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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. AND YAMAICHI CAPITAL
MANAGEMENT (SINGAPORE) LIMITED
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 June 14, 1996. A Prospectus
may be obtained through SEI Financial Services Company, 680 East Swedesford
Road, Wayne, Pennsylvania 19087-1658.
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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
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June 14, 1996
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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,
together, 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.
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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").
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
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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.
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--The Funds may invest in mortgage-backed securities,
which represent pools of mortgage loans assembled for sale to investors by
various governmental agencies such as 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 portfolio
security in the open market or wait until the portfolio security matures, at
which time it should realize the full par value of the security.
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 portfolio
security. The maturity of the underlying security will generally be different
from that of the put. There will be no limit to the percentage of 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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<PAGE> 10
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, high grade 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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<PAGE> 11
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 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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<PAGE> 12
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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<PAGE> 13
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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<PAGE> 14
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 not be changed 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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<PAGE> 15
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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<PAGE> 16
NON-FUNDAMENTAL POLICIES
The following investment limitations are non-fundamental policies of the Trust
and may be changed 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 or
under any order of the SEC.
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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<PAGE> 17
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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<PAGE> 18
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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<PAGE> 19
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, 1981-1994. Trustee of The Arbor Fund, Marquis
Funds(R), The Advisors' Inner Circle Fund and Inventor Funds, Inc.
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<PAGE> 20
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.
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(R), The Advisors' Inner Circle Fund and Inventor
Funds, Inc.
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
and Deputy General Counsel of SEI since April, 1996. 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 (6/18/56) - Vice President, Assistant Secretary - Vice
President and Assistant Secretary of SEI, the Distributor and Manager.
Associate, Drinker Biddle & Reath (law firm), 1994-1996. Assistant Vice
President/Administration, Delaware Service Company, Inc., 1981-1994.
MARC H. CAHN (6/19/57) - Vice President, Assistant Secretary - Vice President
and Assistant Secretary of SEI, the Distributor and Manager. 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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<PAGE> 21
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. 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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<PAGE> 22
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
S-22
<PAGE> 23
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
S-23
<PAGE> 24
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
S-24
<PAGE> 25
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> 26
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> 27
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> 28
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> 29
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> 30
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> 31
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.
4. MANAGEMENT ESTIMATES:
The preparation of financial statements in conformity with Generally
Accepted Accounting Principles requires the use of management estimates.
Actual results could differ from those estimates.
<PAGE> 32
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
