<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 7, 1996
File No. 33-58041
File No. 811-7257
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933
PRE-EFFECTIVE AMENDMENT NO. /X/
and
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940
AMENDMENT NO. 2 /X/
SEI INSTITUTIONAL INVESTMENTS TRUST
(Exact Name of Registrant as Specified in Charter)
c/o The CT Corporation System
2 Oliver Street
Boston, Massachusetts 02109
(Address of Principal Executive Offices, Zip Code)
Registrant's Telephone Number, including Area Code (610) 254-1000
DAVID G. LEE
C/O SEI CORPORATION
680 E. SWEDESFORD ROAD
WAYNE, PENNSYLVANIA 19087
(Name and Address of Agent for Service)
Copies to:
RICHARD W. GRANT, ESQUIRE
MORGAN, LEWIS & BOCKIUS LLP
2000 ONE LOGAN SQUARE
PHILADELPHIA, PENNSYLVANIA 19103
- --------------------------------------------------------------------------------
/X/ Approximate date of Proposed Public Offering:
As soon as practicable after the
effective date of this Registration Statement
- --------------------------------------------------------------------------------
Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a)
of the Securities Act of 1933 or until the Registration Statement shall
become effective on such date as the Commission acting pursuant to
said Section 8(a) may determine.
Pursuant to the provisions of Rule 24f-2 under the Investment Company Act
of 1940, an indefinite number of units of beneficial interest are
being registered by this Registration Statement.
- --------------------------------------------------------------------------------
<PAGE> 2
SEI INSTITUTIONAL INVESTMENTS TRUST
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
N-1A ITEM NO. LOCATION
- --------------------------------------------------------------------------------
PART A - LARGE CAP, SMALL CAP, CORE FIXED INCOME, HIGH YIELD BOND,
INTERNATIONAL FIXED INCOME, EMERGING MARKETS EQUITY AND INTERNATIONAL EQUITY
FUNDS
<S> <C> <C>
Item 1. Cover Page Cover Page
Item 2. Synopsis Annual Operating Expenses
Item 3. Condensed Financial Information (*)
Item 4. General Description of Registrant The Trust; Investment Objectives
and Policies; General Investment
Policies; Description of
Permitted Investments and Risk
Factors
Item 5. Management of the Fund General Information-Trustees of
the Trust; The Money Managers;
General Management of the Funds;
Item 5a . Management Discussion and Analysis (*)
Item 6. Capital Stock & Other Securities General Information-Voting
Rights, Shareholder Inquiries,
Dividends; Taxes
Item 7. Purchase of Securities Being Purchase and Redemption of Shares
Offered
Item 8. Redemption or Repurchase Purchase and Redemption of Shares
Item 9. Pending Legal Proceedings (*)
PART B - ALL FUNDS
Item 10. Cover Page Cover Page
Item 11. Table of Contents Table of Contents
Item 12. General Information & History The Trust
Item 13. Investment Objectives & Policies Investment Objectives and Policies;
Investment Limitations; Securities
Lending
Item 14. Management of the Registrant Trustees and Officers of the Trust
(Prospectus); The Manager and
Shareholder Servicing Agent
Item 15. Control Persons & Principal Holders of Trustees and Officers of the Trust
Securities (Prospectus)
Item 16. Investment Advisory & Other Services GENERAL MANAGEMENT OF THE FUNDS
(PROSPECTUS); THE MONEY MANAGERS
(PROSPECTUS); The Manager;
Distribution; Counsel &
Independent Public Accountants
</TABLE>
<PAGE> 3
<TABLE>
<S> <C> <C>
Item 17. Brokerage Allocation Fund Transactions
Item 18. Capital Stock & Other Securities Description of Shares
Item 19. Purchase, Redemption, & Pricing of Securities Purchase and Redemption of
Being Offered Shares (Prospectus); Determination
of Net Asset Value
Item 20. Tax Status Taxes (Prospectus); Taxes
Item 21. Underwriters Distribution
Item 22. Calculation of Yield Quotation Performance
Item 23. Financial Statements (*)
</TABLE>
PART C
Information required to be included in Part C is set forth under the
appropriate item, so numbered, in Part C of this Registration Statement.
(*) Not Applicable
(ii)
<PAGE> 4
SEI INSTITUTIONAL INVESTMENTS TRUST
Large Cap Fund
Small Cap Fund
Core Fixed Income Fund
High Yield Bond Fund
International Fixed Income Fund
Emerging Markets Equity Fund
International Equity Fund
________ __, 1996
===============================================================================
This Prospectus sets forth concisely information about the above-referenced
funds. Please read this Prospectus carefully before investing, and keep it on
file for future reference.
A Statement of Additional Information dated _______ __, 1996 has been filed
with the Securities and Exchange Commission and is available upon request and
without charge by writing the distributor, SEI Financial Services Company, 680
East Swedesford Road, Wayne, Pennsylvania 19087-1658 or by calling
1-800-342-5734. The Statement of Additional Information is incorporated into
this Prospectus by reference.
SEI Institutional Investments Trust ("SIIT" or the "Trust") is an open-end
management investment company that offers certain institutions with investable
pools of assets that have signed an Investment Management Agreement with SEI
Financial Management Corporation a convenient means of investing in
professionally managed diversified and non-diversified portfolios of
securities.
THE HIGH YIELD BOND FUND INVESTS PRIMARILY, AND MAY INVEST ALL OF ITS ASSETS,
IN LOWER RATED BONDS, COMMONLY REFERRED TO AS "JUNK BONDS." THESE SECURITIES
ARE SPECULATIVE AND ARE SUBJECT TO GREATER RISK OF LOSS OF PRINCIPAL AND
INTEREST THAN ARE INVESTMENTS IN HIGHER RATED BONDS. BECAUSE INVESTMENT IN
SUCH SECURITIES ENTAILS GREATER RISKS, INCLUDING RISK OF DEFAULT, AN INVESTMENT
IN THE HIGH YIELD BOND FUND SHOULD NOT CONSTITUTE A COMPLETE INVESTMENT PROGRAM
AND MAY NOT BE APPROPRIATE FOR ALL INVESTORS. INVESTORS SHOULD CAREFULLY
CONSIDER THE RISKS POSED BY AN INVESTMENT IN THE HIGH YIELD BOND FUND BEFORE
INVESTING. SEE "INVESTMENT OBJECTIVES AND POLICIES," "GENERAL INVESTMENT
POLICIES AND RISK FACTORS - RISK FACTORS RELATING TO INVESTING IN LOWER RATED
SECURITIES" AND THE "APPENDIX."
===============================================================================
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
THE TRUST'S SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK. THE TRUST'S SHARES ARE NOT FEDERALLY INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER
GOVERNMENT AGENCY. INVESTMENT IN THE SHARES INVOLVES RISK, INCLUDING POSSIBLE
LOSS OF THE PRINCIPAL AMOUNT INVESTED.
<PAGE> 5
<TABLE>
<CAPTION>
TABLE OF CONTENTS
=========================================================================================================================
Page
<S> <C>
ANNUAL OPERATING EXPENSES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
THE TRUST . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
ELIGIBLE INVESTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
GENERAL MANAGEMENT OF THE FUNDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
THE MONEY MANAGERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
INVESTMENT OBJECTIVES AND POLICIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
GENERAL INVESTMENT POLICIES AND RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
INVESTMENT LIMITATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
PURCHASE AND REDEMPTION OF SHARES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
PERFORMANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
GENERAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
DESCRIPTION OF PERMITTED INVESTMENTS AND RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
APPENDIX . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-1
</TABLE>
-2-
<PAGE> 6
<TABLE>
<CAPTION>
ANNUAL OPERATING EXPENSES (as a percentage of average net assets)
-------------------------------------------------------------------------------------------------------
Large Cap Small Cap Core Fixed High Yield
Fund Fund Income Fund Bond Fund
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Management Fees (after fee .27% .54% .17% .38%
waivers) (1)(2)
.09%
Other Expenses(3)(4): .07% .06% .04%
-------------------------------------------------------------------------------------------------------
Total Fund Operating .34% .60% .21% .47%
Expenses (after fee
waivers)(4)
=======================================================================================================
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
International Fixed Emerging Markets Equity International Equity
Income Fund Fund Fund
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Management Fees(after fee waivers)(1)(2) .34% .94% .38%
Other Expenses(3)(4): .27% .46% .25%
---------------------------------------------------------------------------------------------------------------------------
Total Fund Operating Expenses(after fee .61% 1.40% .63%
waivers)(4)
============================================================================================================================
</TABLE>
(1) Each shareholder must also enter into an Investment Management
Agreement with SEI Financial Management Corporation ("SFM") for
investment strategies and programs and asset allocation services, and
pays annual fees thereunder calculated as a specified percentage of
the shareholder's assets managed by SFM.
(2) SFM has agreed to waive, on a voluntary basis, a portion of its
management fee, and the management fees shown reflect this voluntary
waiver. SFM reserves the right to terminate its waiver at any time
in its sole discretion. Absent such fee waiver, management fees
would be: Large Cap Fund, .45%, Small Cap Fund, .70%, Core Fixed
Income Fund, .35%, High Yield Bond Fund, .54%, International Fixed
Income, .50%, Emerging Markets Equity, 1.10%, and International
Equity, .56%.
(3) "Other Expenses" are based on estimated amounts for the current fiscal
year.
(4) SFM has agreed, on a voluntary basis, to waive a portion of its
management fee and/or reimburse Other Expenses to the extent necessary
to keep Total Operating Expenses from exceeding current levels, and
the Total Operating Expenses reflect these waivers and/or
reimbursements. SFM reserves the right to terminate its voluntary
waiver and/or reimbursement at any time in its sole discretion.
Absent such waivers and/or reimbursement, Total Operating Expenses
would be: Large Cap Fund, .52%, Small Cap Fund, .78%, Core Fixed
Income Fund, .42%, High Yield Bond Fund, .63%, International Fixed
Income, .83%, Emerging Markets Equity, 1.56%, and International
Equity, .81%.
-3-
<PAGE> 7
<TABLE>
<CAPTION>
EXAMPLE
- -------------------------------------------------------------------------------------------------------------
1 yr. 3 yrs.
------------------------------------------------------------------------------------------------------------
<S> <C> <C>
An investor in a Fund would pay the following expenses on a
$1,000 investment assuming (1) a 5% annual return and (2)
redemption at the end of each time period:
Large Cap Fund . . . . . . . . . . . . . . . . . . $ 3 $11
Small Cap Fund . . . . . . . . . . . . . . . . . . $ 6 $19
Core Fixed Income Fund . . . . . . . . . . . . . . $ 2 $ 7
High Yield Bond Fund . . . . . . . . . . . . . . . $ 5 $15
International Fixed Income Fund . . . . . . . . . $ 6 $20
Emerging Markets Equity Fund . . . . . . . . . . . $14 $44
International Equity Fund . . . . . . . . . . . . $ 6 $20
- -------------------------------------------------------------------------------------------------------------
</TABLE>
THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
The purpose of the expense table and example is to assist the investor in
understanding the various costs and expenses that may be directly or indirectly
borne by investors in the Funds. Additional information may be found under
"General Management of the Funds" and "The Money Managers."
-4-
<PAGE> 8
THE TRUST
================================================================================
SEI Institutional Investments Trust ("SIIT" or the "Trust") is an open-end
management investment company, organized as a Massachusetts business trust
under a Declaration of Trust dated March 1, 1995. The Declaration of Trust
permits the Trust to offer separate series ("funds") of units of beneficial
interest ("shares") and different classes of each fund. Currently, the Trust
does not intend to issue additional classes of shares. All consideration
received by the Trust for shares of any fund, and all assets of such fund
belong to that fund and would be subject to the liabilities related thereto.
The Trust pays its expenses, including the fees of its service providers, audit
and legal expenses, expenses of preparing prospectuses, proxy solicitation
materials and reports to shareholders, costs of custodial services and
registering the shares under federal and state securities laws, pricing,
insurance expenses, litigation and other extraordinary expenses, brokerage
costs, interest charges, taxes and organizational expenses.
This Prospectus offers shares of the following funds: Large Cap, Small Cap,
Core Fixed Income, High Yield Bond, International Fixed Income, Emerging
Markets Equity and International Equity Funds (each a "Fund" and, together, the
"Funds"). All of these Funds are diversified funds except for the
International Fixed Income Fund, which is a non-diversified fund. Additional
information pertaining to the Trust may be obtained by writing SEI Financial
Services Company, 680 East Swedesford Road, Wayne, Pennsylvania 19087-1658, or
by calling 1-800-342-5734.
ELIGIBLE INVESTORS
================================================================================
Shares of the Funds are currently only offered to eligible investors. Eligible
investors are principally institutions that have investable pools of
assets, including defined benefit plans, defined contribution plans, health
care defined benefit plans and board-designated funds, insurance operating
funds, foundations, endowments, public plans and Taft-Hartley plans and have
entered into an Investment Management Agreement (the "Agreement") with SEI
Financial Management Corporation ("SFM")(collectively, "Eligible Investors").
Pursuant to the Agreement, SFM will consult with each Eligible Investor to
define its investment objectives, desired returns and tolerance for risk, and
to develop a plan for the allocation of assets among different asset classes.
The Agreement sets forth the fee to be paid to SFM, which is ordinarily
expressed as a percentage of the Eligible Investor's assets managed by SFM.
This fee, which is negotiated by the Eligible Investor and SFM, may include a
performance based fee or a fixed-dollar fee for certain specified services.
Either the Eligible Investor or SFM may terminate the Agreement upon written
notice as provided in the Agreement.
GENERAL MANAGEMENT OF THE FUNDS
================================================================================
SFM is a wholly-owned subsidiary of SEI Corporation ("SEI"), a financial
services company located in Wayne, Pennsylvania. The principal business
address of SFM is 680 East Swedesford Road, Wayne, Pennsylvania, 19087-1658.
SEI was founded in 1968, and is a leading provider of investment solutions to
banks, institutional investors, investment advisers and insurance companies.
Affiliates of SFM have provided consulting advice to institutional investors
for more than 20 years, including
-5-
<PAGE> 9
advice regarding selection and evaluation of money managers. SFM currently
serves as manager or administrator to more than 29 investment companies,
including more than 273 funds, with more than $59 billion in assets as of
March 31, 1996.
SFM and its affiliate, SEI Financial Services Company ("SFS"), the Trust's
distributor, are responsible for providing general management, administrative,
investment advisory, portfolio management and distribution services to the
Funds. SFM is the investment adviser for each of the Funds, and operates as a
"manager of managers." As Adviser, SFM oversees the investment advisory
services provided to the Funds and manages the cash portion of the Funds'
assets. Pursuant to separate sub-advisory agreements with SFM, and under the
supervision of the Adviser and the Board of Trustees, the money managers (the
"Money Managers") are responsible for the day-to-day investment management of
all or a discrete portion of the assets of the Funds. Money Managers are
selected for the Funds based primarily upon the research and recommendations
of SFM, which evaluates quantitatively and qualitatively a Money Manager's
skills and investment results in managing assets for specific asset classes,
investment styles and strategies.
The Trust's Board of Trustees is responsible for overseeing the operation of
the Trust, including reviewing and approving the Trust's contracts with SFM and
the Money Managers. Subject to Board review, SFM allocates and, when
appropriate, reallocates the Fund's assets among Money Managers, monitors and
evaluates Money Manager performance, and oversees Money Manager compliance with
the Funds' investment objectives, policies and restrictions. SFM HAS ULTIMATE
RESPONSIBILITY FOR THE INVESTMENT PERFORMANCE OF THE FUNDS DUE TO ITS
RESPONSIBILITY TO OVERSEE MONEY MANAGERS AND RECOMMEND THEIR HIRING,
TERMINATION AND REPLACEMENT.
The Securities and Exchange Commission (the "SEC") has issued an exemptive
order (the "Order") that permits the Trust, with the approval of the Trust's
Board of Trustees, to retain Money Managers unaffiliated with SFM for a Fund
without submitting the Money Manager's contract with SFM to a vote of the
Fund's shareholders. The Order also permits the non-disclosure of amounts
payable by SFM under all such contracts. The Trust will notify shareholders
of the appropriate Fund in the event of any change in the identity of the
Money Manager(s) for a Fund.
For its management services, SFM is entitled to a fee, which is calculated
daily and paid monthly, at the following annual rates (shown as a percentage of
the average daily net assets of each Fund): Large Cap Fund, .40%; Small Cap
Fund, .65%; Core Fixed Income Fund, .30%; High Yield Bond Fund, .49%;
International Fixed Income Fund, .45%; Emerging Markets Equity Fund, 1.05%; and
International Equity Fund, .51%. SFM pays each Money Manager for its services
to a Fund from the management fee SFM receives from that Fund.
SFS serves as the distributor pursuant to a distribution agreement with the
Trust. No compensation is paid to the distributor for distribution services
for the shares of any Fund. SFM will provide transfer agent and shareholder
recordkeeping services to the Trust and will provide the necessary office
space, equipment and personnel to operate and administer the Trust. The
principal business address for SFS is 680 East Swedesford Road, Wayne,
Pennsylvania 19087-1658.
-6-
<PAGE> 10
THE MONEY MANAGERS
================================================================================
Initially, the assets of each Fund will be allocated among the Money Managers
listed below. However, SFM may change the allocation of a Fund's assets among
Money Managers at any time.
The following table sets forth information about the Money Managers selected
for the Funds by the Boards of Trustees (as of June 3, 1996).
<TABLE>
<CAPTION>
========================================================================================
Fund Money Managers
- ----------------------------------------------------------------------------------------
<S> <C>
Large Cap Alliance Capital Management L.P.
IDS Advisory Group Inc.
LSV Asset Management
Mellon Equity Associates
MERUS-UCA Capital Management
Provident Investment Counsel, Inc.
- ----------------------------------------------------------------------------------------
Small Cap 1838 Investment Advisors, L.P.
Apodaca-Johnston Capital Management
Boston Partners Asset Management, L.P.
First of America Investment Corporation
Nicholas-Applegate Capital Management
Wall Street Associates
- ----------------------------------------------------------------------------------------
International Equity Acadian Asset Management, Inc.
Farrell Wako Global Investment Management, Inc.
Morgan Grenfell Investment Services, Ltd.
Seligman Henderson Co.
Yamaichi Capital Management, Inc.
- ----------------------------------------------------------------------------------------
Emerging Markets Equity Montgomery Asset Management, L.P.
- ----------------------------------------------------------------------------------------
Core Fixed Income BlackRock Financial Management, Inc.
Firstar Investment Research & Management Company
Western Asset Management Company
- ----------------------------------------------------------------------------------------
High Yield Bond BEA Associates
- ----------------------------------------------------------------------------------------
International Fixed Strategic Fixed Income, L.P.
Income
========================================================================================
</TABLE>
-7-
<PAGE> 11
1838 INVESTMENT ADVISORS, L.P.
1838 Investment Advisors, L.P. ("1838") acts as a Money Manager for a portion
of the Small Cap Fund, which is also advised by SFM, Apodaca-Johnston Capital
Management, Inc., Boston Partners Asset Management, L.P., First of America
Investment Corporation, Nicholas-Applegate Capital Management, Inc. and Wall
Street Associates. As of March 31, 1996, 1838 managed $4.7 billion in assets,
in large and small capitalization equity, fixed income and balanced account
funds. Clients include corporate employee benefit plans, municipalities,
endowments, foundations, jointly trusteed plans, insurance companies and
wealthy individuals. The principal address of 1838 is 100 Matsonford Road,
Suite 320, Radnor, Pennsylvania 19087.
Edwin B. Powell, Joseph T. Doyle, Jr., Holly L. Guthrie and Cynthia R. Axlrod
are the fund managers for the portion of the Small Cap Fund's assets allocated
to 1838. These individuals work as a team and share responsibility. Mr. Doyle
has been with 1838 since 1988. Mr. Powell managed small cap equity funds for
Provident Capital Management from 1987 to 1994. Prior to joining 1838 in 1994,
Ms. Guthrie managed small cap equity funds for Provident Capital Management
from 1992 to 1994. Prior to that, she was employed by CoreStates Investment
Advisers from 1987 to 1992 as an equity analyst and fund manager. Prior to
joining 1838 in 1995, Ms. Axlrod was with Friess Associates from 1992 to 1995.
Prior to that, she was with Provident Capital Management from 1987 to 1992.
ACADIAN ASSET MANAGEMENT, INC.
Acadian Asset Management, Inc. ("Acadian") acts as a Money Manager for a
portion of the International Equity Fund, which is also advised by SFM, Farrell
Wako Global Investment Management, Inc., Morgan Grenfell Investment Services
Limited, Seligman Henderson Co. and Yamaichi Capital Management, Inc. Acadian,
a wholly-owned subsidiary of United Asset Management Corporation, was founded
in 1977, and manages approximately $3 billion in assets invested globally. The
principal address of Acadian is Two International Place, Boston, Massachusetts
02110.
A committee of investment professionals at Acadian are responsible for managing
the portion of the International Equity Fund's assets allocated to Acadian.
ALLIANCE CAPITAL MANAGEMENT L.P.
Alliance Capital Management L.P. ("Alliance") acts as a Money Manager for a
portion of the Large Cap Fund, which is also advised by SFM, IDS Advisory Group
Inc., LSV Asset Management, Mellon Equity Associates, MERUS-UCA Capital
Management and Provident Investment Counsel, Inc. Alliance is a registered
investment adviser organized as a Delaware limited partnership, which
originated as Alliance Capital Management Corporation in 1971. Alliance
Capital Management Corporation, an indirect wholly-owned subsidiary of The
Equitable Life Assurance Society of the United States, is the general partner
of Alliance. As of March 31, 1996, Alliance managed more than $160 billion in
assets. The principal address of Alliance is 1345 Avenue of the Americas, New
York, New York 10105.
A committee of investment professionals at Alliance manages the portion of
the Large Cap Fund's assets allocated to Alliance.
-8-
<PAGE> 12
APODACA-JOHNSTON CAPITAL MANAGEMENT, INC.
Apodaca-Johnston Capital Management, Inc. ("Apodaca") acts as a Money Manager
for a portion of the Small Cap Fund, which is also advised by SFM, 1838, Boston
Partners Asset Management, L.P., First of America Investment Corporation,
Nicholas-Applegate Capital Management, Inc. and Wall Street Associates.
Apodaca is a California corporation that is equally owned by Scott Johnston,
Jerry Apodaca Jr., and Jerry Apodaca, Sr. Apodaca's predecessor was founded in
1985, and as of September 30, 1995, Apodaca had approximately $290 million in
assets under management. Apodaca's clients include pension and profit sharing
plans, an endowment fund and an investment company portfolio. The principal
address of Apodaca is 50 California Street, Suite 3315, San Francisco,
California 94014.
The portion of the Small Cap Fund's assets allocated to Apodaca is managed by
Scott Johnston and Jerry C. Apodaca, Jr. Mr. Johnston, a principal of Apodaca,
founded Apodaca's predecessor in 1985, and has 23 years of investment
experience. Jerry C. Apodaca, Jr. joined the firm as a principal in 1991, and
has 12 years of investment experience. Before joining Apodaca, Mr. Apodaca was
a Vice President of Marketing at Newport First Investments, Inc.
Apodaca has served as an investment adviser to one investment company
portfolio and, as such, does not have extensive experience advising a highly
regulated entity such as an investment company.
BEA ASSOCIATES
BEA Associates ("BEA") acts as the Money Manager for the High Yield Bond Fund,
which is also advised by SFM. BEA is a general partnership organized under the
laws of the State of New York and, together with its predecessor firms, has
been engaged in the investment advisory business for more than 50 years.
Credit Suisse Capital Corporation ("CS Capital") is an 80% partner in BEA and
CS Advisers Corp., a New York corporation which is a wholly-owned subsidiary of
CS Capital, is a 20% partner in BEA. CS Capital is a wholly-owned subsidiary
of Credit Suisse Investment Corporation, which is a wholly-owned subsidiary of
Credit Suisse, the second largest Swiss bank, which, in turn, is a subsidiary
of CS Holding, a Swiss corporation. BEA is registered as an investment adviser
under the Investment Advisers Act of 1940.
BEA is a diversified asset manager, handling global equity, balanced, fixed
income and derivative securities accounts for private individuals, as well as
corporate pension and profit-sharing plans, state pension funds, union funds,
endowments and other charitable institutions. As of March 1, 1996, BEA managed
approximately $28 billion in assets. BEA's principal business address is One
Citicorp Center, 153 East 53rd Street, New York, New York 10022.
The High Yield Bond Fund's assets are managed by Richard J. Lindquist, C.F.A.
Mr. Lindquist joined BEA in 1995 as a result of BEA's acquisition of CS First
Boston Investment Management, and has had 11 years of investment management
experience, including six years of experience working with high yield bonds.
Prior to joining CS First Boston, Mr. Lindquist was with Prudential Insurance
Company of America where he managed high yield funds totalling approximately
$1.3 billion.
BLACKROCK FINANCIAL MANAGEMENT INC.
BlackRock Financial Management, Inc. ("BlackRock") acts as a Money Manager for
a portion of the Core Fixed Income Fund, which is also advised by SFM, Firstar
Investment Research & Management Company and Western Asset Management Company.
BlackRock, a registered investment adviser, is a
-9-
<PAGE> 13
Delaware corporation. BlackRock's predecessor was founded in 1988, and as of
March 1, 1996, BlackRock had $36.5 billion in assets under management.
BlackRock is wholly-owned by PNC Asset Management Group, Inc., a wholly-owned
subsidiary of PNC Bank, N.A. PNC Bank, N.A.'s ultimate parent is PNC Bank
Corp., One PNC Plaza, Pittsburgh, Pennsylvania 15265, a bank holding company.
BlackRock provides investment advice to investment companies, trusts,
charitable organizations, pension and profit sharing plans and government
entities. BlackRock's principal business address is 345 Park Avenue, 29th
Floor, New York, New York 10154.
BlackRock employs a team approach in managing the Fund assets allocated to
BlackRock; however, the fund manager who has day-to-day responsibility for the
portion of the Core Fixed Income Fund's assets allocated to BlackRock is Keith
Anderson. Mr. Anderson is a Managing Director and Co-Head of Portfolio
Management at BlackRock, and has 13 years experience investing in fixed income
securities. Prior to founding BlackRock in 1988, Mr. Anderson was a Vice
President in Fixed Income Research at The First Boston Corporation.
BOSTON PARTNERS ASSET MANAGEMENT, L.P.
Boston Partners Asset Management, L.P. ("BPAM") acts as a Money Manager for a
portion of the Small Cap Fund which isalso advised by SFM, 1838, Apodaca, First
America Investment Corporation, Nicholas-Applegate Capital Management, Inc.
and Wall Street Associates. BPAM, a Delaware limited partnership, is a
registered investment adviser. BPAM's general partner, Boston Partners, Inc.,
One Financial Center, 43rd Floor, Boston, Massachusetts 02111 owns
approximately 20% of BPAM's partnership interests. Desmond J. Heathwood, Chief
Investment Officer of BPAM, is the sole shareholder of Boston's Partners, Inc.
BPAM was founded in April, 1995, and as of December 31, 1995, it had
approximately $5.5 billion in assets under management. BPAM's clients include
corporations, endowments, foundations, pension and profit sharing plans and two
other investment companies. The principal business address of BPAM is One
Financial Center, 43rd Floor, Boston, Massachusetts 02111.
The portion of the Small Cap Fund's assets allocated to BPAM is managed by
Wayne J. Archambo, C.F.A. Mr. Archambo has been employed by BPAM since its
organization, and has more than 10 years experience investing in equities.
Prior to joining BPAM, Mr. Archambo was a Senior Vice President and member of
the Equity Policy Committee at The Boston Company Asset Management, Inc.
("TBCAM"), where he participated in the creation of that firm's Small
Capitalization Value Product and Mid Capitalization Product. Prior to joining
TBCAM in 1989, Mr. Archambo spent six years as a fund manager/analyst for
Boston-based Systematic Investors.
FARRELL WAKO GLOBAL INVESTMENT MANAGEMENT, INC.
Farrell Wako Global Investment Management, Inc. ("Farrell Wako") acts as a
Money Manager of a portion of the International Equity Fund, which is also
advised by SFM, Acadian, Morgan Grenfell Investment Services Limited, Seligman
Henderson Co. and Yamaichi Capital Management, Inc. Farrell Wako, a Delaware
corporation and a wholly-owned subsidiary of Wako Securities, was founded in
1991 and is a registered investment advisor in the U.S. and Japan. Farrell
Wako currently manages over $200 million. The principal address of Farrell
Wako is 780 Third Avenue, New York, New York 10017.
James L. Farrell, the chairman of Farrell Wako, manages its portion of the
assets of the International Equity Fund. Mr. Farrell has 30 years of experience
in investment management and applied financial research and was responsible for
management of over $1 billion in equity assets as Chairman of MPI Associates
prior to his association with Farrell Wako.
FIRST OF AMERICA INVESTMENT CORPORATION
First of America Investment Corporation ("First America") acts as a Money
Manager for a portion of the Small Cap Fund, which is also advised by SFM,
1838, Apodaca, BPAM, Nicholas-Applegate Capital Management, Inc. and Wall Street
Associates. First America is a Michigan Corporation that is a wholly-owned
subsidiary of First America Bank - Michigan, N.A., a national banking
association, which is in turn a wholly-owned subsidiary of First America Bank
Corporation, a registered bank holding company. First America is registered as
an investment adviser under the Investment Advisers Act of 1940. First
America, together with its predecessor, has been engaged in the investment
advisory business since 1932. First America's principal business address is
303 North Rose Street, Suite 500, Kalamazoo, Michigan 49007.
As of March 31, 1996, First America had approximately $13.7 billion in assets
under management. First America's clients include mutual funds, trust funds,
and individually managed institutional and individual accounts.
Mr. Roger Stamper, CFA, has primary responsibility for First America's portion
of the Small Cap Fund. Mr. Stamper is a Managing Director of First America
and has been with First America since 1988.
FIRSTAR INVESTMENT RESEARCH & MANAGEMENT COMPANY
Firstar Investment Research & Management Company ("FIRMCO") acts as a Money
Manager for a portion of the Core Fixed Income Fund, which is also advised by
SFM, BlackRock and Western Asset Management Company. FIRMCO is a registered
investment adviser, founded in 1986. As of December 31, 1995, it had
approximately $15.6 billion in assets under management. FIRMCO is a
wholly-owned subsidiary of Firstar Corporation, a bank holding company located
at 777 East Wisconsin Avenue, Milwaukee, Wisconsin 53202. FIRMCO's clients
include pension and profit sharing plans, trusts and estates and one other
investment company. The principal business address of FIRMCO is 777 East
Wisconsin Avenue, Suite 800, Milwaukee, Wisconsin 53202.
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Mr. Charles Groeschell, a Senior Vice President of FIRMCO, has been employed by
FIRMCO or its affiliates since 1983, and has had 13 years experience in fixed
income investing. Mr. Groeschell manages the portion of the Core Fixed Income
Fund's assets that is allocated to FIRMCO.
IDS ADVISORY GROUP INC.
IDS Advisory Group Inc. ("IDS") acts as a Money Manager for a portion of the
Large Cap Fund, which is also advised by SFM, Alliance, LSV Asset Management,
Mellon Equity Associates, MERUS-UCA Capital Management and Provident Investment
Counsel, Inc. IDS is a registered investment adviser and wholly-owned
subsidiary of American Express Financial Corporation. As of March 1, 1996, IDS
managed over $24 billion in assets with $5 billion of this total in large
capitalization growth domestic equities. IDS was founded in 1972 to manage
tax-exempt assets for institutional clients. The principal business address of
IDS is IDS Tower 10, Minneapolis, Minnesota 55440.
A committee composed of eight investment fund managers of the equity investment
team manages the portion of the Large Cap Fund's assets allocated to IDS since
the Fund's inception. No individual person is primarily responsible for making
recommendations to that committee.
LSV ASSET MANAGEMENT
LSV Asset Management ("LSV") acts as a Money Manager for a portion of the Large
Cap Fund, which is also advised by SFM, Alliance, IDS, Mellon Equity
Associates, MERUS-UCA Capital Management and Provident Investment Counsel, Inc.
LSV is a registered investment adviser organized as a Delaware general
partnership, in which an affiliate of SFM owns a majority interest. The
principal business address of LSV is 181 W. Madison Avenue, Chicago, Illinois
60602.
LSV makes investment decisions based on a quantitative computer model and,
based on its ongoing research and statistical analysis, makes adjustments to
the model. Securities are identified for purchase or sale by the Portfolio
based upon the computer model and defined variance tolerances. Purchases and
sales are effected by LSV based upon the output from the model.
Investment decisions for the portion of the Large Cap Fund's assets allocated to
LSV are made by the quantitative computer model. Josef Lakonishok, Andrei
Shleifer and Robert Vishny, officers of LSV, monitor the quantitative analysis
model on a continuous basis, and make adjustments to the model based on their
ongoing research and statistical analysis. Securities are identified for
purchase or sale by the Fund based upon the computer model and defined variance
tolerances. Purchases and sales are effected by LSV based upon the output from
the model.
SFM pays LSV a fee, which is calculated and paid monthly, based on an annual
rate of .20% of the average monthly market value of the assets of the Large Cap
Fund managed by LSV.
MELLON EQUITY ASSOCIATES
Mellon Equity Associates ("MEA") acts as a Money Manager for a portion of the
Large Cap Fund, which is also advised by SFM, Alliance, IDS, LSV, MERUS-UCA
Capital Management and Provident Investment Counsel, Inc. MEA is a
Pennsylvania business trust founded in 1987, whose beneficial owners are Mellon
Bank, N.A. and MMIP, Inc. MEA is a professional investment counseling firm
that provides investment management services to the equity and balanced
pension, public fund and profit-sharing investment management markets, and is
an investment adviser registered under the Investment Advisers Act of 1940, as
amended. As of December 31, 1995, MEA had discretionary
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management authority with respect to approximately $8.8 billion of assets.
MEA's predecessor organization had managed domestic equity tax-exempt
institutional accounts since 1947. The principal business address for MEA is
500 Grant Street, Suite 3700, Pittsburgh, Pennsylvania 15258.
William P. Rydell and Robert A. Wilk manage the Large Cap Fund's assets
allocated to MEA. Mr. Rydell is the President and Chief Executive Officer of
MEA, and has been managing individual and collectivized portfolios at MEA since
1982. Mr. Wilk is a Senior Vice President and Portfolio Manager of MEA, and
has been involved with securities analysis, quantitative research, asset
allocation, trading and client services at MEA since April 1990. Prior to
joining MEA, Mr. Wilk was in charge of portfolio management and conducted
quantitative research for another investment subsidiary of Mellon Bank
Corporation, Triangle Portfolio Associates.
MERUS-UCA CAPITAL MANAGEMENT
MERUS-UCA Capital Management ("MERUS-UCA") acts as a Money Manager for a
portion of the Large Cap Fund, which is also advised by SFM, Alliance, IDS,
LSV, MEA and Provident Investment Counsel, Inc. MERUS-UCA is a separate
division of Union Bank of California, N.A. and provides equity and fixed-income
management services to a broad array of corporate and municipal clients. As of
December 31, 1995, MERUS-UCA had discretionary management authority with
respect to approximately $11.9 billion of assets. The principal address of
MERUS-UCA is 475 Sansome Street, San Francisco, California 94111.
A committee of investment professionals at MERUS-UCA manages the portion of
the Large Cap Fund's assets allocated to MERUS-UCA.
MONTGOMERY ASSET MANAGEMENT, L.P.
Montgomery Asset Management, L.P. ("MAM") acts as a Money Manager for the
Emerging Markets Equity Fund, which is also advised by SFM. MAM is an
independent affiliate of Montgomery Securities, a San Francisco-based
investment banking firm. As of February 29, 1996, MAM had approximately $7.1
billion in assets under management. MAM has over four years experience
providing investment management services. The principal address of MAM is 600
Montgomery Street, San Francisco, California 94111.
Josephine S. Jimenez and Bryan L. Sudweeks share primary responsibility for the
portion of the Emerging Markets Equity Fund's assets allocated to MAM. Ms.
Jimenez and Dr. Sudweeks each have eight years experience in emerging markets
investment. Both joined MAM in 1991.
MORGAN GRENFELL INVESTMENT SERVICES LIMITED
Morgan Grenfell Investment Services Limited ("Morgan Grenfell") acts as a Money
Manager for a portion of the International Equity Fund, which is also advised
by SFM, Acadian, Farrell Wako, Seligman Henderson Co. and Yamaichi Capital
Management, Inc. Morgan Grenfell, a subsidiary of Morgan Grenfell Asset
Management Limited, managed over $12 billion in assets as of December 31, 1995.
Morgan Grenfell Asset Management Limited, a wholly-owned subsidiary of Deutsche
Bank, A.G., a German financial services conglomerate, managed over $94 billion
in assets as of December 31, 1995. Morgan Grenfell
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has over 11 years experience in managing international funds for North American
clients. It employs more than 15 European investment professionals. Morgan
Grenfell attempts to exploit perceived inefficiencies present in the European
markets with original research and an emphasis on stock selection. The
principal address of Morgan Grenfell is 20 Finsbury Circus, London, EC2M 1NB.
Julian R. Johnston and Jeremy G. Lodwick share primary responsibility for the
portion of the International Equity Fund's assets allocated to Morgan Grenfell.
Mr. Johnston has 20 years experience in European equity investment. Mr.
Johnston joined Morgan Grenfell in 1984 and is currently the head of the Morgan
Grenfell Continental European investment team. He speaks French, German,
Swedish and Danish fluently. Mr. Lodwick has ten years experience in European
equity investment. He joined Morgan Grenfell in 1986 and was a UK equity
research analyst before moving to New York where he was a member of the client
liaison and marketing team for five years. He returned to the London office in
1991 to manage European equity funds.
NICHOLAS-APPLEGATE CAPITAL MANAGEMENT, INC.
Nicholas-Applegate Capital Management, Inc. ("Nicholas-Applegate") acts as a
Money Manager for a portion of the Small Cap Fund, which is also advised by
SFM, 1838, Apodaca, BPAM, First America and Wall Street Associates.
Nicholas-Applegate has operated as an investment adviser that provides
investment services to employee benefit plans, endowments, foundations, other
institutions and investment companies since 1984. As of December 31, 1995,
Nicholas-Applegate had discretionary management authority with respect to
approximately $29 billion of assets. Nicholas-Applegate, pursuant to a
partnership agreement, is controlled by its general partner, Nicholas-Applegate
Capital Management Holdings, L.P. a limited partnership controlled by Arthur E.
Nicholas. The principal business address of Nicholas-Applegate is 600 West
Broadway, 29th Floor, San Diego, California 92101.
Nicholas-Applegate manages the portion of the Small Cap Fund's assets allocated
to Nicholas-Applegate through its management team under the supervision of Mr.
Nicholas, founder and Chief Investment Officer of the firm. Nicholas-Applegate's
systems driven investment team, headed by Lawrence S. Speidell, is primarily
responsible for the day-to-day management of the Fund's assets allocated to
Nicholas-Applegate. Mr. Speidell has been a fund manager and investment team
leader with Nicholas-Applegate since March, 1994. Prior to joining
Nicholas-Applegate, he was an institutional portfolio manager with Batterymarch
Financial Management.
PROVIDENT INVESTMENT COUNSEL, INC.
Provident Investment Counsel, Inc. ("Provident") acts as a Money Manager for a
portion of the Large Cap Fund, which is also advised by SFM, Alliance, IDS,
LSV, MEA and MERUS-UCA.
Provident is a registered investment adviser, which, through its predecessors,
has been in business since 1951, and is a wholly-owned subsidiary of UAM.
Provident provides investment advice to corporations, public entities,
foundations and labor unions, as well as to other investment companies. As of
December 31, 1995, Provident had over $16 billion in client assets under
management.
The principal business address of Provident is 300 North Lake Avenue, Pasadena,
California 91101.
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<PAGE> 17
A team consisting of the senior investment professionals is responsible for the
development of investment policy and strategy. The implementation of these
decisions for the portion of the Large Cap Fund's assets allocated to Provident
is the responsibility of Lauro Guerra, Executive Vice President, and Jeffrey J.
Miller, Managing Director. Mr. Guerra has been with Provident since 1983 and
Mr. Miller has been with the firm since 1972.
SELIGMAN HENDERSON CO.
Seligman Henderson Co., acts as a Money Manager of a portion of the
assets of the International Equity Fund, which is also advised by SFM, Acadian,
Farrell Wako, Morgan Grenfell, and Yamaichi Capital Management, Inc. Seligman
Henderson Co. is a New York general partnership and is structured as an equal
partnership between J&W Seligman & Co. and Henderson International Inc., a
controlled affiliate of Henderson Administration Group plc. Seligman Henderson
Co. was established in 1991 and manages over $3 billion in global and
international equity portfolios for U.S. institutional and retail clients. The
principal address of Seligman Henderson Co. is 100 Park Avenue, New York, New
York 10017.
Mr. William Garnett will be primarily responsible for the day-to-day
management and investment decisions with respect to the International Equity
Funds' assets allocated to Seligman. Mr. Garnett has more than 10 years'
experience in managing Japanese small cap equity securities. Mr. Iain Clark,
Seligman Henderson Co.'s chief investment officer, will have ultimate
responsibility for portfolio management. Mr. Clark has more than 24 years
experience, including 11 with Henderson Administration Group plc.
STRATEGIC FIXED INCOME L.P.
Strategic Fixed Income L.P. ("SFI") acts as the Money Manager for the
International Fixed Income Fund, which is also advised by SFM. SFI is a
limited partnership formed in 1991 under the laws of the State of Delaware, to
manage multi-currency fixed income funds. The general partner of the firm is
Kenneth Windheim and the limited partner is Strategic Investment Management
("SIM"). As of March 1, 1995, SFI had approximately $5.4 billion of client
assets under management. The principal address of SFI is 1001 Nineteenth
Street North, 17th Floor, Arlington, Virginia 22209.
Kenneth Windheim, President of SFI, is the portfolio manager of the
International Fixed Income Fund. Mr. Windheim is assisted by Gregory Barnett
and David Jallits, Directors of SFI. Prior to forming SFI, Kenneth Windheim
managed a global fixed income portfolio at Prudential Asset Management. Prior
to joining SFI, Gregory Barnett was portfolio manager for the Pilgrim
Multi-Market Income Fund with active use of foreign exchange option
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<PAGE> 18
strategies. Prior to that, he was vice president and senior fixed income
portfolio manager at Lexington Management. Prior to joining SFI, David Jallits
was senior Portfolio Manager for a hedge fund at Teton Partners. From 1982 to
1994, he was Vice President and Global Fixed Income Portfolio Manager at The
Putnam Companies.
WALL STREET ASSOCIATES
Wall Street Associates ("WSA") serves as a Money Manager for a portion of the
Small Cap Fund, which is also advised by SFM, 1838, Apodaca, BPAM, First
America and Nicholas-Applegate. WSA was founded in 1987, and as of December
31, 1995, had approximately $900 million in assets under management. WAS
provides investment advisory services for institutional clients, an investment
partnership for which it serves as general partner, a group trust, for which it
serves as sole investment manager, and an offshore fund for foreign investors
for which it serves as the sole investment manager. The principal business
address of WSA is at 1200 Prospect Street, Suite 100, La Jolla, California
92037.
William Jeffery III, Kenneth F. McCain, and Richard S. Coons, each of whom owns
1/3 of WSA, serve as fund managers for the portion of the Small Cap Fund's
assets allocated to WSA. Each is a principal of WSA and, together, they have
73 years of investment management experience.
WSA has served as an investment sub-adviser to only one registered investment
company (since June 28, 1995), and, as such, does not have extensive experience
advising a highly regulated entity such as an investment company.
WESTERN ASSET MANAGEMENT COMPANY
Western Asset Management Company ("Western") acts as a Money Manager for a
portion of the Core Fixed Income Fund, which is also advised by SFM, BlackRock
and FIRMCO. Western is a wholly-owned subsidiary of Legg Mason, Inc., a
financial services company located in Baltimore, Maryland. Western was founded
in 1971 and specializes in the management of fixed income funds. As of March
31, 1996, Western managed approximately $19.8 billion in client assets,
including $3 billion of investment company assets. The principal business
address of Western is 117 East Colorado Boulevard, Pasadena, California 91105.
Kent S. Engel, Director and Chief Investment Officer of Western, is primarily
responsible for the day-to-day management of the portion of the Core Fixed
Fund's assets allocated to Western. Mr. Engel has been with Western and its
predecessor since 1969.
YAMAICHI CAPITAL MANAGEMENT, INC.
Yamaichi Capital Management, Inc. ("Yamaichi") acts as a Money Manager of a
portion of the assets of the International Equity fund, which is also advised
by SFM, Acadian, Farrell Wako, Morgan Grenfell and Seligman Henderson Co.
Yamaichi is a New York Corporation established in 1981 and is a wholly-owned
subsidiary of Yamaichi International Capital Management Co., Ltd. ("YICM").
Both Yamaichi and YICM are controlled by Yamaichi Securities Co., Ltd., which
is located in Tokyo, Japan. Yamaichi and its affiliates manage approximately
$22 billion worldwide. The principal address of Yamaichi is 2 World Trade
Center, Suite 9828, New York, New York 10048.
Mr. Marco Wong leads the management team for the assets of the International
Equity Fund allocated to Yamaichi. Mr. Wong has been with Yamaichi since 1986.
INVESTMENT OBJECTIVES AND POLICIES
================================================================================
Each Fund's investment objective and policies are set forth below. See
"General Investment Policies and Risk Factors" for information about
additional investment practices that some or all of the Funds may employ.
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<PAGE> 19
LARGE CAP FUND
The investment objective of the Large Cap Fund is long-term growth of capital
and income. There can be no assurance that the Fund will achieve its
investment objective.
Under normal market conditions, the Fund will invest at least 65% of its total
assets in equity securities of large companies (i.e., companies with market
capitalizations of more than $1 billion at the time of purchase). Any
remaining assets may be invested in fixed income securities or in equity
securities of smaller companies that the Fund's Money Managers believe are
appropriate in light of the Fund's objective. Fixed income securities must be
rated investment grade or better, i.e., rated in one of the four highest rating
categories by a nationally recognized statistical rating organization
("NRSRO"), or, if not rated, determined to be of comparable quality by the
Fund's Money Managers. Fixed income securities rated in the fourth highest
rating category lack outstanding investment characteristics, and have
speculative characteristics as well.
SMALL CAP FUND
The investment objective of the Small Cap Fund is capital appreciation. There
can be no assurance that the Fund will achieve its investment objective.
Under normal market conditions, the Fund will invest at least 65% of its total
assets in the equity securities of smaller companies (i.e., companies with
market capitalizations of less than $1 billion at the time of purchase). Any
remaining assets may be invested in fixed income securities or in equity
securities of larger companies that the Fund's Money Managers believe are
appropriate in light of the Fund's objective. Fixed income securities must be
rated investment grade or better, i.e., rated in one of the four highest rating
categories by an NRSRO, or, if not rated, determined to be of comparable
quality by the Fund's Money Managers. Fixed income securities rated in the
fourth highest rating category lack outstanding investment characteristics,
and have speculative characteristics as well.
CORE FIXED INCOME FUND
The investment objective of the Core Fixed Income Fund is current income
consistent with the preservation of capital. There can be no assurance that
the Fund will achieve its investment objective.
Under normal market conditions, the Fund will invest at least 65% of its total
assets in fixed income securities that are rated investment grade or better,
i.e., rated in one of the four highest rating categories by an NRSRO at the
time of purchase, or, if not rated are determined to be of comparable quality
by the Fund's Money Managers. Fixed income securities rated in the fourth
highest rating category lack outstanding investment characteristics, and have
speculative characteristics as well.
The Fund may acquire all types of fixed income securities issued by domestic
and foreign private and governmental issuers, including mortgage-backed and
asset-backed securities. The Fund may invest not only in traditional fixed
income securities, such as bonds and debentures, but in structured securities
that make interest and principal payments based upon the performance of
specified assets or indices. Structured securities include mortgage-backed
securities such as pass-through certificates, collateralized mortgage
obligations and interest and principal only components of mortgage-backed
securities. The Fund may also invest in mortgage dollar roll transactions and
Yankee obligations.
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<PAGE> 20
The Core Fixed Income Portfolio invests in a portfolio with a dollar-weighted
average duration that will, under normal market conditions, stay within plus or
minus 20% of what the Money Managers believe to be the average duration of the
domestic bond market as a whole. The Money Managers base their analysis of the
average duration of the domestic bond market on bond market indices which they
believe to be representative. The Money Managers currently use the Lehman
Aggregate Bond Index for this purpose.
HIGH YIELD BOND FUND
The investment objective of the High Yield Bond Fund is to maximize total
return. There can be no assurance that the Fund will achieve its investment
objective.
Under normal market conditions, the Fund will invest at least 65% of its total
assets in fixed income securities that are rated below investment grade i.e.,
rated below the top four rating categories by a NRSRO at the time of purchase,
or, if not rated, determined to be of comparable quality by the Fund's Money
Manager. Below investment grade securities are commonly referred to as "junk
bonds," and generally entail increased credit and market risk. The achievement
of the Fund's investment objective may be more dependent on the Money Manager's
own credit analysis than would be the case if the Fund invested in higher rated
securities. There is no bottom limit on the ratings of high yield securities
that may be purchased and held by the Fund. These securities may have
predominantly speculative characteristics or may be in default. Any remaining
assets may be invested in equity, investment grade fixed income and money
market securities that the Money Manager believes are appropriate in light of
the Fund's objective.
The Fund may acquire all types of fixed income securities issued by domestic
and foreign private and governmental issuers, including mortgage-backed and
asset-backed securities. The Fund may also invest in Yankee obligations. The
Fund's Money Manager may vary the average maturity of the securities in the
Fund without limit, and there is no restriction on the maturity of any
individual security.
The "Appendix" to this Prospectus sets forth a description of the bond rating
categories of several NRSROs. Ratings of each NRSRO represents its opinion of
the safety of principal and interest payments (and not the market risk) of
bonds and other fixed income securities it undertakes to rate at the time of
issuance. Ratings are not absolute standards of quality and may not reflect
changes in an issuer's creditworthiness. Accordingly, although the Fund's
Money Manager will consider ratings, it will perform its own analyses and will
not rely principally on ratings. The Fund's Money Manager will consider, among
other things, the price of the security and the financial history and
condition, the prospects and the management of an issuer in selecting
securities for the Fund.
INTERNATIONAL FIXED INCOME FUND
The International Fixed Income Fund seeks to provide capital appreciation and
current income. There can be no assurance that the Fund will achieve its
investment objective.
Under normal market conditions, the Fund will invest in at least 65% of its
total assets in investment grade fixed income securities of non-U.S. issuers
located in at least three countries other than the
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<PAGE> 21
United States. Any remaining assets may be invested in obligations issued or
guaranteed as to principal and interest by the United States Government, its
agencies or instrumentalities and preferred stocks. The Fund also may engage
in short selling against the box. Although the Fund will concentrate its
investments in relatively developed countries, the Fund may invest in
securities of companies located in and governments of emerging market
countries, including countries formerly controlled by communist governments.
Investments in such emerging markets countries will not exceed 5% of the Fund's
total assets at the time of purchase. Such investments entail risks which
include the possibility of political or social instability, adverse changes in
investment or exchange control regulations, expropriation and withholding of
dividends at the source. In addition, such securities may trade with less
frequency and volume than securities of companies and governments of more
developed, stable nations.
The Fund may acquire all types of fixed income securities issued by foreign
private and governmental issuers, including mortgage-backed and asset-backed
securities. The Fund may invest not only in traditional fixed income
securities, such as bonds and debentures, but in structured securities that
derive interest and principal payments from specified assets or indices. All
such investments will be in investment grade securities denominated in various
currencies, including the European Currency Unit. Investment grade securities
are rated in one of the highest four rating categories by a NRSRO, or, if not
rated, determined to be of comparable quality as determined by the Fund's Money
Managers. Fixed income securities rated in the fourth highest rating category
lack outstanding investment characteristics, and have speculative
characteristics as well.
There are no restrictions on the average maturity of the Fund or the maturity
of any single instrument. Maturities may vary widely depending on the Fund's
Money Managers' assessment of interest rate trends and other economic and
market factors.
The dollar amount of short sales at any one time shall not exceed 25% of the
net equity of the Fund, and the value of the securities of any one issuer in
which the Fund is short may not exceed the lesser of 2.0% of the value of the
Fund's net assets or 2.0% of the securities of any class of any issuer. Short
sales may be made only in securities that are fully listed on a national
securities exchange. This provision does not apply to short sales against the
box.
The Fund is a non-diversified fund. Investment in a non-diversified company
may entail greater risk than investment in a diversified company. The Fund's
ability to focus its investments on a fewer number of issuers means that
economic, political or regulatory developments affecting the Fund's investment
securities could have a greater impact on the total value of the Fund than
would be the case if the Fund were diversified among more issuers. The Fund
intends to comply with the diversification requirements of Subchapter M of the
Internal Revenue Code of 1986, as amended (the "Code"). See "Taxes" for
additional information.
EMERGING MARKETS EQUITY FUND
The Emerging Markets Equity Fund seeks to provide capital appreciation. There
can be no assurance that the Fund will achieve its investment objective.
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<PAGE> 22
Under normal market conditions, the Fund will invest at least 65% of its total
assets in the equity securities of emerging market issuers. The Fund's Money
Manager considers emerging market countries to be countries that possess an
emerging or developing economy and market according to the World Bank or the
United Nations. The Fund's Money Manager considers emerging market issuers to
be companies the securities of which are principally traded in the capital
markets of emerging market countries; that derive at least 50% of their total
revenue from either goods produced or services rendered in emerging market
countries, regardless of where the securities of such companies are principally
traded; or that are organized under the laws of and have a principal office in
an emerging market country. Under normal market conditions, the Fund maintains
investments in at least six emerging market countries and does not invest more
than 35% of its total assets in any one country. Any remaining assets may be
invested in fixed income securities of emerging market governments and
companies. Certain securities issued by governments of emerging market
countries are or may be eligible for conversion into investments in emerging
market companies under debt conversion programs sponsored by such governments.
The Fund may invest up to 5% of its total assets in securities that are rated
below investment grade. Bonds rated below investment grade are often referred
to as "junk bonds." Such securities involve greater risk of default or price
decline than investment grade securities. See "Risks Factors Relating to
Investing in Lower Rated Securities" in "General Investment Policies and Risk
Factors."
When in the Fund's Money Manager's opinion there is an insufficient supply of
suitable securities from emerging market issuers, the Fund may invest up to 20%
of its total assets in the equity securities of non-emerging market companies
contained in the Morgan Stanley Capital International Europe, Australia and Far
East Index (the "EAFE Index"). These companies typically have larger average
market capitalizations than the emerging market companies in which the Fund
generally invests.
Securities of non-U.S. issuers purchased by the Fund may be purchased in
foreign markets, on U.S. registered exchanges or the over-the-counter market.
The Fund will typically invest in equity securities listed on recognized
foreign exchanges, but may also invest in securities traded in over-the-counter
markets.
INTERNATIONAL EQUITY FUND
The International Equity Fund seeks to provide capital appreciation. There can
be no assurance that the Fund will achieve its investment objective.
Under normal market conditions, the Fund will invest at least 65% of its total
assets in the equity securities of non-U.S. issuers located in at least three
different countries other than the United States. Any remaining assets will
be invested in U.S. or non-U.S. cash reserves and money market instruments.
Securities of non-U.S. issuers purchased by the Fund may be purchased in
foreign markets, on U.S. registered exchanges or the over-the-counter market.
The Fund will typically invest in equity securities listed on recognized
foreign exchanges, but may also invest in securities traded in over-the-counter
markets.
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<PAGE> 23
GENERAL INVESTMENT POLICIES AND RISK FACTORS
================================================================================
BORROWING
Each Fund may borrow money to meet redemptions or for temporary, emergency
purposes. No Fund will purchase securities while its borrowings exceed 5% of
its total assets.
CONVERTIBLE SECURITIES
Each Fund may invest in convertible securities.
FORWARD FOREIGN CURRENCY CONTRACTS
The High Yield Bond, International Fixed Income, Emerging Markets Equity and
International Equity Funds may enter into forward foreign currency contracts.
ILLIQUID SECURITIES
Each Fund may invest in illiquid securities, including illiquid restricted
securities, up to 15% of their respective net assets. However, restricted
securities, including Rule 144A securities and section 4(2) commercial paper,
that meet the criteria established by the Board of Trustees of the Trust will
be considered liquid. In addition, the Emerging Markets Equity Fund's Money
Managers believe that carefully selected investments in joint ventures,
cooperatives, partnerships, private placements, unlisted securities and other
similar situations (collectively, "special situations") could enhance its
capital appreciation potential. Investments in special situations may be
illiquid, as determined by the Emerging Markets Equity Fund's Money Manager
based on criteria approved by the Board of Trustees. To the extent these
investments are deemed illiquid, the Emerging Markets Equity Fund's investment
in them will be consistent with its 15% restriction on investment in illiquid
securities.
INVESTMENT COMPANY SECURITIES AND PASSIVE FOREIGN INVESTMENT COMPANIES
Each Fund may invest up to 10% of its total assets in securities issued by
investment companies, including for the Emerging Markets Equity and
International Equity Funds, investments in securities issued by foreign
investment companies. Investing in investment companies results in the
layering of expenses. There are legal limits on the amount of such securities
that may be acquired by a Fund. Each Fund may invest in the securities of
investment companies that have similar investment objectives and policies to
that Fund.
RISK FACTORS RELATING TO INVESTING IN LOWER RATED SECURITIES
The High Yield Bond and Emerging Markets Equity Funds may invest in lower rated
securities. Fixed income securities are subject to the risk of an issuer's
ability to meet principal and interest payments on the obligation (credit
risk), and may also be subject to price volatility due to such factors as
interest rate sensitivity, market perception of the creditworthiness of the
issuer and general market liquidity (market risk). Lower rated or unrated
(i.e., high yield) securities are more likely to react to developments
affecting market and credit risk than are more highly rated securities, which
primarily react to movements in the general level of interest rates. The
market values of fixed income securities tend to vary inversely with the level
of interest rates. Yields and market values of high yield securities will
fluctuate over time, reflecting not only changing interest rates but the
market's perception of credit quality and the outlook for economic growth.
When economic conditions appear to be deteriorating, medium to lower rated
securities may decline in value due to heightened concern over credit quality,
regardless of prevailing interest rates. Investors should carefully consider
the relative
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<PAGE> 24
risks of investing in high yield securities and understand that such securities
generally are not meant for short-term investing.
The high yield market is relatively new and its growth paralleled a long period
of economic expansion and an increase in merger, acquisition and leveraged
buyout activity. Adverse economic developments can disrupt the market for high
yield securities, and severely affect the ability of issuers, especially highly
leveraged issuers, to service their debt obligations or to repay their
obligations upon maturity which may lead to a higher incidence of default on
such securities. In addition, the secondary market for high yield securities,
which is concentrated in relatively few market makers, may not be as liquid as
the secondary market for more highly rated securities. As a result, a Fund's
Money Managers could find it more difficult to sell these securities or may be
able to sell the securities only at prices lower than if such securities were
widely traded. Furthermore, a Fund may experience difficulty in valuing
certain securities at certain times. Prices realized upon the sale of such
lower rated or unrated securities, under these circumstances, may be less than
the prices used in calculating such Fund's net asset value.
Prices for high yield securities may be affected by legislative and regulatory
developments. These laws could adversely affect a Fund's net asset value and
investment practices, the secondary market for high yield securities, the
financial condition of issuers of these securities and the value of outstanding
high yield securities. For example, federal legislation requiring the
divestiture by federally insured savings and loan associations of their
investments in high yield bonds and limiting the deductibility of interest by
certain corporate issuers of high yield bonds adversely affected the market in
recent years.
Lower rated or unrated fixed income obligations also present risks based on
payment expectations. If an issuer calls the obligations for redemption, a
Fund may have to replace the security with a lower yielding security, resulting
in a decreased return for investors. If a Fund experiences unexpected net
redemptions, it may be forced to sell its higher rated securities, resulting in
a decline in the overall credit quality of the Fund's investment portfolio and
increasing the exposure of the Fund to the risks of high yield securities.
OBLIGATIONS OF SUPRANATIONAL ENTITIES
The Core Fixed Income, International Fixed Income, Emerging Markets Equity and
International Equity Funds may invest in obligations of supranational entities.
OPTIONS AND FUTURES
Each Fund may purchase or write options (including options on non-U.S. indices
and currencies), futures (including futures on U.S. Treasury obligations and
Eurodollar instruments) and options on futures. Risks associated with
investing in options and futures may include lack of a liquid secondary market,
trading restrictions which may be imposed by an exchange, government
regulations which may restrict trading, an imperfect correlation between the
prices of securities held by a Fund and the price of an option or future and,
in the case of non-U.S. futures and options, the risks of investing in foreign
markets generally.
PORTFOLIO TURNOVER RATE
Each Fund's annual portfolio turnover rate will generally not exceed 150%,
except for the Core Fixed Income Fund's portfolio turnover rate which will
generally not exceed 300%. Such rates, if achieved, will result in higher
transaction costs and may result in additional taxes for shareholders. See
"Taxes."
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<PAGE> 25
SECURITIES LENDING
Each Fund may lend its fund securities in order to realize additional income.
SECURITIES OF FOREIGN ISSUERS
Each Fund may invest in securities of foreign issuers consistent with its
overall policies, either directly or through American Depository Receipts
("ADRs") and, with respect to the Emerging Markets Equity and International
Equity Funds, Continental Depository Receipts ("CDRs"), European Depository
Receipts ("EDRs") and Global Depository Receipts ("GDRs").
TEMPORARY DEFENSIVE/LIQUIDITY NEEDS
In order to meet liquidity needs, or for temporary defensive purposes, each
Fund may invest up to 100% of its assets in cash and money market securities.
VARIABLE AND FLOATING RATE INSTRUMENTS
Each Fund may purchase instruments that pay interest on a variable or floating
rate basis.
WHEN-ISSUED OR DELAYED-DELIVERY SECURITIES
Each Fund may purchase securities on a when-issued or delayed-delivery basis,
including TBA mortgage-backed securities.
WARRANTS
Each Fund may purchase warrants.
ZERO COUPON, PAY-IN-KIND AND DEFERRED PAYMENT SECURITIES
The Large Cap, Small Cap, Core Fixed Income, High Yield Bond and International
Fixed Income Funds may invest in zero coupon, pay-in-kind and deferred payment
securities.
For additional information regarding the Funds' permitted investments, see
"Description of Permitted Investments and Risk Factors" in this Prospectus and
"Description of Permitted Investments" in the Statement of Additional
Information. For a description of the above ratings, see the "Appendix."
INVESTMENT LIMITATIONS
================================================================================
The investment objectives and certain of the investment limitations are
fundamental policies of the Funds. Fundamental policies cannot be changed with
respect to the Trust or a Fund without the consent of the holders of a majority
of the Trust's or that Fund's outstanding shares.
No Fund may:
1. With respect to 75% of its total assets, (i) purchase securities of
any issuer (except securities issued or guaranteed by the United
States Government, its agencies or instrumentalities) if, as a result,
more than 5% of its total assets would be invested in the securities
of such issuer; or (ii) acquire more than 10% of the outstanding
voting securities of any one issuer. This restriction does not apply
to the International Fixed Income Fund.
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<PAGE> 26
2. Purchase any securities which would cause more than 25% of its total
assets to be invested in the securities of one or more issuers
conducting their principal business activities in the same industry,
provided that this limitation does not apply to investments in
securities issued or guaranteed by the United States Government, its
agencies or instrumentalities.
For purposes of the industry concentration limitation, specified in paragraph 2
above, (i) utility companies will be divided according to their services, for
example, gas, gas transmission, electric and telephone will each be considered
a separate industry; (ii) financial service companies will be classified
according to end users of their services, for example, automobile finance, bank
finance and diversified finance will each be considered a separate industry;
(iii) supranational agencies will be deemed to be issuers conducting their
principal business activities in the same industry; and (iv) governmental
issuers within a particular country will be deemed to be conducting their
principal business activities in the same industry.
The foregoing percentage limitations will apply at the time of the purchase of
a security. Additional fundamental and non-fundamental investment limitations
are set forth in the Statement of Additional Information.
PURCHASE AND REDEMPTION OF SHARES
===============================================================================
Shares of each Fund may be purchased or redeemed on days on which the New York
Stock Exchange is open for business (each, a "Business Day").
Shareholders who desire to purchase shares for cash must place their orders
with SFM prior to 4:00 p.m. Eastern time on any Business Day for the order to
be accepted on that Business Day. Cash investments must be transmitted or
delivered in federal funds to the wire agent on the next Business Day following
the day the order is placed. The Trust reserves the right to reject a purchase
order when the distributor determines that it is not in the best interest of
the Trust or its shareholders to accept such purchase order.
Purchases will be made in full and fractional shares of a Fund calculated to
three decimal places. The Trust will send shareholders a statement of shares
owned after each transaction. The purchase price of shares is the net asset
value next determined after a purchase order is received and accepted by the
Trust. The net asset value per share of each Fund is determined by dividing the
total market value of a Fund's investment and other assets, less any
liabilities, by the total number of outstanding shares of that Fund. Net asset
value per share is determined daily at the close of business of the New York
Stock Exchange (currently 4:00 p.m. Eastern time) on each Business Day.
The market value of each portfolio security is obtained by SFM from an
independent pricing service. Securities that have maturities of 60 days or
less at the time of purchase will be valued using the amortized cost method
(described in the Statement of Additional Information). The pricing service
relies primarily on prices of actual market transactions as well as trader
quotations. However, the pricing service may use a matrix system to determine
valuations of equity and fixed income securities. This system considers such
factors as security prices, yields, maturities, call features, ratings and
developments relating to specific securities in arriving at valuations. The
procedures used by the
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<PAGE> 27
pricing service and its valuations are reviewed by the officers of the Trust
under the general supervision of the Trustees.
Shares of a Fund may be purchased in exchange for securities included in the
Fund subject to SFM's determination that the securities are acceptable.
Securities accepted in an exchange will be valued at the market value. All
accrued interest and subscription of other rights which are reflected in the
market price of accepted securities at the time of valuation become the
property of the Trust and must be delivered by the Shareholder to the Trust
upon receipt from the issuer.
SFM will not accept securities for a Fund unless (1) such securities are
appropriate for the Fund at the time of the exchange; (2) such securities are
acquired for investment and not for resale; (3) the Shareholder represents and
agrees that all securities offered to the Trust for the Fund are not subject to
any restrictions upon their sale by the Fund under the Securities Act of 1933,
or otherwise; (4) such securities are traded on the American Stock Exchange,
the New York Stock Exchange or on NASDAQ in an unrelated transaction with a
quoted sales price on the same day the exchange valuation is made or, if not
listed on such exchanges or on NASDAQ, have prices available from an
independent pricing service approved by the Trust's Board of Trustees; and (5)
the securities may be acquired under the investment restrictions applicable to
the Fund.
Shareholders who desire to redeem shares of a Fund must place their redemption
orders with SFM prior to 4:00 p.m. Eastern time on any Business Day. The
redemption price is the net asset value per share of the Fund next determined
after receipt by SFM of the redemption order. Payment on redemption will be
made as promptly as possible and, in any event, within seven days after the
redemption order is received.
The Trust intends to generally make redemptions in cash. The Trust may,
however, make redemptions in whole or in part by a distribution in kind of
readily marketable securities in lieu of cash. Shareholders may incur
brokerage costs on the sale of any such securities so received in payment of
redemptions.
Purchase and redemption orders may be placed by telephone. Neither the Trust
nor SFM will be responsible for any loss, liability, cost or expense for acting
upon wire instructions or upon telephone instructions that it reasonably
believes to be genuine. The Trust and SFM will each employ reasonable
procedures to confirm that instructions communicated by telephone are genuine,
including requiring a form of personal identification prior to acting upon
instructions received by telephone and recording telephone instructions.
If market conditions are extraordinarily active, or other extraordinary
circumstances exist, and shareholders experience difficulties placing
redemption orders by telephone, shareholders may wish to consider placing their
order by other means.
PERFORMANCE
================================================================================
From time to time, a Fund may advertise yield and total return. These figures
will be based on historical earnings and are not intended to indicate future
performance. No representation can be made concerning actual yield or future
returns. The yield of a Fund refers to the annualized income
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<PAGE> 28
generated by an investment in the Fund over a specified 30-day period. The
yield is calculated by assuming that the same amount of income generated by the
investment during that period is generated in each 30-day period over one year
and is shown as a percentage of the investment.
The total return of a Fund refers to the average compounded rate of return on a
hypothetical investment for designated time periods, assuming that the entire
investment is redeemed at the end of each period and assuming the reinvestment
of all dividend and capital gain distributions.
A Fund may periodically compare its performance to that of other mutual funds
tracked by mutual fund rating services (such as Lipper Analytical), or by
financial and business publications and periodicals, broad groups of comparable
mutual funds, unmanaged indices which may assume investment of dividends but
generally do not reflect deductions for administrative and management costs or
other investment alternatives. A Fund may quote Morningstar, Inc., a service
that ranks mutual funds on the basis of risk-adjusted performance. A Fund may
use long-term performance of these capital markets to demonstrate general
long-term risk versus reward scenarios and could include the value of a
hypothetical investment in any of the capital markets. A Fund may also quote
financial and business publications and periodicals as they relate to fund
management, investment philosophy and investment techniques.
A Fund may quote various measures of volatility and benchmark correlation in
advertising and may compare these measures to those of other funds. Measures
of volatility attempt to compare historical share price fluctuations or total
returns to a benchmark while measures of benchmark correlation indicate how
valid a comparative benchmark might be. Measures of volatility and correlation
are calculated using averages of historical data and cannot be calculated
precisely.
TAXES
================================================================================
The following summary of federal income tax consequences is based on current
tax laws and regulations, which may be changed by legislative, judicial or
administrative action. No attempt has been made to present a detailed
explanation of the federal, state or local tax treatment of the Funds or their
shareholders. Accordingly, shareholders are urged to consult their tax
advisers regarding specific questions as to federal, state and local taxes.
State and local tax consequences of an investment in a Fund may differ from the
federal income tax consequences described below. Additional information
concerning taxes is set forth in the Statement of Additional Information.
TAX STATUS OF THE FUNDS
Each Fund is treated as a separate entity for federal income tax purposes and
is not combined with the Trust's other funds. The Funds intend to qualify for
the special tax treatment afforded regulated investment companies ("RICs")
under Subchapter M of the Code so as to be relieved of federal income tax on
net investment company taxable income and net capital gains (the excess of net
long-term capital gain over net short-term capital losses) distributed to
shareholders.
TAX STATUS OF DISTRIBUTIONS
Each Fund distributes substantially all of its net investment income (including
net short-term capital gains) to shareholders. Dividends from a Fund's net
investment income are taxable to its shareholders as ordinary income (whether
received in cash or in additional shares). Distributions of net capital
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<PAGE> 29
gains are taxable to shareholders as long-term capital gains regardless of how
long the shareholder has held shares. Dividends and [capital gains]
distributions will not qualify for the corporate dividends-received deduction.
The Funds will provide annual reports to shareholders of the federal income tax
status of all distributions.
Dividends declared by a Fund in October, November or December of any year and
payable to shareholders of record on a date in such a month will be deemed to
have been paid by the Fund and received by the Shareholders on December 31 of
the year declared if paid by the Fund at any time during the following January.
Each Fund intends to make sufficient distributions to avoid liability for the
federal excise tax applicable to RICs.
Investment income received by the Funds from sources within foreign countries
may be subject to foreign income taxes withheld at the source. To the extent
that a Fund is liable for foreign income taxes so withheld, the Fund intends to
operate so as to meet the requirements of the Code to pass through to the
shareholders credit for foreign income taxes paid. Although the Funds intend
to meet Code requirements to pass through credit for such taxes, there can be
no assurance that the Funds will be able to do so.
Each sale, exchange or redemption of Fund shares is a taxable transaction to
the shareholder.
GENERAL INFORMATION
================================================================================
TRUSTEES OF THE TRUST
The management and affairs of the Trust are supervised by the Trustees under
the laws of the Commonwealth of Massachusetts. The Trustees have approved
contracts under which, as described above, certain companies provide essential
management services to the Trust.
VOTING RIGHTS
Each share held entitles the shareholder of record to one vote. The
shareholders of each Fund will vote separately on matters pertaining solely to
that Fund, such as any distribution plan. As a Massachusetts business trust,
the Trust is not required to hold annual meetings of shareholders, but approval
will be sought for certain changes in the operation of the Trust and for the
election of Trustees under certain circumstances. In addition, a Trustee may
be removed by the remaining Trustees or by shareholders at a special meeting
called upon written request of shareholders owning at least 10% of the
outstanding shares of the Trust. In the event that such a meeting is requested,
the Trust will provide appropriate assistance and information to the
shareholders requesting the meeting.
REPORTING
The Trust issues an unaudited financial report semi-annually and audited
financial statements annually. The Trust furnishes proxy statements and other
reports to shareholders of record.
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<PAGE> 30
SHAREHOLDER INQUIRIES
Shareholder inquiries should be directed to SEI Financial Management
Corporation, 680 East Swedesford Road, Wayne, Pennsylvania 19087-1658.
DIVIDENDS
Substantially all of the net investment income (exclusive of capital gains) of
each Fund is periodically declared and paid as a dividend. Dividends currently
are paid periodically for the International Fixed Income, Emerging Markets
Equity and International Equity Funds and currently are paid on a monthly basis
for the Core Fixed Income and High Yield Bond Funds and currently are paid on a
quarterly basis for the Small Cap and Large Cap Funds. Currently, net capital
gains for all the Funds (the excess of net long-term capital gain over net
short-term capital loss) realized, if any, will be distributed at least
annually.
Shareholders automatically receive all income dividends and capital gains
distributions in additional shares at the net asset value next determined
following the record date, unless the shareholder has elected to take such
payment in cash. Shareholders may change their election by providing written
notice to SFM at least 15 days prior to the distribution.
Dividends and capital gains of each Fund are paid on a per-share basis. The
value of each share will be reduced by the amount of any such payment. If
shares are purchased shortly before the record date for a dividend or capital
gains distributions, a shareholder will pay the full price for the share and
receive some portion of the price back as a taxable dividend or distribution.
MASTER/FEEDER OPTION
The Trust may in the future seek to achieve any Fund's investment objective by
investing all of that Fund's assets in another investment company having the
same investment objective and substantially the same investment policies and
restrictions as those applicable to that Fund. It is expected that any such
investment company would be managed by SFM in substantially the same manner as
the existing Fund. The initial shareholder(s) of each Fund voted to vest such
authority in the sole discretion of the Trustees and such investment may be
made without further approval of the shareholders of the Funds. However,
shareholders of the Funds will be given at least 30 days' prior notice of any
such investment. Such investment would be made only if the Trustees determine
it to be in the best interests of a Fund and its shareholders. In making that
determination the Trustees will consider, among other things, the benefits to
shareholders and/or the opportunity to reduce costs and achieve operational
efficiencies. Although the Funds believe that the Trustees will not approve an
arrangement that is likely to result in higher costs, no assurance is given
that costs will be materially reduced if this option is implemented.
COUNSEL AND INDEPENDENT ACCOUNTANTS
Morgan, Lewis & Bockius LLP serves as counsel to the Trust. Coopers & Lybrand
LLP serves as the independent accountants of the Trust.
CUSTODIAN
CoreStates Bank, N.A., Broad and Chestnut Streets, P.O. Box 7618, Philadelphia,
Pennsylvania 19101, acts as wire agent for each of the Funds and custodian for
the assets of the Large Cap, Small Cap, Core Fixed Income and High Yield Bond
Funds. State Street Bank and Trust Company, 225 Franklin Street, Boston,
Massachusetts 02110, acts as custodian for the assets of the International
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<PAGE> 31
Fixed Income, Emerging Markets Equity and International Equity Funds.
CoreStates Bank, N.A. and State Street Bank and Trust Company (each a
"Custodian," and, together, the "Custodians") hold cash, securities and other
assets of the respective Funds for which they act as custodian as required by
the 1940 Act.
DESCRIPTION OF PERMITTED INVESTMENTS AND RISK FACTORS
================================================================================
The following is a description of the permitted investment practices for the
Funds, and the associated risk factors:
AMERICAN DEPOSITARY RECEIPTS ("ADRs"), EUROPEAN DEPOSITARY RECEIPTS ("EDRs")
and GLOBAL DEPOSITARY RECEIPTS ("GDRs") -- ADRs are securities, typically
issued by a U.S. financial institution (a "depositary"), that evidence
ownership interests in a security or a pool of securities issued by a foreign
issuer and deposited with the depositary. ADRs include American Depositary
Shares and New York Shares. EDRs, which are sometimes referred to as
Continental Depositary Receipts ("CDRs"), are securities, typically issued by a
non-U.S. financial institution, that evidence ownership interests in a security
or a pool of securities issued by either a U.S. or foreign issuer. GDRs are
issued globally and evidence a similar ownership arrangement. Generally, ADRs
are designed for trading in the U.S. securities market, EDRs are designed for
trading in European securities market and GDRs are designed for trading in
non-U.S. securities markets. ADRs, EDRs, CDRs and GDRs may be available for
investment through "sponsored" or "unsponsored" facilities. A sponsored
facility is established jointly by the issuer of the security underlying the
receipt and a depositary, whereas an unsponsored facility may be established by
a depositary without participation by the issuer of the receipt's underlying
security. Holders of an unsponsored depositary receipt generally bear all the
costs of the unsponsored facility. The depositary of an unsponsored facility
frequently is under no obligation to distribute shareholder communications
received from the issuer of the deposited security or to pass through to the
holders of the receipts voting rights with respect to the deposited securities.
ASSET-BACKED SECURITIES -- Asset-backed securities are secured by non-mortgage
assets such as company receivables, truck and auto loans, leases and credit
card receivables. Such securities are generally issued as pass-through
certificates, which represent undivided fractional ownership interests in the
underlying pools of assets. Such securities also may be debt instruments,
which are also known as collateralized obligations and are generally issued as
the debt of a special purpose entity, such as a trust, organized solely for the
purpose of owning such assets and issuing such debt. A Fund may invest in
other asset-backed securities that may be created in the future if the Money
Managers determine that they are suitable.
CONVERTIBLE SECURITIES -- Convertible securities are corporate securities that
are exchangeable for a set number of another security at a prestated price.
Convertible securities typically have characteristics similar to both fixed
income and equity securities. Because of the conversion feature, the market
value of a convertible security tends to move with the market value of the
underlying stock. The value of a convertible security is also affected by
prevailing interest rates, the credit quality of the issuer, and any call
provisions.
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<PAGE> 32
DEMAND INSTRUMENTS -- Certain instruments may entail a demand feature which
permits the holder to demand payment of the principal amount of the instrument.
Demand instruments include variable rate demand notes.
DERIVATIVES -- Derivatives are investments that derive their value from other
securities, assets or indices. The following may be considered derivative
securities: futures, options on futures, options (e.g., puts and calls), swap
agreements, mortgage-backed securities (e.g., CMOs, REMICs, IOs and POs),
when-issued securities and forward commitments, floating and variable rate
securities, convertible securities, "stripped" U.S. Treasury securities (e.g.,
receipts and STRIPs), privately issued stripped securities (e.g., TIGRs, TRs
and CATS). See elsewhere in this "Description of Permitted Investments and
Risk Factors" for discussions of these various instruments, and see "Investment
Objectives and Policies" for more information about any investment policies and
limitations applicable to their use.
EQUITY SECURITIES -- Equity securities represent ownership interests in a
company or corporation and consist of common stock, preferred stock, warrants
and other rights to acquire such instruments. Equity securities may be listed
on exchanges or traded in the over-the-counter market. Investments in common
stocks are subject to market risks which may cause their prices to fluctuate
over time. The value of convertible securities is also affected by prevailing
interest rates, the credit quality of the issuer and any call provisions.
Changes in the value of fund securities will not necessarily affect cash income
derived from these securities, but will affect a Fund's net asset value.
Investments in the equity securities of small capitalization companies involves
greater risk than is customarily associated with larger, more established
companies due to the greater business risks of small size, limited markets and
financial resources, narrow product lines and the frequent lack of depth of
management. The securities of small companies are often traded
over-the-counter and may not be traded in volumes typical on a national
securities exchange. Consequently, the securities of smaller companies may
have limited market stability and may be subject to more abrupt or erratic
market movements than securities of larger, more established growth companies
or the market averages in general.
FIXED INCOME SECURITIES -- Fixed income securities are debt obligations issued
by corporations, municipalities and other borrowers. The market value of fixed
income investments will generally change in response to interest rate changes
and other factors. During periods of falling interest rates, the values of
outstanding fixed income securities generally rise. Conversely, during periods
of rising interest rates, the values of such securities generally decline.
Moreover, while securities with longer maturities tend to produce higher
yields, the prices of longer maturity securities are also subject to greater
market fluctuations as a result of changes in interest rates. Changes by
recognized agencies in the rating of any fixed income security and in the
ability of an issuer to make payments of interest and principal will also
affect the value of these investments. Changes in the value of portfolio
securities will not affect cash income derived from these securities, but will
affect a Fund's net asset value. Please also see other definitions in this
section that describe specific types of fixed income securities in greater
detail, including "Asset-Backed Securities," "Mortgage-Backed Securities,"
"U.S. Government Agencies," "U.S. Treasury Obligations," and "Yankee
Obligations."
FORWARD FOREIGN CURRENCY CONTRACTS -- A forward contract involves an obligation
to purchase or sell a specific currency amount at a future date, agreed upon by
the parties, at a price set
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<PAGE> 33
at the time of the contract. A Fund may also enter into a contract to sell,
for a fixed amount of U.S. dollars or other appropriate currency, the amount of
foreign currency approximating the value of some or all of the Fund's
securities denominated in such foreign currency.
At the maturity of a forward contract, the Fund may either sell a fund security
and make delivery of the foreign currency, or it may retain the security and
terminate its contractual obligation to deliver the foreign currency by
purchasing an "offsetting" contract with the same currency trader, obligating
it to purchase, on the same maturity date, the same amount of the foreign
currency. The Fund may realize a gain or loss from currency transactions.
A Fund may also engage in forward currency exchange transactions, which involve
the Fund's agreement to exchange currency for another currency at a future date
and specified price in anticipation of a decline in the value of the currency
sold relative to currency that the Fund has contracted to receive in the
exchange.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS -- Futures contracts provide
for the future sale by one party and purchase by another party of a specified
amount of a specific security at a specified future time and at a specified
price. An option on a futures contract gives the purchaser the right, in
exchange for a premium, to assume a position in a futures contract at a
specified exercise price during the term of the option. A Fund may use futures
contracts and related options for bona fide hedging purposes, to offset changes
in the value of securities held or expected to be acquired or be disposed of,
to minimize fluctuations in foreign currencies, or to gain exposure to a
particular market or instrument. A Fund will minimize the risk that it will be
unable to close out a futures contract by only entering into futures contracts
which are traded on national futures exchanges. In addition, a Fund will sell
only covered futures contracts and options on futures contracts.
Stock and bond index futures are futures contracts for various stock and bond
indices that are traded on registered securities exchanges. A stock or bond
index futures contract obligates the seller to deliver (and the purchaser to
take) an amount of cash equal to a specific dollar amount times the difference
between the value of a specific stock or bond index at the close of the last
trading day of the contract and the price at which the agreement is made.
Stock and bond index futures contracts are bilateral agreements pursuant to
which two parties agree to take or make delivery of an amount of cash equal to
a specified dollar amount times the difference between the stock or bond index
value at the close of trading of the contract and the price at which the
futures contract is originally struck. No physical delivery of the stocks or
bonds comprising the particular index is made; generally contracts are closed
out prior to the expiration date of the contracts. No price is paid upon
entering into futures contracts. Instead, a Fund would be required to deposit
an amount of cash or U.S. Treasury securities known as "initial margin."
Subsequent payments, called "variation margin," to and from the broker, would
be made on a daily basis as the value of the futures position varies (a process
known as "marking to market"). The margin is in the nature of a performance
bond or good-faith deposit on a futures contract.
Eurodollar instruments are U.S. dollar-denominated futures contracts or options
thereon which are linked to the London Interbank Offered Rate (LIBOR), although
foreign currency denominated instruments are available from time to time.
Eurodollar futures contracts enable purchasers to obtain a fixed rate for the
lending of funds and sellers to obtain a fixed rate for borrowings.
There are risks associated with these activities, including the following: (1)
the success of a hedging strategy may depend on an ability to predict movements
in the prices of individual securities, fluctuations in markets and movements
in interest rates, (2) there may be an imperfect or no
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correlation between the changes in market value of the securities held by the
Fund and the prices of futures and options on futures, (3) there may not be a
liquid secondary market for a futures contract or option, (4) trading
restrictions or limitations may be imposed by an exchange, and (5) government
regulations may restrict trading in futures contracts and futures options.
A Fund may enter into futures contracts and options on futures contracts traded
on an exchange regulated by the Commodities Futures Trading Commission
("CFTC"), as long as, to the extent that such transactions are not for "bona
fide hedging purposes," the aggregate initial margin and premiums on such
positions (excluding the amount by which such options are in the money) do not
exceed 5% of a Fund's net assets. A Fund may buy and sell futures contracts
and related options to manage its exposure to changing interest rates and
securities prices. Some strategies reduce a Fund's exposure to price
fluctuations, while others tend to increase its market exposure. Futures and
options on futures can be volatile instruments and involve certain risks that
could negatively impact a Fund's return.
In order to avoid leveraging and related risks, when a Fund purchases futures
contracts, it will collateralize its position by depositing an amount of cash
or liquid high-grade debt securities, equal to the market value of the futures
positions held, less margin deposits, in a segregated account with a third
party custodian. Collateral equal to the current market value of the futures
position will be marked to market on a daily basis.
ILLIQUID SECURITIES -- Illiquid securities are securities that cannot be
disposed of within seven business days at approximately the price at which they
are being carried on the Fund's books. Illiquid securities include demand
instruments with a demand notice period exceeding seven days, securities for
which there is no secondary market, and repurchase agreements with durations
over 7 days in length.
INVESTMENT COMPANIES -- Because of restrictions on direct investment by U.S.
entities in certain countries, investment in other investment companies may be
the most practical or only manner in which an international and global fund can
invest in the securities markets of those countries. A Fund does not intend to
invest in other investment companies unless, in the judgment of its Money
Managers, the potential benefits of such investments exceed the associated
costs relative to the benefits and costs associated with direct investments in
the underlying securities.
Investments in closed-end investment companies may involve the payment of
substantial premiums above the net asset value of such issuers' fund
securities, and are subject to limitations under the 1940 Act. As a
shareholder in an investment company, a Fund would bear its ratable share of
that investment company's expenses, including its advisory and administration
fees.
MONEY MARKET SECURITIES -- Money market securities are high-quality, short-term
debt instruments. They consist of: (i) bankers' acceptances, certificates of
deposits, notes and time deposits of highly-rated U.S. and foreign banks; (ii)
U.S. Treasury obligations and obligations issued or guaranteed by the agencies
and instrumentalities of the U.S. Government; (iii) high-quality commercial
paper issued by U.S. and foreign corporations; (iv) debt obligations with a
maturity of one year or less issued by corporations with outstanding
high-quality commercial paper; (v) repurchase agreements involving any of the
foregoing obligations entered into with highly-rated banks and broker-dealers;
and (vi) foreign government obligations.
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MORTGAGE-BACKED SECURITIES -- Mortgage-backed securities are instruments that
entitle the holder to a share of all interest and principal payments from
mortgages underlying the security. The mortgages backing these securities
include conventional fifteen and thirty-year fixed-rate mortgages, graduated
payment mortgages, adjustable rate mortgages and balloon mortgages. During
periods of declining interest rates, prepayment of mortgages underlying
mortgage-backed securities can be expected to accelerate. Prepayment of
mortgages which underlie securities purchased at a premium often results in
capital losses, while prepayment of mortgages purchased at a discount often
results in capital gains. Because of these unpredictable prepayment
characteristics, it is often not possible to predict accurately the average
life or realized yield of a particular issue.
Government Pass-Through Securities: These are securities that are issued or
guaranteed by a U.S. Government agency representing an interest in a pool of
mortgage loans. The primary issuers or guarantors of these mortgage-backed
securities are the Government National Mortgage Association ("GNMA"), the
Federal National Mortgage Association ("FNMA") and the Federal Home Loan
Mortgage Company ("FHLMC"). FNMA and FHLMC obligations are not backed by the
full faith and credit of the U.S. Government as GNMA certificates are, but FNMA
and FHLMC securities are supported by the instrumentalities' right to borrow
from the U.S. Treasury. GNMA, FNMA and FHLMC each guarantees timely
distributions of interest to certificate holders. GNMA and FNMA also each
guarantees timely distributions of scheduled principal.
Private Pass-Through Securities: These are mortgage-backed securities issued
by a non-governmental entity, such as a trust. These securities include
collateralized mortgage obligations ("CMOs") and real estate mortgage
investment conduits ("REMICs") that are rated in one of the top two rating
categories. While they are generally structured with one or more types of
credit enhancement, private pass-through securities typically lack a guarantee
by an entity having the credit status of a governmental agency or
instrumentality.
Commercial Mortgage-Backed Securities ("CMBS"): CMBS are generally multi-class
or pass-through securities backed by a mortgage loan or a pool of mortgage
loans secured by commercial property, such as industrial and warehouse
properties, office buildings, retail space and shopping malls, multifamily
properties and cooperative apartments. The commercial mortgage loans that
underlie CMBS have certain distinct characteristics. Commercial mortgage loans
are generally not amortizing or not fully amortizing. That is, at their
maturity date, repayment of the remaining principal balance or "balloon" is due
and is repaid through the attainment of an additional loan of sale of the
property. Unlike most single family residential mortgages, commercial real
estate property loans often contain provisions which substantially reduce the
likelihood that such securities will be prepaid. The provisions generally
impose significant prepayment penalties on loans and, in some cases there may
be prohibitions on principal prepayments for several years following
origination.
Collateralized Mortgage Obligations ("CMOs"): CMOs are debt obligations or
multiclass pass-through certificates issued by agencies or instrumentalities of
the U.S. Government or by private originators or investors in mortgage loans.
In a CMO, series of bonds or certificates are usually issued in multiple
classes. Principal and interest paid on the underlying mortgage assets may be
allocated among the several classes of a series of a CMO in a variety of ways.
Principal payments on the underlying mortgage assets may cause CMOs to be
retired substantially earlier then their stated maturities or final
distribution dates, resulting in a loss of all or part of any premium paid.
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REMICs: A REMIC is a CMO that qualifies for special tax treatment under the
Code and invests in certain mortgages principally secured by interests in real
property. Investors may purchase beneficial interests in REMICs, which are
known as "regular" interests, or "residual" interests. Guaranteed REMIC
pass-through certificates ("REMIC Certificates") issued by FNMA or FHLMC
represent beneficial ownership interests in a REMIC trust consisting
principally of mortgage loans or FNMA, FHLMC or GNMA-guaranteed mortgage
pass-through certificates. For FHLMC REMIC Certificates, FHLMC guarantees the
timely payment of interest, and also guarantees the payment of principal as
payments are required to be made on the underlying mortgage participation
certificates.
Stripped Mortgage-Backed Securities ("SMBs"): SMBs are usually structured with
two classes that receive specified proportions of the monthly interest and
principal payments from a pool of mortgage securities. One class may receive
all of the interest payments and is thus termed an interest-only class ("IO"),
while the other class may receive all of the principal payments and is thus
termed the principal-only class ("PO"). The value of IOs tends to increase as
rates rise and decrease as rates fall; the opposite is true of POs. SMBs are
extremely sensitive to changes in interest rates because of the impact thereon
of prepayment of principal on the underlying mortgage securities can experience
wide swings in value in response to changes in interest rates and associated
mortgage prepayment rates. During times when interest rates are experiencing
fluctuations, such securities can be difficult to price on a consistent basis.
The market for SMBs is not as fully developed as other markets; SMBs therefore
may be illiquid.
MORTGAGE DOLLAR ROLLS -- Mortgage "dollar rolls" are transactions in which
mortgage-backed securities are sold for delivery in the current month and the
seller simultaneously contracts to repurchase substantially similar securities
on a specified future date. Any difference between the sale price and the
purchase price is netted against the interest income foregone on the securities
sold to arrive at an implied borrowing rate. Alternatively, the sale and
purchase transactions can be executed at the same price, with the Fund being
paid a fee as consideration for entering into the commitment to purchase.
Mortgage dollar rolls may be renewed prior to cash settlement and initially may
involve only a firm commitment agreement by the Fund to buy a security. If the
broker-dealer to whom the Fund sells the security becomes insolvent, the Fund's
right to repurchase the security may be restricted. Other risks involved in
entering into mortgage dollar rolls include the risk that the value of the
security may change adversely over the term of the mortgage dollar roll and
that the security the Fund is required to repurchase may be worth less than the
security that the Fund originally held.
To avoid any leveraging concerns, the Fund will place U.S. Government or other
liquid, high grade debt securities in a segregated account in an amount
sufficient to cover its repurchase obligation.
OBLIGATIONS OF SUPRANATIONAL ENTITIES -- Supranational entities are entities
established through the joint participation of several governments, and include
the Asian Development Bank, the Inter-American Development Bank, International
Bank for Reconstruction and Development (World Bank), African Development Bank,
European Economic Community, European Investment Bank and the Nordic Investment
Bank. The governmental members, or "stockholders," usually make initial
capital contributions to the supranational entity and, in many cases, are
committed to make additional capital contributions if the supranational entity
is unable to repay its borrowings.
OPTIONS -- A put option gives the purchaser of the option the right to sell,
and the writer of the option the obligation to buy, the underlying commodity or
index at any time during the option period.
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A call option gives the purchaser of the option the right to buy, and the
writer of the option the obligation to sell, the underlying security at any
time during the option period. The initial purchase (sale) of an option
contract is an "opening transaction." In order to close out an option
position, a Fund may enter into a "closing transaction," which is simply the
sale (purchase) of an option contract on the same security with the same
exercise price and expiration date as the option contract originally opened.
If a Fund is unable to effect a closing purchase transaction with respect to an
option it has written, it will not be able to sell the underlying security
until the option expires or the Fund delivers the security upon exercise.
A Fund may purchase put and call options on securities to protect against a
decline in the market value of the securities in its portfolio or to anticipate
an increase in the market value of securities that the Fund may seek to
purchase in the future. A Fund purchasing put and call options pays a premium
therefor. The premium paid to the writer is the consideration for undertaking
the obligations under the option contract. If price movements in the
underlying securities are such that exercise of the options would not be
profitable for the Fund, loss of the premium paid may be offset by an increase
in the value of the Fund's securities or by a decrease in the cost of
acquisition of securities by the Fund.
A Fund may write covered call options on securities as a means of increasing
the yield on its fund and as a means of providing limited protection against
decreases in its market value. When a Fund writes an option, if the underlying
securities do not increase or decrease to a price level that would make the
exercise of the option profitable to the holder thereof, the option generally
will expire without being exercised and the Fund will realize as profit the
premium received for such option. When a call option of which a Fund is the
writer is exercised, the Fund will be required to sell the underlying
securities to the option holder at the strike price, and will not participate
in any increase in the price of such securities above the strike price. When a
put option of which a Fund is the writer is exercised, the Fund will be
required to purchase the underlying securities at a price in excess of the
market value of such securities.
A Fund that may invest in the securities of a foreign issuer may also purchase
and write put and call options on foreign currencies to manage its exposure to
exchange rates. Call options on foreign currency written by a Fund will be
"covered," which means that the Fund will own an equal amount of the underlying
foreign currency. With respect to put options on foreign currency written by a
Fund, the Fund will establish a segregated account with its custodian bank
consisting of cash or liquid high-grade debt securities in an amount equal to
the amount the Fund would be required to pay upon exercise of the put.
Additionally, a Fund may purchase and write put and call options on indices and
enter into related closing transactions. Options on an index give the holder
the right to receive, upon exercise of the option, an amount of cash if the
closing level of the underlying index is greater than (or less than, in the
case of puts) the exercise price of the option. Alternatively, a Fund may
choose to terminate an option position by entering into a closing transaction.
All settlements are in cash, and gain or loss depends on price movements in the
particular market represented by the index generally, rather than the price
movements in individual securities. All options written on indices must be
covered. When a Fund writes an option on an index, it will establish a
segregated account containing cash or liquid high-grade debt securities with
its Custodian in an amount at least equal to the market value of the option,
and will maintain the account while the option is open or will otherwise cover
the transaction. This amount of cash is equal to the difference between the
closing price of the index and the exercise
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price of the option, expressed in dollars multiplied by a specified number.
Thus, unlike options on individual securities, the ability of a Fund to enter
into closing transactions depends upon the existence of a liquid secondary
market for such transactions.
A Fund may purchase and write options on an exchange or over-the-counter.
Over-the-counter options ("OTC options") differ from exchange-traded options in
several respects. They are transacted directly with dealers and not with a
clearing corporation, and therefore entail the risk of non-performance by the
dealer. OTC options are available for a greater variety of securities and for
a wider range of expiration dates and exercise prices than are available for
exchange-traded options. Because OTC options are not traded on an exchange,
pricing is done normally by reference to information from a market maker. It
is the position of the SEC that OTC options are generally illiquid.
Risk Factors. Risks associated with options transactions include: (1) the
success of a hedging strategy may depend on an ability to predict movements in
the prices of individual securities, fluctuations in markets and movements in
interest rates; (2) there may be an imperfect correlation between the movement
in prices of options and the securities underlying them; (3) there may not be a
liquid secondary market for options; and (4) while a Fund will receive a
premium when it writes covered call options, it may not participate fully in a
rise in the market value of the underlying security.
PRIVATIZATIONS -- Privatizations are foreign government programs for selling
all or part of the interests in government owned or controlled enterprises.
The ability of a U.S. entity to participate in privatizations in certain
foreign countries may be limited by local law, or the terms on which the Fund
may be permitted to participate may be less advantageous than those applicable
for local investors. There can be no assurance that foreign governments will
continue to sell their interests in companies currently owned or controlled by
them or that privatization programs will be successful.
PAY-IN-KIND BONDS -- Investments of a Fund in fixed income securities may
include pay-in-kind bonds. These are securities which pay interest in either
cash or additional securities, at the issuer's option, for a specified period.
Pay-in-kind bonds, like zero coupon bonds, are designed to give an issuer
flexibility in managing cash flow. Pay-in-kind bonds are expected to reflect
the market value of the underlying debt plus an amount representing accrued
interest since the last payment. Pay-in-kind bonds are usually less volatile
than zero coupon bonds, but more volatile than cash pay securities.
RECEIPTS -- Receipts are sold as zero coupon securities which means that they
are sold at a substantial discount and redeemed at face value at their maturity
date without interim cash payments of interest or principal. This discount is
accreted over the life of the security, and such accretion will constitute the
income earned on the security for both accounting and tax purposes. Because of
these features, such securities may be subject to greater interest rate
volatility than interest paying fixed income securities. See also "Taxes."
REITs -- REITs are trusts that invest primarily in commercial real estate or
real estate-related loans. The value of interests in REITs may be affected by
the value of the property owned or the quality of the mortgages held by the
trust.
REPURCHASE AGREEMENTS -- arrangements by which a Fund obtains a security and
simultaneously commits to return the security to the seller at an agreed upon
price (including principal and interest) on an agreed upon date within a number
of days from the date of purchase. A Custodian
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or its agent will hold the security as collateral for the repurchase agreement.
Collateral must be maintained at a value at least equal to 102% of the purchase
price. A Fund bears a risk of loss in the event the other party defaults on
its obligations and the Fund is delayed or prevented from its right to dispose
of the collateral securities or if the Fund realizes a loss on the sale of the
collateral securities. A Fund's Money Managers will enter into repurchase
agreements on behalf of the Fund only with financial institutions deemed to
present minimal risk of bankruptcy during the term of the agreement based on
guidelines established and periodically reviewed by the Trustees. Repurchase
agreements are considered loans under the 1940 Act.
SECURITIES LENDING -- In order to generate additional income, a Fund may lend
securities that it owns pursuant to agreements requiring that the loan be
continuously secured by collateral consisting of cash, securities of the U.S.
Government or its agencies equal to at least 100% of the market value of the
securities lent. A Fund continues to receive interest on the securities lent
while simultaneously earning interest on the investment of cash collateral.
Collateral is marked to market daily. There may be risks of delay in recovery
of the securities or even loss of rights in the collateral should the borrower
of the securities fail financially or become insolvent.
SECURITIES OF FOREIGN ISSUERS -- There are certain risks connected with
investing in foreign securities. These include risks of adverse political and
economic developments (including possible governmental seizure or
nationalization of assets), the possible imposition of exchange controls or
other governmental restrictions, less uniformity in accounting and reporting
requirements, the possibility that there will be less information on such
securities and their issuers available to the public, the difficulty of
obtaining or enforcing court judgments abroad, restrictions on foreign
investments in other jurisdictions, difficulties in effecting repatriation of
capital invested abroad and difficulties in transaction settlements and the
effect of delay on shareholder equity. Foreign securities may be subject to
foreign taxes, and may be less marketable than comparable U.S. securities. The
value of a Fund's investments denominated in foreign currencies will depend on
the relative strengths of those currencies and the U.S. dollars, and a Fund may
be affected favorably or unfavorably by changes in the exchange rates or
exchange control regulations between foreign currencies and the U.S. dollar.
Changes in foreign currency exchange rates also may affect the value of
dividends and interest earned, gains and losses realized on the sale of
securities and net investment income and gains if any, to be distributed to
shareholders by a Fund. Furthermore, emerging market countries may have less
stable political environments than more developed countries. Also it may be
more difficult to obtain a judgment in a court outside the United States.
SHORT SALES -- Selling securities short involves selling securities the Fund
does not own (but has borrowed) in anticipation of a decline in the market
price of such securities. To deliver the securities to the buyer, the seller
must arrange through a broker to borrow the securities and, in so doing, the
seller becomes obligated to replace the securities borrowed at their market
price at the time of replacement. In a short sale, the proceeds the seller
receives from the sale are retained by a broker until the seller replaces the
borrowed securities. The seller may have to pay a premium to borrow the
securities and must pay any dividends or interest payable on the securities
until they are replaced.
A Fund may only sell securities short "against the box." A short sale is
"against the box" if, at all times during which the short position is open, the
Fund owns at least an equal amount of the securities or securities convertible
into, or exchangeable without further consideration for, securities of the same
issue as the securities that are sold short.
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A Fund may also maintain "short" positions in forward currency exchange
transactions, which involve the Fund's agreement to exchange currency that it
does not own at that time for another currency at a future date and specified
price in anticipation of a decline in the value of the currency sold short
relative to the currency that the Fund has contracted to receive in the
exchange. To ensure that any short position of the Fund is not used to achieve
leverage, the Fund will establish with its Custodian a segregated account
consisting of cash or liquid, high grade debt securities equal to the
fluctuating market value of the currency as to which any short position is
being maintained.
A Fund may also engage in forward foreign currency contracts by entering into
contracts to sell, for a fixed amount of U.S. dollars or other appropriate
currency, an amount of foreign currency approximating the value of some or all
of the Fund's securities denominated in such foreign currency.
SWAPS, CAPS, FLOORS AND COLLARS -- Interest rate swaps, mortgage swaps,
currency swaps and other types of swap agreements such as caps, floors and
collars are designed to permit the purchaser to preserve a return or spread on
a particular investment or portion of its portfolio, and to protect against any
increase in the price of securities a Fund anticipates purchasing at a later
date. In a typical interest rate swap, one party agrees to make regular
payments equal to a floating interest rate times a "notional principal amount,"
in return for payments equal to a fixed rate times the same amount, for a
specific period of time. Swaps may also depend on other prices or rates, such
as the value of an index or mortgage prepayment rates.
In a typical cap or floor agreement, one party agrees to make payments only
under specified circumstances, usually in return for payment of a fee by the
other party. Swap agreements will tend to shift a Fund's investment exposure
from one type of investment to another. Depending on how they are used, swap
agreements may increase or decrease the overall volatility of the Fund's
investments and their share price or yield.
U.S. GOVERNMENT AGENCY SECURITIES -- Obligations issued or guaranteed by
agencies of the U.S. Government, including, among others, the Federal Farm
Credit Bank, the Federal Housing Administration and the Small Business
Administration, and obligations issued or guaranteed by instrumentalities of
the U.S. Government, including, among others, the FHLMC, the Federal Land Banks
and the U.S. Postal Service. Some of these securities are supported by the
full faith and credit of the U.S. Treasury (e.g., GNMA securities), others are
supported by the right of the issuer to borrow from the Treasury (e.g., Federal
Farm Credit Bank securities), while still others are supported only by the
credit of the instrumentality (e.g., FNMA securities). Guarantees of principal
by agencies or instrumentalities of the U.S. Government may be a guarantee of
payment at the maturity of the obligation so that in the event of a default
prior to maturity there might not be a market and thus no means of realizing on
the obligation prior to maturity. Guarantees as to the timely payment of
principal and interest do not extend to the value or yield of these securities
or to the value of a Fund's shares.
U.S. TREASURY OBLIGATIONS -- U.S. Treasury obligations consist of bills, notes
and bonds issued by the U.S. Treasury as well as separately traded interest and
principal component parts of such obligations that are transferable through the
Federal book-entry Principal Securities ("STRIPS").
U.S. TREASURY RECEIPTS -- U.S. Treasury receipts are interests in separately
traded interest and principal component parts of U.S. Treasury obligations that
are issued by banks or brokerage firms and are created by depositing U.S.
Treasury notes and obligations into a special account at a custodian bank. The
custodian holds the interest and principal payments for the benefit of the
registered owners of the certificates of receipts. The custodian arranges for
the issuance of the certificates or receipts evidencing ownership and maintains
the register. Receipts include "Treasury Receipts" ("TRs"),
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"Treasury Investment Growth Receipts" ("TIGRs"), "Liquid Yield Option Notes"
("LYONs") and "Certificates of Accrual on Treasury Securities" ("CATS").
TIGRs, LYONS and CATS are interests in private proprietary accounts while TRs
and STRIPS are interest in accounts sponsored by the U.S. Treasury.
VARIABLE AND FLOATING RATE INSTRUMENTS -- Certain obligations may carry
variable or floating rates of interest, and may involve a conditional or
unconditional demand feature. Such instruments bear interest at rates that are
not fixed, but which vary with changes in specified market rates or indices.
The interest rates on these securities may be reset daily, weekly, quarterly or
some other reset period, and may have a floor or ceiling on interest rate
changes. There is a risk that the current interest rate on such obligations
may not accurately reflect existing market interest rates. A demand instrument
with a demand notice exceeding seven days may be considered illiquid if there
is no secondary market for such security.
WARRANTS -- Warrants are instruments giving holders the right, but not the
obligation, to buy equity or fixed income securities of a company at a given
price during a specified period.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES, INCLUDING TBA MORTGAGE-BACKED
SECURITIES -- When-issued or delayed delivery basis transactions involve the
purchase of an instrument with payment and delivery taking place in the future.
Delivery of and payment for these securities may occur a month or more after
the date of the purchase commitment. A Fund will maintain with its Custodian a
separate account with liquid high-grade debt securities or cash in an amount at
least equal to these commitments. The interest rate realized on these
securities is fixed as of the purchase date, and no interest accrues to a Fund
before settlement. These securities are subject to market fluctuation due to
changes in market interest rates, and it is possible that the market value at
the time of settlement could be higher or lower than the purchase price if the
general level of interest rates has changed. Although a Fund generally
purchases securities on a when-issued or forward commitment basis with the
intention of actually acquiring securities, a Fund may dispose of a when-issued
security or forward commitment prior to settlement if it deems it appropriate
to do so. When investing in when-issued securities, a Fund will not accrue
income until delivery of the securities and will invest in such securities only
for purposes of actually acquiring the securities and not for purposes of
leveraging.
One form of when-issued or delayed-delivery security that a Portfolio may
purchase is a "to be announced" ("TBA") mortgage-backed security. A TBA
mortgage-backed security transaction arises when a mortgage-backed security,
such as a GNMA pass-through security, is purchased or sold with specific pools
that will constitute that GNMA pass-through security to be announced on a
future settlement date.
YANKEE OBLIGATIONS -- Yankee obligations ("Yankees") are U.S.
dollar-denominated instruments of foreign issuers who either register with the
SEC or issue under Rule 144A under the Securities Act of 1933, as amended.
These obligations consist of debt securities (including preferred or preference
stock of non-governmental issuers), certificates of deposit, fixed time
deposits and bankers' acceptances issued by foreign banks, and debt obligations
of foreign governments or their subdivisions, agencies and instrumentalities,
international agencies and supranational entities. Some securities issued by
foreign governments or their subdivisions, agencies and instrumentalities may
not be backed by the full faith and credit of the foreign government.
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Investing in the securities of issuers based in any foreign country involves
special risks and considerations not typically associated with investing in
U.S. companies. These include risks resulting from differences in accounting,
auditing and financial reporting standards, lower liquidity than U.S. fixed
income or debt securities, the possibility of nationalization, expropriation or
confiscatory taxation; adverse changes in investment or exchange control
regulations and political instability. There may be less publicly available
information concerning foreign issuers of securities held by the Fund than is
available concerning U.S. issuers. Purchases and sales of foreign securities
and dividends and interest payable on those securities may be subject to
foreign taxes and taxes may be withheld from dividend and interest payments on
those securities. Foreign securities often trade with less frequency and
volume than domestic securities and therefore may exhibit greater price
volatility and a greater risk of liquidity.
The Yankee obligations selected for a Fund will adhere to the same quality
standards as those utilized for the selection of domestic debt obligations.
ZERO COUPON, PAY-IN-KIND AND DEFERRED PAYMENT SECURITIES -- Zero coupon
securities are securities that are sold at a discount to par value, and
securities on which interest payments are not made during the life of the
security. Upon maturity, the holder is entitled to receive the par value of
the security. While interest payments are not made on such securities, holders
of such securities are deemed to have received "phantom income" annually.
Because a Fund will distribute its "phantom income" to shareholders, to the
extent that shareholders elect to receive dividends in cash rather than
reinvesting such dividends in additional shares, the Fund will have fewer
assets with which to purchase income producing securities. Alternatively,
shareholders may have to redeem shares to pay tax on this "phantom income." In
either case, a Fund may have to dispose of its fund securities under
disadvantageous circumstances to generate cash, or may have to leverage itself
by borrowing cash to satisfy distribution requirements. A Fund accrues income
with respect to the securities prior to the receipt of cash payments.
Pay-in-kind securities are securities that have interest payable by delivery of
additional securities. Upon maturity, the holder is entitled to receive the
aggregate par value of the securities. Deferred payment securities are
securities that remain zero coupon securities until a predetermined date, at
which time the stated coupon rate becomes effective and interest becomes
payable at regular intervals. Zero coupon, pay-in-kind and deferred payment
securities may be subject to greater fluctuation in value and lesser liquidity
in the event of adverse market conditions than comparably rated securities
paying cash interest at regular interest payment periods.
Additional information on permitted investments and risk factors can be found
in the Statement of Additional Information.
-39-
<PAGE> 43
APPENDIX
DESCRIPTION OF CORPORATE BOND RATINGS
DESCRIPTION OF MOODY'S LONG-TERM RATINGS
Aaa Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edged." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues.
Aa Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as
high-grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risk appear somewhat larger than the Aaa
securities.
A Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper-medium grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment some time in the future.
Baa Bonds which are rated Baa are considered as medium-grade obligations
(i.e., they are neither highly protected nor poorly secured). Interest
payments and principal security appear adequate for the present but certain
protective elements may be lacking or may be characteristically unreliable
over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
Ba Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well-assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked
shortcomings.
C Bonds which are rated C are the lowest rated class of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
A-1
<PAGE> 44
Moody's bond ratings, where specified, are applied to senior bank obligations
and insurance company senior policyholder and claims obligations with an
original maturity in excess of one year. Obligations relying upon support
mechanisms such as letters-of-credit and bonds of indemnity are excluded unless
explicitly rated.
Obligations of a branch of a bank are considered to be domiciled in the country
in which the branch is located. Unless noted as an exception, Moody's rating
on a bank's ability to repay senior obligations extends only to branches
located in countries which carry a Moody's sovereign rating. Such branch
obligations are rated at the lower of the bank's rating or Moody's sovereign
rating for the bank deposits for the country in which the branch is located.
When the currency in which an obligation is denominated is not the same as the
currency of the country in which the obligation is domiciled, Moody's ratings
do not incorporate an opinion as to whether payment of the obligation will be
affected by the actions of the government controlling the currency of
denomination. In addition, risk associated with bilateral conflicts between an
investor's home country and either the issuer's home country or the country
where an issuer branch is located are not incorporated into Moody's ratings.
Moody's makes no representation that rated bank obligations or insurance
company obligations are exempt from registration under the U.S. Securities Act
of 1933 or issued in conformity with any other applicable law or regulation.
Nor does Moody's represent that any specific bank or insurance company
obligation is legally enforceable or is a valid senior obligation of a rated
issuer.
Moody's ratings are opinions, not recommendations to buy or sell, and their
accuracy is not guaranteed. A rating should be weighed solely as one factor in
an investment decision and you should make your own study and evaluation of any
issuer whose securities or debt obligations you consider buying or selling.
Note: Moody's applies numerical modifiers, 1, 2 and 3 in each generic rating
classification from Aa through B in its corporate bond rating system. The
modifier 1 indicates that the security 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 issue ranks in the lower end of its generic rating
category.
DESCRIPTION OF STANDARD & POOR'S LONG-TERM RATINGS
INVESTMENT GRADE
AAA Debt rated 'AAA' has the highest rating assigned by S&P. Capacity to
pay interest and repay principal is extremely strong.
AA Debt rated 'AA' has a very strong capacity to pay interest and repay
principal and differs from the highest rated debt only in small
degree.
A Debt rated 'A' has a strong capacity to pay interest and repay
principal, although it is somewhat more susceptible to adverse effects
of changes in circumstances and economic conditions than debt in
higher-rated categories.
A-2
<PAGE> 45
BBB Debt rated 'BBB' is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than in higher
rated categories.
SPECULATIVE GRADE
Debt rated 'BB', 'B', 'CCC', 'CC', and 'C' is regarded as having
predominantly speculative characteristics with respect to capacity to pay
interest and repay principal. 'BB' indicates the least degree of speculation
and 'C' the highest degree of speculation. While such debt will likely have
some quality and protective characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse conditions.
BB Debt rated 'BB' has less near-term vulnerability to default than other
speculative grade debt. However, it faces major ongoing uncertainties
or exposure to adverse business, financial, or economic conditions
that could lead to inadequate capacity to meet timely interest and
principal payments. The 'BB' rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied
'BBB-' rating.
B Debt rate 'B' has greater vulnerability to default but presently has
the capacity to meet interest payments and principal repayments.
Adverse business, financial, or economic conditions would likely
impair capacity or willingness to pay interest and repay principal.
The 'B' rating category also is used for debt subordinated to senior
debt that is assigned an actual or implied 'BB' or 'BB-' rating.
CCC Debt rated 'CCC' has a current identifiable vulnerability to default,
and is dependent on favorable business, financial, and economic
conditions to meet timely payment of interest and repayment of
principal. In the event of adverse business, financial, or economic
conditions, it is not likely to have the capacity to pay interest and
repay principal. The 'CCC' rating category also is used for debt
subordinated to senior debt that is assigned an actual or implied 'B'
or 'B-' rating.
CC The rating 'CC' is typically applied to debt subordinated to senior
debt which is assigned an actual or implied 'CCC' rating.
C The rating 'C' is typically applied to debt subordinated to senior
debt which is assigned an actual or implied 'CCC-' debt rating. The
'C' rating may be used to cover a situation where a bankruptcy
petition has been filed, but debt service payments are continued.
CI Debt rated 'CI' is reserved for income bonds on which no interest is
being paid.
D Debt is rated 'D' when the issue is in payment default, or the obligor
has filed for bankruptcy. The 'D' rating is used when interest or
principal payments are not made on the date due, even if the
applicable grace period has not expired, unless S&P believes that such
payments will be made during such grace period.
A-3
<PAGE> 46
Plus (+) or minus (-): The ratings from 'AA' to 'CCC' may be modified
by the addition of a plus or minus sign to show relative standing within the
major rating categories.
DESCRIPTION OF DUFF & PHELPS' LONG-TERM DEBT RATINGS
AAA Highest credit quality. The risk factors are negligible, being only
slightly more than for risk-free U.S. Treasury debt.
AA+ High credit quality. Protection factors are strong. Risk is modest
AA- but may vary slightly from time to time because of economic
conditions.
A+ Protection factors are average but adequate. However, risk factors
A- are more variable and greater in periods of economic stress.
BBB+ Below average protection factors but still considered sufficient for
BBB- prudent investment. Considerable variability in risk during economic
cycles.
BB+ Below investment grade but deemed likely to meet obligations when due.
BB Present or prospective financial protection factors fluctuate
BB- according to industry conditions or company fortunes. Overall quality
may move up or down frequently within this category.
B+ Below investment grade and possessing risk that obligations will not
B be met when due. Financial protection factors will fluctuate widely
B- according to economic cycles, industry conditions and/or company
fortunes. Potential exists for frequent changes in the rating within
this category or into a higher or lower rating grade.
CCC Well below investment grade securities. Considerable uncertainty
exists as to timely payment of principal, interest or preferred
dividends. Protection factors are narrow and risk can be substantial
with unfavorable economic/industry conditions, and/or with unfavorable
company developments.
DD Defaulted debt obligations. Issuer failed to meet scheduled principal
and/or interest payments.
DP Preferred stock with dividend arrearages.
DESCRIPTION OF FITCH'S LONG-TERM RATINGS
INVESTMENT GRADE BOND
AAA Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay
interest and repay principal, which is unlikely to be affected by
reasonably foreseeable events.
AA Bonds considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal is
very strong, although not quite as strong as bonds rated 'AAA'.
Because bonds rated in the 'AAA' and 'AA' categories are not
significantly
A-4
<PAGE> 47
vulnerable to foreseeable future developments, short-term debt of
these issuers is generally rated 'F-1+'.
A Bonds considered to be investment grade and of high credit quality.
The obligor's ability to pay interest and repay principal is
considered to be strong, but may be more vulnerable to adverse changes
in economic conditions and circumstances than bonds with higher
ratings.
BBB Bonds considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have adverse impact on
these bonds, and therefore impair timely payment. The likelihood that
the ratings of these bonds will fall below investment grade is higher
than for bonds with higher ratings.
SPECULATIVE GRADE BOND
BB Bonds are considered speculative. The obligor's ability to pay
interest and repay principal may be affected over time by adverse
economic changes. However, business and financial alternatives can be
identified which could assist the obligor in satisfying its debt
service requirements.
B Bonds are considered highly speculative. While bonds in this class
are currently meeting debt service requirements, the probability of
continued timely payment of principal and interest reflects the
obligor's limited margin of safety and the need for reasonable
business and economic activity throughout the life of the issue.
CCC Bonds have certain identifiable characteristics which, if not
remedied, may lead to default. The ability to meet obligations
requires an advantageous business and economic environment.
CC Bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.
C Bonds are in imminent default in payment of interest or principal.
DDD, DD, AND D Bonds are in default on interest and/or principal
payments. Such bonds are extremely speculative and
should be valued on the basis of their ultimate
recovery value in liquidation or reorganization of
the obligor. 'DDD' represents the highest potential
for recovery on these bonds, and 'D' represents the
lowest potential for recovery.
PLUS (+) MINUS (-) Plus and minus signs are used with a rating symbol to
indicate the relative position of a credit within the
rating category. Plus and minus signs, however, are
not used in the 'AAA', 'DDD', 'DD', or 'D'
categories.
A-5
<PAGE> 48
DESCRIPTION OF IBCA'S LONG-TERM RATINGS
AAA Obligations for which there is the lowest expectation of investment
risk. Capacity for timely repayment of principal and interest is
substantial, such that adverse changes in business, economic or
financial conditions are unlikely to increase investment risk
substantially.
AA Obligations for which there is a very low expectation of investment
risk. Capacity for timely repayment of principal and interest is
substantial. Adverse changes in business, economic or financial
conditions may increase investment risk, albeit not very
significantly.
A Obligations for which there is a low expectation of investment risk.
Capacity for timely repayment of principal and interest is strong,
although adverse changes in business, economic or financial conditions
may lead to increased investment risk.
BBB Obligations for which there is currently a low expectation of
investment risk. Capacity for timely repayment of principal and
interest is adequate, although adverse changes in business, economic
or financial conditions are more likely to lead to increased
investment risk than for obligations in other categories.
BB Obligations for which there is a possibility of investment risk
developing. Capacity for timely repayment of principal and interest
exists, but is susceptible over time to adverse changes in business,
economic or financial conditions.
B Obligations for which investment risk exists. Timely repayment of
principal and interest is not sufficiently protected against adverse
changes in business, economic or financial conditions.
CCC Obligations for which there is a current perceived possibility of
default. Timely repayment of principal and interest is dependent on
favorable business, economic or financial conditions.
CC Obligations which are highly speculative or which have a high risk of
default.
C Obligations which are currently in default.
Notes:"+" or "-" may be appended to a rating to denote relative status within
major rating categories.
Ratings of BB and below are assigned where it is considered that
speculative characteristics are present.
DESCRIPTION OF THOMSON BANKWATCH'S LONG-TERM DEBT RATINGS
INVESTMENT GRADE
AAA The highest category; indicates that the ability to repay principal
and interest on a timely basis is very high.
AA The second-highest category; indicates a superior ability to repay
principal and interest on a timely basis, with limited incremental
risk compared to issues rated in the highest category.
A-6
<PAGE> 49
A The third-highest category; indicates the ability to repay principal
and interest is strong. Issues rated "A" could be more vulnerable to
adverse developments (both internal and external) than obligations
with higher ratings.
BBB The lowest investment-grade category; indicates an acceptable capacity
to repay principal and interest. Issues rated "BBB" are, however,
more vulnerable to adverse developments (both internal and external)
than obligations with higher ratings.
Non-Investment Grade
(Issues regarded as having speculative characteristics in the likelihood of
timely repayment of principal and interest.)
BB While not investment grade, the "BB" rating suggests that the
likelihood of default is considerably less than for lower-rated
issues. However, there are significant uncertainties that could
affect the ability to adequately service debt obligations.
B Issues rated "B" show a higher degree of uncertainty and therefore
greater likelihood of default than higher-rated issues. Adverse
developments could well negatively affect the payment of interest and
principal on a timely basis.
CCC Issues rated "CCC" clearly have a high likelihood of default, with
little capacity to address further adverse changes in financial
circumstances.
CC "CC" is applied to issues that are subordinate to other obligations
rated "CCC" and are afforded less protection in the event of
bankruptcy or reorganization.
D Default
Ratings in the Long-Term Debt categories may include a plus (+) or minus (-)
designation, which indicates where within the respective category the issue is
placed.
A-7
<PAGE> 50
SEI INSTITUTIONAL INVESTMENTS TRUST
MANAGER AND SHAREHOLDER SERVICING AGENT:
SEI FINANCIAL MANAGEMENT CORPORATION
DISTRIBUTOR:
SEI FINANCIAL SERVICES COMPANY
MONEY MANAGERS:
1838 INVESTMENT ADVISORS, L.P.
ACADIAN ASSET MANAGEMENT, INC.
ALLIANCE CAPITAL MANAGEMENT L.P.
APODACA-JOHNSTON CAPITAL MANAGEMENT, INC.
BEA ASSOCIATES
BLACKROCK FINANCIAL MANAGEMENT, INC.
BOSTON PARTNERS ASSET MANAGEMENT, L.P.
FARRELL WAKO GLOBAL INVESTMENT MANAGEMENT
FIRST OF AMERICA INVESTMENT CORPORATION
FIRSTAR INVESTMENT RESEARCH & MANAGEMENT COMPANY
IDS ADVISORY GROUP, INC.
LSV ASSET MANAGEMENT
MELLON EQUITY ASSOCIATES
MERUS-UCA CAPITAL MANAGEMENT
MONTGOMERY ASSET MANAGEMENT, L.P.
MORGAN GRENFELL INVESTMENT SERVICES LIMITED
NICHOLAS-APPLEGATE CAPITAL MANAGEMENT, INC.
PROVIDENT INVESTMENT COUNSEL, INC.
SELIGMAN HENDERSON CO.
SEI FINANCIAL MANAGEMENT CORPORATION
STRATEGIC FIXED INCOME, L.P.
WALL STREET ASSOCIATES
WESTERN ASSET MANAGEMENT COMPANY
YAMAICHI CAPITAL MANAGEMENT, INC.
This STATEMENT OF ADDITIONAL INFORMATION is not a Prospectus. It is intended
to provide additional information regarding the activities and operations of
the SEI Institutional Investments Trust (the "Trust") and should be read in
conjunction with the Trust's Prospectus dated ______ __, 1996. A Prospectus
may be obtained through SEI Financial Services Company, 680 East Swedesford
Road, Wayne, Pennsylvania 19087.
<TABLE>
<CAPTION>
<S> <C> <C>
TABLE OF CONTENTS
The Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-2
Description of Permitted Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-2
Description of Ratings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .S-11
Investment Limitations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-14
The Money Managers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-17
The Manager . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-17
Distribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-18
Trustees and Officers of the Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-19
Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-21
Purchase and Redemption of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-22
Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-23
Fund Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-25
Description of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-26
Limitation of Trustees' Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-26
Voting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-27
Shareholder Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-27
</TABLE>
________ __, 1996
SEI-_-___-___
<PAGE> 51
THE TRUST
SEI Institutional Investments Trust (the "Trust") is an open-end management
investment company that has diversified and non-diversified funds. The Trust
was organized as a Massachusetts business trust under a Declaration of Trust
dated March 1, 1995. The Declaration of Trust permits the Trust to offer
separate series ("funds") of units of beneficial interest ("shares") and
different classes of shares. Each share of each fund represents an equal
proportionate interest in that fund with each other share of that fund.
This Statement of Additional Information relates to the following funds: Large
Cap, Small Cap, Core Fixed Income, High Yield Bond, International Fixed Income,
Emerging Markets Equity and International Equity Funds (each a "Fund," and,
collectively, the "Funds").
DESCRIPTION OF PERMITTED INVESTMENTS
ALL FUNDS MAY INVEST IN THE FOLLOWING INVESTMENTS AND ENGAGE IN THE FOLLOWING
INVESTMENT PRACTICES UNLESS SPECIFICALLY NOTED OTHERWISE.
ASSET-BACKED SECURITIES--securities backed by automobile receivables and
credit-card receivables and other securities backed by other types of
receivables or other assets. Credit support for asset-backed securities may be
based on the underlying assets and/or provided through credit enhancements by a
third party. Credit enhancement techniques include letters of credit,
insurance bonds, limited guarantees (which are generally provided by the
issuer), senior-subordinated structures and overcollateralization. The Core
Fixed Income, High Yield Bond and International Fixed Income Funds may invest
in asset-backed securities.
Asset-backed securities are not issued or guaranteed by the United States
Government or its agencies or instrumentalities; however, the payment of
principal and interest on such obligations may be guaranteed up to certain
amounts and for a certain period by a letter of credit issued by a financial
institution (such as a bank or insurance company) unaffiliated with the issuers
of such securities. The purchase of asset-backed securities raises risk
considerations peculiar to the financing instruments underlying such
securities. For example, there is a risk that another party could acquire an
interest in the obligations superior to that of the holders of the asset-backed
securities. There also is the possibility that recoveries on repossessed
collateral may not, in some cases, be available to support payments on those
securities. Asset-backed securities entail prepayment risk, which may vary
depending on the type of asset, but is generally less than the prepayment risk
associated with mortgage-backed securities. In addition, credit card
receivables are unsecured obligations of the card holder.
The market for asset-backed securities is at a relatively early stage of
development. Accordingly, there may be limited secondary market for such
securities.
BANKERS' ACCEPTANCES--a bill of exchange or time draft drawn on and accepted by
a commercial bank. It is used by corporations to finance the shipment and
storage of goods and to furnish dollar exchange. Maturities are generally six
months or less.
CERTIFICATES OF DEPOSIT--a negotiable interest bearing instrument with a
specific maturity. Certificates of deposit are issued by banks and savings and
loan institutions in exchange for the deposit of funds and normally can be
traded in the secondary market, prior to maturity. Certificates of deposit
have penalties for early withdrawal.
S-2
<PAGE> 52
COMMERCIAL PAPER--the term used to designate unsecured short-term promissory
notes issued by corporations and other entities. Maturities on these issues
vary from a few days to nine months. (See "Description of Ratings").
CONVERTIBLE SECURITIES--convertible securities have characteristics similar to
both fixed income and equity securities. Because of the conversion feature,
the market value of convertible securities tends to move together with the
market value of the underlying stock. As a result, a Fund's selection of
convertible securities is based, to a great extent, on the potential for
capital appreciation that may exist in the underlying stock. The value of
convertible securities is also affected by prevailing interest rates, the
credit quality of the issuer and any call provisions.
SECURITIES OF FOREIGN ISSUERS--may consist of obligations of foreign branches
of U.S. banks and foreign banks, including European Certificates of Deposit,
European Time Deposits, Canadian Time Deposits and Yankee Certificates of
Deposit and investments in Canadian Commercial Paper, foreign securities and
Europaper. In addition, a Fund may invest in American Depositary Receipts
("ADRs") traded on registered exchanges or NASDAQ. While a Fund expects to
invest primarily in sponsored ADRs, a joint arrangement between the issuer and
the depositary, some ADRs may be unsponsored. Unlike sponsored ADRs, the
holders of unsponsored ADRs bear all expenses and the depositary may not be
obligated to distribute shareholder communications or to pass through the
voting rights on the deposited securities. These instruments may subject a
Fund to investment risks that differ in some respects from those related to
investments in obligations of U.S. domestic issuers. Such risks include
future adverse political and economic
S-3
<PAGE> 53
developments, the possible imposition of withholding taxes on interest or other
income, possible seizure, nationalization, or expropriation of foreign
deposits, the possible establishment of exchange controls or taxation at the
source, greater fluctuations in value due to changes in the exchange rates, or
the adoption of other foreign governmental restrictions which might adversely
affect the payment of principal and interest on such obligations. Such
investments may also entail higher custodial fees and sales commissions than
domestic investments. Foreign issuers of securities or obligations are often
subject to accounting treatment and engage in business practices different from
those respecting domestic issuers of similar securities or obligations.
Foreign branches of U.S. banks and foreign banks may be subject to less
stringent reserve requirements than those applicable to domestic branches of
U.S. banks.
FORWARD FOREIGN CURRENCY CONTRACTS--involve an obligation to purchase or sell a
specified currency at a future date at a price set at the time of the contract.
Forward currency contracts do not eliminate fluctuations in the values of fund
securities but rather allow a Fund to establish a rate of exchange for a future
point in time.
When entering into a contract for the purchase or sale of a security in a
foreign currency, a Fund may enter into a foreign forward currency contract for
the amount of the purchase or sale price to protect against variations, between
the date the security is purchased or sold and the date on which payment is
made or received, in the value of the foreign currency relative to the United
States Dollar or other foreign currency.
Also, when the Money Manager anticipates that a particular foreign currency may
decline substantially relative to the United States dollar or other leading
currencies, in order to reduce risk, a Fund may enter into a forward contract
to sell, for a fixed amount, the amount of foreign currency approximating the
value of its securities denominated in such foreign currency. With respect to
any such forward foreign currency contract, it generally will not be possible
to match precisely the amount covered by that contract and the value of the
securities involved due to changes in the values of such securities resulting
from market movements between the date the forward contract is entered into and
the date it matures. In addition, while forward currency contracts may offer
protection from losses resulting from declines in value of a particular foreign
currency, they also limit potential gains which might result from increases in
the value of such currency. A Fund will also incur costs in connection with
forward foreign currency contracts and conversions of foreign currencies into
United States dollars. The High Yield Bond, International Fixed Income,
Emerging Markets Equity and International Equity Funds may enter into forward
foreign currency contracts.
Investment company shares that are purchased by a Fund shall be limited
to shares of money market open-end investment companies and the Fund's Money
Manager will waive its fee on that portion of the assets placed in such money
market open-end investment companies.
GNMA SECURITIES--securities issued by the Government National Mortgage
Association ("GNMA"), a wholly-owned U.S. Government corporation, are
guaranteed by GNMA as to the timely payment of principal and interest.
However, any premiums paid to purchase these instruments are not subject to
GNMA guarantees. The market value and interest yield of these instruments can
vary due to market interest rate fluctuations and early prepayments of
underlying mortgages. These securities represent ownership in a pool of
federally insured mortgage loans. GNMA certificates consist of underlying
mortgages with a maximum maturity of 30 years. However, due to scheduled and
unscheduled principal payments, GNMA certificates have a shorter average
maturity and, therefore, less principal volatility than a comparable 30-year
bond. Since prepayment rates vary widely, it is not possible to accurately
predict the average maturity of a particular GNMA pool. The scheduled monthly
interest and principal payments relating to mortgages in the pool will be
"passed through" to investors. GNMA securities differ from conventional bonds
in that principal is paid back to the certificate holders over the life of the
loan rather than at maturity. As a result, a Fund will receive monthly
scheduled payments of principal and interest. In addition, a Fund may receive
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unscheduled principal payments representing prepayments on the underlying
mortgages. Any prepayments will be reinvested at the then prevailing interest
rate.
Although GNMA certificates may offer yields higher than those available from
other types of U.S. Government securities, GNMA certificates may be less
effective than other types of securities as a means of "locking in" attractive
long-term rates because of the prepayment feature.
LOWER RATED SECURITIES--lower-rated bonds are commonly referred to as "junk
bonds" or high yield/high risk securities. These securities are rated "Baa" or
"BBB" or lower by an NRSRO. Each Fund may invest in securities rated as low as
"C" by Moody's or "D" by S&P. These ratings indicate that the obligations are
speculative and may be in default. In addition, each Fund may invest in
unrated securities subject to the restrictions stated in the Prospectus. The
High Yield Bond and Emerging Markets Equity Funds will invest in junk bonds.
CERTAIN RISK FACTORS RELATING TO HIGH-YIELD, HIGH-RISK SECURITIES. The
descriptions below are intended to supplement the discussion in the Prospectus
under "General Investment Policies and Risk Factors - Risk Factors Relating to
Investing in Lower Rated Securities."
GROWTH OF HIGH YIELD BOND, HIGH-RISK BOND MARKET. The widespread expansion of
government, consumer and corporate debt within the U.S. economy has made the
corporate sector more vulnerable to economic downturns or increased interest
rates. Further, an economic downturn could severely disrupt the market for
lower rated bonds and adversely affect the value of outstanding bonds and the
ability of the issuers to repay principal and interest.
SENSITIVITY TO INTEREST RATE AND ECONOMIC CHANGES. Lower rated bonds are very
sensitive to adverse economic changes and corporate developments. During an
economic down turn or substantial period of rising interest rates, highly
leveraged issuers may experience financial stress that would adversely affect
their ability to service their principal and interest payment obligations, to
meet projected business goals, and to obtain additional financing. If the
issuer of a bond defaulted on its obligations to pay interest or principal or
entered into bankruptcy proceedings, a Fund may incur losses or expenses in
seeking recovery of amounts owed to it. In addition, periods of economic
uncertainty and change can be expected to result in increased volatility of
market prices of high-yield, high-risk bonds and a Fund's net asset value.
PAYMENT EXPECTATIONS. High-yield, high-risk bonds may contain redemption or
call provisions. If an issuer exercised these provisions in a declining
interest rate market, a Fund would have to replace the security with a lower
yielding security, resulting in a decreased return for investors. Conversely,
a high-yield, high-risk bond's value will decrease in a rising interest rate
market, as will the value of a Fund's assets. If a Fund experiences
significant unexpected net redemptions, this may force it to sell high-yield,
high-risk bonds without regard to their investment merits, thereby decreasing
the asset base upon which expenses can be spread and possibly reducing the
Fund's rate of return.
LIQUIDITY AND VALUATION. There may be little trading in the secondary market
for particular bonds, which may affect adversely a Fund's ability to value
accurately or dispose of such bonds. Adverse publicity and investor
perception, whether or not based on fundamental analysis, may decrease the
vales and liquidity of high-yield, high-risk bonds, especially in a thin
market.
LEGISLATION. Federal laws require the divestiture by federally insured savings
and loan associations of their investments in lower rated bonds and limit the
deductibility of interest by certain corporate issuers of high yield bonds.
These laws could adversely affect a Fund's net asset value and investment
practices, the secondary market for high yield securities, the financial
condition of issuers of these securities and the value of outstanding high
yield securities.
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TAXES. A Fund may purchase debt securities (such as zero-coupon or pay-in-kind
securities) that contain original issue discount. Original issue discount that
accretes in a taxable year is treated as earned by a Fund and therefore is
subject to the distribution requirements of the Internal Revenue Code of 1986,
as amended (the "Code"). Because the original issue discount earned by a Fund
in a taxable year may not be represented by cash income, the Fund may have to
dispose of other securities and use the proceeds to make distributions to
shareholders.
MORTGAGE-BACKED SECURITIES--in which the Funds may invest in represent pools
of mortgage loans assembled for sale to investors by various governmental
agencies such as the GNMA and government-related organizations such as the
Federal National Mortgage Association ("FNMA") and the Federal Home Loan
Mortgage Corporation ("FHLMC"). In addition, the High Yield Bond may invest in
pools of mortgage loans from nongovernmental issuers such as commercial banks,
savings and loan institutions, mortgage bankers, and private mortgage insurance
companies. Although certain mortgage-backed securities are guaranteed by a
third party or otherwise similarly secured, the market value of the security,
which may fluctuate, is not so secured. If a Fund purchases a mortgage-backed
security at a premium, that portion may be lost if there is a decline in the
market value of the security whether resulting from changes in interest rates
or prepayments in the underlying mortgage collateral. As with other
interest-bearing securities, the prices of such securities are inversely
affected by changes in interest rates. However, though the value of a
mortgage-backed security may decline when interest rates rise, the converse is
not necessarily true since in periods of declining interest rates the mortgages
underlying the securities are prone to prepayment. For this and other reasons,
a mortgage-backed security's stated maturity may be shortened by unscheduled
prepayments on the underlying mortgages and, therefore, it is not possible to
predict accurately the security's return to a Fund. In addition, regular
payments received in respect of mortgage-backed securities include both
interest and principal. No assurance can be given as to the return a Fund will
receive when these amounts are reinvested.
A Fund may also invest in mortgage-backed securities that are collateralized
mortgage obligations structured on pools of mortgage pass-through certificates
or mortgage loans.
There are a number of important differences among the agencies and
instrumentalities of the U.S. Government that issue mortgage-backed securities
and among the securities that they issue. Mortgage-backed securities issued by
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 is backed by the full faith and credit of the United States. GNMA
certificates also are supported by the authority of GNMA to borrow funds from
the U.S. Treasury to make payments under its guarantee. Mortgage-backed
securities issued by FNMA include FNMA Guaranteed Mortgage Pass-Through
Certificates (also known as "Fannie Maes") which are solely the obligations of
the FNMA and are not backed by or entitled to the full faith and credit of the
United States. FNMA is a government-sponsored organization owned entirely by
private stockholders. Fannie Maes are guaranteed as to timely payment of the
principal and interest by FNMA. Mortgage-backed securities issued by 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 all principal payments on the
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underlying mortgage loans. FHLMC has in the past guaranteed only the ultimate
collection of principal of the underlying mortgage loan; however, FHLMC now
issues mortgage-backed securities (FHLMC Gold PCs) which also guarantee timely
payment of monthly principal reductions. Government and private guarantees do
not extend to the securities' value, which is likely to vary inversely with
fluctuations in interest rates. 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, High Yield Bond and International Fixed Income Funds may,
consistent with their respective investment objectives and policies, invest in
mortgage-backed securities issued or guaranteed by the U.S. Government or its
agencies or instrumentalities. The High Yield Bond Fund may also purchase
mortgage-backed securities issued by non-governmental entities as set forth in
the Prospectus.
Parallel Pay Securities; PAC Bonds: Parallel pay CMOs and REMICS are
structured to provide payments of principal on each payment date to more than
one class. These simultaneous payments are taken into account in calculating
the stated maturity date or final distribution date of each class, which must
be retired by its stated maturity date or final distribution date, but may be
retired earlier. It is possible that payments on one class of parallel pay
security may be deferred or subordinated to payments on other classes. Planned
Amortization Class CMOs ("PAC Bonds") generally require payments of a specified
amount of principal on each payment date. PAC Bonds are always parallel pay
CMOs with the required principal payment on such securities having the highest
priority after interest has been paid to all classes.
MORTGAGE DOLLAR ROLLS--or "covered rolls" are transactions in which a Fund
sells securities (usually mortgage-backed securities) and simultaneously
contracts to repurchase, typically in 30 or 60 days, substantially similar, but
not identical, securities on a specified future date. During the roll period,
a Fund forgoes principal and interest paid on such securities. A Fund is
compensated by the difference between the current sales price and the forward
price for the future purchase (often referred to as the "drop") as well as by
the interest earned on the cash proceeds of the initial sale. A "covered roll"
is a specific type of mortgage dollar roll for which there is an offsetting
cash position or cash equivalent securities position that matures on or before
the forward settlement date of the mortgage dollar roll transaction. As used
herein the term "mortgage dollar roll" refers to mortgage dollar rolls that are
not "covered rolls." At the end of the roll commitment period, a Fund may or
may not take delivery of the securities it has contracted to purchase. The
Core Fixed Income Fund may enter into mortgage dollar rolls.
OBLIGATIONS OF SUPRANATIONAL AGENCIES--may be purchased by the Core Fixed
Income, International Fixed Income, Emerging Markets Equity and International
Equity Funds. Currently, each Fund intends to invest only in obligations
issued or guaranteed by the Asian Development Bank, Inter-American Development
Bank, European Coal and Steel Community, European Economic Community, European
Investment Bank and the Nordic Investment Bank.
PUT TRANSACTIONS--All of the Funds may purchase securities at a price which
would result in a yield to maturity lower than generally offered by the seller
at the time of purchase when a Fund can simultaneously acquire the right to
sell the securities back to the seller, the issuer or a third party (the
"writer") at an agreed-upon price at any time during a stated period or on a
certain date. Such a right is generally denoted as a "standby commitment" or a
"put." The purpose of engaging in transactions involving puts is to maintain
flexibility and liquidity to permit a Fund to meet redemptions and remain as
fully invested as possible in municipal securities. A Fund reserves the right
to engage in put transactions. The right to put the securities depends on the
writer's ability to pay for the securities at the time the put is exercised. A
Fund would limit its put transactions to institutions which the Fund's Money
Managers believe present minimum credit risks, and the Fund's Money Managers
would use their best efforts to initially determine and continue to monitor the
financial strength of the sellers of the options by
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evaluating their financial statements and such other information as is
available in the marketplace. It may, however, be difficult to monitor the
financial strength of the writers because adequate current financial
information may not be available. In the event that any writer is unable to
honor a put for financial reasons, a Fund would be a general creditor (i.e. on
a parity with all other unsecured creditors) of the writer. Furthermore,
particular provisions of the contract between a Fund and the writer may excuse
the writer from repurchasing the securities; for example, a change in the
published rating of the underlying municipal securities or any similar event
that has an adverse effect on the issuer's credit or a provision in the
contract that the put will not be exercised except in certain special cases,
for example, to maintain fund liquidity. A Fund could, however, at any time
sell the underlying fund security in the open market or wait until the fund
security matures, at which time it should realize the full par value of the
security.
The securities purchased subject to a put may be sold to third persons at any
time, even though the put is outstanding, but the put itself, unless it is an
integral part of the security as originally issued, may not be marketable or
otherwise assignable. Therefore, the put would have value only to that
particular Fund. Sale of the securities to third parties or lapse of time with
the put unexercised may terminate the right to put the securities. Prior to
the expiration of any put option, a Fund could seek to negotiate terms for the
extension of such an option. If such a renewal cannot be negotiated on terms
satisfactory to the Fund, the Fund could, of course, sell the fund security.
The maturity of the underlying security will generally be different from that
of the put. There will be no limit to the percentage of fund securities that a
Fund may purchase subject to a put but the amount paid directly or indirectly
for puts which are not integral parts of the security as originally issued will
not exceed 1/2 of 1% of the value of the total assets of such Fund calculated
immediately after any such put is acquired. For the purpose of determining the
"maturity" of securities purchased subject to an option to put, and for the
purpose of determining the dollar-weighted average maturity of a Fund including
such securities, the Trust will consider "maturity" to be the first date on
which it has the right to demand payment from the writer of the put although
the final maturity of the security is later than such date.
RECEIPTS--interests in separately traded interest and principal component parts
of U.S. Government obligations that are issued by banks or brokerage firms and
are created by depositing U.S. Government obligations into a special account at
a custodian bank. The custodian holds the interest and principal payments for
the benefit of the registered owners of the certificates or receipts. The
custodian arranges for the issuance of the certificates or receipts evidencing
ownership and maintains the register. Receipts include "Treasury Receipts"
("TRs"), "Treasury Investment Growth Receipts" ("TIGRs"), and "Certificates of
Accrual on Treasury Securities" ("CATS"). TIGRs and CATS are interests in
private proprietary accounts while TRs and STRIPS (See "U.S. Treasury
Obligations") are interests in accounts sponsored by the U.S. Treasury.
Receipts are sold as zero coupon securities; for more information, see "Zero
Coupon Securities." The Large Cap, Small Cap, Core Fixed Income and High Yield
Bond Funds may invest in receipts.
REPURCHASE AGREEMENTS--agreements under which securities are acquired from a
securities dealer or bank subject to resale on an agreed upon date and at an
agreed upon price which includes principal and interest. A Fund involved bears
a risk of loss in the event that the other party to a repurchase agreement
defaults on its obligations and the Fund is delayed or prevented from
exercising its rights to dispose of the collateral securities. A Fund's Money
Managers enter into repurchase agreements only with financial institutions that
they deem to present minimal risk of bankruptcy during the term of the
agreement, based on guidelines that are periodically reviewed by the Board of
Trustees. These guidelines currently permit each Fund to enter into repurchase
agreements only with approved banks and primary securities dealers, as
recognized by the Federal Reserve Bank of New York, which have minimum net
capital of $100 million, or with a member bank of the Federal Reserve System.
Repurchase agreements are considered to be loans collateralized by the
underlying security. Repurchase agreements entered into by a Fund will provide
that the underlying security at all times shall have a value at least equal to
102% of the price stated in the agreement. This underlying security will be
marked to market daily. A Fund's Money Managers will monitor compliance
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with this requirement. Under all repurchase agreements entered into by a Fund,
the Custodian or its agent must take possession of the underlying collateral.
However, if the seller defaults, a Fund could realize a loss on the sale of the
underlying security to the extent the proceeds of the sale are less than the
resale price. In addition, even though the Bankruptcy Code provides protection
for most repurchase agreements, if the seller should be involved in bankruptcy
or insolvency proceedings, a Fund may incur delay and costs in selling the
security and may suffer a loss of principal and interest if the Fund is treated
as an unsecured creditor.
SECURITIES LENDING--in order to generate additional income, a Fund may lend the
securities in which it is invested pursuant to agreements requiring that the
loans be continuously secured by cash, securities of the U.S. Government or its
agencies, or any combination of cash and such securities, as collateral equal
to at least the market value at all times of the securities lent. A Fund will
continue to receive interest on the securities lent while simultaneously
earning interest on the investment of the cash collateral in U.S. Government
securities. However, a Fund will normally pay lending fees to such
broker-dealers and related expenses from the interest earned on invested
collateral. There may be risks of delay in receiving additional collateral or
risks of delay in recovery of the securities or even loss of rights in the
collateral should the borrower of the securities fail financially. However,
loans are made only to borrowers deemed by the Fund's Money Managers to be of
good standing and when, in the judgment of the Fund's Money Managers, the
consideration which can be earned currently from such securities loans
justifies the attendant risk. Any loan may be terminated by either party upon
reasonable notice to the other party. Each Fund may use the Distributor as a
broker in these transactions.
SWAPS, CAPS, FLOORS AND COLLARS--are sophisticated hedging instruments that
typically involve a small investment of cash relative to the magnitude of risk
assumed. As a result, swaps can be highly volatile and have a considerable
impact on a Fund's performance. Swap agreements are subject to risks related
to the counterparty's ability to perform, and may decline in value if the
counterparty's creditworthiness deteriorates. A Fund may also suffer losses if
it is unable to terminate outstanding swap agreements or reduce its exposure
through offsetting transactions. Any obligation a Fund may have under these
types of arrangements will be covered by setting aside liquid high grade
securities in a segregated account. A Fund will enter into swaps only with
counterparties believed to be creditworthy.
The buyer of an interest rate cap obtains the right to receive payments to the
extent that a specific interest rate exceeds an agreed-upon level, while the
seller of an interest rate floor is obligated to make payments to the extent
that a specified interest rate falls below an agreed-upon level. An interest
rate collar combines elements of buying a cap and selling a floor.
TIME DEPOSITS--a non-negotiable receipt issued by a bank in exchange for the
deposit of funds. Like a certificate of deposit, it earns a specified rate of
interest over a definite period of time; however, it cannot be traded in the
secondary market.
Time deposits with a withdrawal penalty are considered to be illiquid
securities. The High Yield Bond, International Fixed Income, Emerging Markets
Equity and International Equity Funds may invest in time deposits.
U.S. GOVERNMENT AGENCY OBLIGATIONS--agencies of the United States Government
that issue obligations, including, among others, Export Import Bank of the
United States, Farmers Home Administration, Federal Farm Credit System, Federal
Housing Administration, Government National Mortgage Association, Maritime
Administration, Small Business Administration and The Tennessee Valley
Authority. A Fund may purchase securities issued or guaranteed by the GNMA
which represent participations in Veterans Administration and Federal Housing
Administration backed mortgage pools.
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Obligations of instrumentalities of the United States Government include
securities issued by, among others, Federal Home Loan Banks, FHLMC, Federal
Intermediate Credit Banks, Federal Land Banks, FNMA and the United States
Postal Service. Some of these securities are supported by the full faith and
credit of the United States Treasury (e.g., GNMA), others are supported by the
right of the issuer to borrow from the Treasury and still others are supported
only by the credit of the instrumentality (e.g., FNMA). Guarantees of
principal by agencies or instrumentalities of the U.S. Government may be a
guarantee of payment at the maturity of the obligation so that in the event of
a default prior to maturity there might not be a market and thus no means of
realizing the value of the obligation prior to maturity. Guarantees as to the
timely payment of principal and interest do not extend to the value or yield of
these securities nor to the value of a Fund's shares.
U.S. TREASURY OBLIGATIONS--bills, notes and bonds issued by the U.S. Treasury
and separately traded interest and principal component parts of such
obligations that are transferable through the Federal book-entry system known
as Separately Traded Registered Interest and Principal Securities ("STRIPS").
No Fund may actively trade STRIPS. STRIPS are sold as zero coupon securities;
for more information, see "Zero Coupon Securities."
VARIABLE OR FLOATING RATE INSTRUMENTS--may involve a demand feature and may
include variable amount master demand notes available through the Custodian, or
otherwise. Variable or floating rate instruments bear interest at a rate which
varies with changes in market rates. The holder of an instrument with a demand
feature may tender the instrument back to the issuer at par prior to maturity.
A variable amount master demand note is issued pursuant to a written agreement
between the issuer and the holder, its amount may be increased by the holder or
decreased by the holder or issuer, it is payable on demand, and the rate of
interest varies based upon an agreed formula. The quality of the underlying
credit must, in the opinion of the Fund's managers, be equivalent to the
long-term bond or commercial paper ratings applicable to permitted investments
for each Fund. Each Fund's Money Managers will monitor on an ongoing basis the
earning power, cash flow, and liquidity ratios of the issuers of such
instruments and will similarly monitor the ability of an issuer of a demand
instrument to pay principal and interest on demand.
In case of obligations which include a put feature at the option of the debt
holder, the date of the put may be used as an effective maturity date for the
purpose of determining weighted average fund maturity.
WHEN-ISSUED SECURITIES--involve the purchase of debt obligations on a
when-issued basis, in which case delivery and payment normally take place
within 45 days after the date of commitment to purchase. A Fund will only make
commitments to purchase obligations on a when-issued basis with the intention
of actually acquiring the securities, but may sell them before the settlement
date. The when-issued securities are subject to market fluctuation, and no
interest accrues to the purchaser during this period. The payment obligation
and the interest rate that will be received on the securities are each fixed at
the time the purchaser enters into the commitment. Purchasing obligations on a
when-issued basis is a form of leveraging and can involve a risk that the
yields available in the market when the delivery takes place may actually be
higher than those obtained in the transaction itself. In that case there could
be an unrealized loss at the time of delivery. A Fund will establish a
segregated account with its Custodian and maintain liquid assets in an amount
at least equal in value to that Fund's commitments to purchase when-issued
securities. If the value of these assets declines, the Fund involved will
place additional liquid assets in the account on a daily basis so that the
value of the assets in the account is equal to the amount of such commitments.
ZERO COUPON SECURITIES--STRIPS and receipts (TRs, TIGRs and CATS) are sold as
zero coupon securities, that is, fixed income securities that have been
stripped of their unmatured interest coupons. Zero coupon securities are sold
at a (usually substantial) discount and redeemed at face value at their
maturity date without interim cash payments of interest or principal. The
amount of this discount is accreted over the life of the security, and the
accretion constitutes the income earned on the security for both accounting and
tax purposes. Because of these features, the market prices of zero coupon
securities are generally more
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volatile than the market prices of securities that have similar maturity but
that pay interest periodically. Zero coupon securities are likely to respond
to a greater degree to interest rate changes than are non-zero coupon
securities with similar maturity and credit qualities. See also "Taxes."
CORPORATE ZERO COUPON SECURITIES: Corporate zero coupon securities are: (i)
notes or debentures which do not pay current interest and are issued at
substantial discounts from par value, or (ii) notes or debentures that pay no
current interest until a stated dated one or more years into the future, after
which the issuer is obligated to pay interest until maturity, usually at a
higher rate than if interest were payable from the date of issuance and may
also make interest payments in kind (e.g., with identical zero coupon
securities). Such corporate zero coupon securities, in addition to the risks
identified above, are subject to the risk of the issuer's failure to pay
interest and repay principal in accordance with the terms of the obligation. A
Fund must accrete the discount or interest on high-yield bonds structured as
zero coupon securities as income even though it does not receive a
corresponding cash interest payment until the security's maturity or payment
date. The Large Cap, Small Cap, Core Fixed Income, High Yield Bond and
International Fixed Income Funds may invest in zero coupon and corporate zero
coupon securities.
DESCRIPTION OF RATINGS
DESCRIPTION OF MOODY'S SHORT-TERM RATINGS
PRIME-1 Issuers rated Prime-1 (or supporting institutions) have a superior
ability for repayment of senior short-term debt obligations. Prime-1 repayment
ability will often be evidenced by many of the following characteristics:
- --Leading market positions in well-established industries.
- --High rates of return on funds employed.
- --Conservative capitalization structure with moderate reliance on debt and
ample asset protection.
- --Broad margins in earnings coverage of fixed financial charges and high
internal cash generation.
- --Well-established access to a range of financial markets and assured sources
of alternate liquidity.
PRIME-2 Issuers rated Prime-2 (or supporting institutions) have a strong
ability for repayment of senior short-term debt obligations. This will
normally be evidenced by many of the characteristics cited above but to a
lesser degree. Earnings trends and coverage ratios, while sound, may be more
subject to variation. Capitalization characteristics, while still appropriate,
may be more affected by external conditions. Ample alternate liquidity is
maintained.
PRIME-3 Issuers rated Prime-3 (or supporting institutions) have an acceptable
ability for repayment of senior short-term obligations. The effect of
industry characteristics and market compositions may be more pronounced.
Variability in earnings and profitability may result in changes in the level of
debt protection measurements and may require relatively high financial
leverage. Adequate alternate liquidity is maintained.
NOT PRIME Issuers rated Not Prime do not fall within any of the Prime rating
categories.
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STANDARD & POOR'S SHORT-TERM RATINGS
A-1 This highest category indicates that the degree of safety regarding
timely payment is strong. Debt determined to possess extremely strong
safety characteristics is denoted with a plus sign (+) designation.
A-2 Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high
as for issues designated 'A-1'.
A-3 Debt carrying this designation has an adequate capacity for timely
payment. It is, however, more vulnerable to the adverse effects of
changes in circumstances than obligations carrying the higher
designations.
B Debt rated 'B' is regarded as having only speculative capacity for
timely payment.
C This rating is assigned to short-term debt obligations with a doubtful
capacity for payment.
D This rating indicates that the obligation is in payment default.
DESCRIPTION OF DUFF & PHELPS' SHORT-TERM RATINGS
Duff 1+ Highest certainty of timely payment. Short-term liquidity, including
internal operating factors and/or access to alternative sources of
funds, is outstanding, and safety is just below risk-free U.S. Treasury
short-term obligations.
Duff 1 Very high certainty of timely payment. Liquidity factors are excellent
and supported by good fundamental protection factors. Risk factors are
minor.
Duff 1- High certainty of timely payment. Liquidity factors are strong and
supported by good fundamental protection factors. Risk factors are
very small.
GOOD GRADE
Duff 2 Good certainty of timely payment. Liquidity factors and company
fundamentals are sound. Although ongoing funding needs may enlarge
total financing requirements, access to capital markets is good.
Risk factors are small.
SATISFACTORY GRADE
Duff 3 Satisfactory liquidity and other protection factors qualify issue as to
investment grade. Risk factors are larger and subject to more
variation. Nevertheless, timely payment is expected.
NON-INVESTMENT GRADE
Duff 4 Speculative investment characteristics. Liquidity is not sufficient to
insure against disruption in debt service. Operating factors and
market access may be subject to a high degree of variation.
DEFAULT
Duff 5 Issuer failed to meet scheduled principal and/or interest payments.
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DESCRIPTION OF FITCH'S SHORT-TERM RATINGS
F-1+ Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely
payment.
F-1 Very Strong Credit Quality. Issues assigned this rating reflect an
assurance of timely payment only slightly less in degree than issues
rated 'F-1+'
F-2 Good Credit Quality. Issues assigned this rating have a satisfactory
degree of assurance for timely payment, but the margin of safety is not
as great as for issues assigned 'F-1+' and 'F-1' ratings.
F-3 Fair Credit Quality. Issues assigned this rating have characteristics
suggesting that the degree of assurance for timely payment is adequate,
however, near-term adverse changes could cause these securities to be
rated below investment grade.
F-S Weak Credit Quality. Issues assigned this rating have characteristics
suggesting a minimal degree of assurance for timely payment and are
vulnerable to near-term adverse changes in financial and economic
conditions.
D Default. Issues assigned this rating are in actual or imminent payment
default.
LOC The symbol LOC indicates that the rating is based on a letter of credit
issued by a commercial bank.
DESCRIPTION OF IBCA'S SHORT-TERM RATINGS (UP TO 12 MONTHS)
A1+ Obligations supported by the highest capacity for timely repayment.
A1 Obligations supported by a strong capacity for timely repayment.
A2 Obligations supported by a satisfactory capacity for timely repayment,
although such capacity may be susceptible to adverse changes in
business, economic, or financial conditions.
A3 Obligations supported by an adequate capacity for timely repayment.
Such capacity is more susceptible to adverse changes in business,
economic, or financial conditions than for obligations in higher
categories.
B Obligations for which the capacity for timely repayment is susceptible
to adverse changes in business, economic, or financial conditions.
C Obligations for which there is an inadequate capacity to ensure timely
repayment.
D Obligations which have a high risk of default or which are currently in
default.
DESCRIPTION OF THOMSON BANKWATCH'S SHORT-TERM RATINGS
TBW-1 The highest category; indicates a very high likelihood that principal
and interest will be paid on a timely basis.
TBW-2 The second-highest category; while the degree of safety regarding
timely repayment of principal and interest is strong, the relative
degree of safety is not as high as for issues rated "TBW-1".
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TBW-3 The lowest investment-grade category; indicates that while the
obligation is more susceptible to adverse developments (both
internal and external) than those with higher ratings, the
capacity to service principal and interest in a timely fashion is
considered adequate.
TBW-4 The lowest rating category; this rating is regarded as non-investment
grade and therefore speculative.
INVESTMENT LIMITATIONS
The following investment limitations and the investment limitations in the
Prospectus are fundamental policies of the Trust and may change without
shareholder approval.
FUNDAMENTAL POLICIES
A Fund may not:
1. Issue any class of senior security or sell any senior security of
which it is the issuer, except that a Fund may borrow from any bank,
provided that immediately after any such borrowing there is asset
coverage of at least 300% for all borrowings of the Fund, and further
provided that, to the extent that such borrowings of the Fund, and
further provided that, to the extent that such borrowings exceed 5% of
a Fund's total assets, all borrowings shall be repaid before such Fund
makes additional investments. The term "senior security" shall not
include any temporary borrowings that do not exceed 5% of the value of
such Fund's total assets at the time the Fund makes such temporary
borrowing. In addition, investment strategies that either obligate a
Fund to purchase securities or require a Fund to segregate assets will
not be considered borrowings or senior securities.
2. Make loans if, as a result, more than 33 1/3% of its total assets would
be lent to other parties, except that each Fund may (i) purchase or
hold debt instruments in accordance with its investment objective and
policies; (ii) enter into repurchase agreements; and (iii) lend its
securities.
3. Purchase or sell real estate, physical commodities, or commodities
contracts, except that each Fund may purchase (i) marketable securities
issued by companies which own or invest in real estate (including real
estate investment trusts), commodities, or commodities contracts, and
(ii) commodities contracts relating to financial instruments, such as
financial futures contracts and options on such contracts.
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4. Act as an underwriter of securities of other issuers except as it may
be deemed an underwriter in selling a portfolio security.
5. Invest in interests in oil, gas or other mineral exploration or
development programs and oil, gas or mineral leases.
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NON-FUNDAMENTAL POLICIES
The following investment limitations are non-fundamental policies of the Trust
and may change without shareholder approval.
A Fund may not:
1. Pledge, mortgage or hypothecate assets except to secure borrowings
permitted by the Fund's fundamental limitation on borrowing.
2. Invest in companies for the purpose of exercising control.
3. Purchase securities on margin or effect short sales, except that each
Fund may (i) obtain short-term credits as necessary for the clearance
of security transactions, (ii) provide initial and variation margin
payments in connection with transactions involving futures contracts
and options on such contracts, and (iii) make short sales "against the
box" or in compliance with the SEC's position regarding the asset
segregation requirements of section 18 of the 1940 Act.
4. Invest its assets in securities of any investment company, except (i)
by purchase in the open market involving only customary brokers'
commissions, (ii) in connection with mergers, acquisitions of assets,
or consolidations, or (iii) as otherwise permitted by the 1940 Act.
5. Purchase or retain securities of an issuer if, to the knowledge of the
Trust, an officer, trustee, partner or director of the Trust or any
investment adviser of the Trust owns beneficially more than 1/2 of the
1% of the shares or securities of such issuer and all such officers,
trustees, partners and directors owning more than 1/2 of 1% of such
shares or securities together own more than 5% of such shares or
securities.
6. Purchase securities of any company which has (with predecessors) a
record of less than three years continuing operations if, as a result,
more than 5% of the total assets (taken at current value) would be
invested in such securities.
7. Hold more than 15% of its net assets in illiquid securities, i.e.,
securities that cannot be disposed of for their approximate carrying
value in seven days or less (which term includes repurchase
agreements and time deposits maturing in more than seven days).
Notwithstanding the foregoing, securities eligible to be re-sold
under Rule 144A of the 1933 Act may be treated as liquid securities
under procedures adopted by the Board of Trustees.
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8. Purchase securities which are not readily marketable or which must be
registered under the 1933 Act, as amended, before they may be sold to
the public, if, in the aggregate, more than 15% of its total assets
would be invested in such restricted securities.
9. Acquiring the securities of other investment companies if, as a result
of such acquisition, the Fund owns more than 3% of the total voting
stock of the company; securities issued by any one investment company
represent more than 5% of the total Fund assets; or securities (other
than treasury stock) issued by all investment companies represent more
than 10% of the total assets of the Fund. A Fund's purchase of such
investment company securities results in the bearing of expenses such
that shareholders would indirectly bear a proportionate share of the
operating expenses of such investment companies, including advisory
fees.
ADDITIONAL RESTRICTIONS
The following are non-fundamental investment limitations that are currently
required by one or more states in which the Trust sells shares of the Funds.
These limitations are in addition to, and in some cases more restrictive than,
the fundamental and non-fundamental investment limitations listed above. A
limitation may be changed or eliminated if the relevant state(s) changes or
eliminates its policy regarding such investment restriction.
1. A Fund may not invest more than 5% of its net assets in warrants;
provided that of this 5% no more than 2% will be in warrants that are
not listed on the New York Stock Exchange or the American Stock
Exchange.
2. A Fund may not invest in the securities of other investment companies
except by purchase in the open market where no commission or profit to
a sponsor or dealer results from the purchase other than the customary
broker's commission, or except when the purchase is part of a plan of
merger, consolidation, reorganization or acquisition.
3. A Fund may not make short sales, except for short sales "against the
box."
THE MONEY MANAGERS
Each Money Manager Agreement provides that a Money Manager shall not be
protected against any liability to the Trust or its shareholders by reason of
willful misfeasance, bad faith or gross negligence on its part in the
performance of its duties or from reckless disregard of its obligations or
duties thereunder. In addition, certain of the Sub-Advisory Agreements provide
that the Sub-Adviser shall not be protected against any liability to the Trust
or its shareholders by reason of willful misfeasance, bad faith or negligence
on its part in the performance of its duties, or from reckless disregard of its
obligations or duties thereunder.
The continuance of each Money Manager Agreement must be specifically approved
at least annually (i) by the vote of a majority of the outstanding shares of
that Fund or by the Trustees, and (ii) by the vote of a majority of the
Trustees who are not parties to such Agreement or "interested persons" of any
party thereto, cast in person at a meeting called for the purpose of voting on
such approval. Each Money Manager Agreement will terminate automatically in
the event of its assignment, and is terminable at any time without penalty by
the Trustees of the Trust or, with respect to a Fund, by a majority of the
outstanding shares of that Fund, on not less than 30 days nor more than 60 days
written notice to the Money Manager or by the Money Manager on 90 days written
notice to the Trust.
THE MANAGER
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The Management Agreement provides that SFM shall not be liable for any error of
judgment or mistake of law or for any loss suffered by the Trust in connection
with the matters to which the Management Agreement relates, except a loss
resulting from willful misfeasance, bad faith or gross negligence on the part
of SFM in the performance of its duties or from reckless disregard of its
duties and obligations thereunder.
The continuance of the Management Agreement must be specifically approved at
least annually (i) by the vote of a majority of the Trustees or by the vote of
a majority of the outstanding voting securities of that Fund, and (ii) by the
vote of a majority of the Trustees of the Trust who are not parties to the
Management Agreement or an "interested person" (as that term is defined in the
1940 Act) of any party thereto, cast in person at a meeting called for the
purpose of voting on such approval. The Management Agreement is terminable at
any time as to any Fund without penalty by the Trustees of the Trust, by a vote
of a majority of the outstanding shares of the Fund or by SFM on not less than
30 days nor more than 60 days written notice.
SFM, a wholly owned subsidiary of SEI Corporation ("SEI"), was organized as a
Delaware corporation in 1969 and has its principal business offices at 680 East
Swedesford Road, Wayne, PA 19087-1658. Alfred P. West, Jr., Henry H. Greer and
Carmen V. Romeo constitute the Board of Directors of SFM and SEI Financial
Services Company (the "Distributor"). Mr. West is the Chairman of the Board and
Chief Executive Officer of SFM, the Distributor and of SEI. Mr. Greer is the
President and Chief Operating Officer of SFM, the Distributor and of SEI. SEI
and its subsidiaries are leading providers of funds evaluation services, trust
accounting systems, and brokerage and information services to financial
institutions, institutional investors and money managers. SFM also serves as
administrator to the following other mutual funds: The Achievement Funds Trust,
The Advisors' Inner Circle Fund, The Arbor Fund, ARK Funds, Bishop Street Funds,
CoreFunds, Inc., CrestFunds, Inc., CUFUND, First American Funds, Inc., First
American Investment Funds, Inc., FMB Funds, Inc., Inventor Funds, Inc., Marquis
Funds(R), Monitor Funds, Morgan Grenfell Investment Trust, The PBHG Funds, Inc.,
The Pillar Funds, Rembrandt Funds(R), 1784 Funds, SEI Asset Allocation Trust,
SEI Daily Income Trust, SEI Index Funds, SEI Institutional Managed Trust, SEI
International Trust, SEI Liquid Asset Trust, SEI Tax Exempt Trust, Stepstone
Funds, STI Classic Funds, STI Classic Variable Trust and Turner Funds.
If operating expenses of any Fund exceed limitations established by certain
states, SFM will pay such excess. SFM will not be required to bear expenses of
any Fund to an extent which would result in the Fund's inability to qualify as
a regulated investment company under provisions of the Internal Revenue Code.
The term "expenses" is defined in such laws or regulations, and generally
excludes brokerage commissions, distribution expenses, taxes, interest and
extraordinary expenses.
DISTRIBUTION
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The Distributor, a wholly-owned subsidiary of SEI, and the Trust are parties to
a distribution agreement ("Distribution Agreement"). The Distribution
Agreement shall be reviewed and ratified at least annually (i) by the Trust's
Trustees or by the vote of a majority of the outstanding shares of the Trust,
and (ii) by the vote of a majority of the Trustees of the Trust who are not
parties to the Distribution Agreement or interested persons (as defined in the
1940 Act) of any party to the Distribution Agreement, cast in person at a
meeting called for the purpose of voting on such approval. The Distribution
Agreement will terminate in the event of any assignment, as defined in the 1940
Act, and is terminable with respect to a particular Fund on not less than sixty
days' notice by the Trust's Trustees, by vote of a majority of the outstanding
shares of such Fund or by the Distributor. The Distributor will receive no
compensation for the distribution of Fund shares.
TRUSTEES AND OFFICERS OF THE TRUST
The Trustees and executive officers of the Trust, their respective dates of
birth and their principal occupations for the last five years are set forth
below. Each may have held other positions with the named companies during that
period. Unless otherwise noted, the business address of each Trustee and
executive officer is SEI Financial Management Corporation, 680 East Swedesford
Road, Wayne, PA 19087. Certain trustees and officers of the Trust also serve as
trustees and officers of some or all of the following: The Achievement Funds
Trust; The Advisors' Inner Circle Fund; The Arbor Fund; ARK Funds; Bishop Street
Funds; CoreFunds, Inc.; CrestFunds, Inc.; CUFUND; First American Funds, Inc.;
First American Investment Funds, Inc.; FMB Funds, Inc.; Inventor Funds, Inc.;
Marquis Funds(R); Monitor Funds; Morgan Grenfell Investment Trust; The Pillar
Funds; The PBHG Funds, Inc.; Rembrandt Funds(R); SEI Asset Allocation Trust; SEI
Daily Income Trust; SEI Index Funds; SEI Institutional Managed Trust; SEI
International Trust; SEI Liquid Asset Trust; SEI Tax Exempt Trust; 1784 Funds;
Stepstone Funds; STI Classic Funds; STI Classic Variable Trust; and Turner
Funds, each of which is an open-end management investment company managed by SEI
Financial Management Corporation and, except for Rembrandt Funds(R), distributed
by SEI Financial Services Company.
ROBERT A. NESHER (8/17/46) - Chairman of the Board of Trustees* - Retired since
1994. Executive Officer - Executive Vice President of SEI, 1986-1994.
Director and Executive Vice President of the Manager and Executive Vice
President of the Distributor, September, 1981-1994.
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WILLIAM M. DORAN (5/26/40) - Trustee* - 2000 One Logan Square, Philadelphia, PA
19103. Partner of Morgan, Lewis & Bockius LLP, counsel to the Trust, Manager
and Distributor, Director and Secretary of SEI and Secretary of the Manager and
Distributor.
F. WENDELL GOOCH (12/3/32) - Trustee** - P.O. Box 190, Paoli, IN 47454.
President, Orange County Publishing Co., Inc., since October 1981. Publisher
of the Paoli News and the Paoli Republican and Editor of the Paoli Republican
since January 1981; President, H & W Distribution, Inc. since July 1984.
Executive Vice President, Trust Department, Harris Trust and Savings Bank and
Chairman of the Board of Directors of The Harris Trust Company of Arizona
before January 1981. Trustee of STI Classic Funds.
FRANK E. MORRIS (12/30/23) - Trustee** - 105 Walpole Street, Dover, MA 02030.
Retired since 1990. Peter Drucker Professor of Management, Boston College
since 1989. President, Federal Reserve Bank of Boston, 1968-1988. Trustee of
The Arbor Fund, Marquis Funds, Advisors' Inner Circle Fund, Advisors' Inner
Circle Fund II, Inc. and FFB Lexicon Funds.
JAMES M. STOREY (4/12/31) - Trustee** - Ten Post Office Square, Boston, MA,
02109. Retired since 1993. Formerly Partner of Dechert Price & Rhoads (law
firm).
DAVID LEE (4/16/52) - President, Chief Executive Officer - Senior Vice
President of the Distributor since 1993. Vice President of the Distributor
since 1991. President, GW Sierra Trust Funds prior to 1991.
KATHRYN L. STANTON (11/18/58) - Vice President, Assistant Secretary - Vice
President, Assistant Secretary of SEI, the Manager and Distributor since 1994.
Associate, Morgan, Lewis & Bockius LLP (law firm), 1989-1994.
SANDRA K. ORLOW (10/18/53) - Vice President, Assistant Secretary - Vice
President and Assistant Secretary of the Manager and Distributor since 1988.
Corporate Legal Assistant, Omni Exploration (oil and gas investment) prior to
1983.
KEVIN P. ROBINS (4/15/61) - Vice President, Assistant Secretary - Senior Vice
President and General Counsel of SEI, the Manager and the Distributor, and
Assistant Secretary of SEI since 1994. Secretary of the Manager and the
Distributor since 1994. Vice President and Assistant Secretary of SEI, the
Manager and Distributor, 1992-1994. Associate, Morgan, Lewis & Bockius LLP
(law firm) prior to 1992.
JOSEPH M. LYDON (9/27/59) - Vice President, Assistant Secretary - Director of
Business Administration of Fund Resources, SEI Corporation since 1995. Vice
President of Fund Group and Vice President of Dreman Value Management
(investment adviser), President of Dreman Financial Services, Inc. prior to
1995.
TODD CIPPERMAN (2/14/66) - Vice President, Assistant Secretary - Vice President
and Assistant Secretary of SEI, the Manager and the Distributor since 1995.
Associate, Dewey Ballantine (law firm), 1994-1995. Associate, Winston & Strawn
(law firm), 1991-1994.
BARBARA A. NUGENT - Vice President, Assistant Secretary - Associate, Drinker,
Biddle & Reath (law firm), 1994-1996. Assistant Vice President/Administration,
Delaware Service Company, Inc., 1981-1994.
MARC H. CAHN - Vice President, Assistant Secretary - Associate General Counsel,
Barclays Bank PLC; 1995-1996. Counsel for First Fidelity Bancorporation prior
to 1995.
JEFFREY A. COHEN (4/22/61) - Controller, Chief Financial Officer - CPA, Vice
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President, International and Domestic Funds Accounting, SEI Corporation since
1991. Audit Manager, Price Waterhouse prior to 1991.
RICHARD W. GRANT (10/25/45) - Secretary - 2000 One Logan Square, Philadelphia,
PA 19103, Partner, Morgan, Lewis & Bockius LLP, counsel to the Trust, Manager
and Distributor.
- ------------------------------------------------------
(*) Messrs. Nesher and Doran are Trustees who may be deemed to be
"interested persons" of the Trust as the term is defined in the
Investment Company Act of 1940 (the "1940 Act").
(**) Messrs. Blanchard, Gooch, Morris and Storey serve as members of the
Audit Committee of the Trust.
The Trustees and officers of the Trust own, as a group, less than 1% of the
outstanding shares of the Trust. The Trust pays the fees for unaffiliated
Trustees. Compensation of officers and affiliated Trustees of the Trust is
paid by the Manager.
COMPENSATION TABLE
<TABLE>
<CAPTION>
Aggregate Total Compensation
Name of Person, Compensation from Pension or Estimated Annual From Registrant and
Position Registrant for the Retirement Benefits Benefits Upon Trust Complex Paid to
upcoming fiscal Accrued as Part of Retirement Trustees for the
year (estimated) Fund Expenses upcoming fiscal year
(estimated)
--------------- ------------------ ------------------- ---------------- --------------------
<S> <C> <C> <C> <C>
F. Wendell Gooch $12,164.41 $0 $0 $90,000 for
services on 9 boards
Frank E. Morris $12,164.41 $0 $0 $90,000 for
services on 9 boards
James Storey $12,164.41 $0 $0 $90,000 for
services on 9 boards
Robert A. Nesher* $0 $0 $0 $0 for services on 9
boards
William M. Doran* $0 $0 $0 $0 for services on 9
boards
</TABLE>
- ------------------------------------------------------
* Trustees who are "interested persons" as defined in the 1940 Act.
PERFORMANCE
From time to time, each Fund may advertise yield and/or total return. These
figures will be based on historical earnings and are not intended to indicate
future performance.
The yield of a Fund refers to the annualized income generated by an investment
in the Fund over a specified 30-day period. The yield is calculated by assuming
that the income generated by the investment during that period generated each
period over one year and is shown as a percentage of the investment. In
particular, yield will be calculated according to the following formula: Yield
= 2[(((a-b)/cd) + 1)6-1], where a = dividends and interest earned during the
period; b = expenses accrued for the period (net of
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reimbursement); c = the current daily number of shares outstanding during the
period that were entitled to receive dividends; and d = the maximum offering
price per share on the last day of the period.
The total return of a Fund refers to the average compounded rate of return to a
hypothetical investment for designated time periods (including, but not limited
to, the period from which the Fund commenced operations through the specified
date), assuming that the entire investment is redeemed at the end of each
period. In particular, total return will be calculated according to the
following formula: P(1 + T)(n) = ERV, where P = a hypothetical initial payment
of $1,000; T = average annual total return; n = number of years; and ERV =
ending redeemable value of a hypothetical $1,000 payment made at the beginning
of the designated time period as of the end of such period.
The Funds may, from time to time, compare their performance to other mutual
funds tracked by mutual fund rating services, to broad groups of comparable
mutual funds or to unmanaged indices which may assume investment of dividends
but generally do not reflect deductions for administrative and management
costs.
From time to time the Trust may include the names of clients of the Money
Managers in advertisements and/or sales literature for the Trust.
PURCHASE AND REDEMPTION OF SHARES
The purchase and redemption price of shares is the net asset value of each
share. A Fund's securities are valued by SFM pursuant to valuations provided
by an independent pricing service (generally the last quoted sale price). Fund
securities listed on a securities exchange for which market quotations are
available are valued at the last quoted sale price on each Business Day
(defined as days on which the New York Stock Exchange is open for business) or,
if there is no such reported sale, at the most recently quoted bid price.
Unlisted securities for which market quotations are readily available are
valued at the most recently quoted bid price. The pricing service may also use
a matrix system to determine valuations. This system considers such factors as
security prices, yields, maturities, call features, ratings and developments
relating to specific securities in arriving at valuations. The procedures of
the pricing service and its valuations are reviewed by the officers of the
Trust under the general supervision of the Trustees.
It is currently the Trust's policy to pay all redemptions in cash. The Trust
retains the right, however, to alter this policy to provide for redemptions in
whole or in part by a distribution in kind of readily marketable
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securities held by a Fund in lieu of cash. Shareholders may incur brokerage
charges on the sale of any such securities so received in payment of
redemptions. However, a shareholder will at all times be entitled to aggregate
cash redemptions from all Funds of the Trust during any 90-day period of up to
the lesser of $250,000 or 1% of the Trust's net assets.
A gain or loss for federal income tax purposes may be realized by a taxable
shareholder upon an in-kind redemption depending upon the shareholder's basis
in the shares of the Trust redeemed.
The Trust reserves the right to suspend the right of redemption and/or to
postpone the date of payment upon redemption for any period during which
trading on the New York Stock Exchange is restricted, or during the existence
of an emergency (as determined by the SEC by rule or regulation) as a result of
which disposal or evaluation of the fund securities is not reasonably
practicable, or for such other periods as the SEC may by order permit. The
Trust also reserves the right to suspend sales of shares of the Funds for any
period during which the New York Stock Exchange, the Manager, the Distributor,
the Money Managers and/or the Custodian are not open for business.
The securities may be traded on foreign markets on days other than Business
Days and the net asset value of a Fund may be computed on days when such
foreign markets are closed. In addition, foreign markets may close at times
other than 4:00 p.m. Eastern time. As a consequence, the net asset value of a
share of a Fund may not reflect all events that may affect the value of the
Fund's foreign securities unless the Money Managers determine that such events
materially affect net asset value in which case net asset value will be
determined by consideration of other factors.
TAXES
The following is only a summary of certain additional federal tax
considerations generally affecting the Funds and their shareholders that are
not described in the Funds' Prospectus. No attempt is made to present a
detailed explanation of the federal, state or local tax treatment of the Funds
or their shareholders and the discussion here and in the Funds' Prospectus is
not intended as a substitute for careful tax planning.
This discussion of federal income tax consequences is based on the Code and the
regulations issued thereunder as in effect on the date of this Statement of
Additional Information. New legislation, as well as administrative changes or
court decisions, may significantly change the conclusions expressed herein, and
may have a retroactive effect with respect to the transactions contemplated
herein.
Each Fund is treated as a separate entity for federal income tax purposes and
is not combined with the Trust's other Funds. Each Fund intends to qualify as
a regulated investment company ("RIC") under Subchapter M of the Code so that
it will be relieved of federal income tax on that part of its income that is
distributed to shareholders. In order to qualify for treatment as a RIC, a
Fund must distribute annually to its shareholders at least 90% of its
investment company taxable income (generally, net investment income plus the
excess, if any, of net short-term capital gain over net long-term capital
losses) ("Distribution Requirement") and also must meet several additional
requirements. Among these requirements are the following: (i) at least 90% of
a Fund's gross income each taxable year must be derived from dividends,
interest, payments with respect to securities loans, and gains from the sale or
other disposition of stock, securities or foreign currencies, or other income
derived with respect to its business of investing in such stock
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<PAGE> 73
or securities or currencies; (ii) less than 30% of a Fund's gross income each
taxable year may be derived from the sale or other disposition of stock,
securities or certain other assets held for less than three months; (iii) at
the close of each quarter of a Fund's taxable year, at least 50% of the value
of its total assets must be represented by cash and cash items, U.S. government
securities, securities of other RICs and other securities, with such other
securities limited, in respect of any one issuer, to an amount that does not
exceed 5% of the value of a Fund's assets and that does not represent more than
10% of the outstanding voting securities of such issuer; and (iv) at the close
of each quarter of a Fund's taxable year, not more than 25% of the value of its
assets may be invested in securities (other than U.S. government securities or
the securities of other RICs) of any one issuer or of two or more issuers which
the Fund controls and which are engaged in the same, similar, or related trades
or businesses.
Notwithstanding the Distribution Requirement described above, which only
requires a Fund to distribute at least 90% of its annual investment company
taxable income and does not require any minimum distribution of net capital
gain, a Fund will be subject to a nondeductible 4% federal excise tax to the
extent it fails to distribute by the end of any calendar year at least 98% of
its ordinary income for that year and 98% of its capital gain net income (the
excess of short- and long-term capital gain over short- and long-term capital
loss) for the one-year period ending on October 31 of that year, plus certain
other amounts. Each Fund intends to make sufficient distributions to avoid
liability for the federal excise tax. A Fund may in certain circumstances be
required to liquidate Fund investments in order to make sufficient
distributions to avoid federal excise tax liability at a time when the
investment advisor might not otherwise have chosen to do so, and liquidation of
investments in such circumstances may affect the ability of a Fund to satisfy
the requirements for qualification as a RIC.
Any gain or loss recognized on a sale, exchange or redemption of shares of a
Fund by a shareholder who is not a dealer in securities generally will be
treated as a long-term capital gain or loss if the shares have been held for
more than twelve months and otherwise will be treated as a short-term capital
gain or loss. However, if shares on which a shareholder has received a capital
gains distribution are subsequently sold, exchanged or redeemed and such shares
have been held for six months or less, any loss recognized will be treated as a
long-term capital loss to the extent of the capital gain distribution.
If a Fund fails to qualify as a RIC for any year, all of its income will be
subject to federal income tax at corporate rates, and its distributions
(including capital gain distributions) generally will be taxable as ordinary
income dividends to its shareholders, subject to the dividends received
deduction for eligible corporate shareholders.
A Fund will be required in certain cases to withhold and remit to the United
States Treasury 31% of amounts payable to any shareholder who (1) has provided
the Fund either an incorrect tax identification number or no number at all, (2)
who is subject to backup withholding by the Internal Revenue Service for
failure to properly report payments of interest or dividends, or (3) who has
failed to certify to the Fund that such shareholder is not subject to backup
withholding.
Dividends and interest received by a Fund may be subject to income, withholding
or other taxes imposed by foreign countries and United States possessions that
would reduce the yield on a Fund's securities. Tax conventions between certain
countries and the United States may reduce or eliminate these taxes. Foreign
countries generally do not impose taxes on capital gains with respect to
investments by foreign investors. If more than 50% of the value of a Fund's
total assets at the close of its taxable year consists of securities of foreign
corporations, a Fund will be eligible to, and will, file an election with the
Internal Revenue Service that will enable shareholders, in effect, to receive
the benefit of the foreign tax credit with respect to any foreign and United
States possessions income taxes paid by a Fund. Pursuant to the election, a
Fund will treat those taxes as dividends paid to its shareholders. Each
shareholder will be required to include a proportionate share of those taxes in
gross income as income received from a foreign source and must treat the amount
so included as if the shareholder had paid the foreign tax directly. The
shareholder may then
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<PAGE> 74
either deduct the taxes deemed paid by him or her in computing his or her
taxable income or, alternatively, use the foregoing information in calculating
the foreign tax credit (subject to significant limitations) against the
shareholder's federal income tax. If a Fund makes the election, it will report
annually to its shareholders the respective amounts per share of the Fund's
income from sources within, and taxes paid to, foreign countries and United
States possessions.
STATE TAXES
A Fund is not liable for any income or franchise tax in Massachusetts if it
qualifies as a RIC for federal income tax purposes. Distributions by a Fund to
shareholders and the ownership of shares may be subject to state and local
taxes. Shareholders should consult their own tax advisers regarding the affect
of federal, state and local taxes in their own individual circumstances.
FUND TRANSACTIONS
Money Managers make decisions to buy or sell securities independently from one
another. Thus, one Money Manager could sell a security at approximately the
same time another Money Manager for the same Fund is purchasing the same type
of security. In addition, when a Money Manager's services are terminated
and/or a new Money Manager is retained, the new Money Manager may significantly
restructure the Fund's portfolio. These practices may increase the Funds'
portfolio turnover rates, realization of gains or losses, brokerage commissions
and other transaction based costs.
The Trust has no obligation to deal with any dealer or group of dealers in the
execution of transactions in fund securities. Subject to policies established
by the Trustees, the Money Managers are responsible for placing orders to
execute Fund transactions. In placing orders, it is the Trust's policy to seek
to obtain the best net results taking into account such factors as price
(including the applicable dealer spread), size, type and difficulty of the
transaction involved, the firm's general execution and operational facilities,
and the firm's risk in positioning the securities involved. While the Money
Managers generally seek reasonably competitive spreads or commissions, the
Trust will not necessarily be paying the lowest spread or commission available.
The Trust will not purchase fund securities from any affiliated person acting
as principal except in conformity with the regulations of the SEC.
The money market securities in which a Fund invests are traded primarily in the
over-the-counter market. Bonds and debentures are usually traded
over-the-counter, but may be traded on an exchange. Where possible, the Money
Managers will deal directly with the dealers who make a market in the
securities involved except in those circumstances where better prices and
execution are available elsewhere. Such dealers usually are acting as
principal for their own account. On occasion, securities may be purchased
directly from the issuer. Money market securities are generally traded on a
net basis and do not normally involve either brokerage commissions or transfer
taxes. The cost of executing fund securities transactions of a Fund will
primarily consist of dealer spreads and underwriting commissions.
It is expected that the Funds may execute brokerage or other agency
transactions through the Distributor, a registered broker-dealer, for a
commission, in conformity with the 1940 Act, the Securities Exchange Act of
1934, as amended, and rules of the SEC. Under these provisions, the
Distributor is permitted to receive and retain compensation for effecting fund
transactions for a Fund on an exchange. These provisions further require that
commissions paid to the Distributor by the Trust for exchange transactions not
exceed "usual and customary" brokerage commissions. The rules define "usual and
customary" commissions to include amounts which are "reasonable and fair
compared to the commission, fee or other remuneration received or to be
received by other brokers in connection with
S-25
<PAGE> 75
comparable transactions involving similar securities being purchased or sold on
a securities exchange during a comparable period of time." In addition, a Fund
may direct commission business to one or more designated broker-dealers,
including the Distributor, in connection with such broker-dealer's payment of
certain of the Fund's expenses. The Trustees, including those who are not
"interested persons" of the Trust, have adopted procedures for evaluating the
reasonableness of commissions paid to the Distributor and will review these
procedures periodically.
Since the Trust does not market its shares through intermediary brokers or
dealers, it is not the Trust's practice to allocate brokerage or principal
business on the basis of sales of its shares which may be made through such
firms. However, the Fund's Money Managers may place fund orders with qualified
broker-dealers who recommend the Trust to clients, and may, when a number of
brokers and dealers can provide best price and execution on a particular
transaction, consider such recommendations by a broker or dealer in selecting
among broker-dealers.
The Trust does not expect to use one particular dealer, but a Fund's Money
Managers may, consistent with the interests of the Fund, select brokers on the
basis of the research services they provide to the Fund's Money Managers. Such
services may include analysis of the business or prospects of a company,
industry or economic sector or statistical and pricing services. Information
so received by the Money Manager will be in addition to and not in lieu of the
services required to be performed by a Fund's Money Managers under the Advisory
and/or Sub-Advisory Agreements. If in the judgement of a Fund's Money Managers
the Funds, or other accounts managed by the Fund's Money Managers, will be
benefitted by supplemental research services, the Fund's Money Managers are
authorized to pay brokerage commissions to a broker furnishing such services
which are in excess of commissions which another broker may have charged for
effecting the same transaction. The expenses of a Fund's Money Managers will
not necessarily be reduced as a result of the receipt of such supplemental
information.
In addition, SFM has adopted a policy respecting the receipt of research and
related products and services in connection with transactions effected for
Funds operating within the "Manager of Managers" structure. Under this policy,
SFM and the various firms that serve as sub-advisers to certain Funds of the
Trust, in the exercise of joint investment discretion over the assets of a
Fund, will direct a substantial portion of a Fund's brokerage to the
Distributor in consideration of the Distributor's provision of research and
related products to SFM for use in performing its advisory responsibilities.
All such transactions directed to the Distributor must be accomplished in a
manner that is consistent with the Trust's policy to achieve best net results,
and must comply with the Trust's procedures regarding the execution of
transactions through affiliated brokers.
DESCRIPTION OF SHARES
The Declaration of Trust authorizes the issuance of an unlimited number of
shares of each Fund, each of which represents an equal proportionate interest
in that Fund. Each share upon liquidation entitles a shareholder to a pro rata
share in the net assets of that Fund. Shareholders have no preemptive rights.
The Declaration of Trust provides that the Trustees of the Trust may create
additional series of shares or separate classes of funds. Share certificates
representing the shares will not be issued.
LIMITATION OF TRUSTEES' LIABILITY
The Declaration of Trust provides that a Trustee shall be liable only for his
or her own willful defaults and, if reasonable care has been exercised in the
selection of officers, agents, employees or administrators, shall not be liable
for any neglect or wrongdoing of any such person. The Declaration of Trust also
provides that the Trust will indemnify its Trustees and officers against
liabilities and expenses incurred in connection with
S-26
<PAGE> 76
actual or threatened litigation in which they may be involved because of their
offices with the Trust unless it is determined in the manner provided in the
Declaration of Trust that they have not acted in good faith in the reasonable
belief that their actions were in the best interests of the Trust. However,
nothing in the Declaration of Trust shall protect or indemnify a Trustee
against any liability for his or her willful misfeasance, bad faith, gross
negligence or reckless disregard of his or her duties.
VOTING
Where the Prospectus for the Funds or this Statement of Additional Information
state that an investment limitation or a fundamental policy may not be changed
without shareholder approval, such approval means the vote of (i) 67% or more
of the Fund's shares present at a meeting if the holders of more than 50% of
the outstanding shares of the Fund are present or represented by Proxy, or (ii)
more than 50% of the Fund's outstanding shares, whichever is less.
SHAREHOLDER LIABILITY
The Trust is an entity of the type commonly known as a "Massachusetts business
trust." Under Massachusetts law, shareholders of such a Trust could, under
certain circumstances, be held personally liable as partners for the
obligations of the Trust. Even if, however, the Trust were held to be a
partnership, the possibility of the shareholders' incurring financial loss for
that reason appears remote because the Trust's Declaration of Trust (i)
contains an express disclaimer of shareholder liability for obligations of the
Trust and requires that notice of such disclaimer be given in each agreement,
obligation or instrument entered into or executed by or on behalf of the Trust
or the Trustees, and (ii) provides for indemnification out of the Trust
property for any shareholders held personally liable for the obligations of the
Trust.
S-27
<PAGE> 77
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors
of SEI Institutional Investments Trust:
We have audited the accompanying Statement of Assets and Liabilities of SEI
Institutional Investments Trust (comprised of the Large Cap Fund, Small Cap
Fund, Core Fixed Income Fund, High Yield Bond Fund, International Fixed Income
Fund, Emerging Markets Equity Fund, and International Equity Fund) as of April
16, 1996. This financial statement is the responsibility of the Trust's
management. Our responsibility is to express an opinion on this financial
statement based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statement is free of material
misstatement. An audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statement. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the financial statement referred to above presents fairly, in
all material respects, the financial position of SEI Institutional Investments
Trust as of April 16, 1996 in conformity with generally accepted accounting
principles.
/s/ COOPERS & LYBRAND L.L.P.
- ----------------------------
COOPERS & LYBRAND L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
April 22, 1996
<PAGE> 78
SEI Institutional Investments Trust
Statements of Assets and Liabilities
as of April 16, 1996
<TABLE>
<CAPTION>
----------------------------------------------------------------
High International Emerging International
Yield Bond Fixed Income Markets Equity Equity
Fund Fund Fund Fund
----------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS:
Cash $100 $100 $100 $100
Deferred Organizational Costs 9,000 9,000 9,000 9,000
----------------------------------------------------------------
Total Assets 9,100 9,100 9,100 9,100
----------------------------------------------------------------
LIABILITIES:
Due to Manager 9,000 9,000 9,000 9,000
----------------------------------------------------------------
NET ASSETS:
Fund Shares (unlimited authorization-no par value)
based on 10, 10, 10 and 10 outstanding shares
of beneficial interest, respectively $100 $100 $100 $100
----------------------------------------------------------------
NET ASSET VALUE, OFFERING PRICE, AND
REDEMPTION PRICE PER SHARE $10.00 $10.00 $10.00 $10.00
================================================================
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 79
SEI Institutional Investments Trust
Statements of Assets and Liabilities
As of April 16, 1996
<TABLE>
<CAPTION>
------------------------------------------
Large Small Core
Cap Cap Fixed Income
Fund Fund Fund
------------------------------------------
<S> <C> <C> <C>
ASSETS:
Cash $100 $100 $99,400
Deferred Organizational Costs 9,000 9,000 9,000
------------------------------------------
Total Assets 9,100 9,100 108,400
------------------------------------------
LIABILITIES:
Due to Manager 9,000 9,000 9,000
------------------------------------------
NET ASSETS:
Fund Shares (unlimited authorization-no par value)
based on 10, 10 and 9,940 outstanding shares
of beneficial interest, respectively $100 $100 $99,400
------------------------------------------
NET ASSET VALUE, OFFERING PRICE, AND
REDEMPTION PRICE PER SHARE $10.00 $10.00 $10.00
==========================================
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 80
SEI INSTITUTIONAL INVESTMENTS TRUST
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION:
SEI Institutional Investments Trust (the "Trust") was organized as a
Massachusetts business trust under a Declaration of Trust dated March 1, 1995.
The Trust is registered under the Investment Company Act of 1940, as amended,
as an open-end management investment company with seven funds: Large Cap Fund,
Small Cap Fund, Core Fixed Income Fund, High Yield Bond Fund, International
Fixed Income Fund, Emerging Markets Equity Fund and the International Equity
Fund (collectively the "Funds", and each of these, a "Fund"). All of these
Funds are diversified funds with the exception of the International Fixed
Income Fund, which is non-diversified. The Funds' prospectus provides a
description of each Fund's investment objectives, policies and strategies. The
assets of each fund are segregated, and a shareholder's interest is limited to
the fund in which shares are held. The Trust has not commenced operation except
those related to organizational matters and the sale of initial shares of
beneficial interest to SEI Financial Management Corporation ("SFM") on April 16,
1996.
2. ORGANIZATIONAL COSTS AND TRANSACTIONS WITH AFFILIATES:
Organizational costs have been capitalized by the Trust and will be amortized
on a straight line basis over a period of sixty months commencing with
operations. In the event any of the initial shares of the Trust are redeemed by
any holder thereof during the period that the Trust is amortizing its
organizational costs, the redemption proceeds payable to the holder thereof by
the Trust will be reduced by the unamortized organizational costs in the same
ratio as the number of initial shares being redeemed bears to the number of
initial shares outstanding at the time of redemption. These costs include legal
fees of approximately $50,000 for organizational work performed by a law firm
of which an officer of the Trust is a Partner.
Certain officers of the Trust are also officers of SFM and/or SEI Financial
Services Company. The Trust pays each unaffiliated Trustee an annual fee for
attendance of quarterly, interim and committee meetings. Compensation of
officers and affiliated Trustees is paid by the SFM.
3. MANAGEMENT AND DISTRIBUTION AGREEMENTS:
The Trust intends to enter into the following service agreements:
Under an Investment Advisory Agreement with the Trust, SFM will act as
investment adviser to each Fund. For its investment advisory services to the
Trust, SFM will receive an annual fee which is calculated daily and paid
monthly at the following annual rates (shown as a percentage of the average
daily net assets of each Fund): Large Cap Fund, 0.40%; Small Cap Fund, 0.65%;
Core Fixed Income Fund, 0.30%; High Yield Bond Fund; 0.49%; International Fixed
Income Fund, 0.45%; Emerging Markets Equity fund, 1.05% and International Equity
Fund, 0.65%. SFM has agreed, on a voluntary basis, to waive all or a portion
of its investment advisory fee. In addition, SFM reserves the right to
terminate its waivers at any time in its full discretion.
<PAGE> 81
SEI INSTITUTIONAL INVESTMENTS TRUST
NOTES TO FINANCIAL STATEMENTS-CONCLUDED
Under the Administration Agreement with the Trust, SFM or an affiliate (the
"Administrator") will provide the Trust with overall management services, and
act as transfer agent, dividend disbursing agent and shareholder servicing
agent. For its services, the Administrator will receive an annual fee which is
calculated daily and paid monthly at an annual rate of .05% of the average
daily net assets of each Fund. The Administrator has agreed on a voluntary
basis, to waive all or a portion of its administration fee and/or reimburse
other expenses. In addition, the Administrator reserves the right to terminate
its waivers and/or reimbursements at any time in its full discretion.
The Trust and SEI Financial Services Company ("SFS") intend to enter into a
Distribution agreement pursuant to which SFS will provide distribution services
to the Trust. SFS will not be compensated for distribution services provided to
the Trust.
<PAGE> 82
SEI INSTITUTIONAL INVESTMENTS TRUST - DEFERRED ORGANIZATIONAL COSTS
Estimated as of 4/16/96
Legal 50,000
Printing 10,000
Auditing 3,000
Total 63,000
Estimated amount allocated
to each portfolio 9,000
<PAGE> 83
PART C. OTHER INFORMATION
Item 24. Financial Statements and Exhibits:
(a) Not Applicable
(b) Additional Exhibits:
(1) Registrant's Declaration of Trust is incorporated herein by
reference to Registrant's Registration Statement on Form N-1A (File
No. 33-58041), filed with the Securities and Exchange Commission on
March 10, 1995.
(2) Registrant's By-Laws are incorporated herein by reference to
Registrant's Registration Statement on Form N-1A (File No. 33-58041),
filed with the Securities and Exchange Commission on March 10, 1995.
(3) Not Applicable.
(4) Not Applicable.
(5)(a) Form of Investment Advisory Agreement between the Trust and SEI
Financial Management Corporation is incorporated herein by reference
to Registrant's Pre-Effective Amendment No. 1 on Form N-1A (File No.
33-58041), filed with the Securities and Exchange Commission on April
26, 1996.
(5)(b) Form of Investment Sub-Advisory Agreement between the Trust
and 1838 Investment Advisors, L.P. with respect to the Trust's
Small Cap Fund is incorporated herein by reference to Registrant's
Pre-Effective Amendment No. 1 on Form N-1A (File No. 33-58041), filed
with the Securities and Exchange Commission on April 26, 1996.
(5)(c) Form of Investment Sub-Advisory Agreement between the Trust and
Acadian Asset Management, L.P. with respect to the Trust's
International Equity Fund is incorporated herein by reference to
Registrant's Pre-Effective Amendment No. 1 on Form N-1A (File No.
33-58041), filed with the Securities and Exchange Commission on April
26, 1996.
(5)(d) Form of Investment Sub-Advisory Agreement between the Trust and
Alliance Capital Management L.P. with respect to the Trust's Large Cap
Fund is incorporated herein by reference to Registrant's Pre-Effective
Amendment No. 1 on Form N-1A (File No. 33-58041), filed with the
Securities and Exchange Commission on April 26, 1996.
(5)(e) Form of Investment Sub-Advisory Agreement between the Trust and
Apodaca-Johnston Capital Management, Inc. with respect to the Trust's
Small Cap Fund is incorporated herein by reference to Registrant's
Pre-Effective Amendment No. 1 on Form N-1A (File No. 33-58041), filed
with the Securities and Exchange Commission on April 26, 1996.
(5)(f) Form of Investment Sub-Advisory Agreement between the Trust and
BEA Associates with respect to the High Yield Bond Fund is in
corporated herein by reference to Registrant's Pre-Effective
Amendment No. 1 on Form N-1A (File No. 33-58041), filed with the
Securities and Exchange Commission on April 26, 1996.
(5)(g) Form of Investment Sub-Advisory Agreement between the Trust and
BlackRock Financial Management, Inc. with respect to the Core Fixed
Income Fund is incorporated herein by reference to Registrant's
Pre-Effective Amendment No. 1 on Form N-1A (File No. 33-58041), filed
with the Securities and Exchange Commission on April 26, 1996.
(5)(h) Form of Investment Sub-Advisory Agreement between the Trust and
Boston Partners Asset Management, L.P. with respect to the Small Cap
Fund is incorporated herein by reference to Registrant's Pre
-Effective Amendment No. 1 on Form N-1A (File No. 33-58041), filed
with the Securities and Exchange Commission on April 26, 1996.
(5)(i) Form of Investment Sub-Advisory Agreement between the Trust and
Firstar Investment Research & Management Company with respect to the
Core Fixed Income Fund is incorporated herein by reference to
Registrant's Pre-Effective Amendment No. 1 on Form N-1A (File No.
33-58041), filed with the Securities and Exchange Commission on April
26, 1996.
(5)(j) Form of Investment Sub-Advisory Agreement between the Trust and
IDS Advisory Group, L.P. with respect to the Trust's Large Cap Fund
is incorporated herein by reference to Registrant's Pre-Effective
Amendment No. 1 on Form N-1A (File No. 33-58041), filed with the
Securities and Exchange Commission on April 26, 1996.
(5)(k) Form of Investment Sub-Advisory Agreement between the Trust and
LSV Asset Management with respect to the Trust's Large Cap Fund is
incorporated herein by reference to Registrant's Pre-Effective
Amendment No. 1 on Form N-1A (File No. 33-58041), filed with the
Securities and Exchange Commission on April 26, 1996.
(5)(l) Form of Investment Sub-Advisory Agreement between the Trust
and Mellon Equity Associates with respect to the Large Cap Fund is
incorporated herein by reference to Registrant's Pre-Effective
Amendment No. 1 on Form N-1A (File No. 33-58041), filed with the
Securities and Exchange Commission on April 26, 1996.
(5)(m) Form of Investment Sub-Advisory Agreement between the Trust and
MERUS-UCA Capital Management with respect to the Large Cap Fund is
incorporated herein by reference to Registrant's Pre-Effective
Amendment No. 1 on Form N-1A (File No. 33-58041), filed with the
Securities and Exchange Commission on April 26, 1996.
(5)(n) Form of Investment Sub-Advisory Agreement between the Trust and
Montgomery Asset Management, L.P. with respect to the Emerging
Markets Equity Fund is incorporated herein by reference to
Registrant's Pre-Effective Amendment No. 1 on Form N-1A (File No.
33-58041), filed with the Securities and Exchange Commission on April
26, 1996.
(5)(o) Form of Investment Sub-Advisory Agreement between the Trust and
Morgan Grenfell Investment Services Limited with respect to the
International Equity Fund is incorporated herein by reference to
Registrant's Pre-Effective Amendment No. 1 on Form N-1A (File No.
33-58041), filed with the Securities and Exchange Commission on April
26, 1996.
(5)(p) Form of Investment Sub-Advisory Agreement between the Trust and
Nicholas-Applegate Capital Management, Inc. with respect to the Small
Cap Fund is incorporated herein by reference to Registrant's
Pre-Effective Amendment No. 1 on Form N-1A (File No. 33-58041), filed
with the Securities and Exchange Commission on April 26, 1996.
<PAGE> 84
(5)(q) Form of Investment Sub-Advisory Agreement between the Trust and
Provident Investment Counsel, Inc. with respect to the Large Cap Fund
is incorporated herein by reference to Registrant's Pre-Effective
Amendment No. 1 on Form N-1A (File No. 33-58041), filed with the
Securities and Exchange Commission on April 26, 1996.
(5)(r) Withdrawl is incorporated herein by reference to Registrant's
Pre-Effective Amendment No. 1 on Form N-1A (File No. 33-58041), filed
with the Securities and Exchange Commission on April 26, 1996.
(5)(s) Form of Investment Sub-Advisory Agreement between the Trust and
Strategic Fixed Income L.P. with respect to the International Fixed
Income Fund is incorporated herein by reference to Registrant's
Pre-Effective Amendment No. 1 on Form N-1A (File No. 33-58041), filed
with the Securities and Exchange Commission on April 26, 1996.
(5)(t) Form of Investment Sub-Advisory Agreement between the Trust
and Wall Street Associates with respect to the Small Cap Fund is
incorporated herein by reference to Registrant's Pre-Effective
Amendment No. 1 on Form N-1A (File No. 33-58041), filed with the
Securities and Exchange Commission on April 26, 1996.
(5)(u) Form of Investment Sub-Advisory Agreement between the Trust and
Western Asset Management Company with respect to the Core Fixed
Income Fund is incorporated herein by reference to Registrant's
Pre-Effective Amendment No. 1 on Form N-1A (File No. 33-58041), filed
with the Securities and Exchange Commission on April 26, 1996.
(5)(v) Form of Administration Agreement between the Trust and SEI Fund
Management is incorporated herein by reference to Registrant's
Pre-Effective Amendment No. 1 on Form N-1A (File No. 33-58041), filed
with the Securities and Exchange Commission on April 26, 1996.
(5)(w) Form of Investment Sub-Advisory Agreement between the Trust and
First of American Investment Corporation with respect to
the Small Cap Fund is filed herewith.
(5)(x) Form of Investment Sub-Advisory Agreement between the Trust and
Farrell Wako Global Investment Management, Inc. with respect to the
International Equity Fund is filed herewith.
(5)(y) Form of Investment Sub-Advisory Agreement between the Trust and
Seligman Henderson Co. with repect to the International Equity Fund
is filed herewith.
(5)(z) Form of Investment Sub-Advisory Agreement between the Trust and
Yamaichi Capital Management, Inc. with repect to the International
Equity Fund is filed herewith.
(6) Form of Distribution Agreement between the Trust and SEI Financial
Services Company is incorporated herein by reference to Registrant's
Pre-Effective Amendment No. 1 on Form N-1A (File No. 33-58041), filed
with the Securities and Exchange Commission on April 25, 1996.
(7) Not Applicable.
(8)(a) Form of Custodian Agreement between the Trust and CoreStates
Bank, N.A. with respect to the Trust's Large Cap, Small Cap, Core
Fixed Income and High Yield Bond Funds is incorporated herein by
reference to Registrant's Pre-Effective Amendment No. 1 on Form N-1A
(File No. 33-58041), filed with the Securities and Exchange Commission
on April 25, 1996.
(9) Not Applicable.
(10) Opinion and Consent of Counsel is filed herewith.
(11) Consent of Independent Public Accountants filed herewith.
(12) Not Applicable.
(13) Not Applicable.
(14) Not Applicable.
(15) Not Applicable.
(16) Performance Quotation Computation is filed herewith.
As of June 6, 1996
<TABLE>
<CAPTION>
NUMBER OF
RECORD
TITLE OF CLASS HOLDERS
-------------- -------
<S> <C>
Large Cap Fund .......................................... 0
Small Cap Fund .......................................... 0
Core Fixed Income Fund .................................. 0
High Yield Bond Fund .................................... 0
International Fixed Income Fund ......................... 0
Emerging Markets Equity Fund ............................ 0
International Equity Fund ............................... 0
</TABLE>
Item 27. Indemnification:
Article VIII of the Agreement and Declaration of Trust is filed as Exhibit 1 to
the Registration Statement. Insofar as indemnification for liabilities arising
under the Securities Act of 1933 may be permitted to trustees, directors,
officers and controlling persons of the Registrant by the Registrant pursuant
to the Declaration of
2
<PAGE> 85
Trust or otherwise, the Registrant is aware that in the opinion of the
Securities and Exchange Commission, such indemnification is against public
policy as expressed in the Act and, therefore, is unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by trustees, directors,
officers or controlling persons of the Registrant in connection with the
successful defense of any act, suite or proceeding) is asserted by such
trustees, directors, officers or controlling persons in connection with the
shares being registered, the Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issues.
Item 28. Business and Other Connections of Money Managers:
Other business, profession, vocation, or employment of a substantial
nature in which each director or principal officer of each Money Manager is or
has been, at any time during the last two fiscal years, engaged for his own
account or in the capacity of director, officer, employee, partner or trustee
are as follows:
1838 INVESTMENT ADVISORS, L.P.
1838 Investment Advisors L.P. ("1838") is a money manager for Registrant's the
Small Cap Fund. The principal business address of 1838 is 5 Radnor Corporate
Center, 100 Matsonford Road, Suite 320, Radnor, Pennsylvania 19087. 1838 is an
investment money manager registered under the Advisers Act.
The list required by this Item 28 of officers and directors of Acadian,
together with information as to any other business, profession, vocation or
employment of substantial nature engaged in by such officers and directors
during the past two years, is incorporated by reference to Schedules A and D of
Form ADV filed by 1838 pursuant to the Advisers Act (SEC File No. 801-33025).
ACADIAN ASSET MANAGEMENT, INC.
Acadian Asset Management, Inc. ("Acadian") is a money manager for the
Registrant's International Equity Fund. The principal business address of
Acadian is 260 Franklin Street, Boston, Massachusetts 02110. Acadian is an
investment money manager registered under the Advisers Act.
The list required by this Item 28 of officers and directors of Acadian,
together with information as to any other business, profession, vocation or
employment of substantial nature engaged in by such officers and directors
during the past two years, is incorporated by reference to Schedules A and D of
Form ADV filed by Acadian pursuant to the Advisers Act (SEC File No. 28078).
ALLIANCE CAPITAL MANAGEMENT
Alliance Capital Management L.P. ("Alliance") is a money manager for the
Registrant's Large Cap Fund. The principal business address of Alliance is
1345 Avenue of the Americas, New York, New York 10105. Alliance is an
investment money manager registered under the Advisers Act.
The list required by this Item 28 of officers and directors of Alliance,
together with information as to any other business, profession, vocation or
employment of substantial nature engaged in by such officers and directors
during the past two years, is incorporated by reference to Schedules A and D of
Form ADV filed by Alliance pursuant to the Advisers Act (SEC File No.
801-32361).
3
<PAGE> 86
APODACA-JOHNSTON CAPITAL MANAGEMENT, INC.
Apodaca-Johnston Capital Management, Inc. is an investment sub-advisor for the
Registrant's Small Cap Growth Portfolio. The principal address of
Apodaca-Johnston Capital Management, Inc. is 30 California Street, Suite 3315,
San Francisco, California 94111. Apodaca-Johnston Capital Management, Inc. is
an investment adviser registered under the Advisers Act.
The list required by this Item 28 of officers and directors of Apodaca-Johnston
Capital Management, Inc., together with information as to any other business
profession, vacation, or employment of a substantial nature engaged in by such
officers and directors during the past two years is incorporated by reference
to Schedules A and D of Form ADV filed by Apodaca-Johnston Capital Management,
Inc. to the Advisers Act (SEC File No. 801-29032).
BEA ASSOCIATES
BEA Associates ("BEA") is the money manager for the Registrant's High Yield
Fund. The principal business address of BEA is One Citicorp Center, 153 East
53rd Street, New York, New York 10022. BEA is an investment money manager
registered under the Advisers Act.
The list required by this Item 28 of officers and directors of BEA, together
with information as to any other business, profession, vocation or employment
of a substantial nature engaged in by such officers and directors during the
past two years, is incorporated by reference to Schedules A and D of Form ADV
filed by BEA pursuant to the Advisers Act (SEC File No. 801-37170).
BLACKROCK FINANCIAL MANAGEMENT, INC.
BlackRock Financial Management, Inc. ("BlackRock") is a money manager for the
Registrant's Core Fixed Income Fund. The principal business address of
BlackRock is 345 Park Avenue, 29th Floor, New York, New York 101542.
BlackRock is an investment money manager registered under the Advisers Act.
The list required by this Item 28 of officers and directors of BlackRock,
together with information as to any other business, profession, vocation or
employment of a substantial nature engaged in by such officers and directors
during the past two years, is incorporated by reference to Schedules A and D of
Form ADV filed by BlackRock pursuant to the Advisers Act (SEC File No.
801-48433).
BOSTON PARTNERS ASSET MANAGEMENT, L.P.
Boston Partners Asset Management, L.P. ("BPAM") is a money manager for the
Registrant's Small Cap Fund. The principal business address of BPAM is One
Financial Center, 43rd Floor, Boston, Massachusetts 02111. BPAM is an
investment money manager registered under the Advisers Act.
The list required by this Item 28 of officers and directors of BPAM, together
with information as to any other business, profession, vocation or employment
of a substantial nature engaged in by such officers and directors during the
past two years, is incorporated by reference to Schedules A and D of Form ADV
filed by BPAM pursuant to the Advisers Act (SEC File No. 801-49059).
FARRELL WAKO GLOBAL INVESTMENT MANAGEMEMENT, INC.
Farrell Wako Global Investment Management, Inc., ("Farrell Wako") is a money
manager for the Registrant's International Equity Fund. The principal business
address of Farrell Wako is 780 Third Avenue, New York, New York 10017. Farrell
Wako is an investment money manager registered under the Advisers Act.
The list required by this Item 28 of officers and directors of Farrell Wako,
together with information as to any other business, profession, vocation or
employment of a substantial nature engaged in by such officers and directors
during the past two years, is incorporated by reference to schedules A and D of
Form ADV filed by Farrell Wako pursuant to the Advisers Act (SEC File No.
801-41830)
FIRST OF AMERICA INVESTMENT CORPORATION
First of America Investment Corporation ("First America") is a money manager
for the Registrant's Small Cap Fund. The principal business address of First
America is 303 North Rose Street, Suite 500, Kalamazoo, Michigan 49007.
First America is an investment money manager registered under the Advisers Act.
The list required by this Item 28 of officers and directors of First America,
together with information as to any other business, profession, vocation or
employment of a substantial nature engaged in by such officers and directors
during the past two years, is incorporated by reference to Schedules A and D of
Form ADV filed by First America pursuant to the Advisers Act (SEC File No.
801-446).
FIRSTAR INVESTMENT RESEARCH & MANAGEMENT COMPANY
Firstar Investment Research & Management Company ("FIRMCO") is a money manager
for the Registrant's Core Fixed Income Fund. The principal business address of
FIRMCO is 777 East Wisconsin Avenue, Suite 800, Milwaukee, Wisconsin 53202.
FIRMCO is an investment money manager registered under the Advisers Act.
The list required by this Item 28 of officers and directors of FIRMCO, together
with information as to any other business, profession, vocation or employment
of a substantial nature engaged in by such officers and directors during the
past two years, is incorporated by reference to Schedules A and D of Form ADV
filed by FIRMCO pursuant to the Advisers Act (SEC File No. 801-28084).
IDS ADVISORY GROUP INC.
IDS Advisory Group Inc. ("IDS") is a money manager for the Registrant's Large
Cap Fund. The principal business address of IDS is IDS Tower 10, Minneapolis,
Minnesota 55400-0010. IDS is an investment money manager registered under the
Advisers Act.
4
<PAGE> 87
The list required by this Item 28 of officers and directors of IDS, together
with information as to any other business, profession, vocation or employment
of substantial nature engaged in by such officers and directors during the past
two years, is incorporated by reference to Schedules A and D of Form ADV filed
by IDS pursuant to the Advisers Act (SEC File No. 801-25943).
LSV ASSET MANAGEMENT
LSV Asset Management ("LSV") is a money manager for the Registrant's Large Cap
Fund. The principal business address of LSV is 181 West Madison Street,
Chicago, Illinois 60602. LSV is an investment money manager registered under
the Advisers Act.
The list required by this Item 28 of officers and directors of LSV, together
with information as to any other business, profession, vocation or employment
of substantial nature engaged in by such officers and directors during the past
two years, is incorporated by reference to Schedules A and D of Form ADV filed
by LSV pursuant to the Advisers Act (SEC File No. 801-38734).
MELLON EQUITY ASSOCIATES
Mellon Equity Associates ("MEA") is a money manager for the Registrant's Large
Cap Fund. The principal business address of MEA is 500 Grant Street, Suite
3700, Pittsburgh, PA 15258. MEA is an investment money manager registered
under the Advisers Act.
The list required by this Item 28 of officers and directors of MEA, together
with information as to any other business, profession, vocation or employment
of substantial nature engaged in by such officers and directors during the past
two years, is incorporated by reference to Schedule A and D of Form ADV filed
by MEA pursuant to the Advisers Act (SEC File No. 801-28692).
MERUS-UCA CAPITAL MANAGEMENT
MERUS-UCA Capital Management ("MERUS-UCA") is a money manager for the
Registrant's Large Cap Fund. The principal business address of MERUS-UCA is
475 Sansom Street, San Francisco, California 94111. MERUS-UCA is an
investment money manager registered under the Advisers Act.
<TABLE>
<CAPTION>
NAME AND POSITION CONNECTION WITH
WITH INVESTMENT ADVISER NAME OF OTHER COMPANY OTHER COMPANY
----------------------- --------------------- -------------
<S> <C> <C>
Stanley F. Farrar Sullivan & Cromwell Partner
Director of Adviser
Kazuo Ibuki The Mitsubishi Bank Limited Chairman
Director
Raymond E. Miles Univ. of California
Director of Adviser School of Bus. Admin. Dean
J. Fernado Niedbla Infotec Development, Inc. Chairman & CEO
Director of Adviser
</TABLE>
5
<PAGE> 88
<TABLE>
<CAPTION>
NAME AND POSITION CONNECTION WITH
WITH INVESTMENT ADVISER NAME OF OTHER COMPANY OTHER COMPANY
----------------------- --------------------- -------------
<S> <C> <C>
Hiroo Nozawa BanCal Tri-State Corporation Chairman, President & CEO
Director of Adviser
Chairman, President & CEO
Carl W. Robertson Warland Investments Company Managing Director
Director of Adviser
Paul W. Steere Bogle & Gates Partner
Director of Adviser
Charles R. Scott Intermark, Inc. President & CEO
Director of Adviser
Henry T. Swigert ESCO Corporation Chairman
Director of Adviser
Yasuyuki Hirai The Mitsubishi Bank --
Director of Adviser,
Chief Executive Officer
Minoru Noda -- --
Director of Adviser,
Vice Chairman Credit & Finance
Samuel L. Williams Hufstedler, Miller
Director of Adviser Kaus & Beardsley Partner
Roy A. Henderson -- --
Director of Advisor,
Chairman, Regional Banking
Takejiro Sneyoshi MBL New York Branch Director & General Manager
Director of Adviser
Peter R. Butcher -- --
Executive Vice President
Chief Credit Officer
David W. Ehlers -- --
Executive Vice President
Chief Financial Officer
Michael Spilsbury -- --
Executive Vice President
Resources & Services Sector
William R. Sweet -- --
Executive Vice President
Wholesale & International Group
</TABLE>
6
<PAGE> 89
<TABLE>
<CAPTION>
NAME AND POSITION CONNECTION WITH
WITH INVESTMENT ADVISER NAME OF OTHER COMPANY OTHER COMPANY
----------------------- --------------------- -------------
<S> <C> <C>
James M. Castro -- --
Secretary
Luke Mazor -- --
Senior Vice President & Manager
</TABLE>
MONTGOMERY ASSET MANAGEMENT, L.P.
Montgomery Asset Management, L.P. ("MAM") is a money manager for the
Registrant's Emerging Markets Equity Fund. The principal business address of
MAM is 600 Montgomery Street, San Francisco, California 94111. MAM is an
investment money manager registered under the Advisers Act.
The list required by this Item 28 of officers and directors of MAM, together
with information as to any other business, profession, vocation or employment
of substantial nature engaged in by such officers and directors during the past
two years, is incorporated by reference to Schedules A and D of Form ADV filed
by MAM pursuant to the Advisers Act (SEC File No. 801-36790).
MORGAN GRENFELL INVESTMENT SERVICES LIMITED
Morgan Grenfell Investment Services Limited ("Morgan Grenfell") is a money
manager for the Registrant's International Equity Fund. The principal business
address of Morgan Grenfell is 20 Finsbury Circus, London EC2M INB, England.
Morgan Grenfell is an investment money manager registered under the Advisers
Act.
The list required by this Item 28 of officers and directors of Morgan Grenfell,
together with information as to any other business, profession, vocation or
employment of substantial nature engaged in by such officers and directors
during the past two years, is incorporated by reference to Schedules A and D of
Form ADV filed by Morgan Grenfell pursuant to the Advisers Act (SEC File No.
801-12880).
NICHOLAS-APPLEGATE CAPITAL MANAGEMENT, INC.
Nicholas-Applegate Capital Management, Inc. ("Nicholas-Applegate") is a money
manager for the Registrant's Small Cap Fund. The principal business address of
Nicholas-Applegate is 600 West Broadway, 29th Floor, San Diego, California
92101. Nicholas-Applegate is an investment money manager registered under the
Advisers Act.
The list required by this Item 28 of officers and directors of
Nicholas-Applegate, together with information as to any other business,
profession, vocation or employment of substantial nature engaged in by such
officers and directors during the past two years, is incorporated by reference
to Schedules A and D of Form ADV filed by Nicholas-Applegate pursuant to the
Advisers Act (SEC File No. 801-21442).
PROVIDENT INVESTMENT COUNSEL, INC.
Provident Investment Counsel, Inc. ("Provident") is a money manager for the
Registrant's Large Cap Fund. The principal business address of Provident is
300 North Lake Avenue, Pasadena, CA 91101. Provident is an investment money
manager registered under the Advisers Act.
The list required by this Item 28 of officers and directors of Provident,
together with information as to any other business, profession, vocation or
employment of substantial nature engaged in by such officers and
7
<PAGE> 90
directors during the past two years, is incorporated by reference to Schedules
A and D of Form ADV filed by Provident pursuant to the Advisers Act (SEC File
No. 801-47993).
SEI FINANCIAL MANAGEMENT CORPORATION
SEI Financial Management Company ("SFM") is the money manager for the Large
Cap, Small Cap, Core Fixed Income, High Yield Bond, International Fixed Income,
Emerging Markets Equity and International Equity Funds. The principal address
of SFM is 680 East Swedesford Road, Wayne, Pennsylvania 19087. SFM is an
investment money manager registered under the Advisers Act.
The list required by this Item 28 of officers and directors of SFM, together
with information as to any other business profession, vocation, or employment
of a substantial nature engaged in by such officers and directors during the
past two years is incorporated by reference to Schedules A and D of Form ADV
filed by SFM to the Advisers Act (SEC File No. 801-24593).
SELIGMAN HENDERSON CO.
Seligman Henderson Co. is a money manager for the Registrant's
International Equity Fund. The principal business address of Seligman
Henderson Co. is 100 Park Avenue, New York, New York 10017. Seligman Henderson
Co. is an investment money manager registered under the Advisers Act.
The list required by this Item 28 of officers and directors of Seligman
Henderson Co. together with information as to any other business, profession,
vocation or employment of substantial nature engaged in by such officers and
directors during the past two years, is incorporated by reference to Schedules
A and D of Form ADV filed by Seligman Henderson Co. pursuant to the Advisers
Act (SEC File No. 801-40670)
STRATEGIC FIXED INCOME L.P.
Strategic Fixed Income L.P. ("Strategic") is a money manager for the
Registrant's International Fixed Income Fund. The principal business address
of Strategic is 1001 Nineteenth Street North, 17th Floor, Arlington, Virginia
22209. Strategic is an investment money manager registered under the Advisers
Act.
The list required by this Item 28 of officers and directors of Strategic,
together with information as to any other business, profession, vocation or
employment of substantial nature engaged in by such officers and directors
during the past two years, is incorporated by reference to Schedules A and D of
Form ADV filed by Strategic pursuant to the Advisers Act (SEC File No.
801-38734).
WALL STREET ASSOCIATES
Wall Street Associates ("WSA") is a money manager for the Registrant's Small
Cap Fund. The principal address for WSA is 1200 Prospect Street, Suite 100, La
Jolla, California 92037. WSA is an investment money manager registered under
the Advisers Act.
The list required by this Item 28 of officers and directors of WSA, together
with information as to any other business, profession, vocation or employment
of substantial nature engaged in by such officers and directors during the past
two years, is incorporated by reference to Schedules A and D of Form ADV filed
by WSA pursuant to the Advisers Act (SEC File No. 801-30019).
8
<PAGE> 91
WESTERN ASSET MANAGEMENT COMPANY
Western Asset Management Company ("Western") is a money manager for the
Registrant's Core Fixed Income Fund. The principal business address of Western
is 117 East Colorado Boulevard, Pasadena, California 91105. Western is an
investment money manager registered under the Advisers Act.
The list required by this Item 28 of officers and directors of Western,
together with information as to any other business, profession, vocation or
employment of substantial nature engaged in by such officers and directors
during the past two years, is incorporated by reference to Schedules A and D of
Form ADV filed by Western pursuant to the Advisers Act (SEC File No.
801-08162).
YAMAICHI CAPITAL MANAGEMENT, INC.
Yamaichi Capital Management, Inc. ("Yamaichi") is a money manager for the
Registrant's International Equity Fund. The principal business address of
Yamaichi is 2 World Trade Center, Suite 9828, New York, New York 10048.
The list required by this Item 28 of officers and directors of Yamaichi,
together with information as to any other business, profession, vocation or
employment of a substantial nature engaged in by such officers and directors
during the past two years, is incorporated by reference to Schedules A and D of
Form ADV filed by Yamaichi pursuant to the Advisers Act (SEC File No.
801-15955).
Item 29. Principal Underwriters:
(a) Furnish the name of each investment company (other than the Registrant)
for which each principal underwriter currently distributing the securities
of the Registrant also acts as a principal underwriter, distributor or
investment adviser.
Registrant's distributor, SEI Financial Services Company ("SFS"), acts as
distributor for:
<TABLE>
<S> <C>
SEI Daily Income Trust July 15, 1982
SEI Liquid Asset Trust November 29, 1982
SEI Tax Exempt Trust December 3, 1982
SEI Index Funds July 10, 1985
SEI Institutional Managed Trust January 22, 1987
SEI International Trust August 30, 1988
Stepstone Funds January 30, 1991
The Advisors' Inner Circle Fund November 14, 1991
The Pillar Funds February 28, 1992
CUFUND May 1, 1992
STI Classic Funds May 29, 1992
CoreFunds, Inc. October 30, 1992
First American Funds, Inc. November 1, 1992
First American Investment Funds, Inc. November 1, 1992
The Arbor Fund January 28, 1993
1784 Funds June 1, 1993
The PBHG Funds, Inc. July 16, 1993
Marquis Funds(R) August 17, 1993
Morgan Grenfell Investment Trust January 3, 1994
Inventor Funds, Inc. August 1, 1994
The Achievement Funds Trust December 27, 1994
Insurance Investment Products Trust December 30, 1994
Bishop Street Funds January 27, 1995
CrestFunds, Inc. March 1, 1995
STI Classic Variable Trust August 18, 1995
ARK Funds November 1, 1995
Monitor Funds January 11, 1996
FMB Funds, Inc. March 1, 1996
SEI Asset Allocation Trust April 1, 1996
</TABLE>
SFS provides numerous financial services to investment managers,
pension plan sponsors, and bank trust departments. These services
include portfolio evaluation, performance measurement and consulting
services ("Funds Evaluation") and automated execution, clearing and
settlement of securities transactions ("MarketLink").
9
<PAGE> 92
(b) Furnish the Information required by the following table with respect to
each director, officer or partner of each principal underwriter named in the
answer to Item 21 of Part B. Unless otherwise noted, the business address of
each director or officer is 680 East Swedesford Road, Wayne, PA 19087.
<TABLE>
<CAPTION>
Position and Office Positions and Offices
Name with Underwriter with Registrant
- ---- ---------------- ---------------
<S> <C> <C>
Alfred P. West, Jr. Director, Chairman & Chief Executive Officer --
Henry H. Greer Director, President & Chief Operating Officer --
Carmen V. Romeo Director, Executive Vice President & Treasurer --
Gilbert L. Beebower Executive Vice President --
Richard B. Lieb Executive Vice President --
Charles A. Marsh Executive Vice President-Capital Resources Division --
Leo J. Dolan, Jr. Senior Vice President --
Carl A. Guarino Senior Vice President --
Jerome Hickey Senior Vice President --
David G. Lee Senior Vice President --
William Madden Senior Vice President --
A. Keith McDowell Senior Vice President --
Dennis J. McGonigle Senior Vice President --
Hartland J. McKeown Senior Vice President --
James V. Morris Senior Vice President --
Steven Onofrio Senior Vice President --
Kevin P. Robins Senior Vice President, General Counsel & Sale Trustee, Controller,
Secretary President and Chief Executive Officer
Robert Wagner Senior Vice President --
Patrick K. Walsh Senior Vice President --
Kenneth Zimmer Senior Vice President --
Robert Crudup Managing Director --
Vic Galef Managing Director --
Kim Kirk Managing Director --
John Krzeminski Managing Director --
Carolyn McLaurin Managing Director --
Barbara Moore Managing Director --
Donald Pepin Managing Director --
Mark Samuels Managing Director --
Wayne M. Withrow Managing Director --
Michael Duncan Vice President --
Robert S. Ludwig Vice President --
Vicki Malloy Vice President --
Robert Aller Vice President --
Steve Bendinelli Vice President --
Gordon W. Carpenter Vice President --
Todd Cipperman Vice President & Assistant Secretary --
Ed Daly Vice President --
Jeff Drennen Vice President --
Kathy Heilig Vice President --
Larry Hutchison Vice President --
</TABLE>
10
<PAGE> 93
<TABLE>
<CAPTION>
Position and Office Positions and Offices
Name with Underwriter with Registrant
- ---- ---------------- ---------------
<S> <C> <C>
Michael Kantor Vice President --
Samuel King Vice President --
Donald H. Korytowski Vice President --
Jack May Vice President --
W. Kelso Morrill Vice President --
Sandra K. Orlow Vice President & Assistant Secretary
Larry Pokora Vice President --
Kim Rainey Vice President --
Paul Sachs Vice President --
Steve Smith Vice President --
Daniel Spaventa Vice President --
Kathryn L. Stanton Vice President & Assistant Secretary
William Zawaski Vice President --
James Dougherty Director of Brokerage Services --
</TABLE>
Item 30. Location of Accounts and Records:
Books or other documents required to be maintained by Section 31(a) of the
Investment Company Act of 1940, and the rules promulgated thereunder, are
maintained as follows:
(a) With respect to Rules 31a-1(a); 31a-1(b)(1); (2)(a) and (b); (3);
(6); (8); (12); and 31a-1(d), the required books and records are
maintained at the offices of Registrant's Custodians:
CoreStates Bank, N.A.
Broad and Chestnut Streets
P.O. Box 7618
Philadelphia, PA 19101
State Street Bank and Trust Company
225 Franklin Street
Boston, MA 02110
(b)/(c) With respect to Rules 31a-1(a); 31a-1(b)(1),(4); (2)(C) and (D);
(4); (5); (6); (8); (9); (10); (11); and 31a-1(f), the required books and
records are maintained at the offices of Registrant's Manager:
SEI Financial Management Corporation
680 East Swedesford Road
Wayne, PA 19087
(c) With respect to Rules 31a-1(b)(5),(6),(9) and 10 and 31a-1(f), the
required books and records are maintained at the principal offices of the
Registrant's Money Managers:
1838 Investment Advisors, L.P.
11
<PAGE> 94
5 Radnor Corporate Center
100 Matsonford Road
Suite 320
Radnor, Pennsylvania 19087
Acadian Asset Management
260 Franklin Street
Boston, Massachusetts 02110
Alliance Capital Management
1345 Avenue of the Americas
New York, New York 10105
Apodaca-Johnston Capital Management, Inc.
50 California Street
Suite 3315
San Francisco, California 94111
BEA Associates
One Citicorp Center
153 East 53rd Street
New York, New York 10022
BlackRock Financial Management, Inc.
345 Park Avenue
29th Floor
New York, New York 10154
Boston Partners Asset Management, L.P.
One Financial Center
43rd Floor
Boston, Massachusetts 02111
Firstar Investment Research & Management Company
777 East Wisconsin Avenue
Suite 800
Milwaukee, Wisconsin 53202
Farrell Wako Global Investment Management
780 Third Avenue
New York, New York, 10017
First of America Investment Corporation
303 North Rose Street
Suite 500
Kalamazoo, Michigan, 49007
IDS Advisory Group Inc.
IDS Tower 10
Minneapolis, Minnesota 55400-0010
LSV Asset Management
181 West Madison Street
Chicago, Illinois 60602
Mellon Equity Associates
500 Grant Street
Suite 3700
Pittsburgh, PA 15258
MERUS-UCA Capital Management
475 Sansome Street
San Francisco, CA 94111
Montgomery Asset Management, L.P.
12
<PAGE> 95
600 Montgomery Street
San Francisco, California 94111
Morgan Grenfell Investment Services Limited
20 Finsbury Circus
London EC2M INB
England
Nicholas-Applegate Capital Management, Inc.
600 West Broadway
29th Floor
San Diego, California 92101
Provident Investment Counsel, Inc.
300 North Lake Avenue
Penthouse
Pasadena, CA 91101
SEI Financial Management Corporation
680 East Swedesford Road
Wayne, PA 19087
Seligman Henderson Co.
100 Park Avenue
New York, New York, 10017
Strategic Fixed Income L.P.
1001 Nineteenth Street North, 17th Floor
Arlington, VA 22209
Wall Street Associates
1200 Prospect Street
Suite 100
La Jolla, California 92037
Western Asset Management
117 East Colorado Boulevard
Pasadena, CA 91105
Yamaichi Capital Management, Inc.
2 World Trade Center
Suite 9828
New York, New York, 10048
Item 31. Management Services:
None.
Item 32. Undertakings:
Registrant undertakes to file a post-effective amendment containing
reasonably current financial statements, which need not be certified, within
four to six months of the effective date of the Registrant's 1933 Act
Registration Statement or the commencement of the operations of each Fund,
whichever is later.
Registrant hereby undertakes that whenever Shareholders meeting the
requirements of Section 16(c) of the Investment Company Act of 1940 inform the
Board of Trustees of their desire to communicate with Shareholders of the
Trust, the Trustees will inform such Shareholders as to the approximate number
of Shareholders of record and the approximate cost of mailing or afford said
Shareholders access to a list of Shareholders.
13
<PAGE> 96
Registrant undertakes to hold a meeting of Shareholders for the purpose of
voting upon the question of removal of a Trustee(s) when requested in writing
to do so by the holders of at least 10% of Registrant's outstanding shares and
in connection with such meetings to comply with the provisions of Section 16(c)
of the Investment Company Act of 1940 relating to Shareholder communications.
Registrant undertakes to furnish each person to whom a prospectus for any
series of the Registrant is delivered with a copy of the Registrant's latest
annual report to shareholders for such series, when such annual report is
issued containing information called for by Item 5A of Form N-1A, upon request
and without charge.
14
<PAGE> 97
NOTICE
A copy of the Agreement and Declaration of Trust of SEI Institutional
Investments Trust is on file with the Secretary of State of The Commonwealth of
Massachusetts and notice is hereby given that this Registration Statement has
been executed on behalf of the Trust by an officer of the Trust as an officer
and by its Trustees as trustees and not individually and the obligations of or
arising out of this Registration Statement are not binding upon any of the
Trustees, Officers, or Shareholders individually but are binding only upon the
assets and property of the Trust.
15
<PAGE> 98
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, and the
Investment Company Act of 1940, as amended, the Registrant has duly caused this
Pre-Effective Amendment to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Wayne in the Commonwealth of
Pennsylvania on the 6th day of June, 1996.
SEI INSTITUTIONAL INVESTMENTS TRUST
By: /s/ DAVID G. LEE
-----------------------
David G. Lee, President &
Chief Executive Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
AMENDMENT TO THE REGISTRATION STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING
PERSONS IN THE CAPACITY ON THE DATES INDICATED.
*
------------------------ Trustee June 6, 1996
William M. Doran
*
------------------------ Trustee June 6, 1996
F. Wendell Gooch
*
------------------------ Trustee June 6, 1996
Frank E. Morris
*
------------------------ Trustee June 6, 1996
James M. Storey
*
------------------------ Trustee June 6, 1996
Robert A. Nesher
/s/ JEFFREY A. COHEN
------------------------ Controller & Chief June 6, 1996
Jeffrey A. Cohen Financial Officer
*By: /s/ DAVID G. LEE
---------------------
David G. Lee
Attorney-in-Fact
16
<PAGE> 99
Exhibit Index
<TABLE>
<CAPTION>
Exhibit Page
- ------- ----
<S> <C>
(1) Registrant's Declaration of Trust is incorporated herein by reference to
Registrant's Registration Statement on Form N-1A (File No. 33-58041),
filed with the Securities and Exchange Commission on March 10, 1995.
(2) Registrant's By-Laws are incorporated herein by reference to Registrant's
Registration Statement on Form N-1A (File No. 33-58041), filed with the
Securities and Exchange Commission on March 10, 1995.
(3) Not Applicable.
(4) Not Applicable.
(5)(a) Form of Investment Advisory Agreement between the Trust and SEI Financial
Management Corporation is incorporated herein by reference to
Registrants's Pre-Effective Amendment No. 1 on Form N-1A (File No.
33-58041), filed with the Securities and Exchange Commission on April
26, 1996.
(5)(b) Form of Investment Sub-Advisory Agreement between the Trust and 1838
Investment Advisors, L.P. with respect to the Trust's Small Cap Fund is
incorporated herein by reference to Registrant's Pre-Effective
Amendment No. 1 on Form N-1A (File No. 33-58041), filed with the
Securities and Exchange Commission on April 26, 1996.
(5)(c) Form of Investment Sub-Advisory Agreement between the Trust and
Acadian Asset Management, L.P. with respect to the Trust's Core
International Equity Fund is incorporated herein by reference to
Registrants's Pre-Effective Amendment No. 1 on Form N-1A (File No.
33-58041), filed with the Securities and Exchange Commission on April
26, 1996.
(5)(d) Form of Investment Sub-Advisory Agreement between the Trust and
Alliance Capital Management L.P. with respect to the Trust's Large Cap
Growth Fund is incorporated herein by reference to
Registrants's Pre-Effective Amendment No. 1 on Form N-1A (File No.
33-58041), filed with the Securities and Exchange Commission on April
26, 1996.
(5)(e) Form of Investment Sub-Advisory Agreement between the Trust and
Apodaca-Johnston Capital Management, Inc. with respect to the Trust's
Small Cap Fund is incorporated herein by reference to
Registrant's Pre-Effective Amendment No. 1 on Form N-1A (File No.
33-58041), filed with the Securities and Exchange Commission on April
26, 1996.
(5)(f) Form of Investment Sub-Advisory Agreement between the Trust and BEA
Associates with respect to the High Yield Bond Fund is incorporated
herein by reference to Registrant's Pre-Effective Amendment No. 1 on
Form N-1A (File No. 33-58041), filed with the Securities and Exchange
Commission on April 26, 1996.
(5)(g) Form of Investment Sub-Advisory Agreement between the Trust and
BlackRock Financial Management, Inc. with respect to the Core Fixed Income
Fund is incorporated herein by reference to
Registrant's Pre-Effective Amendment No. 1 on Form N-1A (File No.
33-58041), filed with the Securities and Exchange Commission on April
26, 1996.
(5)(h) Form of Investment Sub-Advisory Agreement between the Trust and
Boston Partners Asset Management, L.P. with respect to the Small Cap Fund
is incorporated herein by reference to Registrant's Pre-Effective
Amendment No. 1 on Form N-1A (File No. 33-58041), filed with the
Securities and Exchange Commission on April 26, 1996.
(5)(i) Form of Investment Sub-Advisory Agreement between the Trust and
Firstar Investment Research & Management Company with respect to the Core
Fixed Income Fund is incorporated herein by reference to Registrant's
Pre-Effective Amendment No. 1 on Form N-1A (File No. 33-58041), filed
with the Securities and Exchange Commission on April 26, 1996.
(5)(j) Form of Investment Sub-Advisory Agreement between the Trust and IDS
Advisory Group, L.P. with respect to the Trust's Large Cap Fund is
incorporated herein by reference to Registrant's Pre-Effective Amendment
No. 1 on Form N-1A (File No. 33-58041), filed with the Securities and
Exchange Commission on April 26, 1996.
(5)(k) Form of Investment Sub-Advisory Agreement between the Trust and LSV
Asset Management with respect to the Trust's Large Cap Fund is
incorporated herein by reference to Registrant's Pre-Effective Amendment
No. 1 on Form N-1A (File No. 33-58041), filed with the Securities and
Exchange Commission on April 26, 1996.
(5)(l) Form of Investment Sub-Advisory Agreement between the Trust and
Mellon Equity Associates with respect to the Large Cap Fund is
incorporated herein by reference to Registrant's Pre-Effective Amendment
No. 1 on Form N-1A (File No. 33-58041), filed with the Securities and
Exchange Commission on April 26, 1996.
(5)(m) Form of Investment Sub-Advisory Agreement between the Trust and
MERUS-UCA Capital Management with respect to the Large Cap Fund is
incorporated herein by reference to Registrant's Pre-Effective Amendment
No. 1 on Form N-1A (File No. 33-58041), filed with the Securities and
Exchange Commission on April 26, 1996.
(5)(n) Form of Investment Sub-Advisory Agreement between the Trust and
Montgomery Asset Management, L.P. with respect to the Emerging Markets
Equity Fund is incorporated herein by reference to Registrant's
Pre-Effective Amendment No. 1 on Form N-1A (File No. 33-58041), filed
with the Securities and Exchange Commission on April 26, 1996.
</TABLE>
17
<PAGE> 100
<TABLE>
<CAPTION>
Exhibit Page
- ------- ----
<S> <C>
(5)(o) Form of Investment Sub-Advisory Agreement between the Trust and
Morgan Grenfell Investment Services Limited with respect to the
International Equity Fund is incorporated herein by reference to
Registrant's Pre-Effective Amendment No. 1 on Form N-1A (File No.
33-58041), filed with the Securities and Exchange Commission on April 26,
1996.
(5)(p) Form of Investment Sub-Advisory Agreement between the Trust and
Nicholas-Applegate Capital Management, Inc. with respect to the Small
Cap Fund is incorporated herein by reference to Registrant's
Pre-Effective Amendment No. 1 on Form N-1A (File No. 33-58041), filed
with the Securities and Exchange Commission on April 26, 1996.
(5)(q) Form of Investment Sub-Advisory Agreement between the Trust and
Provident Investment Counsel, Inc. with respect to the Large Cap Fund
is incorporated herein by reference to Registrant's Pre-Effective
Amendment No. 1 on Form N-1A (File No. 33-58041), filed with the
Securities and Exchange Commission on April 26, 1996.
(5)(r) Form of Investment Sub-Advisory Agreement between the Trust and
Schroder Capital Management International Limited with respect to the
International Equity Fund is incorporated herein by reference to
Registrant's Pre-Effective Amendment No. 1 on Form N-1A (File No.
33-58041), filed with the Securities and Exchange Commission on April 26,
1996.
(5)(s) Form of Investment Sub-Advisory Agreement between the Trust and
Strategic Fixed Income L.P. with respect to the International Fixed
Income Fund is incorporated herein by reference to Registrant's
Pre-Effective Amendment No. 1 on Form N-1A (File No. 33-58041), filed
with the Securities and Exchange Commission on April 26, 1996.
(5)(t) Form of Investment Sub-Advisory Agreement between the Trust and Wall
Street Associates with respect to the Small Cap Fund is incorporated
herein by reference to Registrant's Pre-Effective Amendment No. 1 on Form
N-1A (File No. 33-58041), filed with the Securities and Exchange
Commission on April 26, 1996.
(5)(u) Form of Investment Sub-Advisory Agreement between the Trust and
Western Asset Management Company with respect to the Core Fixed Income
Fund is incorporated herein by reference to Registrant's Pre-Effective
Amendment No. 1 on Form N-1A (File No. 33-58041), filed with the
Securities and Exchange Commission on April 26, 1996.
(5)(v) Form of Administration Agreement between the Trust and SEI Fund Management
is incorporated herein by reference to Registrant's Pre-Effective
Amendment No. 1 on Form N-1A (File No. 33-58041), filed with the
Securities and Exchange Commission on April 26, 1996.
(5)(w) Form of Investment Sub-Advisory Agreement between the Trust and First of
American Investment Corporation with respect to the Small Cap Fund is
filed herewith.
(5)(x) Form of Investment Sub-Advisory Agreement between the Trust and Farrell
Wako Global Investment Management, Inc. with respect to the International
Equity Fund is filed herewith.
(5)(y) Form of Investment Sub-Advisory Agreement between the Trust and Seligman
Henderson Co. with respect to the International Equity Fund is filed
herewith.
(5)(z) Form of Investment Sub-Advisory Agreement between the Trust and Yamaichi
Capital Management, Inc. with respect to the International Equity Fund
is filed herewith.
(6) Form of Distribution Agreement between the Trust and SEI Financial
Services Company is incorporated herein by reference to Registrant's
Pre-Effective Amendment No. 1 on Form N-1A (File No. 33-58041), filed
with the Securities and Exchange Commission on April 26, 1996.
(7) Not Applicable.
(8) Form of Custodian Agreement between the Trust and CoreStates Bank,
N.A. with respect to the Trust's Large Cap, Small Cap, Core Fixed Income
and High Yield Bond Funds is incorporated herein by reference to
Registrant's Pre-Effective Amendment No. 1 on Form N-1A (File No.
33-58041), filed with the Securities and Exchange Commission on April 26,
1996.
(9) Not Applicable.
(10) Form of Opinion and Consent of Counsel is filed herewith.
(11) Consent of Independent Public Accountants filed herewith.
(12) Not Applicable.
(13) Not Applicable.
(14) Not Applicable.
(15) Not Applicable.
(16) Performance Quotation Computation is filed herewith.
</TABLE>
18
<PAGE> 1
EXHIBIT 5(w)
INVESTMENT SUB-ADVISORY AGREEMENT
SEI INSTITUTIONAL INVESTMENTS TRUST
AGREEMENT made this _____ day of _____________, 1996, by and among SEI
Financial Management Corporation, (the "Adviser") and Farrell Wako Global
Investment Management, Inc. (the "Sub-Adviser").
WHEREAS, SEI Institutional Investments Trust, a Massachusetts business
trust (the "Trust") is registered as an open-end management investment company
under the Investment Company Act of 1940, as amended (the "1940 Act"); and
WHEREAS, the Adviser has entered into an Investment Advisory Agreement
dated June ___, 1996 (the "Advisory Agreement") with the Trust, pursuant to
which the Adviser will act as investment adviser to the International Equity
Fund (the "Portfolio"), which is a series of the Trust; and
WHEREAS, the Adviser, with the approval of the Trust, desires to retain
the Sub-Adviser to provide investment advisory services to the Adviser in
connection with the management of the Portfolio, and the Sub-Adviser is willing
to render such investment advisory services.
NOW, THEREFORE, the parties hereto agree as follows:
1. DUTIES OF THE SUB-ADVISER. Subject to supervision by the Adviser and the
Trust's Board of Trustees, the Sub-Adviser shall manage the investment
operations of the Portfolio and the composition of the Portfolio,
including the purchase, retention and disposition of securities and other
assets, in accordance with the Portfolio's investment objectives, policies
and restrictions as stated in the Portfolio's prospectus and statement of
additional information, as currently in effect and as amended or
supplemented from time to time (referred to collectively as the
"Prospectus"), and subject to the following:
(a) The Sub-Adviser shall provide supervision of the Portfolio's investments
and determine from time to time what investments and securities will be
purchased, retained or sold by the Portfolio, and what portion of the
assets will be invested or held uninvested in cash.
(b) In the performance of its duties and obligations under this Agreement,
the Sub-Adviser shall act in conformity with the Trust's Declaration of
Trust (as defined herein) and the Prospectus and with the instructions and
directions of the Adviser and of the Board of Trustees of the Trust and
will conform to and comply with the requirements of the 1940 Act, the
Internal Revenue Code of 1986, and all other applicable federal and state
laws and regulations, as each is amended from time to time.
(c) The Sub-Adviser shall determine the securities to be purchased or
sold by the Portfolio and will place orders with or through such persons,
brokers or dealers to carry out the policy with respect to brokerage set
forth in the Portfolio's Registration Statement (as defined herein) and
Prospectus or as the Board of Trustees or the Adviser may direct from time
to time, in conformity with federal securities laws. In executing
Portfolio transactions and selecting brokers or dealers, the Sub-Adviser
will use its best efforts to seek on behalf of the Portfolio the best
overall terms available. In assessing the best overall terms available
for any transaction, the Sub-Adviser shall consider all factors that it
deems relevant, including the breadth of the market in the security, the
price of the security, the financial condition and execution capability of
the broker or dealer, and the reasonableness of the commission, if any,
both for the specific transaction and on a continuing basis. In
evaluating the best overall terms available, and in selecting the
broker-dealer to execute a particular transaction the Sub-Adviser may also
consider the brokerage and research services (as those terms are defined
in Section 28(e) of the Securities Exchange Act of 1934) provided to the
Portfolio and/or other accounts over which the Sub-Adviser or an affiliate
of the Sub-Adviser may exercise investment discretion. The Sub-Adviser is
authorized, subject to the prior approval of the Trust's Board of
Trustees, to pay to a broker or dealer who provides such brokerage and
research services a commission for executing a portfolio transaction for
any of the Portfolios which is in excess of the amount of commission
another broker or dealer would have charged for effecting that transaction
if, but only if, the Sub-Adviser determines in good faith that such
commission was reasonable in relation to the value of the brokerage and
research services provided by such broker or dealer - - viewed in terms of
that particular transaction or terms of the overall responsibilities of
the Sub-Adviser to the Portfolio. In addition, the Sub-Adviser if
authorized to allocate purchase and sale orders for portfolio securities
to brokers or dealers (including brokers and dealers that are affiliated
with the Sub-Adviser or the Trust's principal underwriter) to take into
account the sale of shares of the Trust if the Sub-Adviser believes that
the quality of the transaction and the commission are comparable to what
they would be with other qualified firms. In no instance, however, will
any Portfolio's securities be purchased from or sold to the Sub-Adviser,
the Trust's principal underwriter, or any affiliated person of either the
Trust, the Sub-Adviser or the principal underwriter, acting as principal
in the transaction, except to the extent permitted by the Securities and
Exchange Commission and the 1940 Act.
(d) The Sub-Adviser shall maintain all books and records with respect to the
Portfolio's portfolio transactions required by subparagraphs (b)(5), (6),
(7), (9), (10) and (11) and paragraph (f) of Rule 31a-1 under the 1940 Act
and shall render to the Adviser or Board of Trustees such periodic and
special reports as the Adviser or Board of Trustees may reasonably
request.
The Sub-Adviser shall keep the Portfolio's books and records required to
be maintained by the Sub-Adviser of this Agreement and shall timely
furnish to the Adviser all information relating to the Sub-Adviser's
services under this Agreement needed by the Adviser to keep the other
books and records of the Portfolio required by Rule 31a-1 under the 1940
Act. The Sub-Adviser
<PAGE> 2
shall also furnish to the Adviser any other information that is
required to be filled by the Adviser or the Trust with the Securities and
Exchange Commission ("SEC") or sent to shareholders under the 1940 Act
(including the rules adopted thereunder) or any exemptive or other relief
that the Adviser or the Trust obtains from the SEC. The Sub-Adviser
agrees that all records that it maintains on behalf of the Portfolio are
property of the Portfolio and the Sub-Adviser will surrender promptly to
the Portfolio any of such records upon the Portfolio's request; provided,
however, that the Sub-Adviser may retain a copy of such records. In
addition, for the duration of this Agreement, the Sub-Adviser shall
preserve for the periods prescribed by Rule 31a-2 under the 1940 Act any
such records as are required to be maintained by it pursuant to this
Agreement, and shall transfer said records to any successor Sub-Adviser
upon the termination of his Agreement (or, if there is no successor
Sub-Adviser, to the Adviser).
(e) The Sub-Adviser shall provide the Portfolio's custodian on each business
day with information relating to all transactions concerning the
Portfolio's assets and shall provide the Adviser with such information
upon request of the Adviser.
(f) The investment management services provided by the Sub-Adviser under this
Agreement are not to be deemed exclusive and the Sub-Adviser shall be free
to render similar services to others, as long as such services do not
impair the services rendered to the Adviser or the Trust.
(g) The Sub-Adviser shall promptly notify the Adviser of any
financial condition that is likely to impair the Sub-Adviser's ability to
fulfill its commitment under this Agreement.
Services to be furnished by the Sub-Adviser under this Agreement may be
furnished through the medium of any of the Sub-Adviser's partners,
officers or employees.
2. DUTIES OF THE ADVISER. The Adviser shall continue to have responsibility
for all services to be provided to the Portfolio pursuant to the Advisory
Agreement and shall oversee and review the Sub-Adviser's performance of
its duties under this Agreement; provided, however, that nothing herein
shall be construed to relieve the Sub-Adviser of responsibility for
compliance with the Portfolio's investment objectives, policies, and
restrictions, as provided in Section 1 hereunder.
3. DELIVERY OF DOCUMENTS. The Adviser has furnished the Sub-Adviser with
copies properly certified or authenticated of each of the following
documents:
(a) The Trust's Agreement and Declaration of Trust, as filed with the
Secretary of State of the Commonwealth of Massachusetts (such Agreement
and Declaration of Trust, as in effect on the date of this Agreement and
as amended from time to time, herein called the "Declaration of Trust");
(b) By-Laws of the Trust (such By-Laws, as in effect on the date of this
Agreement and as amended from time to time, are herein called the
"By-Laws");
(c) Prospectus(es) of the Portfolio.
4. COMPENSATION TO THE SUB-ADVISER. For the services to be provided by the
Sub-Adviser pursuant to this Agreement, the Adviser will pay the
Sub-Adviser, and the Sub-Adviser agrees to accept as full compensation
therefor, a sub-advisory fee at the rate specified in the Schedule(s)
which is attached hereto and made part of this Agreement. The fee will be
calculated based on the average monthly market value of investments under
management and will be paid to the Sub-Adviser monthly. The Sub-Adviser
may, in its discretion and from time to time, waive a portion of its fee.
5. LIMITATION OF LIABILITY OF THE SUB-ADVISER. The Sub-Adviser shall not be
liable for any error of judgment or for any loss suffered by the Adviser
in connection with performance of its obligations under this Agreement,
except a loss resulting from a breach of fiduciary duty with respect to
the receipt of compensation for services (in which case any award of
damages shall be limited to the period and the amount set forth in Section
36(b)(3) of the 1940 Act), or a loss resulting from willful misfeasance,
bad faith or negligence on the Sub-Adviser's part in the performance of
its duties or from reckless disregard of its obligations and duties under
this Agreement, except as may otherwise be provided under provisions of
applicable state law which cannot be waived or modified hereby.
6. REPORTS. During the term of this Agreement, the Adviser agrees to
furnish the Sub-Adviser at its principal office all prospectuses, proxy
statements, reports to stockholders, sales literature or other materials
prepared for distribution to stockholders of the Portfolios, the Trust or
the public that refer to the Sub-Adviser or its clients in any way prior
to use thereof and not to use material if the Sub-Adviser reasonably
objects in writing within five business days (or such other period as may
be mutually agreed) after receipt thereof. The Sub-Adviser's right to
object to such materials is limited to the portions of such materials that
expressly relate to the Sub-Adviser, its services and its clients. The
Adviser agrees to use its reasonable best efforts to ensure that materials
prepared by its employees or agents or its affiliates that refer to the
Sub-Adviser or its clients in any way are consistent with those materials
previously approved by the Sub-Adviser as referenced in the first sentence
of this paragraph. Sales literature may be furnished to the Sub-Adviser
by first class or overnight mail, facsimile transmission equipment or hand
delivery.
7. CHANGE IN THE SUB-ADVISER S MEMBERSHIP. The Sub-Adviser agrees that it
shall notify the Trust of any change in the
<PAGE> 3
membership of the Sub-Adviser within a reasonable time after such
change.
8. INDEMNIFICATION. The Sub-Adviser shall indemnify and hold harmless the
Adviser from and against any and all claims, losses, liabilities or
damages (including reasonable attorney's fees and other related expenses)
howsoever arising from or in connection with this Agreement or the
performance by the Sub-Adviser of its duties hereunder; provided, however,
that the Sub-Adviser shall not be required to indemnify or otherwise hold
the Adviser harmless under this Section 8 where the claim against, or the
loss, liability or damage experienced by the Adviser, is caused by or is
otherwise directly related to the Adviser's own willful misfeasance, bad
faith or negligence, or to the reckless disregard of its duties under this
Agreement.
9. DURATION AND TERMINATION. This Agreement shall become effective upon its
approval by the Trust's Board of Trustees and by the vote of a majority of
the outstanding voting securities of the Portfolio; provided, however,
that at any time the Adviser shall have obtained exemptive relief from the
SEC permitting it to engage a Sub-Adviser without first obtaining approval
of the Agreement from a majority of the outstanding voting securities of
the Portfolio(s) involved, the Agreement shall become effective upon its
approval by the Trust's Board of Trustees. Any Sub-Adviser so selected
and approved shall be without the protection accorded by shareholder
approval of an investment adviser's receipt of compensation under Section
36(b) of the 1940 Act.
This Agreement shall continue in effect for a period of more than two
years from the date hereof only so long as continuance is specifically
approved at least annually in conformance with the 1940 Act; provided,
however, that this Agreement may be terminated with respect to the
Portfolio (a) by the Portfolio at any time, without the payment of any
penalty, by the vote of a majority of Trustees of the Trust or by the vote
of a majority of the outstanding voting securities of such Portfolio, (b)
by the Adviser at any time, without the payment of any penalty, on not
more than 60 days' nor less than 30 days' written notice to the other
party, or (c) by the Sub-Adviser at any time, without the payment of any
penalty, on 90 days' written notice to the other party. This Agreement
shall terminate automatically and immediately in the event of its
assignment, or in the event of a termination of the Adviser's agreement
with the Trust. As used in this Section 9, the terms "assignment" and
"vote of a majority of the outstanding voting securities" shall have the
respective meanings set forth in the 1940 Act and the rules and
regulations thereunder, subject to such exceptions as may be granted by
the Commission under the 1940 Act.
10. GOVERNING LAW. This Agreement shall be governed by the internal laws of
the Commonwealth of Massachusetts, without regard to conflict of law
principles; provided, however, that nothing herein shall be construed as
being inconsistent with the 1940 Act.
11. SEVERABILITY. Should any part of this Agreement be held invalid by a
court decision, statute, rule or otherwise, the remainder of this
Agreement shall not be affected thereby. This Agreement shall be binding
upon and shall inure to the benefit of the parties hereto and their
respective successors.
12. NOTICE: Any notice, advice or report to be given pursuant to this
Agreement shall be deemed sufficient if delivered or mailed by registered,
certified or overnight mail, postage prepaid addressed by the party giving
notice to the other party at the last address furnished by the other
party:
To the Adviser at: SEI Financial Management Corporation
680 East Swedesford Road
Wayne, PA 19087
Attention: Legal Department
To the Sub-Adviser at: Farrell Wako Global Investment, Inc.
780 Third Avenue
New York, NY 10017
13. ENTIRE AGREEMENT. This Agreement embodies the entire agreement and
understanding between the parties hereto, and supersedes all prior
agreements and understandings relating to this Agreement's subject matter.
This Agreement may be executed in any number of counterparts, each of
which shall be deemed to be an original, but such counterparts shall,
together, constitute only one instrument.
Where the effect of a requirement of the 1940 Act reflected in any provision of
this Agreement is altered by a rule, regulation or order of the Commission,
whether of special or general application, such provision shall be deemed to
incorporate the effect of such rule, regulation or order.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers designated below as of the day and year first
written above.
SEI Financial Management Corporation Farrell Wako Global Investment, Inc.
By: By:
--------------------------------- ---------------------------------
Title: Title:
------------------------------- ------------------------------
<PAGE> 4
SCHEDULE A
TO THE
SUB-ADVISORY AGREEMENT
BETWEEN
SEI FINANCIAL MANAGEMENT CORPORATION
AND
FARRELL WAKO GLOBAL INVESTMENT MANAGEMENT, INC.
Pursuant to Article 4, the Adviser shall pay the Sub-Adviser compensation at an
annual rate as follows:
International Equity ___%
<PAGE> 1
EXHIBIT 5(x)
INVESTMENT SUB-ADVISORY AGREEMENT
SEI INSTITUTIONAL INVESTMENTS TRUST
AGREEMENT made this ____ day of ____________, 1996, by and among SEI
Financial Management Corporation, (the "Adviser") and First America Investment
Corporation (the "Sub-Adviser").
WHEREAS, SEI Institutional Investments Trust, a Massachusetts business
trust (the "Trust") is registered as an open-end management investment company
under the Investment Company Act of 1940, as amended (the "1940 Act"); and
WHEREAS, the Adviser has entered into an Investment Advisory Agreement
dated June ______, 1996 (the "Advisory Agreement") with the Trust, pursuant to
which the Adviser will act as investment adviser to the Small Cap Fund (the
"Portfolio"), which is a series of the Trust; and
WHEREAS, the Adviser, with the approval of the Trust, desires to retain
the Sub-Adviser to provide investment advisory services to the Adviser in
connection with the management of the Portfolio, and the Sub-Adviser is willing
to render such investment advisory services.
NOW, THEREFORE, the parties hereto agree as follows:
1. DUTIES OF THE SUB-ADVISER. Subject to supervision by the Adviser and the
Trust's Board of Trustees, the Sub-Adviser shall manage the investment
operations of the Portfolio and the composition of the Portfolio,
including the purchase, retention and disposition of securities and other
assets, in accordance with the Portfolio's investment objectives, policies
and restrictions as stated in the Portfolio's prospectus and statement of
additional information, as currently in effect and as amended or
supplemented from time to time (referred to collectively as the
"Prospectus"), and subject to the following:
(a) The Sub-Adviser shall provide supervision of the Portfolio's investments
and determine from time to time what investments and securities will be
purchased, retained or sold by the Portfolio, and what portion of the
assets will be invested or held uninvested in cash.
(b) In the performance of its duties and obligations under this Agreement,
the Sub-Adviser shall act in conformity with the Trust's Declaration of
Trust (as defined herein) and the Prospectus and with the instructions and
directions of the Adviser and of the Board of Trustees of the Trust and
will conform to and comply with the requirements of the 1940 Act, the
Internal Revenue Code of 1986, and all other applicable federal and state
laws and regulations, as each is amended from time to time.
(c) The Sub-Adviser shall determine the securities to be purchased or
sold by the Portfolio and will place orders with or through such persons,
brokers or dealers to carry out the policy with respect to brokerage set
forth in the Portfolio's Registration Statement (as defined herein) and
Prospectus or as the Board of Trustees or the Adviser may direct from time
to time, in conformity with federal securities laws. In executing
Portfolio transactions and selecting brokers or dealers, the Sub-Adviser
will use its best efforts to seek on behalf of the Portfolio the best
overall terms available. In assessing the best overall terms available
for any transaction, the Sub-Adviser shall consider all factors that it
deems relevant, including the breadth of the market in the security, the
price of the security, the financial condition and execution capability of
the broker or dealer, and the reasonableness of the commission, if any,
both for the specific transaction and on a continuing basis. In
evaluating the best overall terms available, and in selecting the
broker-dealer to execute a particular transaction the Sub-Adviser may also
consider the brokerage and research services (as those terms are defined
in Section 28(e) of the Securities Exchange Act of 1934) provided to the
Portfolio and/or other accounts over which the Sub-Adviser or an affiliate
of the Sub-Adviser may exercise investment discretion. The Sub-Adviser is
authorized, subject to the prior approval of the Trust's Board of
Trustees, to pay to a broker or dealer who provides such brokerage and
research services a commission for executing a portfolio transaction for
any of the Portfolios which is in excess of the amount of commission
another broker or dealer would have charged for effecting that transaction
if, but only if, the Sub-Adviser determines in good faith that such
commission was reasonable in relation to the value of the brokerage and
research services provided by such broker or dealer - - viewed in terms of
that particular transaction or terms of the overall responsibilities of
the Sub-Adviser to the Portfolio. In addition, the Sub-Adviser if
authorized to allocate purchase and sale orders for portfolio securities
to brokers or dealers (including brokers and dealers that are affiliated
with the Sub-Adviser or the Trust's principal underwriter) to take into
account the sale of shares of the Trust if the Sub-Adviser believes that
the quality of the transaction and the commission are comparable to what
they would be with other qualified firms. In no instance, however, will
any Portfolio's securities be purchased from or sold to the Sub-Adviser,
the Trust's principal underwriter, or any affiliated person of either the
Trust, the Sub-Adviser or the principal underwriter, acting as principal
in the transaction, except to the extent permitted by the Securities and
Exchange Commission and the 1940 Act.
(d) The Sub-Adviser shall maintain all books and records with respect to the
Portfolio's portfolio transactions required by subparagraphs (b)(5), (6),
(7), (9), (10) and (11) and paragraph (f) of Rule 31a-1 under the 1940 Act
and shall render to the Adviser or Board of Trustees such periodic and
special reports as the Adviser or Board of Trustees may reasonably
request.
The Sub-Adviser shall keep the Portfolio's books and records required
to be maintained by the Sub-Adviser of this Agreement and shall timely
furnish to the Adviser all information relating to the Sub-Adviser's
services under this Agreement needed by the Adviser to keep the other
books and records of the Portfolio required by Rule 31a-1 under the 1940
Act. The Sub-Adviser
<PAGE> 2
shall also furnish to the Adviser any other information that is
required to be filled by the Adviser or the Trust with the Securities and
Exchange Commission ("SEC") or sent to shareholders under the 1940 Act
(including the rules adopted thereunder) or any exemptive or other relief
that the Adviser or the Trust obtains from the SEC. The Sub-Adviser
agrees that all records that it maintains on behalf of the Portfolio are
property of the Portfolio and the Sub-Adviser will surrender promptly to
the Portfolio any of such records upon the Portfolio's request; provided,
however, that the Sub-Adviser may retain a copy of such records. In
addition, for the duration of this Agreement, the Sub-Adviser shall
preserve for the periods prescribed by Rule 31a-2 under the 1940 Act any
such records as are required to be maintained by it pursuant to this
Agreement, and shall transfer said records to any successor Sub-Adviser
upon the termination of this Agreement (or, if there is no successor
Sub-Adviser, to the Adviser).
(e) The Sub-Adviser shall provide the Portfolio's custodian on each business
day with information relating to all transactions concerning the
Portfolio's assets and shall provide the Adviser with such information
upon request of the Adviser.
(f) The investment management services provided by the Sub-Adviser under this
Agreement are not to be deemed exclusive and the Sub-Adviser shall be free
to render similar services to others, as long as such services do not
impair the services rendered to the Adviser or the Trust.
(g) The Sub-Adviser shall promptly notify the Adviser of any financial
condition that is likely to impair the Sub-Adviser's ability to fulfill
its commitment under this Agreement.
Services to be furnished by the Sub-Adviser under this Agreement may be
furnished through the medium of any of the Sub-Adviser's partners,
officers or employees.
2. DUTIES OF THE ADVISER. The Adviser shall continue to have responsibility
for all services to be provided to the Portfolio pursuant to the Advisory
Agreement and shall oversee and review the Sub-Adviser's performance of
its duties under this Agreement; provided, however, that nothing herein
shall be construed to relieve the Sub-Adviser of responsibility for
compliance with the Portfolio's investment objectives, policies, and
restrictions, as provided in Section 1 hereunder.
3. DELIVERY OF DOCUMENTS. The Adviser has furnished the Sub-Adviser with
copies properly certified or authenticated of each of the following
documents:
(a) The Trust's Agreement and Declaration of Trust, as filed with the
Secretary of State of the Commonwealth of Massachusetts (such Agreement
and Declaration of Trust, as in effect on the date of this Agreement and
as amended from time to time, herein called the "Declaration of Trust");
(b) By-Laws of the Trust (such By-Laws, as in effect on the date of this
Agreement and as amended from time to time, are herein called the
"By-Laws");
(c) Prospectus(es) of the Portfolio.
4. COMPENSATION TO THE SUB-ADVISER. For the services to be provided by the
Sub-Adviser pursuant to this Agreement, the Adviser will pay the
Sub-Adviser, and the Sub-Adviser agrees to accept as full compensation
therefor, a sub-advisory fee at the rate specified in the Schedule(s)
which is attached hereto and made part of this Agreement. The fee will be
calculated based on the average monthly market value of investments under
management and will be paid to the Sub-Adviser monthly. The Sub-Adviser
may, in its discretion and from time to time, waive a portion of its fee.
5. LIMITATION OF LIABILITY OF THE SUB-ADVISER. The Sub-Adviser shall not be
liable for any error of judgment or for any loss suffered by the Adviser
in connection with performance of its obligations under this Agreement,
except a loss resulting from a breach of fiduciary duty with respect to
the receipt of compensation for services (in which case any award of
damages shall be limited to the period and the amount set forth in Section
36(b)(3) of the 1940 Act), or a loss resulting from willful misfeasance,
bad faith or negligence on the Sub-Adviser's part in the performance of
its duties or from reckless disregard of its obligations and duties under
this Agreement, except as may otherwise be provided under provisions of
applicable state law which cannot be waived or modified hereby.
6. REPORTS. During the term of this Agreement, the Adviser agrees to
furnish the Sub-Adviser at its principal office all prospectuses, proxy
statements, reports to stockholders, sales literature or other materials
prepared for distribution to stockholders of the Portfolios, the Trust or
the public that refer to the Sub-Adviser or its clients in any way prior
to use thereof and not to use material if the Sub-Adviser reasonably
objects in writing within five business days (or such other period as may
be mutually agreed) after receipt thereof. The Sub-Adviser's right to
object to such materials is limited to the portions of such materials that
expressly relate to the Sub-Adviser, its services and its clients. The
Adviser agrees to use its reasonable best efforts to ensure that materials
prepared by its employees or agents or its affiliates that refer to the
Sub-Adviser or its clients in any way are consistent with those materials
previously approved by the Sub-Adviser as referenced in the first sentence
of this paragraph. Sales literature may be furnished to the Sub-Adviser
by first class or overnight mail, facsimile transmission equipment or hand
delivery.
7. INDEMNIFICATION. The Sub-Adviser shall indemnify and hold harmless the
Adviser from and against any and all claims, losses,
<PAGE> 3
liabilities or damages (including reasonable attorney's fees and other
related expenses) howsoever arising from or in connection with this
Agreement or the performance by the Sub-Adviser of its duties hereunder;
provided, however, that the Sub-Adviser shall not be required to indemnify
or otherwise hold the Adviser harmless under this Section 7 where the
claim against, or the loss, liability or damage experienced by the
Adviser, is caused by or is otherwise directly related to the Adviser's
own willful misfeasance, bad faith or negligence, or to the reckless
disregard of its duties under this Agreement.
8. DURATION AND TERMINATION. This Agreement shall become effective upon its
approval by the Trust's Board of Trustees and by the vote of a majority of
the outstanding voting securities of the Portfolio; provided, however,
that at any time the Adviser shall have obtained exemptive relief from the
SEC permitting it to engage a Sub-Adviser without first obtaining approval
of the Agreement from a majority of the outstanding voting securities of
the Portfolio(s) involved, the Agreement shall become effective upon its
approval by the Trust's Board of Trustees. Any Sub-Adviser so selected
and approved shall be without the protection accorded by shareholder
approval of an investment adviser's receipt of compensation under Section
36(b) of the 1940 Act.
This Agreement shall continue in effect for a period of more than two
years from the date hereof only so long as continuance is specifically
approved at least annually in conformance with the 1940 Act; provided,
however, that this Agreement may be terminated with respect to the
Portfolio (a) by the Portfolio at any time, without the payment of any
penalty, by the vote of a majority of Trustees of the Trust or by the vote
of a majority of the outstanding voting securities of such Portfolio, (b)
by the Adviser at any time, without the payment of any penalty, on not
more than 60 days' nor less than 30 days' written notice to the other
party, or (c) by the Sub-Adviser at any time, without the payment of any
penalty, on 90 days' written notice to the other party. This Agreement
shall terminate automatically and immediately in the event of its
assignment, or in the event of a termination of the Adviser's agreement
with the Trust. As used in this Section 8, the terms "assignment" and
"vote of a majority of the outstanding voting securities" shall have the
respective meanings set forth in the 1940 Act and the rules and
regulations thereunder, subject to such exceptions as may be granted by
the Commission under the 1940 Act.
9. GOVERNING LAW. This Agreement shall be governed by the internal laws of
the Commonwealth of Massachusetts, without regard to conflict of law
principles; provided, however, that nothing herein shall be construed as
being inconsistent with the 1940 Act.
10. SEVERABILITY. Should any part of this Agreement be held invalid by a
court decision, statute, rule or otherwise, the remainder of this
Agreement shall not be affected thereby. This Agreement shall be binding
upon and shall inure to the benefit of the parties hereto and their
respective successors.
11. NOTICE: Any notice, advice or report to be given pursuant to this
Agreement shall be deemed sufficient if delivered or mailed by registered,
certified or overnight mail, postage prepaid addressed by the party giving
notice to the other party at the last address furnished by the other
party:
To the Adviser at: SEI Financial Management Corporation
680 East Swedesford Road
Wayne, PA 19087
Attention: Legal Department
To the Sub-Adviser at: First America Investment Corporation
303 North Rose St., Suite 500
Kalamazoo, Michigan 49007
12. ENTIRE AGREEMENT. This Agreement embodies the entire agreement and
understanding between the parties hereto, and supersedes all prior
agreements and understandings relating to this Agreement's subject matter.
This Agreement may be executed in any number of counterparts, each of
which shall be deemed to be an original, but such counterparts shall,
together, constitute only one instrument.
Where the effect of a requirement of the 1940 Act reflected in any provision of
this Agreement is altered by a rule, regulation or order of the Commission,
whether of special or general application, such provision shall be deemed to
incorporate the effect of such rule, regulation or order.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers designated below as of the day and year first
written above.
SEI Financial Management Corporation First America Investment Corporation
By: By:
---------------------------------- -------------------------------
Title: Title:
------------------------------- -----------------------------
<PAGE> 4
SCHEDULE A
TO THE
SUB-ADVISORY AGREEMENT
BETWEEN
SEI FINANCIAL MANAGEMENT CORPORATION
AND
FIRST AMERICA INVESTMENT CORPORATION
Pursuant to Article 4, the Adviser shall pay the Sub-Adviser compensation at an
annual rate as follows:
Small Cap ___%
<PAGE> 1
EXHIBIT 5(y)
INVESTMENT SUB-ADVISORY AGREEMENT
SEI INSTITUTIONAL INVESTMENTS TRUST
AGREEMENT made this _____ day of ____________, 1996, by and among SEI
Financial Management Corporation, (the "Adviser") and Seligman Henderson Co.
(the "Sub-Adviser").
WHEREAS, SEI Institutional Investments Trust, a Massachusetts business
trust (the "Trust") is registered as an open-end management investment company
under the Investment Company Act of 1940, as amended (the "1940 Act"); and
WHEREAS, the Adviser has entered into an Investment Advisory Agreement
dated June ____, 1996 (the "Advisory Agreement") with the Trust, pursuant to
which the Adviser will act as investment adviser to the International Equity
Fund (the "Portfolio"), which is a series of the Trust; and
WHEREAS, the Adviser, with the approval of the Trust, desires to retain
the Sub-Adviser to provide investment advisory services to the Adviser in
connection with the management of the Portfolio, and the Sub-Adviser is willing
to render such investment advisory services.
NOW, THEREFORE, the parties hereto agree as follows:
1. DUTIES OF THE SUB-ADVISER. Subject to supervision by the Adviser and the
Trust's Board of Trustees, the Sub-Adviser shall manage the investment of
all of the securities and other assets of the Portfolio entrusted to it
hereunder, including the purchase, retention and disposition of securities
and other assets, in accordance with the Portfolio's investment
objectives, policies and restrictions as stated in the Portfolio's
prospectus and statement of additional information, as currently in
effect and as amended or supplemented from time to time (referred to
collectively as the "Prospectus"), and subject to the following:
(a) The Sub-Adviser shall provide supervision of the Portfolio's investments
and determine from time to time what investments and securities will be
purchased, retained or sold by the Portfolio, and what portion of the
assets will be invested or held uninvested in cash.
(b) In the performance of its duties and obligations under this Agreement,
the Sub-Adviser shall act in conformity with the Trust's Declaration of
Trust (as defined herein) and the Prospectus and with the instructions and
directions of the Adviser and of the Board of Trustees of the Trust and
will conform to and comply with the requirements of the 1940 Act, the
Internal Revenue Code of 1986, and all other applicable federal and state
laws and regulations, as each is amended from time to time. The Adviser
agrees promptly to deliver any amendment or supplement to the Prospectus
to the Sub-Adviser on an on-going basis, and until the Adviser delivers
any such amendment or supplement to its Sub-Adviser, the Sub-Adviser shall
be fully protected in relying on the Prospectus as previously furnished.
<PAGE> 2
(c) The Sub-Adviser shall determine the securities to be purchased or
sold by the Portfolio and will place orders with or through such persons,
brokers or dealers to carry out the policy with respect to brokerage set
forth in the Portfolio's Registration Statement and Prospectus or as the
Board of Trustees or the Adviser may direct from time to time, in
conformity with federal securities laws. In executing Portfolio
transactions and selecting brokers or dealers, the Sub-Adviser will use
its best efforts to seek on behalf of the Portfolio the best overall terms
available. In assessing the best overall terms available for any
transaction, the Sub-Adviser shall consider all factors that it deems
relevant, including the breadth of the market in the security, the price
of the security, the financial condition and execution capability of
the broker or dealer, and the reasonableness of the commission, if any,
both for the specific transaction and on a continuing basis. In
evaluating the best overall terms available, and in selecting the
broker-dealer to execute a particular transaction the Sub-Adviser may also
consider the brokerage and research services (as those terms are defined
in Section 28(e) of the Securities Exchange Act of 1934) provided to the
Portfolio and/or other accounts over which the Sub-Adviser or an affiliate
of the Sub-Adviser may exercise investment discretion. The Sub-Adviser is
authorized, subject to the prior approval of the Trust's Board of
Trustees, to pay to a broker or dealer who provides such brokerage and
research services a commission for executing a portfolio transaction for
any of the Portfolios which is in excess of the amount of commission
another broker or dealer would have charged for effecting that transaction
if, but only if, the Sub-Adviser determines in good faith that such
commission was reasonable in relation to the value of the brokerage and
research services provided by such broker or dealer - - viewed in terms of
that particular transaction or terms of the overall responsibilities of
the Sub-Adviser to the Portfolio. In addition, the Sub-Adviser is
authorized to allocate purchase and sale orders for portfolio securities
to brokers or dealers (including brokers and dealers that are affiliated
with the Sub-Adviser or the Trust's principal underwriter) to take into
account the sale of shares of the Trust if the Sub-Adviser believes that
the quality of the transaction and the commission are comparable to what
they would be with other qualified firms. In no instance, however, will
any Portfolio's securities be purchased from or sold to the Sub-Adviser,
the Trust's principal underwriter, or any affiliated person of either the
Trust, the Sub-Adviser or the principal underwriter, acting as principal
in the transaction, except to the extent permitted by the Securities and
Exchange Commission and the 1940 Act.
(d) The Sub-Adviser shall maintain all books and records with respect to the
Portfolio's portfolio transactions required by subparagraphs (b)(5), (6),
(7), (9), (10) and (11) and paragraph (f) of Rule 31a-1 under the 1940 Act
and shall render to the Adviser or Board of Trustees such periodic and
special reports as the Adviser or Board of Trustees may reasonably
request.
The Sub-Adviser shall keep the Portfolio's books and records required
to be maintained by the Sub-Adviser by this Agreement and shall timely
furnish to the Adviser all information relating to the Sub-Adviser's
services under this Agreement needed by the Adviser to keep the other
books and records of the Portfolio required by Rule 31a-1 under the 1940
Act. The Sub-Adviser shall also furnish to the Adviser any other
information
2
<PAGE> 3
that is required to be filed by the Adviser or the Trust with the
Securities and Exchange Commission ("SEC") or sent to shareholders under
the 1940 Act (including the rules adopted thereunder) or any exemptive or
other relief that the Adviser or the Trust obtains from the SEC. The
Sub-Adviser agrees that all records that it maintains on behalf of the
Portfolio are property of the Portfolio and the Sub-Adviser will surrender
promptly to the Portfolio any of such records upon the Portfolio's
request; provided, however, that the Sub-Adviser may retain a copy of such
records. In addition, for the duration of this Agreement, the
Sub-Adviser shall preserve for the periods prescribed by Rule 31a-2 under
the 1940 Act any such records as are required to be maintained by it
pursuant to this Agreement, and shall transfer said records to any
successor Sub-Adviser upon the termination of his Agreement (or, if there
is no successor Sub-Adviser, to the Adviser).
(e) The Sub-Adviser shall provide the Portfolio's custodian on each business
day with information relating to all transactions concerning the
Portfolio's assets and shall provide such information and such periodic or
special reports as the Adviser or Board of Trustees may reasonably
request.
(f) Adviser understands that the Sub-Adviser now acts, will continue to
act and may act in the future as investment manager or adviser to
fiduciary and other managed accounts, and as investment manager or adviser
to other investment companies, including any offshore entities, or
accounts, and the Portfolio has no objection to the Sub-Adviser's so
acting, provided that whenever the Portfolio and one or more other
investment companies or accounts managed or advised by the Sub-Adviser
have available funds for investment, investments suitable and appropriate
for each will be allocated in accordance with a formula believed to be
equitable to each company and account. The Adviser recognizes that in
some cases this procedure may adversely affect the size of the position
obtainable for the Portfolio. In addition, the Adviser understands that
the persons employed by the Sub-Adviser to assist in the performance of
the Sub-Adviser's duties under this Agreement will not devote their full
time to such service and nothing contained in this Agreement shall be
deemed to limit or restrict the right of the Sub-Adviser or any affiliate
of the Sub-Adviser to engage in and devote time and attention to other
businesses or to render services of whatever kind or nature.
(g) The Sub-Adviser shall promptly notify the Adviser of any financial
condition that is likely to impair the Sub-Adviser's ability to fulfill
its commitment under this Agreement.
Services to be furnished by the Sub-Adviser under this Agreement may be
furnished through the medium of any of the Sub-Adviser's partners,
officers or employees.
2. DUTIES OF THE ADVISER. The Adviser shall continue to have responsibility
for all services to be provided to the Portfolio pursuant to the Advisory
Agreement and shall oversee and review the Sub-Adviser's performance of
its duties under this Agreement; provided, however, that nothing herein
shall be construed to relieve the Sub-Adviser of responsibility for
compliance with the Portfolio's investment objectives, policies, and
restrictions, as provided in Section 1 hereunder.
3. DELIVERY OF DOCUMENTS. The Adviser has furnished the Sub-Adviser with
copies properly
3
<PAGE> 4
certified or authenticated of each of the following documents:
(a) The Trust's Agreement and Declaration of Trust, as filed with the
Secretary of State of the Commonwealth of Massachusetts (such Agreement
and Declaration of Trust, as in effect on the date of this Agreement and
as amended from time to time, herein called the "Declaration of Trust");
(b) By-Laws of the Trust (such By-Laws, as in effect on the date of this
Agreement and as amended from time to time, are herein called the
"By-Laws");
(c) Prospectus(es) of the Portfolio.
(d) The Trust's most recent Registration Statement as filed with the
Securities and Exchange Commission.
4. COMPENSATION TO THE SUB-ADVISER. For the services to be provided by the
Sub-Adviser pursuant to this Agreement, the Adviser will pay the
Sub-Adviser, and the Sub-Adviser agrees to accept as full compensation
therefor, a sub-advisory fee at the rate specified in Schedule A which is
attached hereto and made part of this Agreement. The fee will be
calculated based on the average monthly market value of investments under
management and will be paid to the Sub-Adviser monthly. The Sub-Adviser
may, in its discretion and from time to time, waive a portion of its fee.
5. LIMITATION OF LIABILITY OF THE SUB-ADVISER. The Sub-Adviser shall not be
liable for any error of judgment or for any loss suffered by the Adviser
in connection with the performance of its obligations under this
Agreement, except a loss resulting from (i) willful misfeasance, bad faith
or negligence on the Sub-Adviser's part in the performance of its duties,
or (ii) reckless disregard of its obligations and duties under this
Agreement, or (iii) a violation of law or any duty imposed by federal or
state law.
6. REPORTS. During the term of this Agreement, the Adviser agrees to
furnish the Sub-Adviser at its principal office all prospectuses,
proxy statements, reports to stockholders, sales literature or other
materials prepared for distribution to stockholders of the Portfolios, the
Trust or the public that refer to the Sub-Adviser or its clients in any
way prior to use thereof and not to use material if the Sub-Adviser
reasonably objects in writing within five business days (or such other
period as may be mutually agreed) after receipt thereof. The
Sub-Adviser's right to object to such materials is limited to the portions
of such materials that expressly relate to the Sub-Adviser, its services
and its clients. The Adviser agrees to use its reasonable best efforts to
ensure that materials prepared by its employees or agents or its
affiliates that refer to the Sub-Adviser or its clients in any way are
consistent with those materials previously approved by the Sub-Adviser as
referenced in the first sentence of this paragraph. Sales literature may
be furnished to the Sub-Adviser by first class or overnight mail,
facsimile transmission equipment or hand delivery.
7. CHANGE IN THE SUB-ADVISER'S MEMBERSHIP. The Sub-Adviser agrees that it
shall notify
4
<PAGE> 5
the Adviser of any change in the membership of the general partners of
the Sub-Adviser within a reasonable time after such change.
8. INDEMNIFICATION. The Sub-Adviser shall indemnify and hold harmless the
Adviser from and against any and all claims, losses, liabilities or
damages (including reasonable attorney's fees and other related expenses)
howsoever arising from or in connection with this Agreement or the
performance by the Sub-Adviser of its duties hereunder; provided, however,
that the Sub-Adviser shall not be required to indemnify or otherwise hold
the Adviser harmless under this Section 8 where the claim against, or the
loss, liability or damage experienced by the Adviser, is caused by or is
otherwise directly related to the Adviser's own willful misfeasance, bad
faith or negligence, or to the reckless disregard of its duties under this
Agreement.
9. DURATION AND TERMINATION. This Agreement shall become effective upon its
approval by the Trust's Board of Trustees and by the vote of a majority of
the outstanding voting securities of the Portfolio; provided, however,
that at any time the Adviser shall have obtained exemptive relief from the
SEC permitting it to engage a Sub-Adviser without first obtaining approval
of the Agreement from a majority of the outstanding voting securities of
the Portfolio(s) involved, the Agreement shall become effective upon its
approval by the Trust's Board of Trustees. Any Sub-Adviser so selected
and approved shall be without the protection accorded by shareholder
approval of an investment adviser's receipt of compensation under Section
36(b) of the 1940 Act.
This Agreement shall continue in effect for a period of more than two
years from the date hereof only so long as continuance is specifically
approved at least annually in conformance with the 1940 Act; provided,
however, that this Agreement may be terminated with respect to the
Portfolio (a) by the Portfolio at any time, without the payment of any
penalty, by the vote of a majority of Trustees of the Trust or by the vote
of a majority of the outstanding voting securities of such Portfolio, (b)
by the Adviser at any time, without the payment of any penalty, on not
more than 60 days' nor less than 30 days' written notice to the other
party, or (c) by the Sub-Adviser at any time, without the payment of any
penalty, on 90 days' written notice to the other party. This Agreement
shall terminate automatically and immediately in the event of its
assignment, or in the event of a termination of the Adviser's agreement
with the Trust. As used in this Section 9, the terms "assignment" and
"vote of a majority of the outstanding voting securities" shall have the
respective meanings set forth in the 1940 Act and the rules and
regulations thereunder, subject to such exceptions as may be granted by
the Commission under the 1940 Act.
10. GOVERNING LAW. This Agreement shall be governed by the internal laws of
the Commonwealth of Massachusetts, without regard to conflict of law
principles; provided, however, that nothing herein shall be construed as
being inconsistent with the 1940 Act.
11. SEVERABILITY. Should any part of this Agreement be held invalid by a
court decision, statute, rule or otherwise, the remainder of this
Agreement shall not be affected thereby. This Agreement shall be binding
upon and shall inure to the benefit of the parties hereto and their
respective successors.
5
<PAGE> 6
12. NOTICE: Any notice, advice or report to be given pursuant to this
Agreement shall be deemed sufficient if delivered or mailed by registered,
certified or overnight mail, postage prepaid addressed by the party giving
notice to the other party at the last address furnished by the other
party:
To the Adviser at: SEI Financial Management Corporation
680 East Swedesford Road
Wayne, PA 19087
Attention: Legal Department
To the Sub-Adviser at: Seligman Henderson Co.
100 Park Avenue
New York, NY 10017
13. NAMES. The Trust may use the names "Alliance Capital Management L.P.",
"Alliance Capital Management", "Alliance Capital", or "Alliance" only for
so long as this Agreement or any extension, renewal, or amendment hereof
remains in effect. At such times as this Agreement shall no longer be in
effect, the Trust shall cease to use such names or any other name
indicating that it is advised by or otherwise connected with the
Sub-Adviser.
14. ENTIRE AGREEMENT. This Agreement embodies the entire agreement and
understanding between the parties hereto, and supersedes all prior
agreements and understandings relating to this Agreement's subject matter.
This Agreement may be executed in any number of counterparts, each of
which shall be deemed to be an original, but such counterparts shall,
together, constitute only one instrument.
A copy of the Declaration of Trust of the Trust is on file with the
Secretary of State of the Commonwealth of Massachusetts, and notice is hereby
given that the obligations of this instrument are not binding upon any of the
Trustees, officers or shareholders of the Portfolio or the Trust.
Where the effect of a requirement of the 1940 Act reflected in any
provision of this Agreement is altered by a rule, regulation or order of the
Commission, whether of special or general application, such provision shall be
deemed to incorporate the effect of such rule, regulation or order.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers designated below as of the day and year first
written above.
SEI Financial Management Corporation Seligman Henderson Co.
By: By:
------------------------------ -----------------------------
Title: Title:
--------------------------- --------------------------
<PAGE> 7
SCHEDULE A
TO THE
SUB-ADVISORY AGREEMENT
BETWEEN
SEI FINANCIAL MANAGEMENT CORPORATION
AND
SELIGMAN HENDERSON CO.
Pursuant to Article 4, the Adviser shall pay the Sub-Adviser compensation at an
annual rate as follows:
International Equity ___%
7
<PAGE> 1
EXHIBIT 5(z)
INVESTMENT SUB-ADVISORY AGREEMENT
SEI INSTITUTIONAL INVESTMENTS TRUST
AGREEMENT made this ____ day of __________, 1996, between SEI
Financial Management Corporation, (the "Adviser") and Yamaichi Capital
Management, Inc. (the "Sub-Adviser").
WHEREAS, SEI Institutional Investments Trust, a Massachusetts business
trust (the "Trust") is registered as an open-end management investment company
under the Investment Company Act of 1940, as amended (the "1940 Act"); and
WHEREAS, the Adviser has entered into an Investment Advisory Agreement
dated June ____, 1996 (the "Advisory Agreement") with the Trust, pursuant to
which the Adviser will act as investment adviser to the International Equity
Fund (the "Portfolio"), which is a series of the Trust; and
WHEREAS, the Adviser, with the approval of the Trust, desires to
retain the Sub-Adviser to provide investment advisory services to the Adviser
in connection with the management of the Portfolio, and the Sub-Adviser is
willing to render such investment advisory services.
NOW, THEREFORE, the parties hereto agree as follows:
1. DUTIES OF THE SUB-ADVISER. Subject to supervision by the Adviser and
the Trust's Board of Trustees, the Sub-Adviser shall manage all of
the securities and other assets of the Portfolio entrusted to it
hereunder (the "Assets"), including the purchase, retention and
disposition of the Assets, in accordance with the Portfolio's
investment objectives, policies and restrictions as stated in the
Portfolio's prospectus and statement of additional information, as
currently in effect and as amended or supplemented from time to time
(referred to collectively as the "Prospectus"), and subject to the
following:
(a) The Sub-Adviser shall, in consultation with and subject to the
direction of the Adviser, determine from time to time what Assets will
be purchased, retained or sold by the Portfolio, and what portion of
the Assets will be invested or held uninvested in cash.
(b) In the performance of its duties and obligations under this Agreement,
the Sub-Adviser shall act in conformity with the Trust's Declaration
of Trust (as defined herein) and the Prospectus and with the
instructions and directions of the Adviser and of the Board of
Trustees of the Trust and will conform to and comply with the
requirements of the 1940 Act, the Internal Revenue Code of 1986, and
all other applicable federal and state laws and regulations, as each
is amended from time to time.
(c) The Sub-Adviser shall determine the Assets to be purchased or sold by
the Portfolio as provided in subparagraph (a) and will place orders
with or through such persons, brokers or dealers to carry out the
policy with respect to brokerage set forth in the Portfolio's
Registration Statement (as defined herein) and Prospectus or as the
Board of Trustees or the Adviser may direct from time to time, in
conformity with federal securities laws. In executing Portfolio
transactions and selecting brokers or dealers, the Sub-Adviser will
use its best efforts to seek on behalf of the Portfolio the best
overall terms available. In
<PAGE> 2
assessing the best overall terms available for any transaction, the
Sub-Adviser shall consider all factors that it deems relevant,
including the breadth of the market in the security, the price of the
security, the financial condition and execution capability of the
broker or dealer, and the reasonableness of the commission, if any,
both for the specific transaction and on a continuing basis. In
evaluating the best overall terms available, and in selecting the
broker-dealer to execute a particular transaction, the Sub-Adviser may
also consider the brokerage and research services provided (as those
terms are defined in Section 28(e) of the Securities Exchange Act of
1934). Consistent with any guidelines established by the Board of
Trustees of the Trust, the Sub-Adviser is authorized to pay to a
broker or dealer who provides such brokerage and research services a
commission for executing a portfolio transaction for the Portfolio
which is in excess of the amount of commission another broker or
dealer would have charged for effecting that transaction if, but only
if, the Sub-Adviser determines in good faith that such commission was
reasonable in relation to the value of the brokerage and research
services provided by such broker or dealer - - viewed in terms of that
particular transaction or terms of the overall responsibilities of the
Sub-Adviser to the Portfolio. In addition, the Sub-Adviser if
authorized to allocate purchase and sale orders for securities to
brokers or dealers (including brokers and dealers that are affiliated
with the Adviser, Sub-Adviser or the Trust's principal underwriter) to
take into account the sale of shares of the Trust if the Sub-Adviser
believes that the quality of the transaction and the commission are
comparable to what they would be with other qualified firms. In no
instance, however, will the Portfolio's Assets be purchased from or
sold to the Adviser, Sub-Adviser, the Trust's principal underwriter,
or any affiliated person of either the Trust, Adviser, the Sub-Adviser
or the principal underwriter, acting as principal in the transaction,
except to the extent permitted by the Securities and Exchange
Commission and the 1940 Act.
(d) The Sub-Adviser shall maintain all books and records with respect to
transactions involving the Assets required by subparagraphs (b)(5),
(6), (7), (9), (10) and (11) and paragraph (f) of Rule 31a-1 under the
1940 Act. The Sub-Adviser shall provide to the Adviser or the Board
of Trustees such periodic and special reports, balance sheets or
financial information, and such other information with regard to its
affairs as the Adviser or Board of Trustees may reasonably request.
The Sub-Adviser shall keep the books and records relating to the
Assets required to be maintained by the Sub-Adviser under this
Agreement and shall timely furnish to the Adviser all information
relating to the Sub-Adviser's services under this Agreement needed by
the Adviser to keep the other books and records of the Portfolio
required by Rule 31a-1 under the 1940 Act. The Sub-Adviser shall also
furnish to the Adviser any other information relating to the Assets
that is required to be filed by the Adviser or the Trust with the
Securities and Exchange Commission ("SEC") or sent to shareholders
under the 1940 Act (including the rules adopted thereunder) or any
exemptive or other relief that the Adviser or the Trust obtains from
the SEC. The Sub-Adviser agrees that all records that it maintains on
behalf of the Portfolio are property of the Portfolio and the
Sub-Adviser will surrender promptly to the Portfolio any of such
records upon the Portfolio's request; provided, however, that the
Sub-Adviser may retain a copy of such records. In addition, for the
duration of this Agreement, the Sub-Adviser shall preserve for the
periods prescribed by Rule 31a-2 under the 1940 Act any such records
as are required to be maintained by it pursuant to this Agreement, and
shall transfer said records to any
<PAGE> 3
successor Sub-Adviser upon the termination of his Agreement (or, if
there is no successor Sub-Adviser, to the Adviser).
(e) The Sub-Adviser shall provide the Portfolio's custodian on each
business day with information relating to all transactions concerning
the Portfolio's Assets and shall provide the Adviser with such
information upon request of the Adviser.
(f) The investment management services provided by the Sub-Adviser under
this Agreement are not to be deemed exclusive and the Sub-Adviser
shall be free to render similar services to others, as long as such
services do not impair the services rendered to the Adviser or the
Trust.
(g) The Sub-Adviser shall promptly notify the Adviser of any financial
condition that is likely to impair the Sub-Adviser's ability to
fulfill its commitment under this Agreement.
(h) The Sub-Adviser shall review all proxy solicitation materials and be
responsible for voting and handling all proxies in relation to the
securities held in the Portfolio. The Adviser shall instruct the
custodian and other parties providing services to the Portfolio to
promptly forward misdirected proxies to the Sub-Adviser.
Services to be furnished by the Sub-Adviser under this Agreement may
be furnished through the medium of any of the Sub-Adviser's partners,
officers or employees.
2. DUTIES OF THE ADVISER. The Adviser shall continue to have
responsibility for all services to be provided to the Portfolio
pursuant to the Advisory Agreement and shall oversee and review the
Sub-Adviser's performance of its duties under this Agreement;
provided, however, that in connection with its management of the
Assets, nothing herein shall be construed to relieve the Sub-Adviser
of responsibility for compliance with the Trust's Declaration of Trust
(as defined herein), the Prospectus, the instructions and directions
of the Board of Trustees of the Trust, the requirements of the 1940
Act, the Internal Revenue Code of 1986, and all other applicable
federal and state laws and regulations, as each is amended from time
to time.
3. DELIVERY OF DOCUMENTS. The Adviser has furnished the Sub-Adviser with
copies properly certified or authenticated of each of the following
documents:
(a) The Trust's Agreement and Declaration of Trust, as filed with the
Secretary of State of the Commonwealth of Massachusetts (such
Agreement and Declaration of Trust, as in effect on the date of this
Agreement and as amended from time to time, herein called the
"Declaration of Trust");
(b) By-Laws of the Trust (such By-Laws, as in effect on the date of this
Agreement and as amended from time to time, are herein called the
"By-Laws");
(c) Prospectus(es) of the Portfolio.
4. COMPENSATION TO THE SUB-ADVISER. For the services to be provided by
the Sub-Adviser pursuant to this Agreement, the Adviser will pay the
Sub-Adviser, and the Sub-Adviser
<PAGE> 4
agrees to accept as full compensation therefor, a sub-advisory fee at
the rate specified in the Schedule(s) which is attached hereto and
made part of this Agreement. The fee will be calculated based on the
average monthly market value of the Assets under the Sub-Adviser's
management and will be paid to the Sub-Adviser monthly. Except as may
otherwise be prohibited by law or regulation (including any then
current SEC staff thereon), the Sub-Adviser may, in its discretion and
from time to time, waive a portion of its fee.
5. LIMITATION OF LIABILITY OF THE SUB-ADVISER. The Sub-Adviser shall not
be liable for any error of judgment or for any loss suffered by the
Adviser in connection with the performance of its obligations under
this Agreement, except a loss resulting from a breach of fiduciary
duty with respect to the receipt of compensation for services (in
which case any award of damages shall be limited to the period and the
amount set forth in Section 36(b)(3) of the 1940 Act), or a loss
resulting from willful misfeasance, bad faith or negligence on the
Sub-Adviser's part in the performance of its duties or from reckless
disregard of its obligations and duties under this Agreement, except
as may otherwise be provided under provisions of applicable state law
which cannot be waived or modified hereby.
6. INDEMNIFICATION. The Sub-Adviser shall indemnify and hold harmless
the Adviser from and against any and all claims, losses, liabilities
or damages (including reasonable attorney's fees and other related
expenses) howsoever arising from or in connection with the performance
of the Sub-Adviser's obligations under this Agreement; the actions of
the Sub-Adviser under this Agreement; provided, however, that the
Sub-Adviser's obligation under this Section 6 shall be reduced to the
extent that the claim against, or the loss, liability or damage
experienced by the Adviser, is caused by or is otherwise directly
related to the Adviser's own willful misfeasance, bad faith or
negligence, or to the reckless disregard of its duties under this
Agreement.
7. DURATION AND TERMINATION. This Agreement shall become effective upon
its approval by the Trust's Board of Trustees and by the vote of a
majority of the outstanding voting securities of the Portfolio.
This Agreement shall continue in effect for a period of more than two
years from the date hereof only so long as continuance is specifically
approved at least annually in conformance with the 1940 Act; provided,
however, that this Agreement may be terminated with respect to the
Portfolio (a) by the Portfolio at any time, without the payment of any
penalty, by the vote of a majority of Trustees of the Trust or by the
vote of a majority of the outstanding voting securities of the
Portfolio, (b) by the Adviser at any time, without the payment of any
penalty, on not more than 60 days' nor less than 30 days' written
notice to the Sub-Adviser, or (c) by the Sub-Adviser at any time,
without the payment of any penalty, on 90 days' written notice to the
Adviser. This Agreement shall terminate automatically and immediately
in the event of its assignment, or in the event of a termination of
the Adviser's agreement with the Trust. As used in this Section 7,
the terms "assignment" and "vote of a majority of the outstanding
voting securities" shall have the respective meanings set forth in the
1940 Act and the rules and regulations thereunder, subject to such
exceptions as may be granted by the Commission under the 1940 Act.
<PAGE> 5
8. GOVERNING LAW. This Agreement shall be governed by the internal laws
of the Commonwealth of Massachusetts, without regard to conflict of
law principles; provided, however, that nothing herein shall be
construed as being inconsistent with the 1940 Act.
9. SEVERABILITY. Should any part of this Agreement be held invalid by a
court decision, statute, rule or otherwise, the remainder of this
Agreement shall not be affected thereby. This Agreement shall be
binding upon and shall inure to the benefit of the parties hereto and
their respective successors.
10. NOTICE: Any notice, advice or report to be given pursuant to this
Agreement shall be deemed sufficient if delivered or mailed by
registered, certified or overnight mail, postage prepaid addressed by
the party giving notice to the other party at the last address
furnished by the other party:
To the Adviser at: SEI Financial Management Corporation
680 East Swedesford Road
Wayne, PA 19087
Attention: Legal Department
To the Sub-Adviser at: Yamaichi Capital Management, Inc.
2 World Trade Center
Suite 9828
New York, N.Y. 10048
11. ENTIRE AGREEMENT. This Agreement embodies the entire agreement and
understanding between the parties hereto, and supersedes all prior
agreements and understandings relating to this Agreement's subject
matter. This Agreement may be executed in any number of counterparts,
each of which shall be deemed to be an original, but such counterparts
shall, together, constitute only one instrument.
A copy of the Declaration of Trust of the Trust is on file with the
Secretary of State of the Commonwealth of Massachusetts, and notice is hereby
given that the obligations of this instrument are not binding upon any of the
Trustees, officers or shareholders of the Portfolio or the Trust.
Where the effect of a requirement of the 1940 Act reflected in any
provision of this Agreement is altered by a rule, regulation or order of the
Commission, whether of special or general application, such provision shall be
deemed to incorporate the effect of such rule, regulation or order.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their officers designated below as of the day and year first
written above.
SEI Financial Management Corporation Yamaichi Capital Management, Inc.
By: By:
------------------------ -------------------------------
Name: Name:
------------------------ -------------------------------
Title: Title:
------------------------ -------------------------------
<PAGE> 6
SCHEDULE A
TO THE
SUB-ADVISORY AGREEMENT DATED AUGUST ___, 1995
BETWEEN
SEI FINANCIAL MANAGEMENT CORPORATION
AND
YAMAICHI CAPITAL MANAGEMENT, INC.
Pursuant to Article 4, the Adviser shall pay the Sub-Adviser compensation at an
annual rate as follows:
International Equity Fund ___%
<PAGE> 1
EXHIBIT 10
SEI Institutional Investments Trust
2 Oliver Street
Boston, MA 02109
Gentlemen:
We are furnishing this opinion with respect to the proposed offer and sale from
time to time of units of beneficial interest, without par value (the "Shares"),
of SEI Institutional Investments Trust (the "Trust"), a Massachusetts business
trust, being registered under the Securities Act of 1933 and the Investment
company Act of 1940 by a Registration Statement on Form N-1A (File No.
33-58041) as amended from time to time (the "Registration Statement").
We have acted as counsel to the Trust since its inception, and we are familiar
with the actions taken by its trustees to authorize the issuance of the Shares.
We have reviewed the Agreement and Declaration of Trust, the By-Laws, and the
minute books of the Trust, and such other certificates, documents and opinions
of counsel as we deem necessary for the purpose of this opinion.
We have reviewed the Trust's Notification of Registration on Form N-8A under
the Investment Company Act of 1940. We have assisted in the preparation of the
Trust's Registration Statement, including all pre-effective amendments thereto
filed or to be filed with the Securities and Exchange Commission.
We assume the appropriate action will be taken to register or qualify the sale
of the Shares under any applicable state and federal laws regulating sales and
offerings of securities.
Based upon the foregoing, we are of the opinion that:
<PAGE> 2
SEI Institutional Investments Trust
Page 2
1. The Trust is a business trust validly existing under
the laws of the Commonwealth of Massachusetts. The Trust is authorized to
issue an unlimited number of Shares in seven series representing interests in
the Large Cap Fund, the Small Cap Fund, the Core Fixed Income Fund, the High
Yield Bond Fund, the International Fixed Income Fund, the Emerging Markets
Equity Fund, and the International Equity Fund of the Trust, and in such other
series or classes as the Trustees may hereafter duly authorize.
2. Upon the issue of any Shares of any of the series or
classes of the Trust for payment therefor as described in the Prospectus and
Statement of Additional Information for such series or class filed as part of
the Registration Statement, the Shares so issued will be validly issued, fully
paid and non-assessable, except that, as set forth in the Registration
Statement, shareholders of the Shares of the Trust may under certain
circumstances be held personally liable for its obligations.
This opinion is intended only for your use in connection with the offering of
Shares and may not be relied upon by any other person.
We hereby consent to the inclusion of this opinion as Exhibit 10 to the Trust's
Pre-Effective Amendment No. 2 to be filed with the Securities and Exchange
Commission and to the reference to our firm under the caption "Counsel
and Independent Public Accountants" in the Prospectus filed as part of such
Amendment.
Very truly yours,
\s\ Morgan, Lewis & Bockius LLP
Morgan, Lewis & Bockius LLP
RWG:MTP:chm
<PAGE> 1
EXHIBIT 11
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion of our report dated April 22, 1996 on our audit of
the Statement of Assets and Liabilities of SEI Institutional Investments Trust
(comprised of the Large Cap Fund, Small Cap Fund, Core Fixed Income Fund, High
Yield Bond Fund, International Fixed Income Fund, Emerging Markets Equity Fund,
and International Equity Fund) as of April 16, 1996 with respect to this
Pre-Effective Amendment No. 2 to the Registration Statement on Form N-1A under
the Investment Company Act of 1940, as amended, of SEI Institutional
Investments Trust.
We also consent to the reference to our Firm under the heading "Counsel and
Independent Accountants" in the Prospectus.
/s/
Coopers & Lybrand L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
June 6, 1996
<PAGE> 1
EXHIBIT 16
This schedule is included to illustrate how the yield will be calculated for
the Large Cap, Small Cap, Core Fixed Income, High Yield Bond, International
Fixed Income, Emerging Markets Equity and International Equity Funds. The
funds were not in operation as of April 15, 1996. The examples presented are
an estimate of future operations. The Funds have a fiscal year ending December
31.
Yield =2 [(a-b)/cd + 1)(carat)6-1]
<TABLE>
<CAPTION>
Core Fixed High Yield
Large Cap Small Cap Income Bond
--------- --------- ------ ----
<S> <C> <C> <C> <C>
a= 602,113 621 1,370,273 27,339
b= 36,578 68 87,913 1,535
c= 10,288,982 10,619 23,920,809 442,409
d= 9.73 9.33 9.17 9.64
Yield= 6.87% 7.20% 7.12% 7.37%
</TABLE>
<TABLE>
<CAPTION>
International Emerging International
Fixed Income Markets Equity Equity
------------ -------------- ------
<S> <C> <C> <C>
a= 264,418 789 329,262
b= 13,771 80 34,053
c= 25,171,689 13,499 5,282,833
d= 1.96 9.71 9.33
Yield= 6.17% 6.58% 6.89%
</TABLE>
Total Return P(1 + T)(carat)n = ERV
<TABLE>
<CAPTION>
Core Fixed High Yield
Large Cap Small Cap Income Bond
--------- --------- ------ ----
<S> <C> <C> <C> <C>
P= 1,000 1,000 1,000 1,000
n= 1 1 1 1
ERV= 1,058.60 853.30 1,060.90 1,052.60
T= 5.86% 14.67% 6.09% 5.26%
</TABLE>
<TABLE>
<CAPTION>
International Emerging International
Fixed Income Markets Equity Equity
------------ -------------- ------
<S> <C> <C> <C>
P= 1,000 1,000 1,000
n= 1 1 1
ERV= 1,064.40 1,067.80 831.60
T= 6.44% 6.78% 16.84%
</TABLE>
