreign tax credit against his U.S. Federal income tax liability, subject to
limitations. No deduction for foreign taxes may be claimed by a shareholder who
does not itemize deductions, but such a shareholder may be eligible to claim the
foreign tax credit (see below). Each shareholder will be notified within 60 days
after the close of a Portfolio's taxable year whether the foreign taxes paid by
the Portfolio will "pass-through" for that year.
Generally, a credit for foreign taxes is subject to the limitation that it
may not exceed the shareholder's U.S. tax attributable to his or her foreign
source taxable income. For this purpose, if the pass-through election is made,
the source of the Portfolio's income flows through to its shareholders with
respect to a Portfolio, gains from the sale of securities will be treated as
derived from U.S. sources and certain currency fluctuation gains, including
fluctuation gains from foreign currency denominated debt securities, receivables
and payables, will be treated as ordinary income derived from U.S. sources. The
limitation on the foreign tax credit is applied separately to foreign source
passive income (as defined for purposes of the foreign tax credit), including
the foreign source passive income passed through by a Portfolio. Shareholders
may be unable to claim a credit for the full amount of their proportionate share
of the foreign taxes paid by a Portfolio. Foreign taxes may not be deducted in
computing alternative minimum taxable income and the foreign tax credit can be
used to offset only 90% of the alternative minimum tax (as computed under the
Code for purposes of this limitation) imposed on corporations and individuals.
If a Portfolio is not eligible to make the election to "pass through" to its
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shareholders its foreign taxes, the foreign taxes it pays will reduce investment
company taxable income and the distributions by the Portfolio will be treated as
United States source income.
Tax-Exempt Cash, Muni Intermediate and New Jersey Muni Portfolios
As described in the Prospectus, these Portfolios are designed to provide
investors with current tax-exempt interest income. Shares of the Portfolios
would not be suitable for tax-exempt institutions and may not be suitable for
retirement plans qualified under Section 401 of the Code, H.R. 10 plans and
individual retirement accounts since such plans and accounts are generally
tax-exempt and, therefore, would not only fail to gain any additional benefit
from each such Portfolio's dividends being tax-exempt, but such dividends would
be ultimately taxable to the beneficiaries when distributed to them. In
addition, the Portfolios may not be an appropriate investment for entities which
are "substantial users" of facilities financed by private activity bonds or
"related persons" thereof. "Substantial user" is defined under U.S. Treasury
Regulations to include a non-exempt person who regularly uses a part of such
facilities in his trade or business and whose gross revenues derived with
respect to the facilities financed by the issuance of bonds are more than 5% of
the total revenues derived by all users of such facilities, who occupies more
than 5% of the usable area of such facilities or for whom such facilities or a
part thereof were specifically constructed, reconstructed or acquired. "Related
persons" include certain related natural persons, affiliated corporations, a
partnership and its partners and an S corporation and its shareholders.
The percentage of total dividends paid by each Portfolio with respect to
any taxable year which qualify as Federal exempt-interest dividends will be the
same for all shareholders receiving dividends for such year. In order for each
Portfolio to pay exempt-interest dividends with respect to any taxable year, at
the close of each quarter of its taxable year at least 50% of the aggregate
value of each Portfolio's assets must consist of exempt-interest obligations.
After the close of its taxable year, each Portfolio will notify its shareholders
of the portion of the dividends paid by it which constitutes an exempt-interest
dividend with respect to such year.
While each Portfolio will seek to invest substantially all of its assets in
tax-exempt obligations (except on a temporary basis or for temporary defensive
periods), any investment company taxable income earned by a Portfolio will be
distributed. In general, each Portfolio's investment company taxable income will
be its taxable income (including taxable interest received from temporary
investments and any net short-term capital gains realized by a Portfolio)
subject to certain adjustments and excluding the excess of any net long-term
capital gains for the taxable year over the net short-term capital loss, if any,
for such year.
Federal Taxation of Certain Financial Instruments
Generally, futures contracts held by the Institutional International,
International, Emerging Markets and Global Equity Portfolios at the close of
their taxable year will be treated for Federal income tax purposes as sold for
their fair market value on the last business day of such year, a process known
as "mark-to-market." Forty percent of any gain or loss resulting from such
constructive sale will be treated as short-term capital gain or loss and sixty
percent of such gain
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or loss will be treated as long-term capital gain or loss without regard to the
length of time the Portfolio holds the futures contract ("the 40-60 rule"). The
amount of any capital gain or loss actually realized by a Portfolio in a
subsequent sale or other disposition of those futures contracts will be adjusted
to reflect any capital gain or loss taken into account by the Portfolio in a
prior year as a result of the constructive sale of the contracts. With respect
to futures contracts to sell, which will be regarded as parts of a "mixed
straddle" because their values fluctuate inversely to the values of specific
securities held by the Portfolio, losses as to such contracts to sell will be
subject to certain loss deferral rules which limit the amount of loss currently
deductible on either part of the straddle to the amount thereof which exceeds
the unrecognized gain, if any, with respect to the other part of the straddle,
and to certain wash sales regulations. Under short sales rules, which also will
be applicable, the holding period of the securities forming part of the straddle
will (if they have not been held for the long-term holding period) be deemed not
to begin prior to termination of the straddle. With respect to certain futures
contracts, deductions for interest and carrying charges will not be allowed.
Notwithstanding the rules described above, with respect to futures contracts to
sell which are properly identified as such, a Portfolio may make an election
which will exempt (in whole or in part) those identified futures contracts from
being treated for Federal income tax purposes as sold on the last business day
of its taxable year, but gains and losses will be subject to such short sales,
wash sales and loss deferral rules and the requirement to capitalize interest
and carrying charges. Under Temporary Regulations, a Portfolio would be allowed
(in lieu of the foregoing) to elect either (1) to offset gains or losses from
portions which are part of a mixed straddle by separately identifying each mixed
straddle to which such treatment applies, or (2) to establish a mixed straddle
account for which gains and losses would be recognized and offset on a periodic
basis during the taxable year. Under either election, the 40-60 rule will apply
to the net gain or loss attributable to the futures contracts, but in the case
of a mixed straddle account election, no more than 50% of any net gain may be
treated as long-term and no more than 40% of any net loss may be treated as
short term. Options on futures contracts generally receive Federal tax treatment
similar to that described above.
Certain foreign currency contracts entered into by the International,
Institutional International, Emerging Markets and Global Equity Portfolios may
be subject to the "mark-to-market" process and the 40-60 rule in a manner
similar to that described in the preceding paragraph for futures contracts. To
receive such Federal income tax treatment, a foreign currency contract must meet
the following conditions: (1) the contract must require delivery of a foreign
currency of a type in which regulated futures contracts are traded or upon which
the settlement value of the contract depends; (2) the contract must be entered
into at arm's length at a price determined by reference to the price in the
interbank market; and (3) the contract must be traded in the interbank market.
The amount of any capital gain or loss actually realized by a Portfolio in a
subsequent sale or other disposition of those foreign currency contracts will be
adjusted to reflect any capital gain or loss taken into account by the Portfolio
in a prior year as a result of the constructive sale of the contracts. The
Treasury has broad authority to issue regulations under the provisions
respecting foreign currency contracts. As of the date of this Statement of
Additional Information, the Treasury has not issued any such regulations. Other
foreign currency contracts entered into by the Portfolios may result in the
creation of one or more straddles for Federal income tax purposes, in which case
certain loss deferral, short sales, and wash sales rules and the requirement to
capitalize interest and carrying charges may apply.
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<PAGE>
Other Tax Matters
Special rules govern the Federal income tax treatment of certain
transactions denominated in terms of a currency other than the U.S. dollar or
determined by reference to the value of one or more currencies other than the
U.S. dollar. The types of transactions covered by the special rules include the
following: (i) the acquisition of, or becoming the obligor under, a bond or
other debt instrument (including, to the extent provided in Treasury
regulations, preferred stock); (ii) the accruing of certain trade receivables
and payables; and (iii) the entering into or acquisition of any forward
contract, futures contract, option and similar financial instrument if such
instrument is not marked to market. The disposition of a currency other than the
U.S. dollar by a U.S. taxpayer also is treated as a transaction subject to the
special currency rules. However, foreign currency-related regulated futures
contracts and nonequity options generally are not subject to the special
currency rules if they are or would be treated as sold for their fair market
value at year-end under the mark-to-market rules, unless an election is made to
have such currency rules apply. With respect to transactions covered by the
special rules, foreign currency gain or loss is calculated separately from any
gain or loss on the underlying transaction and is normally taxable as ordinary
gain or loss. A taxpayer may elect to treat as capital gain or loss foreign
currency gain or loss arising from certain identified forward contracts, futures
contracts and options that are capital assets in the hands of the taxpayer and
which are not part of a straddle. In accordance with Treasury regulations under
which certain transactions that are part of a "section 988 hedging transaction"
(as defined in the Code and the Treasury regulations) will be integrated and
treated as a single transaction or otherwise treated consistently for purposes
of the Code. Any gain or loss attributable to the foreign currency component of
a transaction engaged in by a Portfolio which is not subject to the special
currency rules (such as foreign equity investments other than certain preferred
stocks) will be treated as capital gain or loss and will not be segregated from
the gain or loss on the underlying transaction. It is anticipated that some of
the non-U.S. dollar denominated investments and foreign currency contracts a
Portfolio may make or enter into will be subject to the special currency rules
described above.
The International, Institutional International, Emerging Markets and Global
Equity Portfolios may recognize income currently for Federal income tax purposes
in the amount of the unpaid, accrued interest with respect to bonds structured
as zero coupon bonds or pay-in-kind securities, even though it receives no cash
interest until the security's maturity or payment date. As discussed above, in
order to qualify for beneficial tax treatment, a Portfolio must distribute
substantially all of its income to shareholders. Thus, a Portfolio may have to
dispose of its portfolio securities under disadvantageous circumstances to
generate cash or leverage itself by borrowing cash, in order to satisfy the
distribution requirement.
Some of the debt securities may be purchased by the International,
Institutional International, Emerging Markets and Global Equity Portfolios at a
discount which exceeds the original issue discount on such debt securities, if
any. This additional discount represents market discount for Federal income tax
purposes. The gain realized on the disposition of any taxable debt security
having market discount will be treated as ordinary income to the extent it does
not exceed the accrued market discount on such debt security. Generally, market
discount accrues
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on a daily basis for each day the debt security is held by a Portfolio at a
constant rate over the time remaining to the debt security's maturity or, at the
election of the Portfolio, at a constant yield to maturity which takes into
account the semi-annual compounding of interest.
Exchange control regulations that may restrict repatriation of investment
income, capital, or the proceeds of securities sales by foreign investors could
limit the ability of each of the International, Institutional International,
Emerging Markets and Global Equity Portfolios' to make sufficient distributions
to satisfy the 90% and calendar year distribution requirements.
Options
When the Tax Managed Equity Portfolio writes an option, an amount equal to
the net premium (the premium less the commission) received by the Portfolio is
included as a deferred credit in the liability section of the Portfolio's
statement of assets and liabilities. The amount of the deferred credit will be
subsequently marked-to-market to reflect the current value of the option
written. The current value of the traded option is the last sale price or, in
the absence of a sale price, the average of the closing bid and asked prices. If
an option expires on the stipulated expiration date or if the Portfolio enters
into a closing purchase transaction, it will realize a gain (or loss if the cost
of a closing purchase transaction exceeds the net premium received when the
option is sold), and the deferred credit related to such option will be
eliminated. If an option is exercised, the Tax Managed Equity Portfolio may
deliver the underlying security from its portfolio and purchase the underlying
security in the open market. In either event, the proceeds of the sale will be
increased by the net premium originally received, and the Portfolio will realize
a gain or loss. Premiums from expired call options written by the Portfolio and
net gains from closing purchase transactions are treated as short-term capital
gains for federal income tax purposes, and losses on closing purchase
transactions are treated as short-term capital losses.
Miscellaneous
A 4% nondeductible excise tax is imposed on regulated investment companies
that fail to currently distribute specified percentages of their ordinary
taxable income and net capital gain (excess of capital gains over capital
losses). Each Portfolio intends to make sufficient distributions or deemed
distributions of its ordinary taxable income and any net capital gain prior to
the end of each calendar year to avoid liability for this excise tax.
Each Portfolio will be required in certain cases to withhold and remit to
the United States Treasury 31% of taxable dividends or gross proceeds realized
upon sale paid to shareholders who have failed to provide a correct tax
identification number in the manner required, or who are subject to withholding
by the IRS for failure properly to include on their return payments of taxable
interest or dividends, or who have failed to certify to the Portfolio that they
are not subject to backup withholding when required to do so or that they are
"exempt recipients."
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Special Considerations Regarding Investment In Pennsylvania Municipal
Obligations
The concentration of investments in Pennsylvania Municipal Obligations by
the Muni Intermediate Portfolio raises special investment considerations. In
particular, changes in the economic condition and governmental policies of the
Commonwealth of Pennsylvania and its municipalities could adversely affect the
value of the Portfolio and its portfolio securities. This section briefly
describes current economic trends in Pennsylvania.
Pennsylvania's economy historically has been dependent on heavy industry
although recent declines in the coal, steel and railroad industries have led to
diversification of the Commonwealth's economy. Recent sources of economic growth
in Pennsylvania are in the service sector, including trade, medical and health
services, education and financial institutions. Agriculture continues to be an
important component of the Commonwealth's economic structure, with nearly
one-third of the Commonwealth's total land area devoted to cropland, pasture and
farm woodlands.
The Commonwealth utilizes the fund method of accounting and over 120 funds
have been established for purposes of recording receipts and disbursements of
the Commonwealth, of which the General Fund is the largest. Most of the
Commonwealth's operating and administrative expenses are payable from the
General Fund. The major tax sources for the General Fund are the sales tax, the
personal income tax and the corporate net income tax. Major expenditures of the
Commonwealth include funding for education, public health and welfare,
transportation, and economic development.
The constitution of the Commonwealth provides that operating budget
appropriations of the Commonwealth may not exceed the estimated revenues and
available surplus in the fiscal year for which funds are appropriated. Annual
budgets are enacted for the General Fund and for certain special revenue funds
which together represent the majority of expenditures of the Commonwealth.
Although the balance in the General Fund of the Commonwealth (the principal
operating fund of the Commonwealth) experienced deficits in fiscal 1990 and
1991, tax increases and spending decreases have resulted in surpluses the last
four years; as of June 30, 1997, the General Fund had a surplus of $1,364.9
million. The deficit in the Commonwealth's unreserved/undesignated funds also
has been eliminated.
Current constitutional provisions permit the Commonwealth to issue the
following types of debt: (i) electorate approved debt, (ii) debt for capital
projects subject to an aggregate debt limit of 1.75 times the annual average tax
revenues of the preceding five fiscal years, (iii) tax anticipation notes
payable in the fiscal year of issuance and (iv) debt to suppress insurrection or
rehabilitate areas affected by disaster. Certain state-created agencies issue
debt supported by assets of, or revenues derived from, the various projects
financed and the debt of such agencies is not an obligation of the Commonwealth
although some of the agencies are indirectly dependent on Commonwealth
appropriations.
Certain litigation is pending against the Commonwealth that could adversely
affect the ability of the Commonwealth to pay debt service on its obligations
including suits relating to the
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following matters: (a) the ACLU has filed suit in federal court demanding
additional funding for child welfare services; the Commonwealth settled a
similar suit in the Commonwealth Court of Pennsylvania and is seeking the
dismissal of the federal suit, inter alia, because of that settlement; after its
earlier denial was reversed by the Third Circuit Court of Appeals, the district
court granted class certification to the ACLU. In July 1998, the plaintiffs
reached a settlement agreement with the City of Philadelphia and related
parties, subject to approval by the district court. The Commonwealth and certain
other parties are continuing settlement negotiations (no available estimates of
potential liability); (b) in 1987, the Supreme Court of Pennsylvania held that
the statutory scheme for county funding of the judicial system to be in conflict
with the constitution of the Commonwealth, but stayed judgment pending enactment
by the legislature of funding consistent with the opinion; a special master
appointed by the Court submitted an implementation plan in 1997, recommending a
four phase transition to state funding of a unified judicial system; the special
master recommended that the implementation of the phase should be effective July
1, 1998, with the completion of the final phase early next century; objections
to the Special Master's report were due by September 1, 1997; the General
Assembly has yet to approve legislation implementing the Court's judgment; (c)
Envirotest/Synterra Partners ("Envirotest") filed suit against the Commonwealth
asserting that it sustained damages in excess of $350 million as a result of
investments it made in reliance on a contract to conduct emissions testing
before the emissions testing program was suspended. Envirotest has entered into
a Settlement Agreement resolve to which Envirotest's claims that will pay
Envirotest a conditional sum of $195 million over four years; (d) in litigation
brought by the Pennsylvania Human Relations Commission to remedy unintentional
conditions of segregation in the Philadelphia public schools, the School
District of Philadelphia filed a third-party complaint against the Commonwealth
asking the Commonwealth Court to require the Commonwealth to supply funding
necessary for the District to comply with orders of the court; the Commonwealth
Court found that the School District was entitled to receive an additional $45.1
million for the 1996-97 school year, but the Pennsylvania Supreme Court vacated
this decision in September 1996; pursuant to the Court's orders, the parties
have briefed certain issues. The Supreme Court heard oral argument in February
1998 and took the matter under advisement (no available estimate of potential
liability); (e) in February 1997, five residents of the City of Philadelphia,
joined by the City, the School District and others, filed a civil action in the
Commonwealth Court for declaratory judgment against the Commonwealth and certain
Commonwealth officers and officials that the defendants had failed to provide an
adequate quality of education in Philadelphia, as required by the Pennsylvania
Constitution; after preliminary objections and briefs were filed, the Court
heard oral argument en banc in September 1997. On March 2, 1998, the
Commonwealth Court sustained the respondents' preliminary objections and
dismissed the case on the grounds that the issues presented are not justiciable.
An appeal to the Supreme Court of Pennsylvania is pending (no available estimate
of potential liability); (f) in April 1995, the Commonwealth reached a
settlement agreement with Fidelity Bank and certain other banks with respect to
the constitutional validity of the Amended Bank Shares Act and related
legislation; although this settlement agreement did not require expenditure of
Commonwealth funds, the petitions of other banks are currently pending with the
Commonwealth Court (no available estimate of potential liability); (g) suit has
been filed in state court against the State Employees' Retirement Board claiming
that the use of gender distinct actuarial factors to compute benefits received
before August 1, 1983 violates the Pennsylvania Constitution (gender-neutral
factors
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have been used since August 1, 1983, the date on which the U.S. Supreme Court
held in Arizona Governing Committee v. Norris that the use of such factors
violated the Federal Constitution); in 1996, the Commonwealth Court heard oral
argument en banc, and in 1997 denied the plaintiff's motion for judgment on the
pleadings, the case is currently in discovery (no available estimate of
potential liability); and (h) in March 1998 several residents of the city of
Philadelphia joined by the School District and others filed a civil action in
the United States District Court for the Eastern District of Pennsylvania
against the Governor, the Secretary of Education and others. In their suit, the
plaintiffs claim that the defendants are violating a regulation of the U.S.
Department of Education promulgated under Title VI of the Civil Rights Act of
1964 in that the Commonwealth's system for funding public schools has the effect
of discriminating on the basis of race. Briefing on the various motions is
expected to be completed by the end of November 1998. All motions would then be
before the district court for disposition (no available estimate of potential
liability).
Local government units in the Commonwealth of Pennsylvania (which include,
among other things, counties, cities, boroughs, towns, townships, school
districts and other municipally created units such as industrial development
authorities and municipality authorities, including water and sewer authorities)
are permitted to issue debt for capital projects: (i) in any amount so long as
the debt has been approved by the voters of the local government unit; or (ii)
without electoral approval if the aggregate outstanding principal amount of debt
of the local government unit is not in excess of 100% of its borrowing base (in
the case of a school district of the first class), 300% of its borrowing base
(in the case of a county) or 250% of its borrowing base (in the case of all
other local government units); or (iii) without electoral approval and without
regard to the limit described in (ii) in any amount in the case of certain
subsidized debt and self-liquidating debt (defined to be debt with no claim on
taxing power, secured solely by revenues from a specific source which have been
projected to be sufficient to pay debt service on the related debt). Lease
rental debt may also be issued, in which case the total debt limits described in
section (ii) (taking into account all existing lease rental debt in addition to
all other debt) are increased. The borrowing base for a local government unit is
the average of total revenues for the three fiscal years preceding the
borrowing. The risk of investing in debt issued by any particular local
government unit depends, in the case of general obligation bonds secured by tax
revenues, on the creditworthiness of that issuer or, in the case of revenue
bonds, on the revenue producing ability of the project being financed, and not
directly on the credit-worthiness of the Commonwealth of Pennsylvania as a
whole.
The City of Philadelphia (the "City") experienced a series of General Fund
deficits for Fiscal Years 1988 through 1992 and, while its general financial
situation has improved, the City is still seeking a long-term solution for its
economic difficulties. The City has no legal authority to issue deficit
reduction bonds on its own behalf, but state legislation has been enacted to
create an Intergovernmental Cooperation Authority (the "Authority") to provide
fiscal oversight for Pennsylvania cities (primarily Philadelphia) suffering
recurring financial difficulties. The Authority is broadly empowered to assist
cities in avoiding defaults and eliminating deficits by encouraging the adoption
of sound budgetary practices and issuing bonds. In order for the Authority to
issue bonds on behalf of the City, the City and the Authority entered into an
intergovernmental cooperative agreement providing the Authority with certain
oversight powers
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with respect to the fiscal affairs of the City, and in recent years, the
Authority has issued approximately $1.76 billion of Special Revenue Bonds on
behalf of the City. The City currently is operating under a five-year plan
approved by the Authority in 1996, with technical amendments officially
incorporated on July 18, 1996. The audited balance of the City's General Fund as
of June 30, 1997 showed a surplus of approximately $128.8 million up from
approximately $118.5 million as of June 30, 1996.
The Authority's power to issue further bonds to finance capital projects or
deficit expired on December 31, 1994. The Authority's power to issue debt to
finance a cash flow deficit expired on December 31, 1996, and its ability to
refund outstanding bonds is unrestricted. The Authority had approximately $1.1
billion in Special Revenue Bonds outstanding as of June 30, 1998.
The foregoing information as to certain Pennsylvania risk factors
constitutes only a brief summary, does not purport to be a complete description
of Pennsylvania risk factors and is principally drawn from official statements
relating to securities offerings of the Commonwealth of Pennsylvania that have
come to the Funds' attention and were available as of the date of this Statement
of Additional Information.
Special Considerations Regarding Investment in New Jersey Municipal Obligations
The concentration of investments by the New Jersey Muni Portfolio in New
Jersey Municipal Obligations also raises special investment considerations. The
State of New Jersey (the "State") generally has a diversified economic base
consisting of, among others, commerce and service industries, selective
commercial agriculture, insurance, tourism, petroleum refining and
manufacturing, although the State's manufacturing industry has shown a downward
trend in the last few years. Recently, the state's unemployment rate has fallen,
and job growth has been experienced in several sectors of the state's economy.
While the State's economic base has become more diversified over time and thus
its economy appears to be less vulnerable during recessionary periods, adverse
conditions including a recurrence of high levels of unemployment, could
adversely affect the State's overall economy and its ability to meet its
financial obligations. To the extent that any adverse conditions exist in the
future which affect the obligor's ability to repay debt, the value of the
Portfolio may be immediately and substantially affected.
The State and its political subdivisions, agencies and public authorities
are authorized to issue two general classes of indebtedness; general obligation
bonds and revenue bonds. Both classes of bonds may be included in the New Jersey
Muni Portfolio. The repayment of principal and interest on general obligation
bonds is secured by the full faith and credit of the issuer, backed by the
issuer's taxing authority, without recourse to any special project or source of
revenue. Special obligation or revenue bonds may be repaid only from revenues
received in connection with the project for which the bonds are issued, special
excise taxes, or other special revenue sources and generally are issued by
entities without taxing power. Neither the State of New Jersey nor any of its
subdivisions is liable for the repayment of principal or interest on revenue
bonds except to the extent stated in the preceding sentences.
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General obligation bonds of the state are repaid from revenues obtained
through the state's general taxing authority. An inability to increase taxes may
adversely affect the state's ability to authorize or repay debt.
Public authorities, private non-profit corporations, agencies and similar
entities of New Jersey ("Authorities") are established for a variety of
beneficial purposes, including economic development, housing and mortgage
financing, health care facilities and public transportation. The Authorities are
not operating entities of the State of New Jersey, but are separate legal
entities that are managed independently. The state oversees the Authorities by
appointing the governing boards, designating management, and by significantly
influencing operations. The Authorities are not subject to New Jersey
constitutional restrictions on the incurrence of debt, applicable to the State
of New Jersey itself, and may issue special obligation or private activity bonds
in legislatively authorized amounts.
An absence or reduction of revenue will affect a bond-issuing Authority's
ability to repay debt on special obligation bonds and no assurance can be given
that sufficient revenues will be obtained to make such payments, although in
some instances repayment may be guaranteed or otherwise secured.
Various Authorities have issued bonds for the construction of health care
facilities, transportation facilities, office buildings and related facilities,
housing facilities, pollution control facilities, water and sewerage facilities
and power and electric facilities. Each of these facilities may incur different
difficulties in meeting its debt repayment obligations. Hospital facilities, for
example, are subject to changes in Medicare and Medicaid reimbursement
regulations, attempts by Federal and state legislatures to limit the costs of
health care and management's ability to complete construction projects on a
timely basis as well as to maintain projected rates of occupancy and
utilization. At any given time, there are several proposals pending on a Federal
and state level concerning health care, which may further affect a hospital's
debt service obligation.
Housing facilities may be subject to increases in operating costs,
management's ability to maintain occupancy levels, rent restrictions and
availability of Federal or state subsidies, while power and electric facilities
may be subject to increased costs resulting from environmental restrictions,
fluctuations in fuel costs, delays in licensing procedures and the general
regulatory framework in which these facilities operate. All of these entities
are constructed and operated under rigid regulatory guidelines.
Some entities which financed facilities with proceeds of private activity
bonds issued by the New Jersey Economic Development Authority, a major issuer of
special obligation bonds, have defaulted on their debt service obligations.
Because these special obligation bonds were repayable only from revenue received
from the specific projects which they funded, the New Jersey Economic
Development Authority was unable to repay the debt service to bondholders for
such facilities. Each issue of special obligation bonds, however, depends on its
own revenue for repayment, and thus these defaults should not affect the ability
of the New Jersey Economic Development Authority to repay obligations on other
bonds that it issues in the future.
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<PAGE>
The following are cases presently pending or threatened in which the State
has a potential for either a significant loss of revenue or a significant
unanticipated expenditure: (i) several labor unions have challenged 1994
legislation mandating a revaluation of several public employee pension funds
which resulted in a refund of millions of dollars in public employer
contributions to the State and significant ongoing annual savings to the State;
(ii) several cases filed in the State courts challenged the basis on which
recoveries of certain costs for residents in State psychiatric hospitals and
other facilities are shared between the State Department of Human Services and
the State's county governments, and certain counties are seeking the recovery
from the Department of costs they have incurred for the maintenance of such
residents; (iii) the County of Passaic and other parties have filed suit
alleging the State violated a 1984 consent order concerning the construction of
a resource recovery facility in that county; (iv) several Medicaid eligible
children and the Association for Children of New Jersey have filed suit claiming
the Medicaid reimbursement rates for services rendered to such children are
inadequate under federal law; (v) a coalition of churches and church leaders in
Hudson County have filed suit asserting the State-owned Liberty State Park in
Jersey City violates environmental standards; (vi) representatives of the
trucking industry have filed a constitutional challenge to annual hazardous and
solid waste licensure renewal fees; (vii) the Education Law Center filed a
motion compelling the State to close the spending gap between poor urban school
districts and wealthy rural school districts; (viii) a group of insurance
companies have filed a constitutional challenge to the challenge to the State's
assessment of monies pursuant to the Fair Automobile Insurance Reform Act of
1990; (ix) a class action consisting of prisoners with serious mental disorders
has been filed against officers of the Department of Corrections, alleging sex
discrimination, violation of the Americans with Disabilities Act of 1990, and
constitutional violations; (x) a class action has been brought in federal court
challenging the State's method of determining the monthly needs of a spouse of
an institutionalized person under the Medicare Catastrophic Act; (xi) several
suits have been filed against the State in federal court alleging that the State
committed securities fraud and environmental violations in the financing of a
new Atlantic City highway and tunnel; (xii) a class action has been filed
against the State alleging the State's breach of contract for not paying certain
Medicare co-insurance and deductibles; and (xiii) an action has been filed
challenging the State's issuance of bonds to fund the accrued liability in its
pension funds under the Pension Bond Financing Act of 1997.
Although the Portfolio generally intends to invest its assets primarily in
New Jersey Municipal Obligations rated no lower than A, MIG2 or Prime-1 by
Moody's or A SP-1 or A-1 by S&P, there can be no assurance that such ratings
will remain in effect until the bond matures or is redeemed or will not be
revised downward or withdrawn. Such a revision or withdrawal may have an adverse
affect on the market price of such securities.
PERFORMANCE CALCULATIONS
Each of the Tax Managed Equity, International, Small Capitalization Equity
and Large Cap Value Portfolios may compare their total returns for the shares to
that of other investment companies with similar investment objectives and to
stock and other relevant indices such as the S&P 500, the Dow Jones Industrial
Average, the Russell 2000 Index or the NASDAQ Composite
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<PAGE>
Index or to rankings prepared by independent services or other financial or
industry publications that monitor the performance of mutual funds. For example,
the total return of the shares of the Tax Managed Equity, International, Small
Capitalization Equity or Large Cap Value Portfolios may also be compared to data
prepared by Lipper Analytical Services, Inc. ("Lipper"). In addition, the
International Portfolio's total return may be compared to the Morgan Stanley
Capital International EAFE Index (the "EAFE Index").
Each of the Core Fixed Income, Muni Intermediate and New Jersey Muni
Portfolios may compare their total returns, and their yields, to that of other
investment companies with similar investment objectives and to bond and other
relevant indices such as those compiled by Merrill Lynch, Lehman Brothers or
others or to rankings prepared by independent services or other financial or
industry publications that monitor the performance of mutual funds. For example,
the total return or the yield of the Core Fixed Income, Muni Intermediate or New
Jersey Muni Portfolios may be compared to data prepared by Lipper.
The Institutional International Portfolio may compare its total return to
that of other investment companies with similar investment objectives and to
stock and other relevant indices or to rankings prepared by independent services
or other financial or industry publications that monitor the performance of
mutual funds. For example, the total return of the Portfolio may be compared to
data prepared by Lipper and the EAFE Index.
The Emerging Markets Portfolio may compare its total return to that of
other investment companies with similar investment objectives and to stock and
other relevant indices or to rankings prepared by independent services or other
financial or industry publications that monitor the performance of mutual funds.
For example, the total return of the Emerging Markets Portfolio may be compared
to data prepared by Lipper, the Morgan Stanley Capital International Emerging
Markets Free Index (also known as the Emerging Markets Index) and the
International Financial Corporation Composite Index.
The Global Equity Portfolio may compare its total return to that of other
investment companies with similar investment objectives and to stock and other
relevant indices or to rankings prepared by independent services or other
financial or industry publications that monitor the performance of mutual funds.
For example, the total return of the Portfolio may be compared to data prepared
by Lipper, the MSCI World Index and the EAFE Index.
Total return, yield (for the Core Fixed Income, Muni Intermediate and New
Jersey Muni Portfolios), and other performance data as reported in national
financial publications such as Money Magazine, Forbes, Barron's, The Wall Street
Journal and The New York Times, or in publications of a local or regional
nature, may also be used in comparing the performances of the Portfolios.
Performance quotations represent a Portfolio's past performance and should
not be considered as indicative of future results. Since performance will
fluctuate, performance data for a Portfolio should not be used to compare an
investment in the Portfolio's shares with bank deposits, savings accounts and
similar investment alternatives which often provide an agreed or guaranteed
fixed yield/return for a stated period of time. Shareholders should remember
that
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<PAGE>
performance is generally a function of the kind and quality of the instruments
held in a Portfolio, portfolio maturity, operating expenses and market
conditions. Any management fees charged by the Advisor, an Affiliate to its
respective clients, or Institutions to their respective clients will not be
included in a Portfolio's calculations of yield, effective yield, tax-equivalent
yield or total return as appropriate.
From time to time, the Government Cash Portfolio and the Tax-Exempt Cash
Portfolio, may advertise or quote yield, effective yield, tax-equivalent yield
(Tax-Exempt Cash Portfolio only), or total return. The "yield" and "effective
yield" of the Government Cash and Tax-Exempt Cash Portfolios, and the
"tax-equivalent yield" of the Tax-Exempt Cash Portfolio, are calculated
according to formulas prescribed by the SEC. The standardized seven-day yield of
each of these Portfolios is computed by determining the net change, exclusive of
capital changes, in the value of a hypothetical pre-existing account in the
particular Portfolio having a balance of one share at the beginning of the
period, dividing the net change in account value by the value of the account at
the beginning of the base period to obtain the base period return, and
multiplying the base period return by (365/7). The net change in the value of an
account in the Money Market Portfolios includes the value of additional shares
purchased with dividends from the original share, and dividends declared on both
the original share and any such additional shares, net of all fees, other than
nonrecurring account or sales charges, that are charged by the Fund to all
shareholder accounts in proportion to the length of the base period and the
Portfolio's average account size. The capital changes to be excluded from the
calculation of the net change in account value are realized gains and losses
from the sale of securities and unrealized appreciation and depreciation. An
effective annualized yield for the Money Market Portfolios may be computed by
compounding the unannualized base period return (calculated as above) by adding
1 to the base period return, raising the sum to a power equal to 365 divided by
7, and subtracting 1 from the result.
The Tax-Exempt Cash Portfolio's "7-day tax-equivalent yield" may be
computed by dividing the tax-exempt portion of the Portfolio's yield (calculated
as above) by one minus a stated Federal income tax rate and adding the product
to that portion, if any, of the Portfolio's yield that is not tax-exempt.
The Tax-Exempt Cash Portfolio's tax-equivalent yield, and the Money Market
Portfolios' yield and effective yield, do not reflect any fees charged by the
Advisor to its clients. See "Investment Advisor" in the Prospectus.
Set forth below is an example, for purposes of illustration only, of the
current yield calculations for each of the Money Market Portfolios for the
seven-day period ended October 31, 1998.
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<PAGE>
Government Tax-Exempt
Cash Portfolio Cash Portfolio
10/31/98 10/31/98
------------- -------------
7-Day Yield (Net Change X 365/7 average NAV) 5.08% 2.89%
7-Day Effective Yield 5.21% 2.93%
7-Day Tax-Equivalent Yield N/A 4.25%*
- ---------------------------------
* Assumes an effective Federal income tax rate of 31%
The SEC yield of the Core Fixed Income Portfolio, Muni Intermediate
Portfolio and the New Jersey Muni Portfolio for the 30-day period ended October
31, 1998 was 6.09%, 4.41% and 3.74%, respectively. These yields were calculated
by dividing the net investment income per share (as described below) earned by
the Portfolio during a 30-day (or one month) period by the maximum offering
price per share on the last day of the period and annualizing the result on a
semi-annual basis by adding one to the quotient, raising the sum to the power of
six, subtracting one from the result and then doubling the difference. The
Portfolio's net investment income per share earned during the period is based on
the average daily number of shares outstanding during the period entitled to
receive dividends and includes dividends and interest earned during the period
minus expenses accrued for the period, net of reimbursements. This calculation
can be expressed as follows:
Yield = 2 [( a-b + 1)(6) - 1]
---
cd
Where: a = dividends and interest earned during the period.
b = expenses accrued for the period net of reimbursements.
c = the average daily number of shares
outstanding during the period that
were entitled to receive dividends.
d = maximum offering price per share on the last
day of the period.
For the purpose of determining net investment income earned during the
period (variable "a" in the formula), interest earned on any debt obligations
held by the Core Fixed Income, Muni Intermediate or New Jersey Muni Portfolios
is calculated by computing the yield to maturity of each obligation held by the
Portfolio based on the market value of the obligation (including actual accrued
interest) at the close of business on the last business day of each month, or,
with respect to obligations purchased during the month, the purchase price (plus
actual accrued interest) and dividing the result by 360 and multiplying the
quotient by the market value of the obligation (including actual accrued
interest) in order to determine the interest income on the obligation for each
day of the subsequent month that the obligation is held by the particular
Portfolio. For purposes of this calculation, it is assumed that each month
contains 30 days. The maturity of an obligation with a call provision is the
next call date on which the obligation reasonably may be expected to be called
or, if none, the maturity date. With respect to debt obligations purchased at a
discount or premium, the formula generally calls for amortization of
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<PAGE>
the discount or premium. The amortization schedule will be adjusted monthly to
reflect changes in the market values of such debt obligations.
Undeclared earned income will be subtracted from the maximum offering
price per share (variable "d" in the formula). Undeclared earned income is the
net investment income which, at the end of the base period, has not been
declared as a dividend, but is reasonably expected to be and is declared and
paid as a dividend shortly thereafter. The Core Fixed Income, Muni Intermediate
and New Jersey Muni Portfolios' yields do not reflect any fees charged by the
Advisor or an Affiliate to its clients. See "Investment Advisor" in the
Prospectus.
The Muni Intermediate and New Jersey Muni Portfolios' "tax-equivalent"
yield is computed by dividing the portion of the yield that is exempt from
Federal and/or State income taxes by one minus a stated Federal income tax rate
and/or the State income tax rate and by adding that figure to that portion, if
any, of the yield that is not tax-exempt. The 30 day tax-equivalent yield for
the Muni Intermediate Portfolio and New Jersey Portfolio for the 30-day period
ended October 31, 1998 was 6.58% and 5.74%, respectively (assuming a marginal
Federal income tax rate of 31% and marginal Pennsylvania and New Jersey income
tax rates of 2.80 and 5.525%, respectively).
The Core Fixed Income, Tax Managed Equity, International, Small
Capitalization Equity, Muni Intermediate, New Jersey Muni, Large Cap Value,
Institutional International, Emerging Markets and Global Equity Portfolios each
compute their respective average annual total returns separately for each class
by determining the average annual compounded rates of return during specified
periods that equate the initial amount invested to the ending redeemable value
of such investment. This is done by dividing the ending redeemable value of a
hypothetical $1,000 initial payment by $1,000 and raising the quotient to a
power equal to one divided by the number of years (or fractional portion
thereof) covered by the computation and subtracting one from the result. This
calculation can be expressed as follows:
T = [( ERV )(1/n) - 1]
---
P
Where: T = average annual total return.
ERV = ending redeemable value
at the end of the period
covered by the computation
of a hypothetical $1,000
payment made at the
beginning of the period.
P = hypothetical initial payment of
$1,000.
n = period covered by the computation,
expressed in terms of years.
The Core Fixed Income, Tax Managed Equity, International, Small
Capitalization Equity, Muni Intermediate, New Jersey Muni, Large Cap Value,
Institutional International, Emerging
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<PAGE>
Markets and Global Equity Portfolios
compute their aggregate total returns separately for each class by determining
the aggregate rates of return during specified periods that likewise equate the
initial amount invested to the ending redeemable value of such investment. The
formula for calculating aggregate total return is as follows:
T = [( ERV ) - 1]
---
P
The calculations of average annual total return and aggregate total
return assume the reinvestment of all dividends and capital gain distributions.
The ending redeemable value (variable "ERV" in each formula) is determined by
assuming complete redemption of the hypothetical investment and the deduction of
all nonrecurring charges at the end of the period covered by the computations.
Each Portfolio's average annual total return and aggregate total return does not
reflect any fees charged by the Advisor or Institutions to their clients. See
"Investment Advisor" in the Prospectuses.
As of January 1, 1998, the Small Capitalization Equity Portfolio began
to offer Institutional Shares. Institutional Shares are subject to an annual
.05% fee payable pursuant to the Amended and Restated Shareholder Servicing Plan
("Shareholder Servicing Fee"). Prior to January 1, 1998, the Small
Capitalization Equity Portfolio did not have an advisory fee and Advisor Shares
had a .05% Shareholder Servicing Fee. Performance of the Institutional Shares
prior to January 1, 1998 is represented by performance of the Advisor Shares.
Set forth below are the average annual total return figures for the
Core Fixed Income, Tax Managed Equity, International, Small Capitalization
Equity, Muni Intermediate, Large Cap Value, New Jersey Muni, Institutional
International, Emerging Markets and Global Equity Portfolios since inception and
for the one- and five-year periods ended October 31, 1998.
<TABLE>
<CAPTION>
Tax Small
Core Fixed Managed Capitalization Muni
Income Equity International Equity Intermediate
Portfolio Portfolio Portfolio Portfolio Portfolio
--------- --------- --------- --------- ---------
Advisor Institutional
Shares Shares
------ ------
<S> <C> <C> <C> <C> <C> <C>
1 Year Ended 10/31/98 9.32% 7.00% 7.44% -18.35% N/A 5.77%
5 Years Ended 10/31/98 6.44% 18.66% 11.06% 11.27% N/A 5.04%
Inception to 10/31/98 8.63% 14.82% 11.19% 13.34% 13.36%* 5.67%
</TABLE>
* Annualized.
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<TABLE>
<CAPTION>
Large Cap New Institutional Emerging Global Government Tax-Exempt
Value Jersey Muni International Markets Equity Cash Cash
Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio
--------- --------- --------- --------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
1 Year Ended 10/31/98 4.77% 6.71% 7.26% -35.07% N/A 5.63% 3.41%
5 Years Ended 10/31/98 14.01% N/A 11.98%** N/A% N/A 5.25% 3.30%
Inception to 10/31/98 15.98% 5.03% 10.17%** -10.92% 2.29% 5.79% 3.92%
</TABLE>
** The Institutional International Portfolio's average annual total return
figures for the 5 year and since Inception periods above are net of fee waivers.
The Portfolio's average annual total return figures without fee waivers for the
5-Year and since Inception periods would have been lower.
Inception Dates:
Core Fixed Income Portfolio.................................. 11/17/88
Tax Managed Equity Portfolio................................. 07/20/89
International Portfolio...................................... 11/17/88
Small Capitalization Equity Portfolio
Advisor Shares.......................................... 03/01/91
Institutional Shares.................................... 01/01/98
Muni Intermediate Portfolio.................................. 06/05/92
Large Cap Value Portfolio.................................... 12/31/92
New Jersey Muni Portfolio.................................... 11/01/93
Institutional International Portfolio........................ 08/01/92
Emerging Markets Portfolio................................... 12/14/94
Global Equity Portfolio...................................... 11/04/97
Government Cash Portfolio.................................... 11/07/88
Tax-Exempt Cash Portfolio ................................... 11/10/88
Set forth below are the aggregate total return figures for the Core
Fixed Income, Tax Managed Equity, International, Small Capitalization Equity,
Muni Intermediate, Large Cap Value, New Jersey Muni, Institutional
International, Emerging Markets and Global Equity Portfolios from inception to
October 31, 1998.
Portfolio Inception Date Aggregate Total Return
- --------- -------------- ----------------------
Core Fixed Income 11/17/88 127.93%
Tax Managed Equity 07/20/89 260.54%
International 11/17/88 187.29%
Small Capitalization Equity
Advisor Shares 03/01/91 161.24%
Institutional Shares 01/01/98 161.68%
Muni Intermediate 06/05/92 42.41%
Large Cap Value 12/31/92 137.05%
New Jersey Muni 11/01/93 27.77%
Institutional International 08/01/92 102.76%
Emerging Markets 12/14/94 -36.15%
Global Equity 11/04/97 2.29%
GENERAL INFORMATION
Description of Shares and Voting Rights
The shares of each Portfolio have no preference as to conversion,
exchange, dividends, retirement or other rights, and, when issued and paid for
as provided in this Prospectus, will be fully paid and non-assessable. The
shares of each Portfolio have no pre-emptive rights and do not have cumulative
voting rights, which means that the holders of more than 50% of the shares of a
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<PAGE>
Fund voting for the election of its Board members can elect 100% of the Board of
that Fund if they choose to do so. A shareholder is entitled to one vote for
each full share held (and a fractional vote for each fractional share held),
then standing in his or her name on the books of the particular Fund. The Funds
will not hold annual meetings of shareholders, except as required by the 1940
Act, the next sentence and other applicable law. Each Fund has undertaken that
its Board will call a meeting of shareholders for the purpose of voting upon the
question of removal of a Board member or members if such a meeting is requested
in writing by the holders of not less than 10% of the outstanding shares of the
particular Fund. To the extent required by the undertaking, the particular Fund
will assist shareholder communication in such matters. The staff of the SEC has
expressed the view that the use of a combined Prospectus for the Funds may
subject a Fund to liability for misstatements, inaccuracies or incomplete
disclosure about the other Fund.
Rule 18f-2 under the 1940 Act provides that any matter required to be
submitted to the holders of the outstanding voting securities of an investment
company shall not be deemed to have been effectively acted upon unless approved
by a majority of the outstanding shares of the Portfolio or class affected by
the matter. The Portfolio or class is affected by a matter unless it is clear
that the interests of the Portfolio or class in the matter are substantially
identical or that the matter does not affect any interest of the Portfolio or
class. Under Rule 18f-2, the approval of an investment advisory agreement or any
change in a fundamental investment policy would be effectively acted upon with
respect to the Portfolio only if approved by a majority of the outstanding
shares of the Portfolio. However, the Rule also provides that the ratification
of independent public accountants and the election of directors or trustees may
be effectively acted upon by shareholders of the Fund voting without regard to
the Portfolio.
Notwithstanding any provision of Maryland law requiring a greater vote
of Glenmede Fund's common stock (or of the shares of the Portfolio or class
voting separately as a class) in connection with any corporate action, unless
otherwise provided by law (for example by Rule 18f-2 discussed above) or by
Glenmede Fund's Articles of Amendment and Restatement, Glenmede Fund may take or
authorize such action upon the favorable vote of the holders of more than 50% of
the outstanding common stock of Glenmede Fund entitled to vote thereon.
Certain Record Holders
As of February 1, 1999, the Advisor held of record substantially all
of the outstanding shares of each Portfolio (including the Advisor and
Institutional Share classes of the Small Capitalization Equity Portfolio) and,
therefore, may, for certain purposes be deemed to control each Portfolio and be
able to affect the outcome of certain matters presented for a vote of each
Portfolio's shareholders. For more information about the Advisor, see
"Investment Advisor" in the Prospectuses. As of February 1, 1999, the
directors/trustees and officers of the Funds collectively owned less than 1% of
the outstanding shares of each of the Funds' Portfolios.
Dividends and Distributions
Each Portfolio's policy is to distribute substantially all of its net
investment income, if any, together with any net realized capital gains in the
amount and at the times that will avoid both income (including capital gains)
taxes on it and the imposition of the Federal excise tax on undistributed income
and gains. The amounts of any income dividends or capital gains distributions
for a Portfolio cannot be predicted.
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<PAGE>
Undistributed net investment income is included in each Portfolio's
(other than the Money Market Portfolios) net assets for the purpose of
calculating its NAV per share. Therefore, on the Portfolio's "ex-dividend" date,
the NAV per share excludes the dividend (i.e., is reduced by the per share
amount of the dividend). Any dividend or distribution paid shortly after the
purchase of shares of a Portfolio by an investor may have the effect of reducing
the per share NAV of that Portfolio by the per share amount of the dividend or
distribution. Furthermore, such dividends or distributions, although in effect a
return of capital, are subject to income taxes as set forth in the Prospectus.
FINANCIAL STATEMENTS
The Funds' Financial Statements for the Government Cash, Tax-Exempt
Cash, Core Fixed Income, International, Tax Managed Equity, Small Capitalization
Equity, Large Cap Value, Muni Intermediate, New Jersey Muni, Institutional
International, Emerging Markets and Global Equity Portfolios for the year or
period ended October 31, 1998, and the financial highlights for each of the
respective periods presented, appearing in the 1998 Annual Reports to
Shareholders, and the reports thereon of PricewaterhouseCoopers LLP, the Funds'
independent accountants, also appearing therein, are incorporated by reference
in this Statement of Additional Information. No other parts of the 1998 Annual
Reports to Shareholder are incorporated herein.
OTHER INFORMATION
The Prospectuses and this Statement of Additional Information do not
contain all the information included in the Registration Statement filed with
the SEC under the Securities Act of 1933 with respect to the securities offered
by the Prospectuses. Certain portions of the Registration Statement have been
omitted from the Prospectus and this Statement of Additional Information
pursuant to the rules and regulations of the SEC. The Registration Statement,
including the exhibits filed therewith, may be examined at the office of the SEC
in Washington, D.C.
Statements contained in the Prospectuses or in this Statement of
Additional Information as to the contents of any contract or other documents
referred to are not necessarily complete, and in each instance reference is made
to the copy of such contract or other document filed as an exhibit to the
Registration Statement of which the Prospectuses and this Statement of
Additional Information form a part, each such statement being qualified in all
respects by such reference.
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APPENDIX -- DESCRIPTION OF SECURITIES AND RATINGS
I. Description of Bond Ratings
Excerpts from Moody's description of its highest bond ratings: Aaa --
judged to be the best quality; carry the smallest degree of investment risk; Aa
- -- judged to be of high quality by all standards; A -- judged to be of upper
medium quality; factors giving security to principal and interest considered
adequate but elements may be present which suggest a susceptibility to
impairment sometime in the future; Baa -- judged to be of medium quality;
lacking outstanding investment characteristics and in fact having speculative
characteristics.
Moody's applies numerical modifiers (1, 2 and 3) with respect to
corporate bonds rated Aa, A and Baa. The modifier 1 indicates that the bond
being rated ranks in the higher end of its generic rating category; the modifier
2 indicates a mid-range ranking; and the modifier 3 indicates that the bond
ranks in the lower end of its generic rating category. Those bonds in the Aa, A
and Baa categories which Moody's believes possess the strongest investment
attributes, within those categories are designated by the symbols Aa1, A1 and
Baa1, respectively.
Excerpts from S&P description of its highest bond ratings: AAA --
highest grade obligations; indicates an extremely strong capacity to pay
interest and repay principal; AA -- also qualify as high grade obligations;
indicates a very strong capacity to pay interest and repay principal and differs
from AAA issues only in small degree; A -- qualifies as upper medium grade
obligations; have strong capacity to pay interest and repay principal, although
somewhat more susceptible to adverse effects of change in circumstances and
economic conditions than higher rated bonds; BBB -- indicates adequate capacity
to pay interest and repay principal, although adverse economic conditions are
likely to weaken such capacity.
Plus (+) or Minus (-): The ratings from AA to BBB may be modified by
the addition of a plus or minus sign to show relative standing within the major
rating categories.
Description of Moody's ratings of state and municipal notes: Moody's
ratings for state and municipal notes, other short-term obligations and variable
rate demand obligations are as follows: MIG-1/VMIG-1 -- Best quality, enjoying
strong protection by established cash flows, superior liquidity support or
demonstrated broad based access to the market for refinancing; MIG-2/VMIG-2 --
High quality with margins of protection ample although not so large as in the
preceding group.
Description of Moody's highest commercial paper rating: Prime-1 ("P-1")
- -- judged to be of the best quality. Issuers rated P-1 (or related supporting
institutions) are considered to have a superior capacity for repayment of
short-term promissory obligations.
Excerpt from S&P rating of municipal note issues: SP-1+ -- overwhelming
capacity to pay principal and interest; SP-1 -- very strong or strong capacity
to pay principal and interest.
A-1
<PAGE>
Description of S&P highest commercial papers ratings: A-1+ -- this
designation indicates the degree of safety regarding timely payment is
overwhelming. A-1 -- this designation indicates the degree of safety regarding
timely payment is either overwhelming or very strong.
II. Description of Mortgage-Backed Securities
Mortgage-Related Securities. The Core Fixed Income Portfolio may
purchase mortgage-backed securities that are secured by entities such as the
Government National Mortgage Association ("GNMA"), Federal National Mortgage
Association ("FNMA"), Federal Home Loan Mortgage Corporation ("FHLMC"),
commercial banks, trusts, financial companies, finance subsidiaries of
industrial companies, savings and loan associations, mortgage banks and
investment banks. These certificates are in most cases pass-through instruments,
through which the holder receives a share of all interest and principal payments
from the mortgages underlying the certificate, net of certain fees. The average
life of a mortgage-backed security varies with the underlying mortgage
instruments, which have maximum maturities of 40 years. The average life is
likely to be substantially less than the original maturity of the mortgage pools
underlying the securities as the result of prepayments, mortgage refinancings or
foreclosure. Mortgage prepayment rates are affected by factors including the
level of interest rates, general economic conditions, the location and age of
the mortgage and other social and demographic conditions. Such prepayments are
passed through to the registered holder with the regular monthly payments of
principal and interest and have the effect of reducing future payments.
There are a number of important differences among the agencies and
instrumentalities of the U.S. Government that issue mortgage-related securities
and among the securities that they issue. Mortgage-related securities guaranteed
by GNMA include GNMA Mortgage Pass-Through Certificates (also known as "Ginnie
Maes") which are guaranteed as to the timely payment of principal and interest
by GNMA and such guarantee is backed by the full faith and credit of the United
States. GNMA is a wholly-owned U.S. Government corporation within the Department
of Housing and Urban Development. GNMA certificates also are supported by the
authority of GNMA to borrow funds from the U.S. Treasury to make payments under
its guarantee. Mortgage-related securities issued by FNMA include FNMA
guaranteed Mortgage Pass-Through Certificates (also known as "Fannie Maes")
which are solely the obligations of FNMA, are not backed by or entitled to the
full faith and credit of the United States and are supported by the right of the
issuer to borrow from the Treasury. FNMA is a government-sponsored organization
owned entirely by private stockholders. Fannie Maes are guaranteed as to timely
payment of principal and interest by FNMA. Mortgage-related securities issued by
the Federal Home Loan Mortgage Corporation ("FHLMC") include FHLMC Mortgage
Participation Certificates (also known as "Freddie Macs" or "Pcs"). FHLMC is a
corporate instrumentality of the United States, created pursuant to an Act of
Congress, which is owned entirely by Federal Home Loan Banks. Freddie Macs are
not guaranteed by the United States or by any Federal Home Loan Banks and do not
constitute a debt or obligation of the United States or of any Federal Home Loan
Bank. Freddie Macs entitle the holder to timely payment of interest, which is
guaranteed by FHLMC. FHLMC guarantees either ultimate collection or timely
payment of
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all principal payments on the underlying mortgage loans. When FHLMC
does not guarantee timely payment of principal, FHLMC may remit the amount due
on account of its guarantee of ultimate payment of principal at any time after
default on an underlying mortgage, but in no event later than one year after it
becomes payable.
The Core Fixed Income Portfolio may invest in mortgage-backed
securities issued or sponsored by both government and non-governmental entities.
Privately issued mortgage-backed securities are generally backed by pools of
conventional (i.e., non-government guaranteed or insured) mortgage loans.
Privately-issued mortgage backed securities must have a rating of at least A by
S&P or Moody's or which if unrated, is in the Advisor's opinion equivalent in
credit quality to securities so rated. The ratings assigned by a rating
organization (e.g., S&P or Moody's) to privately-issued mortgage-backed
securities address the likelihood of the receipt of all distributions on the
underlying mortgage loans by the related certificate-holders under the
agreements pursuant to which such certificates are issued. A rating
organization's ratings take into consideration the credit quality of the related
mortgage pool, including any credit support providers, structural and legal
aspects associated with such certificates, and the extent to which the payment
stream on such mortgage pool is adequate to make payments required by such
certificates. A rating organization's ratings on such certificates do not,
however, constitute a statement regarding frequency of prepayments on the
related mortgage loans. Additionally, in order to receive a high quality rating
from the rating organizations, privately issued mortgaged-backed securities
normally are structured with one or more types of "credit enhancement." Credit
enhancement falls generally into two categories: (i) liquidity protection and
(ii) protection against losses resulting from default by an obligor on the
underlying assets. Liquidity protection refers to the provision of advances,
generally by the entity administering the pools of mortgages, the provision of a
reserve fund, or a combination thereof, to ensure, subject to certain
limitations, that scheduled payments on the underlying pool are made in a timely
fashion. Protection against losses resulting from default ensures ultimate
payment of the obligations on at least a portion of the assets in the pool. Such
credit support can be provided by, among other things, payment guarantees,
letters of credit, pool insurance, subordination, or any combination thereof.
The Core Fixed Income Portfolio may also invest in multiple class
securities, including collateralized mortgage obligations ("CMOs") and Real
Estate Mortgage Investment Conduit ("REMIC") pass-through or participation
certificates. CMOs provide an investor with a specified interest in the cash
flow from a pool of underlying mortgages or of other mortgage-backed securities.
These securities may be issued by U.S. Government agencies and instrumentalities
such as Fannie Mae or sponsored enterprises such as Freddie Mac or by trusts
formed by private originators of, or investors in, mortgage loans, including
savings and loan associations, mortgage bankers, commercial banks, insurance
companies, investment banks and special purpose subsidiaries of the foregoing.
In general, CMOs are debt obligations of a legal entity that are collateralized
by, and multiple class mortgage-backed securities represent direct ownership
interests in, a pool of mortgage loans or mortgage-backed securities the
payments on which are used to make payments on the CMOs or multiple class
mortgage-backed securities.
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Fannie Mae REMIC certificates are issued and guaranteed as to timely
distribution of principal and interest by Fannie Mae. In addition, Fannie Mae
will be obligated to distribute the principal balance of each class of REMIC
certificates in full, whether or not sufficient funds are otherwise available.
Freddie Mac guarantees the timely payment of interest on Freddie Mac
REMIC certificates and also guarantees the payment of principal as payments are
required to be made on the underlying mortgage participation certificates
("PCs"). PCs represent undivided interests in specified level payment,
residential mortgages or participations therein purchased by Freddie Mac and
placed in a PC pool. With respect to principal payments on PCs, Freddie Mac
generally guarantees ultimate collection of all principal of the related
mortgage loans without offset or deduction. Freddie Mac also guarantees timely
payment of principal of certain PCs.
CMOs and guaranteed REMIC certificates issued by Fannie Mae and Freddie
Mac are types of multiple class mortgage-backed securities. Investors may
purchase beneficial interests in REMICs, which are known as "regular" interests
or "residual" interests. The Funds do not intend to purchase residual interests
in REMICs. The REMIC certificates represent beneficial ownership interests in a
REMIC trust, generally consisting of mortgage loans or Fannie Mae, Freddie Mac
or Ginnie Mae guaranteed mortgage-backed securities. The obligations of Fannie
Mae or Freddie Mac under their respective guaranty of the REMIC certificates are
obligations solely of Fannie Mae or Freddie Mac, respectively.
CMOs are issued in multiple classes, each with a specified fixed or
floating interest rate and a final scheduled distribution date. In most cases,
payments of principal are applied to the CMO classes in order of their
respective stated maturities, so that no principal payments will be made on a
CMO class until all other classes having an earlier stated maturity date are
paid in full. These are referred to as "sequential pay" CMOs, or REMIC
Certificates. 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 and other permitted investments.
Additional structures of CMOs and REMIC certificates include, among
others, "parallel pay" CMOs and REMIC certificates. Parallel pay CMOs or REMIC
certificates are those which are structured to apply principal payments and
prepayments of mortgage assets to two or more classes concurrently on a
proportionate or disproportionate basis. These simultaneous payments are taken
into account in calculating the final distribution date of each class.
A wide variety of REMIC certificates may be issued in sequential pay or
parallel pay structures. These securities include accrual certificates (also
known as "Z-Bonds"), which only accrue interest at a specified rate until all
other certificates having an earlier final distribution date have been retired
and are converted thereafter to an interest-paying security, and planned
amortization class ("PAC") certificates, which are parallel pay REMIC
certificates that generally require that specified amounts of principal be
applied on each payment date to one or more classes or REMIC certificates (the
"PAC Certificates"), even though all other principal payments and prepayments of
the mortgage assets are then required to be applied to one or more other
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classes of the certificates. The scheduled principal payments for the PAC
Certificates generally have the highest priority on each payment date after
interest due has been paid to all classes entitled to receive interest
currently. Shortfalls, if any, are added to the amount payable on the next
payment date. The PAC Certificate payment schedule is taken into account in
calculating the final distribution date of each class of PAC. In order to create
PAC tranches, one or more tranches generally must be created that absorb most of
the volatility in the underlying mortgage assets. These tranches tend to have
market prices and yields that are much more volatile that other PAC classes.
CMOs may involve additional risks other than those found in other types
of mortgage-related obligations. CMOs may exhibit more price volatility and
interest rate risk than other types of mortgage-related obligations. During
periods of rising interest rates, CMOs may lose their liquidity as CMO market
makers may choose not to repurchase, or may offer prices, based on current
market conditions, which are unacceptable to the Portfolio based on the
Portfolio's analysis of the market value of the security.
The Core Fixed Income Portfolio may also invest in stripped
mortgage-backed securities ("SMBS") (including interest only and principal only
securities), which are derivative multiple class mortgage-backed securities. The
Core Fixed Income Portfolio may also invest in privately-issued SMBS. Although
the market for such securities is increasingly liquid, privately-issued SMBS'
may not be readily marketable and will be considered illiquid for purposes of
the Portfolio's limitation on investments in illiquid securities. The Advisor
may determine that SMBS' which are U.S. Government securities are liquid for
purposes of the Portfolio's limitation on investments in illiquid securities.
SMBS are usually structured with two different classes: one that
receives 100% of the interest payments and the other that receives 100% of the
principal payments from a pool of mortgage loans. If the underlying mortgage
loans experience different than anticipated prepayments of principal, the Fund
may fail to fully recoup its initial investment in these securities. The market
value of the class consisting entirely of principal payments generally is
unusually volatile in response to changes in interest rates. The yields on a
class of SMBS that receives all or most of the interest from mortgage loans are
generally higher than prevailing market yields on other mortgage-backed
securities because their cash flow patterns are more volatile and there is a
greater risk that the initial investment will not be fully recouped.
Because derivative mortgage-backed securities (such as principal-only
(POs), interest-only (IOs) or inverse floating rate securities) are more exposed
to mortgage prepayments, they generally involve a greater amount of risk. Small
changes in prepayments can significantly impact the cash flow and the market
value of these securities. The risk of faster than anticipated prepayments
generally adversely affects IOs, super floaters and premium priced
mortgage-backed securities. The risk of slower than anticipated prepayments
generally adversely affects POs, floating-rate securities subject to interest
rate caps, support tranches and discount priced mortgage-backed securities. In
addition, particular derivative securities may be leveraged such that their
exposure (i.e., price sensitivity) to interest rate and/or prepayment risk is
magnified.
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III. Description of Asset-Backed Securities
Asset-Backed Securities. The Core Fixed Income Portfolio may invest in
asset-backed securities. Asset-backed securities include interests in pools of
receivables, such as motor vehicle installment purchase obligations 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 may also be debt instruments, which
are also known as collateralized obligations and are generally issued as the
debt of a special purpose entity 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 or 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 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.
The purchase of asset-backed securities may raise considerations
peculiar to the financing of the instruments underlying such securities. For
example, most organizations that issue asset-backed securities relating to motor
vehicle installment purchase obligations perfect their interests in the
respective obligations only by filing a financing statement and by having the
servicer of the obligations, which is usually the originator, take custody
thereof. In such circumstances, if the servicer were to sell the same
obligations to another party, in violation of its duty not to do so, there is a
risk that such party could acquire an interest in the obligations superior to
that of the holders of the asset-backed securities. Also, although most of such
obligations grant a security interest in the motor vehicle being financed, in
most states the security interest in a motor vehicle must be noted on the
certificate of title to perfect such 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, there is the possibility 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 owed 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 cardholder.
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IV. Description of U.S. Government Securities and Certain Other Securities
The term "U.S. Government securities" refers to a variety of securities
which are issued or guaranteed by the United States Government, and by various
instrumentalities which have been established or sponsored by the United States
Government.
U.S. Treasury securities are backed by the "full faith and credit" of
the United States. Securities issued or guaranteed by Federal agencies and U.S.
Government sponsored enterprises or instrumentalities may or may not be backed
by the full faith and credit of the United States. In the case of securities not
backed by the full faith and credit of the United States, an investor must look
principally to the agency, enterprise or instrumentality issuing or guaranteeing
the obligation for ultimate repayment, and may not be able to assert a claim
against the United States itself in the event the agency, enterprise or
instrumentality does not meet its commitment. Agencies which are backed by the
full faith and credit of the United States include the Export Import Bank,
Farmers Home Administration, Federal Financing Bank and others. Certain
agencies, enterprises and instrumentalities, such as the Government National
Mortgage Association are, in effect, backed by the full faith and credit of the
United States through provisions in their charters that they may make
"indefinite and unlimited" drawings on the Treasury, if needed to service its
debt. Debt from certain other agencies, enterprises and instrumentalities,
including the Federal Home Loan Bank and Federal National Mortgage Association,
are not guaranteed by the United States, but those institutions are protected by
the discretionary authority for the U.S. Treasury to purchase certain amounts of
their securities to assist the institution in meeting its debt obligations.
Finally, other agencies, enterprises and instrumentalities, such as the Farm
Credit System and the Federal Home Loan Mortgage Corporation, are federally
chartered institutions under Government supervision, but their debt securities
are backed only by the creditworthiness of those institutions, not the U.S.
Government.
Some of the U.S. Government agencies that issue or guarantee securities
include the Export-Import Bank of the United States, Farmers Home
Administration, Federal Housing Administration, Maritime Administration, Small
Business Administration and The Tennessee Valley Authority.
An instrumentality of the U.S. Government is a Government agency
organized under Federal charter with Government supervision. Instrumentalities
issuing or guaranteeing securities include, among others, Overseas Private
Investment Corporation, Federal Home Loan Banks, the Federal Land Banks, Central
Bank for Cooperatives, Federal Intermediate Credit Banks and the Federal
National Mortgage Association.
International institutions that issue securities which the Core Fixed
Income Portfolio may purchase include the Asian Development Bank, Inter-American
Development Bank and the International Bank for Reconstruction and Development
(the "World Bank").
V. Description of Municipal Obligations
Municipal Obligations generally include debt obligations issued by
states and their political subdivisions, and duly constituted authorities and
corporations, to obtain funds to
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construct, repair or improve various public facilities such as airports,
bridges, highways, hospitals, housing, schools, streets and water and sewer
works. Municipal Obligations may also be issued to refinance outstanding
obligations as well as to obtain funds for general operating expenses and for
loan to other public institutions and facilities.
Industrial revenue bonds in most cases are revenue bonds and generally
do not have the pledge of the credit of the issuer. The payment of the principal
and interest on such industrial revenue bonds is dependent solely on the ability
of the user of the facilities financed by the bonds to meet its financial
obligations and the pledge, if any, of real and personal property so financed as
security for such payment. Short-term municipal obligations issued by states,
cities, municipalities or municipal agencies, include Tax Anticipation Notes,
Revenue Anticipation Notes, Bond Anticipation Notes, Construction Loan Notes and
Short-Term Discount Notes. Project Notes are instruments guaranteed by the
Department of Housing and Urban Development but issued by a state or local
housing agency. While the issuing agency has the primary obligation on Project
Notes, they are also secured by the full faith and credit of the United States.
Note obligations with demand or put options may have a stated maturity
in excess of 13 months, but permit any holder to demand payment of principal
plus accrued interest upon a specified number of days' notice. Frequently, such
obligations are secured by letters of credit or other credit support
arrangements provided by banks. The issuer of such notes normally has a
corresponding right, after a given period, to repay in its discretion the
outstanding principal of the note plus accrued interest upon a specific number
of days' notice to the bondholders. The interest rate on a demand note may be
based upon a known lending rate, such as a bank's prime rate, and be adjusted
when such rate changes, or the interest rate on a demand note may be a market
rate that is adjusted at specified intervals. The demand notes in which the
Tax-Exempt Cash Portfolio will invest are payable on not more than thirteen
months notice.
The yields of Municipal Obligations depend on, among other things,
general money market conditions, conditions in the Municipal Obligation market,
the size of a particular offering, the maturity of the obligation, and the
rating of the issue. The ratings of Moody's and S&P represent their opinions of
the quality of the Municipal Obligations rated by them. It should be emphasized
that such ratings are general and are not absolute standards of quality.
Consequently, Municipal Obligations with the same maturity, coupon and rating
may have different yields, while Municipal Obligations of the same maturity and
coupon, but with different ratings may have the same yield. It will be the
responsibility of the Advisor to appraise independently the fundamental quality
of the bonds held by the Tax-Exempt Cash Portfolio.
Municipal Obligations are sometimes purchased on a "when issued" basis,
which means the buyer has committed to purchase certain specified securities at
an agreed upon price when they are issued. The period between commitment date
and issuance date can be a month or more. It is possible that the securities
will never be issued and the commitment cancelled.
From time to time proposals have been introduced before Congress to
restrict or eliminate the Federal income tax exemption for interest on Municipal
Obligations. Similar
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proposals may be introduced in the future. If any such proposal were enacted, it
might restrict or eliminate the ability of the Tax-Exempt Cash, Muni
Intermediate and New Jersey Muni Portfolios to achieve their investment
objectives. In that event the Funds' Board members and officers would reevaluate
the Tax-Exempt Cash, Muni Intermediate and New Jersey Muni Portfolios'
investment objectives and policies and consider recommending to their
shareholders changes in such objectives and policies.
VI. Foreign Investments
Investors should recognize that investing in foreign companies involves
certain special considerations which are not typically associated with investing
in U.S. companies. Because the stocks of foreign companies are frequently
denominated in foreign currencies, and because the Tax Managed Equity,
International, Small Capitalization Equity, Large Cap Value, Institutional
International, Emerging Markets and Global Equity Portfolios may temporarily
hold uninvested reserves in bank deposits in foreign currencies, these
Portfolios may be affected favorably or unfavorably by changes in currency rates
and in exchange control regulations, and may incur costs in connection with
conversions between various currencies. The investment policies of the
International, Institutional International, Emerging Markets and Global Equity
Portfolios permit the Portfolios to enter into forward foreign currency exchange
contracts in order to hedge the Portfolio's holdings and commitments against
changes in the level of future currency rates. Such contracts involve an
obligation to purchase or sell a specific currency at a future date at a price
set at the time of the contract.
As foreign companies are not generally subject to uniform accounting,
auditing and financial reporting standards and they may have policies that are
not comparable to those of domestic companies, there may be less information
available about certain foreign companies than about domestic companies.
Securities of some foreign companies are generally less liquid and more volatile
than securities of comparable domestic companies. There is generally less
government supervision and regulation of stock exchanges, brokers and listed
companies than in the U.S. In addition, there is the possibility of
expropriation or confiscatory taxation, political or social instability, or
diplomatic developments which could affect U.S. investments in foreign
countries.
Although the Tax Managed Equity, International, Small Capitalization
Equity, Large Cap Value, Institutional International, Emerging Markets and
Global Equity Portfolios will endeavor to achieve most favorable execution costs
in its portfolio transactions, commissions on many foreign stock exchanges are
generally higher than negotiated commissions on U.S. exchanges.
Certain foreign governments levy withholding taxes on dividend and
interest income. Although in some countries a portion of these taxes are
recoverable, the non-recovered portion of foreign withholding taxes will reduce
the income received from the foreign companies comprising the Tax Managed
Equity, International, Small Capitalization Equity, Large Cap Value,
Institutional International, Emerging Markets and Global Equity Portfolios.
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VII. Options
The Tax Managed Equity Portfolio's writing and purchase of options is a
highly specialized activity which involves investment analysis and risks that
are different from those associated with ordinary portfolio securities
transactions.
Purchasing options to attempt to increase return through their price
appreciation involves the risk of loss of option premium if the Advisor is
incorrect in its expectation of the direction or magnitude of the change in
securities prices. Writing options to seek to increase income in the Portfolio
involves the risk of net loss (after receiving the option premium) if the
Advisor is incorrect in its expectation of the direction or magnitude of the
change in securities prices. The successful use of options for hedging purposes
also depends in part on the degree of correlation between the option and a
security or index of securities. If the Advisor is incorrect in its expectation
of changes in securities prices or its estimation of the correlation between the
option and a security index, the investment performance of the Portfolio will be
less favorable than it would have been in the absence of such options
transactions. The use of options may increase the Portfolio's portfolio turnover
rate. Higher rates of turnover may result in increased brokerage commissions,
and could increase the amount of income received by the Portfolio that
constitutes taxable capital gains. To the extent capital gains are realized,
distributions from those gains may be ordinary income for federal tax purposes.
Additionally, there is no assurance that a liquid secondary market on
an options exchange will exist for any particular exchange-traded option or
option traded over-the-counter at any particular time. If the Portfolio is
unable to effect a closing purchase transaction with respect to covered options
it has written, the Portfolio will not be able to sell the underlying securities
or dispose of segregated assets until the options expire or are exercised.
Similarly, if the Portfolio is unable to effect a closing sale transaction with
respect to options it has purchased, it will have to exercise the options in
order to realize any profit and will incur transaction costs upon the purchase
or sale of the underlying securities.
Reasons for the absence of a liquid secondary market on an exchange
include the following: (i) there may be insufficient trading interest in certain
options; (ii) restrictions may be imposed by an exchange on opening or closing
transactions or both; (iii) trading halts, suspensions or other restrictions may
be imposed with respect to particular classes or series of options; (iv) unusual
or unforeseen circumstances may interrupt normal operations on an exchange; (v)
the facilities of an exchange or the Options Clearing Corporation may not at all
times be adequate to handle current trading volume; or (v) one or more exchanges
could, for economic or other reasons, decide or be compelled at some future date
to discontinue the trading of options (or a particular class or series of
options), in which event the secondary market on that exchange (or in that class
or series of options) would cease to exist, although outstanding options on that
exchange that had been issued by the Options Clearing Corporation as a result of
trades on that exchange would continue to be exercisable in accordance with
their terms.
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The Portfolio may purchase and sell both options that are traded on
U.S. exchanges and options traded over-the-counter with broker-dealers who make
markets in these options. The ability to terminate over-the-counter options is
more limited than with exchange-traded options and may involve the risk that
broker-dealers participating in such transactions will not fulfill their
obligations. Until such time as the staff of the SEC changes its position, the
Portfolio will treat purchased over-the-counter options and all assets used to
cover written over-the-counter options as illiquid securities.
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